Q4 2024 Patrick Industries Inc Earnings Call
Greetings and welcome to the Patrick Industries, Inc. Fourth quarter 2024 earnings conference call and webcast. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Russia and answer session will follow the formal presentation.
He may be placed in the question queue at any time by pressing star one on your telephone keypad. We ask you. Please ask one question and one follow up then return to the queue. As a reminder, this conference is being recorded.
Speaker Change: It's now my pleasure to turn the call over to Steve O'hara, Vice President of Investor Relations. Please go ahead Steve.
Steve O'hara: Good morning, everyone and welcome to our call. This morning, I'm joined on the call today by Andy Nemeth CEO, Jeff for Dino President RV and Andy <unk> CFO certain statements made in today's conference call regarding Patrick industries and its operations may be considered forward looking statements under the securities laws.
Steve O'hara: The company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information future events or otherwise additional factors that could cause results to differ materially from those described in afford looking statements can be found in the company's annual report on Form 10-K for the year ended December 31 two.
Steve O'hara: Twenty-three and the company's other filings with the Securities and Exchange Commission I would now like to turn the call over to Andy Nemeth.
Andy Nemeth: Thank you Steve Good morning, everyone and thank you for joining us on the call today.
Speaker Change: Want to start by thanking our entire Patrick team for their amazing dedication commitment and resolution to stay focused to deliver resilient execution throughout 2024, despite market and macroeconomic volatility.
Speaker Change: This team remained disciplined in driving operational excellence and committed to our goal of serving our customers at the highest level and I am incredibly proud of their performance as we continued to invest in our business heightened our customer service expectations and position the company for future growth, we have size and scale of our business and are prepared for a recovery in our outdoor enthusiast.
Markets.
Speaker Change: 'twenty 'twenty four was another strategically significant year for Patrick as we continued executing on our long term vision and strategic plan.
Speaker Change: We meaningfully expanded our presence in the power sports space through the acquisition of Spartech and materially enhanced our aftermarket presence and capabilities with the acquisition of Rec problem.
Speaker Change: We optimized our organizational structure by aligning our customer first focus with our vision to drive the best customer service in the industry and structured our leadership and expertise across our end markets to drive innovation and growth. Additionally.
Additionally, we strengthened our financial foundation by proactively completing a debt refinancing that improved our liquidity position reduce the cost of our fixed rate debt and extended our maturity profile.
Finally, we concluded the year by celebrating our history and the team's long legacy of commitment to each other by ringing the NASDAQ opening bell and hosting our inaugural Investor day.
Speaker Change: The event showcased our bench strength.
Speaker Change: Cultural Foundation, the solid platform that supports our brand portfolio, our track record of growth and how we plan to meet our growth objectives. During our Investor day, we outlined multiple growth avenues that exist for our business first we focused on our organic growth target of 2% to 3% annually through a combination of new and innovate.
Speaker Change: <unk> products and the longer term focus of our advanced product group.
Speaker Change: Our ability to bring our full solutions model from our extensive product portfolio to our customers is a key facet of our strategy to drive long term organic growth, while we build ever ever stronger customer relationships striving to be the supplier of choice for our outdoor enthusiasts and housing markets.
Speaker Change: Second we believe our end markets are at or near cyclical lows and expect them to return to growth over the long term.
Speaker Change: Third we have strategically diversified patrick by acquiring complementary and adjacent businesses within our defined set of core markets RV Marine power sports and housing to further expand the earnings power and cash generation potential for our business and finally with our late third quarter acquisition of retro we see significant.
Speaker Change: In the aftermarket and are just beginning to capture the opportunity that exists in that space.
Speaker Change: In addition to our growth targets, we highlighted our culture and values and the empowered by Patrick marketing and resource power to support our individual brands as they maintain their entrepreneurial spirit well, having the strong foundation of the Patrick enterprise behind them.
Speaker Change: Moving to our financial highlights for the fourth quarter, we delivered sales growth of 8% equating to sales of $846 million on an adjusted basis net income per diluted share was 52 cents full.
Full year 2024 sales grew 7% to $3 $7 billion and adjusted net income per diluted share was $4.34.
Speaker Change: Our financial performance. This year was driven by market share gains despite a mix shift towards smaller more affordable units strategic acquisitions stabilization in our RV market and strong performance in our housing businesses in particular are manufactured housing businesses.
Speaker Change: The combination of these items helped offset declines in our marine market, where dealers and Oems are focused on reducing field inventory levels are.
Speaker Change: All told our diversified model and flexible cost structure helped us maintain solid profitability in 2024, while also enabling us to stay strategic and thoughtfully position our business for the next up cycle.
Speaker Change: Looking ahead, we're going to stay focused on meeting and exceeding the needs of our valued customers, while preserving the ability to flex our cost structure as needed we remain optimistic that consumer purchasing power and consumer confidence will improve as we move through the year, enabling some of the pent up demand to be realized in 2025.
Speaker Change: This potential catalyst combined with lean dealer inventories could support improving demand as we progress through the year.
At the end of 'twenty 'twenty four are told him that liquidity was approximately $804 million and combined with our strong balance sheet provides us significant flexibility to execute on strategic opportunities, while continuing to return cash to shareholders.
Speaker Change: Our team remains dedicated to advancing our organizational objectives and driving additional shareholder value as we move through 2025.
I'll now turn the call over to Jeff, who will highlight the quarter and provide detail on our end markets.
