Good morning ladies and gentlemen and welcome to the Patrick Industries Inc Fourth Quarter 2017 Earnings Conference Call. My name is Sylvia and I will be your operator for today's call. At this time all participants are in a listen-only mode. Following the prepared remarks we will conduct a question-and-answer session. Please note that this conference call is being recorded. I will now turn the call over to Julie Ann Kotowski from Investor Relations. Ms. Kotowski you may begin.

Good morning everyone and welcome to Patrick Industries fourth quarter 2017 conference call. I am joined on the call today by Todd Cleveland, CEO; Andy Nemeth, President; and Josh Boone, 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. There are a number of factors many of which are beyond the company's control which could cause 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 2016, 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 except as required by law. I would now like to turn the call over to Todd Cleveland.

Thank you Julie Ann and thank you all for joining us on the call today. This morning we'd like to discuss the company's fourth quarter and full year 2017 results and provide an update on the major markets we serve. We will then conclude by providing an update on our overall business outlook. Optimism, energy, and overall sentiment in all the primary markets remain healthy and our fourth quarter 2017 results reflect the strength of those markets and the execution of our strategic growth initiatives. Operational and financial improvements in both the top and bottom line were fueled by a combination of acquisition growth, strong industry performance in all four of our end markets leveraging our fixed costs and the ongoing focus and priority by our team members to drive our customer first performance oriented culture. Our revenues increased 47% in the fourth quarter to 476 million and 34% for the full year to more than 1.6 billion and a net income per diluted share increased 97% and 43% for the same periods respectively. In addition we continue to gain market share in all the industries we serve. Our talent engagement and retention initiatives remain a focus to continue to manage, align, and motivate our tremendously talented workforce and our geographic expansion opportunities and acquisition pipeline continue to be extremely robust. Now I'll turn the call over to Andy who will further review the primary markets and performance.

Thank you Todd. As noted the fourth quarter reflected the tremendous momentum carried forward from the first three quarters of 2017 in both our leisure family oriented lifestyle and housing and industrial markets along with the execution of our strategic initiatives. Solid fundamental demographic trends, industry tailwinds, and strong organic and strategic revenue growth continued to propel our strong operating results. We maintained our focus on leveraging the strength of our operating and financial platform, the disciplined and opportunistic deployment of capital in alignment with our capital allocation strategy, targeted capacity expansion initiatives to ensure that we position ourselves to continue to support expected growth rates and strong customer demand, and geographic expansion opportunities. Our RV and marine markets collectively represent approximately 76% of our fourth quarter revenue base and we're up 52% for the quarter and 36% for the year. Or our housing and industrial markets representing the other 24% of our revenues were up 33% in the quarter and 28% for the year. Now let's turn to some specific statistics on each of the industries we serve. The RV industry saw its eighth consecutive year of growth in wholesale and retail units shipped and sold with continued optimism, positive retail trends, and no signs of slowing down as we head into 2018. Initial reports indicate that the dealer shows held in January experienced strong attendance levels including record attendance at the recent Florida RV Super Show. The RV industry is our largest market sector accounting for 68% of our fourth quarter 2017 revenues. Fourth quarter wholesale unit shipments were right in line with our expectations increasing 19% over the prior year and representing the eighth consecutive quarter of double-digit growth. The towable market which accounts for approximately 88% of all units shipped continue to lead the way with…

Thanks Andy. Our consolidated net sales for the fourth quarter increased 47% to 476 million reflecting strong organic growth in all four of our primary markets, market share gains, geographic and product expansion efforts, and the impact of acquisitions. The 13 companies we acquired in 2017 contributed approximately 62 million in revenues in the quarter and 110 million for the full year 2017. On an annual basis our sales exceeded 1.6 billion, increasing 34% compared to the prior year. Our RV revenues were up 44% in the fourth quarter reflecting an increase in wholesale shipments of 19%. For the full year RV sales were up 28% on a shipment increase of 17% and our RV content per unit increased 9% to $2,232 per unit. On the marine side our revenues nearly tripled versus the prior year and represent 8% of our fourth quarter sales. Our image revenues increased 30% for the quarter on unit and shipment improvements of 15%. Our MH content per unit increased 16% to $2,289 per unit. Finally our investor revenues were up 37% in the quarter. The strength in our industrial sales reflects our expanding party polio portfolio with applications across multiple industrial markets and interests in the new markets and geographic regions. Our gross margin in the quarter was 17%, up 60 basis points from 2016 as a result of acquisition growth, internal synergies, and the impact of investments made over the prior year in both strategic CAPEX and various labor initiatives. We continue to focus on leveraging our fixed costs on increased revenues and executing our synergies across all of our brands. Operating expenses were 9.8% of sales in the fourth quarter. Warehouse and delivery expenses and intangible asset amortization remained relatively constant and SG&A increased 40 basis points compared to the fourth quarter…

