Q1 2022 Patrick Industries Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Patrick Industries' first quarter 2022 earnings Conference call. My name is Robert and I'll be your operator for today's call. At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now like to turn the call over to your host Ms. Julie Ann Kotowski from Investor Relations. Mrs. Kotowski, you may begin.
Good morning, everyone and welcome to our call. This morning, I am joined on the call today by Andy Nemeth, CEO , Jeff Rodino, President and Jake packet edge CFO .
Certain statements made in today's conference call regarding Patrick industries, and its operations, maybe considered forward looking statements under the Securities law.
There are a number of factors many of which are beyond the company's control, which could cause the actual results and events to differ materially from those described in the forward looking statements. These factors are identified in our press releases our Form 10-K for the year ended 2021 and in our other filings with the Securities and Exchange Commission.
We undertake no obligation to update these statements to reflect circumstances or events that occur. After the date. The forward looking statements are made.
I'd now like to turn the call over to Andy Nemeth.
Thank you Julien good morning, ladies and gentlemen, thank you for joining us on the call today. We're excited to report our first quarter results, which mark the continuation of strength across all four of our primary markets traction.
Traction were gaining from several areas, which we'll talk about including acquisitions completed in 2021, our automation initiatives implemented over the past 21 months.
<unk> as a result of improved consistency of material flow through procurement better visibility into customer production scheduling with longer runs and our team's tireless commitment to taking care of our customers.
In addition to our strongest financial performance to date and aligned with our disciplined capital allocation strategy, we strategically expanded our premium audio and aftermarket platform in the first quarter exemplified by the acquisition of rocket basket.
We are continuing to grow our presence in the power sports and leisure lifestyle enthusiasts, OEM and aftermarkets, providing an extension of our strategic diversification initiatives. While also creating margin expansion opportunities. We're very excited about this addition to our family and look forward to how this will continue to accelerate our strategic growth.
While supply chain consistency and visibility continue to present challenges and resonate across our markets our team and brands that work together to leverage our combined global purchasing resources and value streams to drive as many synergies as possible.
Inventory Recalibration restocking has been taking place in our RV market, which represents approximately 61% of our revenues Alternatively marine dealer and housing inventory levels continue to be limited, providing a strong baseline of visibility and foundation in our other three primary markets to continue to drive our business model and capital allocation initiatives.
Inflation in commodity pricing continues to remain elevated in our markets. However, consumers in general are also in a strong position to further drive strong leisure lifestyle and housing demand as personal income levels are at the highest we've seen in the last 10 years and the ratio of debt service. The personal income is that one of the low.
This level of dating back to 19 eight.
From a financial perspective, our first quarter revenues increased 58% to $1 3 billion and our net income increased 137% to approximately $113 million or $4 54 per diluted share.
Adjusting for the impact of the accounting treatment for our convertible notes our adjusted diluted per share was $4 93.
I'll now turn the call over to Jeff, who will provide additional detail on our business and end markets.
Thanks, Andy and good morning, everyone. As noted we increased our revenues across all of our end markets on the backs of strong wholesale manufacturing driven by continued robust consumer demand.
In the first quarter of 2022, our RV revenues were up $319 million or 64% to 821 million and represented 61% of our consolidated sales RV.
RV wholesale unit shipments were up 15%, reflecting the continued impressive scalability of the Oems and the return to a more normal seasonal restocking.
Anticipation of spring and summer selling season.
Wholesale unit production was approximately 171500 units during the quarter.
Our RV content per unit increased 33% on a TTM basis to $4370 per unit.
As we ran record unit volumes during the quarter driven by our automation initiatives over the past 21 months.
We have seen improved production scheduling due to better visibility longer runs and market share gains.
Additionally, commodities have continued to increase over this period from the prior year due to tremendous demand.
RV retail unit shipments are estimated to have decreased by 14% during the quarter totaling approximately 111000 units.
With the addition of approximately 60500 net units to inventory in the quarter. Our estimates indicate TTM dealer inventory weeks on hand at the end of the first quarter are at 18% to 20 weeks up seven weeks from our estimates at the end of December 2021.