Jeff: Thanks, Andy and good morning, everyone. Our OEM partners continued to demonstrate tremendous discipline and sometimes aggressive inventory management throughout 2024 in response to ongoing interest rate and consumer demand headwinds.
Jeff: This discipline drove meaningful reductions in field inventory across our outdoor enthusiast market.
Jeff: And RV and Marine we estimate dealer inventories declined approximately 13 and 22% respectively. During the year and then the second half of 2020 for certain power Sports Oems had previously announced targeted dealer inventory reductions and recent reports suggest solid progress on those efforts.
Jeff: On the housing side of our business demand for affordable housing remained solid through the year exceeding our expectations.
Jeff: Our fourth quarter RV revenues increased 1% to 358 million, representing 42% of consolidated sales RV content per unit on a full year basis was $4870, which increased 1% from the same period in 2023.
Jeff: On a sequential basis content per unit was flat, reflecting a further mix shift towards smaller more older affordable units.
Jeff: RV wholesale unit shipments increased 3% in the quarter, while we estimate RV retail registrations increased approximately 1% during the same period.
Jeff: Our current estimates suggest the fourth quarter of 'twenty 'twenty four will represent the first quarter and 13 consecutive quarters, where retail has improved over the prior year quarter with October being the first month and 40 consecutive months to show retail improvement.
Jeff: Our estimates further suggests a seasonal dealer restock of approximately 14000 units during the quarter, resulting in an estimated 17 to 19 weeks on hand versus the pre pandemic historical averages of 26% to 30 weeks.
Jeff: The team recently attended the 2025, Florida RV Super show in Tampa, one of the largest RV retail shows in the U S, where we saw encouraging customer engagement thus.
Jeff: Thus far news out of early season retail shows has been promising.
Jeff: On the acquisition front, we are pleased to report that retro our third quarter acquisition.
Jeff: It's been an excellent fit within the Patrick family and the organic opportunities that are available within our existing product portfolio are greater than we originally anticipated.
Jeff: Our teams have demonstrated passion and efficiency, while working together and we've begun to adding legacy RV product lines onto the <unk> platform with strategic plans to integrate marine and power sports in the future.
Jeff: Additionally earlier this week, we announced the acquisition of Elkhart composites, a composite solution provider to the RV market. This.
Jeff: This acquisition bolsters, our growing portfolio of industry, leading composites offering including P. C. Pro P C light as Dale and MTX D, which we've highlighted on previous calls.
Jeff: Marine fourth quarter revenues.
Jeff: Was $122 million, representing 14% of our fourth quarter consolidated sales.
Jeff: This compares to $147 million in the fourth quarter of 2023.
Jeff: Results reflect continued softness, particularly in the higher engineered ski wake and pontoon categories.
Jeff: Where we remained a significant market presence.
Jeff: <unk> content per wholesale powerboat unit decreased 3% to $3967 on a full year basis. As a result of this mix shift however content per unit increased 1% on a sequential basis.
Jeff: We estimate the marine retail and wholesale powerboat unit shipments decreased approximately 7% and 20% respectively in Q4.
Jeff: These figures imply a seasonal dealer field inventory restock of about 13000 units, which is lower than the historical average for this time of the year, but reflective of the oem's partnerships with the dealer base and helping cover floorplan cost during the off season.
Jeff: Our current estimated dealer inventory weeks on hand of 23% to 25 weeks is well below the historical average, which is 36 to 40 weeks and down approximately three to five weeks from the same period a year ago.
Jeff: Contributing to our belief that an uptick in demand could lead to dealers <unk>.
Jeff: Restocking more meaningfully.
Jeff: Our power sports revenues were $78 million in the quarter, representing 9% of our fourth quarter consolidated sales our power sports business is primarily focused on the utility segment of the side by side market, which continues to demonstrate resilience compared to the recreational segment.
Jeff: We also participated in the motorcycle and golf cart segments of the market.
Power Sports Oems are actively managing field inventory levels and we're encouraged by the continued strength in the attachment rates and steady demand for premium features.
Jeff: Based on recent reports from certain OE power sports Oems.
Jeff: We believe ridership and usage had been more resilient than new unit retail sales, meaning customers continue to use their power sports products, which we believe is a positive sign.
Jeff: Heading into 2025, we are confident in our brands that compete in this space today and the runway of opportunity ahead of us while.
Jeff: While the broader industry continues to calibrate our power sports business are focused on supporting Oems through engineering, new products and solutions that consumers value.
Jeff: Our housing revenues increased 12%.
Jeff: $288 million in Q4, representing 35% of our consolidated sales.
Jeff: This growth was driven by continued momentum in manufactured housing, which we believe remains an attractive option for those seeking affordable housing solutions.
Jeff: Our MH content per unit increased 4% to $6604 for the full year and.
Jeff: In the fourth quarter MH wholesale unit shipments increased 15% offsetting softness within residential housing starts which decreased 6% with single family starts down approximately 5% and multifamily starts down approximately 9%.
Andy Nemeth: I will now turn the call over to Andy <unk>, who will provide additional comments on our financial performance.
Andy Nemeth: Thanks, Jeff and good morning, everyone Arkansas' sedated net sales for the fourth quarter increased 8% to $846 million for the full year net sales increased 7% to $3 $7 billion.
Andy Nemeth: Full year RV revenue increased 8% to $1 $6 billion, while marine revenue was off by 27% to $571 million.