Thanks Josh. Overall our team is energized and excited about the opportunities in front of us as consumers continue to migrate towards the recreational leisure family lifestyle as they are confident about the overall economic conditions. We remain laser focused on driving shareholder value in alignment with the expected industry growth, consumer demand, and the potential in all the primary markets we serve in 2018 and beyond. We are well positioned to continue to execute on our strategic plan and operational initiatives and expect to further expand our product and geographic presence to be able to capitalize on the strengths of our platform. Additionally our focus on acquisitions, capacity planning, talent retention and engagement, and increasing our product offering remains a high priority to continue to increase our value proposition to our customers. Our strategic acquisitions we've made in 2016 and 2017 both increased our scale in existing markets and further opened doors to new markets and cross selling potential within our expanding geographic footprint. Our acquisition pipeline remains full with potential candidates across all primary markets we serve. The capital capacity and flexibility provided by both the note offering and the expansion of our credit facility that we executed in January positions us with dry powder to execute on our long-term strategic growth initiatives and capital allocation strategy. We intend to continue to put our strong cash flows and financing thoughts onto work and invest in our overall business model and brands. We will continue to prioritize our organizational and strategic agenda to grow our top line with the expectation outpacing the respected markets. I remain humbled by the dedication and commitment by our more than 6800 tremendously talented team members and we are extremely appreciative of the support of our customers, suppliers, Board of Directors, banking partners, and our shareholders who we are privileged to serve. This is the end of our prepared remarks, we are now ready to take questions.

[Operator Instructions]. And our first question comes from Brett Andress from KeyBanc Capital.

Hey guys, Dan Charrow [ph] on for Brett. Congrats on the quarter. Looks like your overall organic growth was real solid during the quarter, a bit of an acceleration. Can you give us a sense about the overall industry growth versus your market share growth and what the growth profile across the end market is like?

Yeah, this is Josh. Our overall organic growth was plus 30% of the 47% so really robust growth kind of accelerating into Q4. As far as our end markets we were at 16% on a consolidated basis that would put our organic growth of 14% net of industry growth.

Got it and was that kind of driven by any specific end markets?

So within the towable sector we had really strong fiscal growth in the quarter plus 21% and we have a lot of content in the fifth wheel. So that was one component of it and overall fifth wheels quarter-over-quarter increased two point as a percentage of total towables in the quarter. So, with the strength in towables and other initiatives taking place both of those contributes to the strong organic growth.

Great, great, thanks and with the call out in the release around RV wholesale production aligned with the retail it sounds like dealer returns are fairly normal. How are you guys feeling about channel inventories heading into the selling season?

Yeah, this is Andy. We feel really good about where we're at today. We think the dealers have positioned themselves to be able to take advantage of the strong upcoming selling season. We did see a little bit of inventory build but again that's in anticipation of making sure that they've got units on the lots to be able to support the demand and we've seen increasing backlogs with the dealer, the inventory turns are right on track with where they were and have been seasonally. So again I think we're very excited and optimistic about the selling season but feel like things are still in balance.

Good, good and if I can sink another one in here, it is encouraging just continue seeing gross margins expand during the quarter, how are you guys feeling about labor heading into this year?

This is Todd, I think heading into this year we're probably feeling as strong as we felt in the last two years. We put a lot of effort into our labor retention initiatives. We saw a dramatic decrease of almost 20% of our turnover in 2016 to 2017 and we're continuing to work those objectives extremely hard and we think we're very well positioned to continue to see benefits both from an efficiency standpoint and just an overall morale standpoint. So, I think while the market is extremely challenging I think the initiatives and the foresight side that we've had from a leadership standpoint and the team work that we've put together is paying dividends and we will continue to pay dividends.