Inventory levels at the dealers have increased.
But they are still below historical pre COVID-19 average for the first quarter at 26% to 30 weeks we.
We estimate the dealer inventories are currently equivalent to the inventory levels. We saw at the end of 2019.
Our marine revenues, representing 16% of overall consolidated sales increased $84 million or 62% in the quarter to $221 million.
Revenues were driven by acquisitions market share gains and commodity price increases.
Marine wholesale unit shipments were relatively flat in the first quarter of 2022 compared to 2021 on retail unit shipments estimated to be down approximately 8% to 10% due primarily to inventory availability.
Our marine content per unit increased 73% on a TTM basis to $4113 per unit.
Marine inventories are still lean with certain raw products, such as resins wire harnesses computer chips and small components continuing to be scarcen supply.
As a result marine inventory channels are not rebuilding and marine dealer inventories are far from ideal levels of weeks on hand are estimates indicate that marine dealer inventories haven't changed much since Q4 of 2021 and roughly 12% to 13 weeks on hand compared to historical averages of 35 to <unk>.
Pretty weak across the industry.
Based on our estimates and channel checks, we continue to estimate strong wholesale production to carry well into 2023 and likely into 2024.
Despite the marine industry's current supply chain environment, we expect our marine revenues to surpass $1 billion in annual revenues on a pro forma run rate basis. In addition, our marine aftermarket business has grown to over $250 million in annualized revenues with contributions on a forward basis from Rockford and west zones.
Both metrics showcase the steady revenue growth experienced by our marine team and the continuation of our deliberate diversification strategy.
We expect marine to continue to grow as a percentage of revenue and expect our aftermarket component to grow as well.
Manufactured housing sales of $174 million represented 13% of our total revenues increasing 44%.
From the first quarter of 2021.
MH wholesale unit shipments were up 11% and MH content per unit increased 19% to $5501 per unit.
Acos its strongest position in over two decades.
MH Asps are at their highest and backlogs are approaching gross dollar value levels that surpass historic milestones, giving us confidence and continued growth going forward.
Revenues in our industrial market sector, where $127 million or 10% of our overall sales mix in the first quarter, increasing 39% compared to the prior year.
Total housing starts for the first quarter increased 10% with multifamily housing increasing 26%.
Housing demand continues to provide us with opportunities for the remainder of 2022 and into 2023, driven by a fundamental need to supply materials and solutions to the housing needs and single and multifamily projects, which continues to grow across an expanding footprint.
Moving away from end market results and further into our quarterly operating and strategic highlights in March we shared the exciting news of the entrants into the dynamic power sports market and aftermarket with our acquisition of Rockford phosphate.
Rockford increases the penetration of our existing premium audio platform alongside wet sounds.
Which we acquired in the fourth quarter of 2021 to serve our leisure lifestyle markets and full solution strategic model.
These two brands combined tremendous engineering and design capabilities with innovation premium quality sound and creative marketing to form a powerful tag team that overlays our previous acquisition of Progressive group, who has been and continues to be one of the leading rep groups for audio products in the unit.
I'd states.
We anticipate having more to tell about power sports and aftermarket in future updates.
Over the last 21 months, we have deployed over $100 million in capital investments to drive automation capacity and scalability and elevate technology as a strategic advantage in our plants.
As a result, we have been able to better position labor and production capacity has expanded to flex with the varying pace of OEM production.
So more is made with less.
One big win that highlights this quarter's story as our North American Forest products Division in Southern Michigan.
Previously RV boat Trust is produced by North American were built manually through a very tedious process.
Our team proactively push design and automation boundaries to drive a fully automated robotic solution, which eliminated 42 jobs for the manufacturing cell, allowing us to move that labor to other capacity constrained sales.
This initiative has proven to be game changing for this particular product category and.
In addition quality has increased safety has improved and our team members are energized by the commitment to improving morale and customer satisfaction, resulting in a win win for our customers and team members.
Another example is across our spring and finishing platforms, where we use significant significant quantities of gel coats stains and paints and our operations.