Andy Nemeth: Our power sports revenue increased 189% to $352 million and our housing revenue increased 10% to $1 2 billion.
Andy Nemeth: MH wholesale shipments improved nicely last year.
Andy Nemeth: Increasing 16% and RV wholesale shipments also recovered increasing 7% year over year.
Andy Nemeth: Marine wholesale shipments declined an estimated 25% for the full year.
Andy Nemeth: Retail registrations outpaced wholesale and RV and marine suggesting solid reductions in dealer field inventory as Oems across our end markets remain disciplined with their production schedules on.
Andy Nemeth: On a GAAP reported basis gross margin was 22, 1% in the fourth quarter compared to 22, 9% from the prior year, partially due to the mix of revenue given the end market dynamics with Oem's focus on producing more affordable units in the quarter combined with typical seasonality.
Andy Nemeth: For the full year gross margin was 22, 5% compared to 22, 6% in 2023.
Andy Nemeth: Fourth quarter and full year gross margins include 30, and 10 basis points, respectively of purchase accounting adjustments of inventory step ups related to 2024 acquisitions.
Total operating expenses were $148 million for the fourth quarter and $578 million for the full year.
Andy Nemeth: For the quarter warehouse and delivery expenses increased 21%.
Andy Nemeth: Primarily due to the third quarter acquisition of retro.
Andy Nemeth: For the fourth quarter, SG&A expenses increased 20% to $81 million and amortization expenses increased approximately $5 million or 26%.
Andy Nemeth: The increases in these expenses were directly related to acquisitions during 2024, and our decision to maintain our cost structure in the fourth quarter without further adjustment to ensure the efficacy of our business model and ability to support our customers upon signs of potential inflection in our.
Andy Nemeth: <unk>.
Andy Nemeth: For the full year SG&A expenses increased approximately 9% to $326 million.
Andy Nemeth: Amortization expense increased $17 million or 22% to $96 million as a result of acquisitions.
Andy Nemeth: Operating income for the fourth quarter was $40 million and $258 million for the full year.
Andy Nemeth: On a GAAP reported basis operating margin was four 7% in the fourth quarter and six 9% for the full year.
Andy Nemeth: On an adjusted basis and as noted in our press release. This morning, after excluding certain onetime nonrecurring expenses, including transaction costs.
Andy Nemeth: Inventory step up.
Andy Nemeth: And costs related to our debt refinancing in the fourth quarter.
Andy Nemeth: Operating margin was five 2% in the fourth quarter and seven 2% for the full year.
Andy Nemeth: On a GAAP reported basis net income in the fourth quarter was $15 million or <unk> 42 cents per diluted share compared to 94 cents per diluted share in 2023.
Andy Nemeth: Adjusted net income in the fourth quarter was $18 million or <unk> 52 cents per diluted share.
Andy Nemeth: For the full year GAAP reported net income was $138 million or $4.11 per diluted share and on an adjusted.
Andy Nemeth: <unk> basis for the full year net income was $146 million or $4.34 per diluted share.
Andy Nemeth: As reconciled in our earnings press release, our adjusted net income and net income per share exclude certain onetime nonrecurring items, including a fair value inventory step up related to acquisitions.
Andy Nemeth: Transaction costs and expenses related to the extinguishment of debt.
Andy Nemeth: Please also recall that our per share data, including EPS and dividends reflect our three for two stock split which was paid on December 13th.
Andy Nemeth: Additionally, our fourth quarter and full year EPS include approximately <unk> <unk> and 10 cents per share respectively, an additional accounting related dilution from our 2028 convertible notes and related warrants as.
Andy Nemeth: Of the increase in our stock price above the convertible option strike price.
Andy Nemeth: As we've noted in the past we have hedges in place, which are expected to reduce or eliminate any potential dilution to the companys common stock upon any conversion of the convertible notes and or offset any cash payments. The company is required to make an excess of the principal amount of the converted notes.
Andy Nemeth: For GAAP reporting purposes. These hedges are always anti dilutive and therefore cannot be included when reporting earnings per share.
Andy Nemeth: Adjusted EBITDA decreased 11% to $89 million, while adjusted EBITDA margin decreased to 10, 6% for the fourth quarter.
Andy Nemeth: On a full year basis, adjusted EBITDA increased 6% to $452 million, while adjusted EBITDA margin decreased 10 basis points to 12, 2%.
Andy Nemeth: Our overall effective tax rate was approximately 29% for the fourth quarter and 22% for the full year 2024.
Andy Nemeth: Cash provided by operations was approximately $327 million for 2024 and purchases of property plant and equipment were $76 million for the year, resulting in free cash flow of $251 million.
Andy Nemeth: This fell short of our outlook as we made the decision to strategically utilize our cash flows to maintain and procure certain raw material inventory to ensure we are in position to support any uptick in demand from our customers in the first quarter 2025 for.
Andy Nemeth: For the quarter operating cash flow was 103 million, implying free cash flow of $77 million.
Andy Nemeth: At the end of the quarter, our total net leverage was two seven times.
Andy Nemeth: We remain committed to our goal of Delevering, while strategically evaluating acquisitions that align with our growth objectives. This approach has allowed us to pursue opportunistic acquisitions, such as sport tech and retro during the year and smaller bolt on transactions like El Carte.
Andy Nemeth: <unk>, which was announced this week.