Great, thanks guys, congrats again on the quarter.

Thank you.

Our next question comes from Daniel Moore from CJS Securities.

Good morning, thanks for taking the questions. On a recent -- one of the competitors recent calls they indicated Q1 volumes for the RV industry continue to be very strong and by inference may be up as much as high single to low double-digits. Are you seeing that continued strength in shipments as we go into Q1 and a quick follow up or two?

Yeah Dan, this is Todd. Yes, we feel the same way. The OE's came out of the gates strong especially after some of these in initial indications of some retail shows. The OE's are continuing to do what they need to do in order to keep the dealers of that units so yes, we see the strength as well.

Very helpful and then shifting gears, marine market obviously continues to grow in importance and still below mid cycle levels in terms of shipments. That said very similar drivers to RV's in terms of outdoor lifestyle, consumer confidence so, how do you think about the cycle there and what the outlook for growth looks like over the next few years?

Sure Dan, this is Andy. We are really excited about the marine platform and the marine industry in general. We think that there's opportunity for continued slow and steady growth in that space. We're seeing the aged -- the aged use board inventory continue to expand providing opportunity for additional entry of newer units. And we see limited downside risk in the marine space today. And similar patterns related to that leisure family lifestyle, we're continuing to see the same type of demographic trends influx into the marine space.

Got it and lastly just to get back on one of the questions on gross margin, I know you don't like to get into to giving guidance but given how you feel pretty good about labor I think we finished 2017 at about 17%, any reason we can't -- any reason that that level is not sustainable or we couldn't improve on that in 2018?

Dan, this is Andy. As it relates to gross and op margins we really focus on the op margin line. We're going to see a little bit of fluctuation we certainly think and hope to be able to continue to expand both gross and op margins but our expectation continues to be 30 to 50 basis points on an annual basis of op margin improvement.

Perfect, thanks for the color, congrats on finishing a great year.

Thank you.

Our following question comes from Rafe Jadrosich from Bank of America.

Hi, good morning, its Reese, thanks for taking my question.

Good morning.

Just -- I wanted to ask about working capital, you finished the end of the year with inventories of around 45 and then receivables were up over 100, just what's driving that and then can you talk about how the outlook is for that going forward?

Yeah, Reese this is Josh. A big driver of that is going to be the acquisitions we completed in the Q4 so we bought on LMI and Indiana Transport and Nickell Moulding all in the latter part of the year particularly the last two months. So that working capital will be added to the balance sheet but you won't realize the full revenues for the year so that's the big driver of it is acquisition related. The other component is we did flex up inventories a little bit from an organic basis as we approach throughout the year with pricing that's in that a little bit to ensure that we are well positioned to be able to support the continued strength we are seeing in the market as we head into 2018. And then lastly on the receivables side, as we bring on additional acquisitions and that receivable profile of end customers is a little different than the RV side. Though a little bit longer term is our traditional core RV customers, that's going to have a slight uptick in receivables. But overall I would say we flex working capital in line with our expectations and in line with where we thought our operating cash flow to be for 2017 and we're progressing that way for 2018 as well.

Thank you that's very helpful. And then on M&A you guys in terms of revenue acquired around 200 million in 2017 which was a big step up from prior years, how should we think about that going forward in terms of the pipeline, your capacity, and then by end market are there any markets that we should be focused more on for what you'll be targeting or do you think it will be balanced?

Sure Reese, this is Andy. In 2017 we actually executed on over 300 million in annualized revenues. In the last four years we've acquired average annualized revenues of a little over 200 million and in the last three years around 236 million average annualized revenues. And from a mix perspective we're continuing to see opportunities in all four of our primary markets when we're continuing to opportunistically evaluate all those opportunities. So we're not targeting any particular market, we're being -- we remain intelligent and disciplined as it relates to deal multiples, synergistic fit, strategic initiatives and thoughts as it relates to what we can do from an acquisition and combination perspective. So we're seeing it across all end markets and really excited about the pipeline today as far as where those acquisition candidates are coming from. And from a target perspective again our capital allocation strategy is really centered around putting capital to work. Our internal targets are around 150 million in annualized revenues but again I point towards recent trends where we've been able to acquire opportunistically and from a true disciplined approach more than over 200 million over the last couple of years. So, we have a full pipeline today. We're excited about it and expect to continue to execute on that strategy.