Joe in pain, or a material cost input and have had a clear shortage over the past 18 months.
To the extent, we can reduce overspray, we can save material cost, resulting in better efficiency productivity operating margin and waste reduction in 2021 in early 2022, our dedicated innovation team targeted this opportunity as a result, we were we have driven boc reduction.
Through a proprietary technology solution, which will be further enhanced in 2022 with a virtual training module inspired by our innovation team across several of our facilities.
At each facility, where this process has been implemented we have been able to reduce VLC emissions by as much as 30%.
While a reduction a significant environmental win for US. It is also a human capital win in technology training and raw materials savings.
Our extensive manufacturing capabilities.
And how we gain market share in the quarter were attributable to how we're able to supply the Oems with needed product where capabilities, we're constrained elsewhere and.
An example of additional technology and implemented as a result of capacity constraints have been into our lamination operations, where margins are generally lower and we run high volumes.
Continuous improvement initiatives can be game, changing and add up and material dollars in the aggregate.
We continue to implement automation and robotics to improve precision and these labor constraints to drive improved quality capacity and speed less waste goes to recycle an up cycle more goes directly to the OEM.
As a result operating margin and productivity has expanded here as well further driving an energizing our teams creative spirit.
Our customers have benefited from increased volumes increased quality and just in time production flexing again, a win for us and a win for the customers we serve.
As noted our strategic investment and transformative automation and innovation in our facilities has inspired and energized our team members and produce materials savings, allowing us to improve scalability.
We will continue to harness this energy and passion and push our teams to find creative solutions that will benefit our operations during times of both exponential growth and contraction.
These actions afford us the opportunity to be the premier supplier of choice for our customers with added benefit of reducing waste and enhancing safety for our team members.
I will now turn the call over to Jay who will provide additional comments on our financial performance.
Thanks, Jeff and good morning, everybody for first quarter 2022, our consolidated net sales increased by $492 million or 58% to $1 3 billion driven by share.
Their growth and continued strong demand and customer order activity in each of our principal end markets.
Gross margin in the first quarter was 22%, increasing 300 basis points compared to the prior year quarter, driven primarily by contributions of our fiscal year 2021 acquisitions, a realization of production and labor efficiencies and higher production volumes, partially offset by the continued pressure of raw material pricing environment and inbound freight costs.
Operating margin expanded by 400 basis points from eight 1% in the first quarter of 2021 to 12, 1% for first quarter 2022, lifting operating income by 136% or over $93 million to $162 million.
Operating margin also benefited from the contributions of our strategic acquisitions, which typically maintain a margin profile in excess of our average profit margins realization of the value of our efficiency and continuous improvement programs and expenditures and the leverage ability of our flexible operating model.
First quarter operating margin also included a onetime benefit related to a $5 $5 million gain on sale of asset, which translated into a 40 basis point benefit to margin for the quarter.
Our warehouse and delivery expense decreased by 40 basis points as a percentage of sales on leverage ability of our platform more efficient route planning and realization of technology implementations.
Our SG&A expense included the benefit of the one time gain on sale of assets also decreased by 40 basis points as a percentage of revenue for the first quarter of 2022.
The previously mentioned strategic actions labor management and realization of efficiencies drove 137% growth in our first quarter 2022, net income increasing from $48 million in the first quarter of 2000 $21 million to $113 million.
In the first quarter of 2022, we adopted a new accounting standard that requires our 1% convertible notes due 2023 to be presented on an if converted basis and the calculation of diluted earnings per share as a result of the adoption of the standard our first quarter 2022 diluted earnings per share was reduced by 39.
Excluding the impact of the new accounting standard our diluted earnings per share would have been $4 93, which is a non-GAAP metric we.
We do not intend to issue shares and the settlement of convertible notes that may be converted by the holders.
Our overall effective tax rate was 23% for the first quarter of 2022 compared to 17% in the prior year.
Increase reflects the change of excess tax benefits of share based compensation.
We expect our overall effective tax rate for 2022 to be approximately 25%.