Andy Nemeth: We remain comfortable increasing leverage when appropriate to capitalize on strategic opportunities.
Andy Nemeth: Available liquidity at the end of the quarter was approximately $804 million comprised of $34 million of cash on hand, and unused capacity on our revolving credit facility of $770 million.
We are dedicated to maintaining a disciplined capital allocation strategy prioritizing strategic acquisitions that align with our growth objectives. While also investing in projects that support our organic growth initiatives.
Andy Nemeth: These efforts are complemented by a commitment to reinvesting and Patrick and delivering value to shareholders through cash returns.
Andy Nemeth: In 2024, we invested $412 million and acquisitions, including our acquisition of sport Chek in retro.
Andy Nemeth: During the quarter, we repurchased approximately $5 million or 60000 shares and returned approximately $13 million to shareholders in the form of dividends.
Andy Nemeth: For the full year, we returned $55 million to our shareholders, including a total of $5 million in stock repurchases and $50 million in dividends.
Andy Nemeth: At the end of 2024, we had $200 million remaining under our current share repurchase authorization.
Andy Nemeth: In November management, and our board of directors demonstrated their confidence and our financial strength and growth potential by electing to increase Patrick's quarterly dividend by 9% to 40 cents per share.
Andy Nemeth: Before we give our end market outlook, we want to discuss our estimated tariff exposure relative to our current expectations that align with the president's announcement on Saturday.
Andy Nemeth: Although we have seen changes this week to the original proposal.
Andy Nemeth: And we will adapt as necessary, we believe that it's worth providing color on our exposure to these three countries.
In total, China, Mexico, and Canada account for approximately 10% of our cost of goods sold with approximately one half focused on China and the other half on Mexico and Canada.
Andy Nemeth: We have been diligently derisking, our offshore exposure over the past two years to China.
Andy Nemeth: And are confident in our ability to further reduce our exposure to China by more than half if necessary.
Andy Nemeth: We will continue exploring alternative sourcing options across all three countries where possible.
Andy Nemeth: We will continue to monitor the tariff situation as it is an extremely dynamic we have many optional tools at our disposal, including working with both our suppliers and customers and partnerships through our good better best product offering V E V E initiatives and our strategic sourcing decisions to materially.
Andy Nemeth: The impact to our margins at this time.
Andy Nemeth: Moving to our end market outlook for 2025.
Andy Nemeth: As we have discussed we are poised and ready to serve our customers and Purdue pursue additional market share gains.
Andy Nemeth: Our teams remain focused on monitoring key indicators, such as customer dealer and consumer sentiment.
Andy Nemeth: Dealer show activity.
Andy Nemeth: <unk> confidence.
Andy Nemeth: And interest rates, which we believe will continue to shape demand trends.
Andy Nemeth: In the RV market. We are currently seen early indicators of potential improving demand from our OEM customers. Meanwhile, Marine and power sport Oems are maintaining their disciplined approach to dealer inventory.
Andy Nemeth: Though we anticipate some minor year over year restocking in the first quarter and fourth quarters as they thoughtfully manage inventories for the selling seasons. These trends reflect cautious optimism as we move forward.
Andy Nemeth: In our RV market, we are maintaining our estimates that 2025 wholesale unit shipments will increase at a mid single digit rate to approximately 350000 units.
Andy Nemeth: We currently estimate that retail registrations will be flat in 2025, implying a one for one dealer replenishment environment.
Andy Nemeth: In our marine market, we estimate 2025 retail will be flat bifurcated between the first and second halves of the year and wholesale units for our overall product mix to be up 5% to 10% as a result of the incredible production pullback and discipline shown in 2024, and our marine mix categories.
Andy Nemeth: This still implies a modest dealer inventory reduction for 2025 until solid signs of inflection occur.
Andy Nemeth: In our power sports and market, we expect unit shipments to be down approximately 10% with our organic content to be up mid single digits for the full year, implying an overall mid single digit decline for our businesses.
Andy Nemeth: On the housing side of the business, we estimate MH wholesale shipments will be up 10% to 15% with retail so sales absorbing available wholesale production on a real time basis.
Andy Nemeth: In our residential housing in market, we estimate 2025, new housing starts to be flat to up 5%.
Andy Nemeth: Given the current end market outlook, we've outlined we continue to estimate our 2025 operating margin will improve by 70 to 90 basis points versus 2024 adjusted operating margin.
Andy Nemeth: We estimate our operating cash flow will be between $390 million to $410 million in capex to total between $75 million to $85 million implying.
Andy Nemeth: Implying free cash flow of approximately $305 million or more in a free cash flow yield of approximately 10%.
Andy Nemeth: For 2025, we expect our full year tax rate will be between 24 and 25%.
Andy Nemeth: As noted earlier our EPS in 2025 could include additional dilution related to our convertible notes and warrants depending on our share price.
Andy Nemeth: That completes my remarks, we are now ready for questions.
Speaker Change: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad as a reminder, we ask you. Please ask one question and one follow up then return to the queue. Once again Thats star one to be placed in the question Q1 moment. Please while we pull for questions.
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Speaker Change: Our first question today is coming from Mike Swartz from true Securities. Your line is now live.
Mike Swartz: Hey, guys good morning.
Mike Swartz: Maybe just to start out with it it appears that your 2025 outlook, maybe aside from the manufactured housing businesses is fairly.
Mike Swartz: In line with what you would get a discussed over the two or three months ago.