And did you sense to what your capacity would be like, what could you do up to in terms of assuming that the multiples stay in the range where you've been buying, how much revenue could you acquire?

Sure, so again last year we did -- we bought over 300 million in annualized revenues. We bought seven companies or we did seven acquisitions for 13 companies. In the prior year we did seven acquisitions of eight companies. So I think that we're in a really good spot to be able to continue that. We buy plug and play businesses and our team's very disciplined as it relates to the approach to be able to continue to execute. And we've positioned ourselves well internally to be able to continue to effectively integrate these acquisitions. So, again I feel like we're in a great spot. We can from a capacity perspective we can certainly -- we feel like we can certainly execute on similar patterns as we've done in the last couple years.

And Reese for financial capacity I will add, with where we ended the year and our recent convertible note offering and our upsize or revolver positions us with about 300 million availability on pro forma basis coming into 2018.

Great, thank you, it's very helpful.

Our following question comes from Craig Kennison from Baird.

Yes, good morning, thanks for taking my questions. I wanted to start with your margin comment. It was my impression that maybe some of the acquisitions you've done recently might have come in at slightly below the corporate average but still sounds as though you believe you can increase margin overall incorporating those acquisitions, is that fair?

Yeah, following up on Andy's comment that is fair and our expectations going in to 2018 is operating margin expansion of 30 to 50 basis points. As Andy alluded to there could be some movement between the lines on the gross and the op line but overall our expectations and our goal for 2018 is a 30 to 50 bip improvement on operating margins.

I'd also add a little bit Craig as it relates to the overall operating margin profile of the acquisitions that we executed on in 2017, we are better than the corporate average. That being said we're looking at acquisition opportunities that may be dilutive upfront but certainly we expect to be able to bring the accretion from an operating margin perspective in a short period of time with any acquisition that we do. So we're not precluding ourselves from looking at acquisition opportunities that have a lower op margin than our corporate average. We're looking to continue to be opportunistic and stay disciplined to our approach as it relates to synergy and strategy.

Thanks and is there anything unusual about the cadence of revenue of your acquired businesses that we should be aware of as we think about each quarter going forward?

No, there is really not -- we're -- again we've got an extremely full pipeline today if you look at the revenue models of the acquisitions that we've completed over the last two years. You know that average revenue scale is pretty consistent with what we can effectively continue to put in action. But we don't hold ourselves to acquiring a certain number of targets in a quarter or in any year. Again we're going to stay opportunistic with the full pipeline to be able to continue to acquire the entrepreneurial style business models. And so again, there's not a true cadence that we can give you guidance on but we expect to continue to execute.

Hey Craig this is Todd, the only thing I would add to that is that I think it's very important that we stay disciplined and have the capabilities internally to be able to manage and stand in front of all the acquisitions that we do put together. So there will be times where it may feel like or seem like from outsiders perspective that we're not moving through things and they may seem a little lumpy like this, you're seeing a little lumpy. We spent some time obviously through the summers really getting the management team kind of teed up and ready to go from a structure standpoint to digest the fourth quarter and also really position ourselves for the first half of 2018 and really beyond. But, we do take it -- internally we along with just taking a look at the acquisition profiles we do want to make sure that we've got the capacity internally to lead and drive these businesses so you may see sometimes where things we may take a little bit of a time out to regroup.

Sure and then I had a different question really on the RVIA forecasts I believe that the RVIA is forecasting 3% shipment growth for 2018 and I guess my question is, is there anything in your order patterns or your view of retail or dealer inventory that would cause you to doubt the attainability of 3% industry growth for the RV space in 2018?

No, there's nothing that we've seen at this point. I don't want to go out on a limb but I would tell you based on both retail -- both wholesale and retail data that has come in thus far this year it certainly feels like that it could be on the light side.

Okay, thank you.

Our following question comes from Steve O'Hara from Sidoti.

Hi, good morning. Just curious I got cut off so if this has been asked I apologize, but just on the acquisition side wondering your bandwidth in terms of ability, how many acquisitions could you do comfortably from an advantage standpoint, and does that lend itself to larger or smaller acquisitions going for a evaluation perspective?