Jeff highlighted some great examples of how automation and strategic initiatives have translated into a realization of meaningful operating efficiencies.
The value of these actions are felt across our organization. So they most directly resonate through the improvement of cycle time reduction and changeover disruptions improved raw material utilization and leverage ability of our team members Todd <unk>.
Our ability to leverage technology, as well as our productivity and infrastructure investments should continue to provide benefits for the remainder of 2022 and beyond.
Looking at cash flows we used approximately $23 million of operating cash flows for the first quarter of 2022 compared to a generation of $50 million in the prior year's quarter.
Investments in working capital drove the use of our operating cash in the quarter to better position, our growing platform, which enabled us to better support our customers robust production activity in the quarter and mitigate the effects of the various events and circumstances that impacted the global supply chain for 2021 and into 2022.
We are well positioned from an inventory perspective to continue serving our customers and gain market share.
We expect monetization of working capital to materialize in the later half of 2022.
Moving onto our capital expenditure strategy, we invested $19 million in capital expenditures for the quarter, increasing $5 million over the first quarter of 2022, Jeff mentioned some great examples of how our investments create increased capacity and value for our operations and customers.
Strategic investments and business acquisitions totaled $132 million for the first quarter of 2022.
We acquired Rockford Corporation in our Rockford phosphate brand, a global leader in designing and producing high performance audio systems and components, primarily serving power sports marine and automotive markets and aftermarkets.
In the first quarter following our dividend policy, we've returned $8 million to shareholders in the form of quarterly dividends. In addition, we continued our share repurchase activity and repurchased approximately 365600 shares for a total of $25 million in the quarter.
At the end of the first quarter, we had approximately $319 million of total liquidity comprised of $64 million cash on hand unused capacity on our revolving credit facility of $255 million and a total net leverage ratio of two two times.
Our leverage and liquidity profile enable us to be nimble and execute a variety of objectives, including our recent acquisitions operational improvements as Jeff mentioned earlier and capital returns through quarterly dividends and opportunistic share repurchases.
We believe our disciplined capital allocation strategy further supports our value proposition.
Additionally, our leverage and liquidity profile allows us to navigate market fluctuations adjusted dynamic supply chain environment and meet our customers' needs.
As RV manufacturers have continued to scale their business models impressively and quickly inventory channels in general depending on product mix are healthy as we enter the spring and summer selling seasons.
Currently estimate full year 2022, RV wholesale shipments to range from 560000 to 570000 units with an estimated 55% to 60% avino production to be in the first half of the year and we currently expect full year retail shipments to be down low to mid double digits or approximately 12% to 15%.
Assuming these estimates we believe overall dealer inventories will still be at reduced levels when compared to pre pandemic historical averages.
Now marine market, we expect marine wholesale shipments to be up low mid single digits and marine retail to be flat to up low mid single digits, primarily limited by capacity and supply chain constraints.
As noted the resulting inventory implications point towards lean dealer inventories throughout 2022 with restocking to appropriate levels not occurring until 2023 or even 2024.
On the housing and industrial side of the business. We continue to expect MH wholesale shipments to be up mid to high single digits for 2022 with retail sales absorbing available wholesale production on a real time basis.
In our industrial end market, we expect 2022, new housing starts to also grow at mid to high single digits.
That completes my remarks, we're now ready for questions.
Thank you at this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Daniel Moore with CJS Securities. Please proceed with your question.
Thank you good morning.
Taking the questions maybe.
Maybe start with the RV side of the house so.
Obviously, you mentioned inventory is improving and you gave that updated outlook so our Oems.
Starting to slow production at this point in Q2 after an exceptionally strong March.
I'm just trying to recalibrate I think you said you expect 55% to 60% of full year shipments in H, one trial to make sure I heard that right.
Yeah, Dan This is Jeff, Yes, we are seeing that it wasn't exceptional first quarter.
Maybe even.
Working its way into April also.
But as we as we start to get into May we are seeing.
So.
Some some right sizing of our production levels.
More so with the with the retail levels that are going on out there. So we feel pretty good about.