Mike Swartz: I guess within the ranges that you provided and maybe just some more qualitative commentary I guess, how are you thinking about the year as we as we sit here today versus maybe where we were three months ago are there are there any major changes.
Andy Nemeth: Good morning, Mike. This is Andy Theres no significant changes to that I think there is some building optimism right now and some tailwind as building. If you can just kind of looked at where we are at a quarter ago versus where we're at today.
Mike Swartz: We are optimistic with what we see today.
Mike Swartz: Looking out we're keeping our estimates and Jack right now just as a little bit early to get a feel on the retail selling season, just at this point, but certainly in the next couple of months, we'll have a much greater feel on what that looks like but right now I would just tell you that there's there's building tailwind that we see and so we're optimistic but holding tight to our to our estimates.
Mike Swartz: Okay, Great and then maybe.
Mike Swartz: For Andy Rater.
Mike Swartz: Just just more housekeeping can you can you give us the breakout that 8% growth how much of that was inorganic versus organic and end market.
Mike Swartz: Yes sure Mike.
Mike Swartz: That 8% growth was driven by acquisition revenue, which was up 11% for the quarter year over year.
Mike Swartz: And then industry was down 4%, that's largely mix driven.
Mike Swartz: Organic was up 2%.
Mike Swartz: Thats pricing down 2% in constant share up three 5%.
Mike Swartz: Okay perfect. Thanks, guys.
Speaker Change: Thank you. Your next question is coming from Daniel Moore from CJS Securities. Your line is now live.
Mike Swartz: Yes. Good morning, Thanks for taking the questions maybe.
Daniel Moore: Maybe just talk about the biggest opportunities.
Daniel Moore: All buckets, either end markets or products, you see to continue to increase penetration and.
Daniel Moore: And drive that 2%, 3% organic growth as we look at 2025.
And beyond.
Daniel Moore: Dan I think that what we're really excited about is all the new product opportunities that we've been working on both from a prototyping perspective for the current model year and in addition to our advanced product group, which has been very active in working with our customers and so the content share gains that we see with new products and new product potential for 2000.
Daniel Moore: <unk> 25 is something that we're very excited about to be able to hit those targets or exceed those targets. So.
Daniel Moore: We've just we've done more prototyping in the last year and a half than we've done in the prior three years and so it's an exciting time as we look out here and the innovations that our teams have come up with are very exciting to look at so that in addition to the fact that I think we're positioned we've made the appropriate investments to be able to scale with our customers when we do see.
Daniel Moore: In an inflection point should allow us the opportunity to be very aggressive in the marketplace to be able to execute and really scale with those customers. So we feel good about a number of the opportunities that are out there.
Daniel Moore: Very helpful.
Daniel Moore: <unk> three calls this morning, so if you said it and I missed it I apologize I appreciate the updated color on our full year outlook.
Daniel Moore: Just looking at Q1, how do we what are your expectations for revenue.
Daniel Moore: Maybe relative to Q4 as well as operating margins relative to what we just saw in Q4 on an adjusted basis or just holistically, how do we think kind of thinking about starting out the year.
Daniel Moore: I think really as we're looking at the model Q4, and Q1 are pretty similar as it relates to kind of the revenue expectations really with some pick up Q2 and Q3 are traditionally are.
Daniel Moore: Our largest quarters and where we expect to see a lot of the margin impact for the products that we're working on today. So Q1 relatively flat with Q4 as our kind of current estimates and expectations.
Daniel Moore: Again, as we kind of move through.
Daniel Moore: The selling season here in the retail season in February March April.
Daniel Moore: Perfect and then just kind of a capital allocation question, but you know raise the dividend by 9%.
Speaker Change: Hey, Dan I'm, sorry, let me, let me step back one second I'm, sorry, I was looking at the wrong number there we're actually going to be up one from Q4 I apologize for that I was I had my.
Daniel Moore: Saracens op.
Daniel Moore: To be up in Q1 from Q4 as it relates to kind of where we set both from a margin perspective, and a topline perspective. So I apologize I was giving you a bad comparison there.
Daniel Moore: No that's fine obviously.
Daniel Moore: As is typical the bigger jump in margins will come Q2 Q3 as you described.
Daniel Moore: That's correct.
Daniel Moore: Yeah, Okay, and then just capital allocation you know got significant liquidity.
Daniel Moore: Held a little bit of working capital, but we're looking at a year coming up.
Daniel Moore: Now tremendous free cash flow generation.
Daniel Moore: What's the pipeline for M&A.
Daniel Moore: Talk about the balancing act between.
Daniel Moore: Wanting to.
Daniel Moore: Drive low leverage a little lower M&A opportunities versus maybe being more aggressive with the buyback is were just that that you know kind of ending one of a cyclical recovery here and my quick from me. Thanks.
Speaker Change: Yes, so capital allocation wise, we're carrying a little bit more inventory into Q4, as we had kind of previously indicated.
Speaker Change: In anticipation of some uptick in production here as it relates to some little bit of restock, some seasonality, but in anticipation again to be able to scale with our customers.
Speaker Change: I think as we look out into 2025 first of all the M&A pipeline continues to be full and we continue to be very very active.
Speaker Change: And cultivating opportunities out there so nothing's changed as it relates to our expectations to be able to continue to deliver M&A.
Speaker Change: We're excited about that we are excited about the cash flow generation and capital allocation, we're going to continue to be disciplined and thoughtful about it but again I think we can be opportunistic.