Sure, as I was mentioning to Craig, this is Todd again but as I was mentioning to Craig, I think structurally we spent some time in the first part of 2017 and through the summer really kind of restructuring things where we divided some things up amongst senior management team and passed things along to other key leaders in the organization that have the capability of leading and managing these businesses. So from a capability standpoint I think we're well positioned from a leadership standpoint not only from what we've digested but also what we have, possibly could digest. I think an indication of buying as Andy has mentioned seven -- six to seven or plus businesses we certainly have the bandwidth to take care of that assuming that they fit within our model.

Okay, and then just on the sticking with that frame, how long does it take before you get the full profile of what you expected when you went in, how long does it take you to kind of integrate them and get them up to what you would expect to get out of and then what's your hit rate in terms things coming in as you expected and forecast maybe above or below?

Sure, this is Todd again. I will just say that our approach is as if we've stayed consistent throughout our acquisition process has been to come in and be supportive to the entrepreneurial spirit of the business. We don't come in and drive things day one. So to answer your question we'll probably start seeing things change within the first maybe five to six months. So we're going to let the business kind of digest the opportunities that we have in front of us barring the fact that there's I guess some low hanging fruit which there sometimes is and there sometimes is not. A lot of times a lot of these opportunities are driven by future growth and us supporting them and future growth both from a capital standpoint and a customer relations standpoint. So long story short would be as it is probably on average somewhere around the six month period we start seeing some benefits and those stretch in to not realizing the full benefits anywhere between 12 and 18 months. And finally as it relates to our hit rate I think our hit rate has been extremely strong. Our balanced approach to allow that leadership of the companies that we acquire to really digest our culture and our opportunities that we provide them has allowed us to have that success because it's really not a jam down approach it's more of allowing them to see the opportunities and see the benefits and based on how we have things structured from a compensation standpoint for both the new company or the company that we acquired and our teams it's beneficial for them to take advantage of these things on a go forward basis.

Okay, and then just was there an impact that you are seeing in the fourth quarter on the MH side?

This is Andy, Steve. We didn't see a notable impact from FEMA on either side of the business. The RV industry as you know was extremely strong. We think a number the family units were pulled from dealer lots and then on the MH side there were some FEMA units left in Q3 and Q4 but they were slipped into the existing pipeline and pushed backlog a little bit on the MH side. So we didn't see a noticeable uptick just due to FEMA in Q4.

Okay, alright, thank you very much.

[Operator Instructions]. Our next question comes from Scott Stember from C.L. King.

Good morning guys. Maybe to talk about on the marine side, there's certainly some early signs that the marine industry or the boarding industry could see some additional tailwinds this year notably with the tax cuts that are going through. And now that you guys are exposed to far more than just pontoons or some of these recent acquisitions could you just talk about how your boating facilities from a capacity standpoint how prepared you are, is there anything you guys will have to do to probably handle some of this influx in demand?

Sure Scott, this is Andy. When you talk about we're really excited about the marine space and the marine platform and the opportunity for continued growth. Our facilities today are well positioned to be able to support that and one of the -- again the value proposition that we bring in all of our markets is the ability to flex up and move with our customer base. So from a capacity perspective we're going to continue to stay ahead of the marine space similar to the way that we've done and been focused on in the RV space and our other markets to be able to make sure we've got that capacity. But our plans today are well positioned to continue to take advantage of the opportunities that exist in marine and continue to capitalize on their expanding business. So again, we're optimistic we like what we see and we are well positioned for it.

Got it, most of my other questions have been answered already but just on the tax rate Josh, maybe just go over that again. I know that if you back out that benefit that you had, it looks like you are at $0.87 what was the tax rate for the quarter that that came down to that, was it in the low 30% range?

It was, yes, that's comparable with where we were.

Got it, got it. Alright that's all I have. Thank you so much guys.

Thank you.

We have no further questions at this time.

Thanks Sylvia. We appreciate everyone for being on the call today and we look forward to talking to you again at our first quarter 2018 conference call. A replay of today's call will be archived on Patrick's website www.patrickind.com under Investor Relations and I'll turn the call back over to the operator.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.