The Oems and their attended attentiveness to what's happening in the market and are adjusting production levels appropriately.
Very helpful. I appreciate it.
On the margin side.
22% gross margin, obviously exceptional to talk about how much of that relates to.
Just operating leverage on higher volumes versus how much is the.
The automation in some of the other streamlining efforts just trying to get a sense of the sustainability where margins might be.
Level off as production comes down moderately.
Hey, Dan I. Appreciate the question. This is Jake so we've done a lot of work around that it's certainly something we've spoken quite a bit about the last couple of quarters, particularly on the heels of a <unk>.
'twenty, one where we spent about $65 million in capex and a lot of that geared towards productivity improvements driving efficiency taken some pressure off the labor force and so on and so forth when I look at that margin. The 300 basis points and you break into a couple of buckets and we think a lot about durability there.
Start by saying as you appreciate about 80% to 85% of our Cogs is what I would call a true variable cost, whether it's material or labor ex some of the stuff that's going to be a little more fixed inside those categories and where we saw this productivity really hit the margin line. Both in gross and operating margin is coming more to the labor side, just by the nature of how we experience.
And our and our income statement.
But before we even get into that 300 basis points or 400 basis points of lift in our operating margin I'd tell you. We still had about 100 basis points of headwind from freight in some material costs that was lagging getting through so while we're pretty active on pricing as we've spoken about in the past some of that still is dampening down some of the.
Results that we saw but as you transition through that and think through the components I would tell you about of that 300, we think theres. Some absorption certainly across the remaining 15% of Cogs is relatively fixed and we've seen that pretty consistently over the past couple of quarters of strong production when I think about the labor side Theres, probably call it 200 basis points.
There that of that about 100, or so basis points it related productive productivity improvements.
Dovetails into what Jeff had said, where we can do more with less where we've seen both stabilization of our labor force, we've seen tremendous wholesale shipments as you as you noted as well as a little bit of restocking at the at the OEM side, we've been able to really really leverage these improvements whether some of the automation. We've done the software we put in place the planning for longer runs and everything else.
Let's say background too probably we're planning on a 100 basis points of that being good durable lift in our margins on a go forward basis.
Very helpful. One more if I might.
Smaller piece of your business now, but MH I'm, just wondering if youre seeing any signs of sort of concerns of a slowdown on part of your customers given the rising interest rate environment et cetera.
Yes, Dan this is Jeff.
Good great question.
Right now the MH side seems very strong.
Really the strongest we've seen in several years.
Most most customers I've talked to have.
Repeatedly told me that their backlogs are strong really out through most of this year with with a lot of demand out there they've had a little bit more of.
A difficult time, increasing their production levels. Unlike the RV guys who've been able to turn it up a little bit quicker.
So I believe that there's there's still strong demand there and it will continue through the rest of this year.
Very helpful. I'll circle back with any follow ups. Thank you.
Thanks, Dan.
Our next question comes from Mike Swartz with Truest Securities. Please proceed with your question.
Jay maybe give us a sense of the 58% topline growth how much of that was organic how much was from.
How much was from pricing and unit volume.
Yes, Thanks, Mike it's Jake so to break apart that 57% to 58% top line growth about 45% of that came from other than acquisitions. So call. It call. It 12, 5% was related to our acquisition growth in the second quarter of 2022, but the break apart that 45% I'd say, we're up about.
Five to five 5% on share gains and that's some opportunity that Jeff mentioned in his prepared remarks, where we were generally.
If you think backwards, we we talked a lot in fourth quarter. This year and all of 2021 and 2020 about the deliberate building inventory to put us in a position to best serve the market put us in a position, where we're availability really put us in a position to gain more share and that led to a pretty nice share capture that we think has some some real stickiness to it so called.
Up five 5% on on that true organic share gain.
Up about 10% to 11% on industry lift as everyone's aware of some of the wholesale shipment activity, we've seen particularly in the RV and MH sides of our business and then pricing is about 28% to 30% of that rolls through the <unk>, but our top line growth number.