Speaker Change: And on offense here for the next two or three quarters for sure as it relates to all our priorities related to capital allocation.
Speaker Change: Thank you next question today is coming from Joe off the Belo from Raymond James Your line is that life.
Speaker Change: Thanks, Hey, guys good morning I.
Speaker Change: I guess first question I wanted to talk about the.
Speaker Change: Cash flow in the fourth quarter, maybe a little bit more color there.
Speaker Change: Which raw materials did you procure was tariff related to try to maybe.
Speaker Change: You'll get ahead of that and why wouldn't that be sort of a pull forward. If you will and bolster cash flow in 'twenty five.
Speaker Change: Yes, Joe there is some pull forward there we were disciplined in Q4 to make sure that we carried enough inventory most of it's in the RV sector as it relates to the raw materials that we brought in so very liquid material as it relates to kind of how we're thinking about it.
Speaker Change: A little bit of marine as well with some business that we picked up so.
Speaker Change: We look at that we maintain constant and picked up a little bit of inventory in Q4 in anticipation of kind of a little bit more activity in Q1. This year. So yes, there is a little bit of pull forward, we're going to continue to manage our inventories very aggressively but we're in a great position and like I said, it's very movable inventory from a raw material perspective.
Speaker Change: Okay, and just just to shift gears over to to mix you talked about several times. This morning.
Speaker Change: What are you guys assuming in terms of RV mix. This year does it get better or does it stay kind of where we were exiting 2024.
Speaker Change: Yes, Joe This is Jeff I think as we get into the first quarter, we've seen a little bit of uptick in production levels, but the mix has kind of remained the same from the fourth quarter to the first quarter.
Speaker Change: We believe that there will be some opportunity for that mix to swift switched back a little bit over to the mid to high end product.
Speaker Change: But again, we just want to see where retail starts to land, but you know as it as it sits today.
Speaker Change: From fourth quarter to first quarter, we're seeing it's pretty similar.
Speaker Change: With the expectations that it could change later in the year.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Noah <unk> from Keybanc capital markets. Your line is now live.
Speaker Change: Alright, Thanks for taking my questions I guess first just on the kind of 70 to 90 basis point operating margin improvement in the outlook is is most of that volume driven is there kind of any cost savings in there our automation efforts.
Speaker Change: Trying to put.
Speaker Change: Together kind of like the puts and takes there.
Speaker Change: This is Andy it's primarily volume driven as we've set the organizational structure really to match up in alignment with kind of the revenue run rates that we've been experienced over the last couple of quarters and so.
Speaker Change: It's really going to be volume related and we just don't have to add a lot of significant a significant amount of overhead to support significant amount of revenue increase coming through so we're going be able to leverage the model. The way, we thought we could to be able to generate that.
Speaker Change: Great maybe just one on <unk> I know you touched on this a bit but any kind of early learnings there incremental opportunities versus what you had kind of previously laid out or.
Speaker Change: Just kind of anything to note in terms of kind of the timeline there. Thanks.
Jeff: Yes. This is Jeff.
Jeff: We've been really excited about the Rec pro acquisition and what we've been able to accomplish really in just the first three months of Onboarding them.
Jeff: We've been able to add over 60 product categories to 60 products to the retro sight of.
Speaker Change: Patrick products that had not had that aftermarket exposure.
Jeff: And we've got several more lined up and we're starting to really.
Speaker Change: Incorporate some of the marine.
Speaker Change: Divisions right now so it's been really really really good for us.
And we've been really enthusiastic about the teams working together and being able to get that product out there. So it's been good.
Speaker Change: Thank you.
Speaker Change: Thank you next question is coming from Scott timber from Roth Capital. Your line is now live.
Jack: Hey, Good morning, guys, it's Jack on for Scott I, just got one question.
Speaker Change: What are kind of what are you seeing.
Speaker Change: From your touch points at retail in the Rvs and kind of seems like the retail bottomed or at least near that bottom and that dealers are ordering again, what should we look for regarding Q1, RV OEM production rates.
Speaker Change: Yes, so from a production rate standpoint, we have seen a little bit of uptick we believe that there's certainly a need to get additional inventory out in the system for the selling season.
Speaker Change: <unk>.
Speaker Change: Or a little bit mixed but there is some optimism out there we've seen some good activity on the retail side.
Speaker Change: Went down to the Tampa show and certainly saw a lot of consumer engagement there. So.
Speaker Change: We believe that there is.
Speaker Change: Opportunity for good retail growth or some retail out there, but we're still watching watching and waiting.
Speaker Change: Great. Thank you.
Thank you. Your next question today is coming from Tristan Thomas Morton from BMO capital markets. Your line is now live.
Speaker Change: Hi, good morning.
Speaker Change: What's been kind of two questions at a panel, but I think <unk> hinted out a couple of times. The first one what are you seeing in your RV transport business, so far in the first quarter.
Speaker Change: Yes, so we're starting to see that additional.
Speaker Change: Product going out to the dealers I will tell you. We're also seeing a lot of we're still seeing a lot of the multi haul which means that we are seeing the smaller units.
Speaker Change: That seems to be whats kind of retailing right now and it is getting a lot of activity on our transportation side. So.
Speaker Change: There is some you know a lot of moving parts in the first quarter as people start to get product off the production lines and we get it out to dealers, but we have not slowed down on hiring drivers to be able to make sure that we can meet the needs of the dealers and the as we get into the selling season here.