So up five 5% on share up <unk> 12, and a half on acquisitions up 10, 11% for industry lift and up 28% to 30% home pricing activity.
Got you, Okay, and then just skipping over to gross margins you touched on some of it in the prior question, but I mean is there a way to think about what I guess what level of sustainable going forward given some of the I guess the efficiencies that you're driving through automation projects and another in understanding that a lot you know a large poor.
And your cost of goods are variable.
The way to look at it is like in a in a scenario, where maybe production or industry volumes down across all of your industries is there a sense that you can maintain 20% gross margins at this point.
There is and we do Mike and that is a couple of pieces to that and certainly the flexibility and nimbleness of our production platform lends to that which helps us maintain margin and up and down markets.
But also you asked a great question about that durability of some of this improvement we've seen and while we certainly acknowledge there's an element of absorption that comes along with increased production levels.
As I mentioned, a little bit of headwinds from raw material input pricing as well as the freight in and I think folks are feeling that just generally across the board, but we think 100 to 125 basis points of that overall lift we see the resonates through both gross margin operating margin is attributable to our productivity improvements.
Which take a lot of different forms but learned off the capex spending we made last year, which is why we're focused on continuing that trend. This year as we mentioned $100 million as a planning number for 2022, we think again that is 100 to 125 basis points of durability in that margin lift and there is an element of that too.
It comes from as we continue to think about our mix and you are all aware of our strategic activity as we've talked about our strategic diversification efforts.
At a pretty good call with you all about the Rockford acquisition, we see 50 to 70 basis points of our margin expansion is related to that higher value added higher engineered products that are coming to us through our acquisitions and thats, even before we start to do a lot of work with those folks to help them run more efficiently or to achieve those cost synergies or some of the rep.
<unk>.
We can the experience of our are pretty extensive distribution networks and customer relationships. So under 125 basis points on productivity and we expect to continue to see a lot of lift in benefit from the acquisitions that we make.
Okay. That's helpful. Thanks, a lot.
Thank you.
Yeah.
Our next question comes from Brent Andreas with Keybanc. Please proceed with your question.
Hey, good morning, guys.
If I could focus on that that 565, 70, RV shipment forecast for a second.
Theres been downward pressure on a lot of industry wholesale forecasts lately. So I guess do you think that that's low enough or is there more.
Downside risks than upside risk to that from here.
Brett This is Andy I think as we look at it there's tremendous awareness out there right now as it relates to inventories and whether or not they're balanced with retailers as we kind of talked about.
From a weeks on hand perspective, we think that the dealers are in a great spot. Today. We also think the manufacturers have been very thoughtful about how they're thinking about production and so we're teed up for the spring and summer selling seasons right now.
We're seeing the awareness, we're seeing production levels start to back off a little bit in alignment with that discipline and expectations of retail being down kind of in the low to mid double digit range for the year keeping things in check and so right now what we're seeing as it relates to a $5 60 number feels pretty good to us.
We like we like what we're seeing.
Just it feels like we're ahead of the game.
As it relates to inventory rebalancing I think there is like I said tremendous awareness.
There could be some downside risk to the wholesale number but I don't think that's a bad thing.
And if anything I liked what we like what we're seeing today as it relates to <unk>.
The discipline is being put in place as Jeff mentioned I think we had a very strong March.
April is going to be strong as well, but we did start to see some days come out in April as well and I think we're seeing some days come out in may and expect that.
Through the second quarter and third quarter, So we feel pretty good.
Its strong first half backing off in the second half keeping inventory levels in balance you know kind of with that optimal weeks on hand today, so things feel like they're they're equally balanced across the spectrum.
I feel like.
Everybody is focused on that and want to maintain that.
Got it Okay, and then on the full year Marine wholesale forecasts that one came down quite a bit is that based on what you saw in the quarter or is that something you may be getting communicated.
From the Oems It just it seems a little bit harder to hit those retail numbers.
Production number given where inventories are at so just trying to figure out what maybe drove drove that forecast.
Yeah on the marine side on the wholesale side, you know I think that.
A lot of different supply components out there are still hit or miss that.
That we're seeing.
I think that the manufacturers they are doing a great job flexing their models.
To be able to adjust to what's what's coming through and we would expect that as a supply chain kind of eases, a little bit that they'd be able to become more efficient P&L with driving better consistency of scheduling and so we're not I think they're doing a great job today of managing in a difficult environment.
But overall when you look at marine it's just a different model today.
Retail demand is constrained today simply by by wholesale availability and so the manufacturers are aware of it I think they're doing a fabulous job of managing their production and.
We're certainly working with them. So we brought it down but we like the stability that's there and the runway we believe without question on the wholesale side.
Even despite some some potential risk to retail we think extends through 'twenty three and into 24. So we're pretty confident on the marine side and feel good about what the manufacturers are doing.
Got it thanks guys.
Thanks Brent.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from Ross <unk> Bank of America. Please proceed with your question.
Hi, good morning, Thanks for taking my questions.
First I wanted to ask.
You highlighted some of the strong share gains that you had.
And can you talk about how like maybe the supply chain challenges that some of your smaller competitors are having.
Creating some of those potentially creating some of the share gain opportunities and then would you expect those share gains to sustain as the supply chain eventually kind of eases up.
Yeah.
This is Andy I think when we looked at kind of where we were at coming out of the pandemic.
We really pivoted very quickly to <unk>.
Focusing on heavier automation opportunities to improve capacity and.
As well kind of equipping our teams with inventory levels.
To be in a position to be able to take advantage of the share gains and so what we were heavy on inventory right now and have been heavy on inventory for the last 18 months and that's been that's been deliberate.
To be able to put ourselves in this position to make sure that we can we can leverage that I think additionally on the procurement side, we have our brands have worked really well together and that's one of the value propositions that we have.
Our ability to look across our brand platform and utilize best practices and synergies there to be able to position ourselves for that so I don't know that it's as much about others not being able to do it I think it's we've been deliberate about making sure that we fully equipped our teams and I think it's one of the advantages that we do have.
As a as a sizable scalable partner with the manufacturers and the spaces that you know, we've got that capital to deploy and absolutely want to make sure that they're best positioned to be able to take care of their customers. So you know what I'd say is it was deliberate and I'd say that you know again were running hot on inventory today.
We know it and I think it's been it's been something that has paid off and we expect it to continue to pay off so we really value. The partnership that we have with our with our with our customers and we want them to know that we're going to do what we need to do to be able to flex up and down with them and keep them in the best position as possible.
And then.
You've made some acquisitions in power sports Marine has obviously been growing for you.
How should we think about the long term end market mix and where would you expect to continue to grow and then how might that play out.
The longer term.
Sure. This is Andy again.
At the end of the day, we're leisure lifestyle enthusiasts warehousing enthusiasts, we believe in taking care of our team members and their families. I think we're optimistic about where each of our markets is that we definitely see see the runway. That's there in that leisure lifestyle market and it's been very successful for us as Jake mentioned, you know the margin profile.
Lift or our margins, which in turn allows us to get back to our team members and community. So I think we're going to continue to focus on that leisure lifestyle space.
And we continue to cultivate and keep that pipeline full so we like what we see there we like our four markets, but as we look at it we definitely see attractive opportunities in leisure lifestyle. So if youre going to ask probably give a little bit more towards that but that doesn't mean, we're excluding other opportunities in housing and industrial space, we see opportunity there as well.
And then in terms of the M&A environment, what are you seeing in terms of multiples.
And then the pricing out there.
Does it differ by by end market.
It does we've seen we've definitely seen multiples come down from the uncertainty that was there last year in Q2 and Q3.
We've seen things things stabilize a bit.
So we're seeing attractive multiples and returns, but I think as well as we look at the long run.
The outlook for us for $23 24, especially in the leisure lifestyle and housing space, We think there's opportunity to capitalize on that so overall to answer your question I think multiples have come down just a bit but it's stabilized is probably a better characterization at least in the deals that that we're seeing and we're exploring so I can't speak to the global World.
But certainly with what we're seeing.