Speaker Change: Okay, and then just kind of content.
Speaker Change: Take a longer term view right and 25 has been.
Speaker Change: We've seen pressure from the cheaper units then how are you in kind of the Oems thinking about model year 'twenty six 'twenty seven when do you think we really see that content inflection.
Speaker Change: Yeah I mean.
Speaker Change: So a couple a couple of things number one from fourth quarter to first quarter, we've seen the mix relatively the same.
Speaker Change: Even though we've seen some production uptick.
Speaker Change: But I think there's also the lifetime RV buyer out there that sat out of the market.
Speaker Change: For the last couple of years, because of availability and pricing and as pricing has come back in line come.
Come down a little bit interest rates have come down a little bit I think some of that.
Speaker Change: I'm going to say lifetime, our beer is going to come back into the market, which gives us that opportunity for that mid to higher level product I wouldnt.
Speaker Change: I would like to be hopeful that we'll start seeing that.
Speaker Change: Second and third quarter of this year. So we're really trying to keep an eye on that but there's there's definitely some opportunity for that mix to shift back.
Speaker Change: As we get into a more traditional selling season and as we're coming out of any downturn, what we've seen over the last cycles is this entry level product is what.
Speaker Change: The dealers are bringing to the market to try to get activity in retail activity back on a lot. So.
Speaker Change: We think as that activity gets back on the lots will start to see some of that change.
Mike Swartz: Alright, Thank you Mike.
Speaker Change: If I could sneak one more in there just can you kind of remind everybody what our model your content decisions may typically and then how easy are they to change later on in the product lifecycle.
Speaker Change: Yeah. So on on the RV side RBI a has a suggested model change of June one.
Speaker Change: And we start working with customers almost immediately after the open house in October.
Speaker Change: When those decisions are made varies really by the lead time of the product if it's a if.
Speaker Change: If it's an important product and has a 12 to 16 week lead time.
Speaker Change: We're going to be pushed to make those decisions really they should be made already right now.
Speaker Change: Based on June 1st model change, but there's other products that we make here domestically.
Speaker Change: But we don't carry a lot of inventory because were build to order we can make those decisions.
Speaker Change: A decision is a little bit closer to the June 1st deadline.
Speaker Change: Thank you.
Speaker Change: Thank you next question today is coming from Alex Perry from Bank of America. Your line is that life.
Alex Perry: Hi, Yes, I just wanted to ask again sort of about the increased enthusiasm you're seeing in the RV segment coming out of his show season.
Speaker Change: Provide a little more color on what you think is driving.
Alex Perry: Are you.
Alex Perry: And then the conversations with the Oems as a Hawaii and what do you think is driving the increased enthusiasm or you've seen a little bit of increased consumer confidence because we get past the election.
Alex Perry: The conversations on the interest rate environment consumers are getting used to maybe a more stable by higher interest rate environment.
Alex Perry: Just more color on what sort of driving your enthusiasm there. Thanks.
Alex Perry: I think there's a combination of things that are driving that I think that the lean dealer inventories that are out in the space today across our markets. The tremendous discipline that our OEM partners have demonstrated to make sure that everybody stays nimble and scalable.
Alex Perry: I think certainly in consumer confidence and consumer sentiment with some of the uncertainty gone post election, I think is driving some of that and I also think the consumer certainly.
Alex Perry: Certainly enjoys the outdoor enthusiast experience and so as we look at our markets and what we've seen in the past we do see these resurgence is as it relates to excitement for the products in the space that we work in and so.
Alex Perry: We're just kind of feeling that right now we're feeling you know that the there's a lot of optimism in this space because of the discipline. That's been put in and then I think you know from what we've heard as it relates to the retail show season, there's been solid traction in the consumer has been consumers are buying units and so whether it's RV or marine we're feeling a little bit of that.
Alex Perry: You know that that enthusiasm so I think theres a lot of factors going into it.
Alex Perry: And certainly.
Optimism.
Alex Perry: It's something I think we feel cautious optimism is a good term, but that optimism is something that we're feeling across the space.
Speaker Change: Thank you you're really helpful. And then just on the guide I think that slide that says contemplating some moderate rate relief how much of how much is that sort of baked in to what you are expecting in terms of the guide and then I guess just to revisit tariffs you gave some very good quantitative color.
Alex Perry: On potential on your tariff exposure.
Alex Perry: Or is the actual tariffs being contemplated in the guide and what could be the potential impact. Thanks.
Alex This is Andy later, we have 50 basis points baked into our plan for next year.
Alex Perry: So we start with 50 basis points as the environment has changed a bit but right now we're not looking for a whole lot of relief. We think the 100 basis points. We saw this past fall really hasn't moved the needle so.
Speaker Change: You know that we don't think that thats going to change a whole lot on the tariff front, Alex right now, we don't have anything baked into our model or our plan as it relates to tariff impact like I said like we talked about in our comments I think that we feel we feel good about a lot of the risk mitigation that we've done, especially as it relates to our offshoring from China.
Speaker Change: Mexico, and Canada are kind of a TBD right now, but the opportunity to work with our customers and our product offering.
Speaker Change: Different things that we can do because of the of our multiple product lines.
Speaker Change: And things that we can bring.