We've seen a stabilization, which keeps our pipeline full and obviously plays well into our model.
Okay and then the last one for me just the inventory rebalance on the RV side. It sounds obviously proved it sounds like Youre getting ahead of it.
It does sound like retail has changed has moderated.
Over the last couple of months.
What do you do you have a sense of either what drove that or what's changing at retail is at higher rates gas prices.
What's driving the change in on the retail side.
Today, we're not hearing a lot of resistance as it relates to rates or fuel prices, we think that the fuel prices are.
Are really not impacting the buyer I think what we're seeing is and our expectation is that there is just some mix shift going on.
You know when you look at the inventories that are out there there is definitely a preponderance of call it lower and total units.
Higher end.
Totals motorized are in demand and heavier or heavier demand as it relates to the inventory that's available and so we just think theres some mix shift going on but dealer traffic has been strong younger buyers are continuing to to support the market and so we're just seeing a little bit of calibration, but we don't think those headwinds have taken shape, yet and like I said.
Dealers are in a very healthy position for the spring and summer selling season. So there are certainly headwinds out there you know as it relates to inflation and pricing, but we've not seen that be a major impact today.
With the buyers at least at least at this point in time.
Okay. Thank you very helpful.
Thanks.
Okay.
Our next question is from Daniel Moore with CJS Securities. Please proceed with your question.
Thanks again, you documented this quarter and before obviously the working capital build has been strategic although I assume some inflationary pressures impacting near term cash flow as well just any.
Update in terms of outlook for working direction, and working capital and cash generation or cash from ops generation for the remainder of the year.
Hey, Dan Thanks for the question, it's Jake again, so <unk>.
Absolutely, we're as Andy mentioned and I think we hit in the last couple earning calls we've been deliberate about this build of inventory and there were a lot of factors that contributed to the the intent behind that from what we anticipated in our read into where production activity would be.
But also you remember the first quarter there was a lot of port activity that was causing problems Gray outs, China Olympics, so on and so forth.
We think about what the balance of the year looks like which we've spoken about on this call here today as well and I think it's generally a pervasive view that theres going to be a little bit.
Front end balanced so more units in the first half of the end of the second half of the year. We also anticipate drawing down those inventories as time goes on for the year and expect to see that monetization. We expect this year cash flow from ops to be in that $450 million area. So elevated over the past couple of years in accordance with our growth, but also as we think about movie.
And seeing these RV volumes moved towards a more typical seasonal type of activity that should lead to that increased monetization, even even beyond what our deliberate monetization will be as we think about where inventories need to be coming into.
At the end of the selling season, so we expect good monetization there.
We will continue to work on our capital allocation, which is something that we're very focused upon and we anticipate having some some more news there.
Comment that you made a question rather around the pricing impact without question as raw material inputs have generally been rising up into the right over time. There is a pricing element that's very similar to what we described for component of our revenue growth that resonate through our inventory, but nothing outsized, which is also a catalyst for our desire to keep managing.
Inventory to make sure that it's right size for the businesses, we ebb and flow.
Perfect. Thanks, guys I appreciate it again.
All right. Thanks, Dan.
We are incredibly proud of our team's performance and better together philosophy as we continue to leverage our combined resources capacity capital investments and acquisition strategy to enhance our operating platform and position our business to better serve our customers consumer demand remains strong despite inflation and rising interest rates and <unk>.
Dealer inventories are better calibrated versus a year ago.
These factors point towards more historical seasonal trends, thus, providing the opportunity for better balance for our team members and marine MH and overall housing inventories remain lean with extended channel refill runway.
We remain focused on heavily investing in and driving automation and innovation initiatives, which are producing the anticipated results and we expect our financial performance to continue to benefit from these initiatives. We will continue our disciplined capital allocation strategy to drive value over the long term horizon for our customers team members partners.
<unk> and shareholders I want to thank all of our Patrick team members and partners for their continued support and efforts we couldnt do it without you.
Thank you ladies and gentlemen. This concludes today's teleconference. We thank you for participating you may now disconnect your lines. Thank you.
Yeah.
Yes.