Speaker Change: We hope to be able to work with our customers to mitigate as much of that as possible. So we're going to be very active in that partnership and again. So right. Now we don't we don't have anything built in as it relates to that it's still it's still not known but I'm really proud of what our team has done in particular as it relates to de risking kind of our China exposure over the last couple of years.
Speaker Change: Worked really hard behind the scenes to really drive alternative sourcing options and we're not going to stop doing that so again.
Speaker Change: We have not built any into the model at this point.
Speaker Change: Perfect. That's very helpful best of luck going forward.
Speaker Change: Thanks Beth.
Speaker Change: Thank you next question today is coming from my companies from the Benchmark Company. Your line is now live.
Speaker Change: Yeah, Hey, good morning, guys and thanks for taking my question just a quick one on housing and my apologies if I if I missed this year, but has the growth been more so driven by I guess inventory stock on the builder side or the uptick in I guess retail demand for affordable housing I guess, just help me unpack the bifurcation a little bit.
Speaker Change: We think that its retail demand for affordable housing out there we've been for a long time, we've thought that theres not enough inventory and not enough capacity to support.
Speaker Change: Affordable housing demand and so the MH industry in particular has been very robust for us and we're really proud of the team's work and what they've been able to do not only to be able to again bring value to our customers, but bring additional product lines on and so we think it's very much related to the retail demand thats there.
Speaker Change: And the enthusiasm that exists for affordable housing.
Speaker Change: Got it thank you guys nice job.
Speaker Change: Thank you thank.
Speaker Change: Thank you next question is coming from Brandon <unk> from D. A Davidson your line is now live.
Speaker Change: Good morning. Thank you for taking my questions first just on the overall competitive environment can you talk about.
Speaker Change: Any increases or potentially decreases in competition you've seen.
Speaker Change: And some of your end markets, particularly within the marine and.
Speaker Change: And RV industries, just given people moving towards.
Speaker Change: More affordable pricing on certain models and just overall customer preference.
Speaker Change: Yes, Brian This is Jeff we haven't really seen a lot of changes in the competitive environment from our standpoint, we've always had.
Speaker Change: Two or three competitors in just about every space with every one of the product categories that we deal with them and have not seen.
Speaker Change: Any change really.
Speaker Change: <unk> change in that in the last couple of quarters or really even in the last year. So we continue to push our team to try to stay ahead of.
Speaker Change: Our product categories to make sure that we're first out to the market with as many new products and innovations as possible to to stay ahead of any competition out there and we've seen that.
Speaker Change: Happen and we're we're proud of what we've been able to accomplish on that day.
Speaker Change: Okay, Great and just finally, just circling back to some of the optimism around the RV market would you be able to comment on.
Speaker Change: So just the ordering activity post.
Speaker Change: RV show season. It seems like you know there's been some mixed color around you know just actual retail sales and how eager dealers or to order. It seems like the larger more successful dealers may be in a position to order inventory more aggressively but your average dealer, which makes up the bulk of the industry may not be as I'm excited to order inventory right now could you just.
Speaker Change: Talk about what you're seeing.
Speaker Change: Maybe bifurcate between the two.
Speaker Change: Different types of dealers out there right now thank you.
Speaker Change: Yeah, I don't think we can specifically talk about what the dealers are buying or not buying I mean, what we look at on a daily basis are the production levels.
Speaker Change: So I can tell you the Oems and who's running what.
Speaker Change: We don't see specifically, where the Oems are shipping all of these we see some of that through our our transportation businesses. However that doesn't give us the entire market I mean, certainly the big dealers out there are moving a lot of the smaller inventory.
Speaker Change: The major dealers the smaller units I should say.
Speaker Change: But we have seen some production uptick.
Speaker Change: Across across the categories across the entry level, all the way up into the bigger product, but we still think that mix is a little bit heavier on the smaller product side.
Speaker Change: Thank you. Our next question today is coming from Craig Kennison from Baird. Your line is now live.
Craig Kennison: Oh, Great Hey, Thanks for taking my question as well I guess I wanted to follow up on the tariff issue. Andy I think you said really nothing baked into guidance and that makes sense given a lot of the unknowns around Canada and Mexico, but.
Craig Kennison: Based on the latest tweet tweet that I read I think there is an incremental tariff on Canada and China.
Craig Kennison: Can you just address whether that incremental 10% tariff is something you've contemplated.
Craig Kennison: Sure Craig we've definitely contemplated that as we've been active like I said in alternative sourcing, but also we work with our suppliers over in China as well, so we've been able to partner with them and as we've looked out at business opportunities in production levels. You know, we work with our supply partners there to make sure.
Craig Kennison: Sure that we're mitigating as much as possible when it comes to.
Craig Kennison: That exposure so its a combination of alternative sourcing as well as working with our partners to mitigate as much of the impact as we can so yes, we've contemplated it and we don't feel the need at this point to build that in.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Yes, I just wanted to thank everybody on the call first of all for joining US I also want to send tremendous gratitude and thanks to the entire Patrick team, who has exhibited unbelievable dedication and commitment and some uncertain times, especially in 2024, but the team has done just such a fabulous job I'm. So proud of the work that they've done to position the <unk>.
Speaker Change: Organization to really be able to optimize the opportunities that are coming forward as we look at 2025 and beyond and so again, thanks to the entire Patrick team such commitment very very proud of that so again.
Speaker Change: Thanks, everybody for joining us on the call, we'll look forward to talking to you in in Q1.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.