Patrick Industries, Inc. (PATK) Q4 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Patrick Industries Incorporated Fourth Quarter 2018 Earnings Conference Call. My name is Richard, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. [Operator Instructions] Please note that this conference call is being recorded. I’ll now turn the call over to Ms. Julie Ann Kotowski from Investor Relations. Ms. Kotowski, you may begin.

Good morning, everyone, and welcome to Patrick Industries fourth quarter 2018 conference call. I am joined on the call today by Todd Cleveland, Chairman and 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 2017 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. Good morning everyone, and thank you for joining us on the call today. We're pleased to report another solid quarter in fiscal year representing strong operating and financial performance, strategic and organic growth and disciplined execution of our strategic plan and capital allocation strategy. We were able to offset volatility and inventory rebalancing in the RV industry in 2018 with our diversified market portfolio and further establish our foundation in each of our core market segments through our acquisition, operational and expansion efforts. Our 2018 revenues grew 12% in the quarter to $531 million and for the full-year we recorded a 38% increase in revenues to $2.3 billion. Our fourth quarter 2018 net income per diluted share was a $1.15 and for the full-year, our net income per diluted share was $4.93. Now I’ll turn the call over to Andy who’ll further review our primary markets and overall business outlook.

Thank you, Todd. As noted, we're pleased with our continued operating and financial performance which is a reflection of the dedication and commitment of our team in driving our strategic and organic initiatives to continue to produce results for our shareholders. Our legacy businesses in all four primary markets continue to execute with the discipline and lean value proposition that has helped to drive continuous improvement and our stable of acquired businesses and portfolio of companies have outperformed expectations with additional synergies and further expansion opportunities presenting themselves on a continuous basis. The energy that continues to be created within our organization as a result of the tremendous talent that we have been able to partner with has been contagious at many levels and has helped to drive more opportunities for further organic growth. Momentum is still evident in both our leisure lifestyle and housing and industrial markets despite recent volatility in the RV industry which was the result of a short term industry inventory buildup related to OEMs bringing on capacity and efficiency to be able to produce in four days what used to take five. Retail demand and demographic trends remain positive for all of our primary markets. Our marine markets have not faltered and demand for affordable housing has not changed. If anything it's gotten stronger. Our commercial, hospitality, high rise and multifamily markets continue to present new project opportunities due to the strong value that our entrepreneurial spirit continues to promote with additional package synergies to be gleaned from our other complementary product lines. We've diversified our business model through an opportunistic and disciplined strategy based on building upon our strengths and acquired expertise and staying close to what we know. Today our RV market in the fourth quarter represents approximately 58% of our business with 42% of our revenues coming from our other three primary markets and compared to approximately 32% a year ago. This diversification has help to offset anyone market’s volatility as evidenced by not only strategic growth but by organic growth, net of industry growth as well in all four quarters in 2018. I'll now provide an update and some additional color on each of the core markets we serve. As Todd mentioned, our fourth quarter consolidated revenues increased despite a double-digit decline in our largest market sector. RV wholesale unit shipments were down 17% in the fourth quarter off of a base wholesale unit shipment level which is up 19% in both the fourth quarter of 2017 and 2016 and still represents the third highest fourth quarter shipment level in history. Our RV revenues were only down 6% against this fourth quarter backdrop, as a result of both our strategic and organic growth initiatives. Our full-year RV revenues were up 27% against a backdrop of wholesale shipments which finished at 484,000 units down approximately 4% from the record 2017 year in the industry. RV OEMs have demonstrated their ability to flex their production scheduling and alignment with newly created capacities to better and more efficiently aligned with seasonal dealer inventory needs. The short-term 2018 inventory buildup has been aggressively managed by both OEMs and dealers alike, and likewise we are flexed with them. We believe that lead times the dealers have been reduced and that we are likely operating at the lowest level of weeks on hand retail inventories in the last four years based on our estimates. Our estimates show that dealer inventories have improved in the last several months with approximately 47,000 net units being pulled out of the channel from April through December. Dealer confidence in the shortened lead times and aggressive floor plan line management have continued into the first quarter of 2019 as expected with anticipation that as the weather breaks OEM schedules will flex up accordingly. On the RV retail side, we estimate North American retail shipments for Q4 2018 to be flat to down low single digits after revisions ultimately come in and which can take several months. However, our estimates and extrapolations of historical data further show that full-year 2018 retail units sold could be approximately 490,000 units up approximately 4% from the approximate 470,000 units sold in 2017. Fourth quarter 2017 retail shipments were up 15%, representing one of the highest retail comparisons in our records. In first quarter 2018, retail shipments were up 11%, both creating tough comparisons for 2018 in the first quarter of 2019, but also representing a very strong retail base. It's important to note that initial headline retail reporting for both RV and marine continues to reflect incomplete data based on delays and government tracking systems and is revised upwards for as much as 12 months after the initial reports. Since we've been tracking initial headline reporting has always been understated. Initial 2019 reports indicate that dealer shows held in January and thus far in February experienced strong attendance levels and excitement for new products including record attendance at the recent RV Super Shows held in Ohio and Florida. We believe that the future retail demand trajectory remains positive based on current demographic indicators, the continued shift to smaller travel trailers, overall economic conditions and resilience and strength in the leisure lifestyle. This coupled with the anticipation of incremental repeat and upgrade buyers emerging should continue to result in momentum for continued demand in the industry. According to industry reports, RV enthusiasts have historically upgraded to a new unit every five to seven years on average. Based on this, 2019 retail sales shift start to be positively impacted by RV’s who purchase units during the strong selling year of 2014 looking to upgrade. 2014 was the year we began to see the shift towards smaller more affordable units. In late 2018, the RVIA published its expectations for 2019 wholesale unit shipments which range from 440,000 units on the low-end to 466,000 units on the high-end and representing mid-single digit to high single-digit declines. Except for 2017 and 2018, total RV wholesale shipments expected for 2019 are still higher than any prior year since 1973. We anticipate the channel inventories will continue to normalize through Q1 2019 and will support a return to a more normal wholesale shipment levels aligned with retail demand in 2019. Overall, both dealer and consumer credit environments appear healthy amidst the volatility experienced in the equity markets over the last several months, uncertainty regarding tariffs, political tensions and rising interest rates, all of which have created some headwinds. We believe the long-term industry and demographic fundamentals discussed will offset some of these headwinds and currently expect the low single-digit to mid-single digit decline in wholesale unit shipments in fiscal 2019 in a flat to low single-digit increase in 2019 retail shipment growth based on trend information and industry data. On the marine side of our business, our brand platform is strong and our component product lines continue to expand, bolstered by both organic and strategic acquisitions. Our revenues from this market increased 121% in the fourth quarter of 2018 compared to 2017 and represented 15% of our consolidated sales. For the full-year, our revenues were up 143% and represented 12% of our consolidated 2018 sales. In 2018 we expanded our footprint through the completion of five strategic acquisitions in the marine space. Overall marine powerboat retail shipments were up approximately 2% for full-year 2018 with aluminum and pontoon combined sales up 3% and ski & wake sales up 10%. This market continues to expand averaging single-digit annual growth rate since 2010. In addition, we believe the U.S. Marine market continues its recovery with the potential for a long runway of slow and steady growth, supported by the leisure lifestyle attractiveness and an aging inventory of used boats in the marketplace, with an average of 25 years and an estimated 30-year life, and with one million boats expected to be retired within the next four years. Retail trends and demand patterns are strong in this sector as well as evidenced by a strong start to the show season, with increased traffic year-over-year at both the Atlanta and Chicago Boat Shows held in January and solid expectations for the Miami Boat Show being held this week. Marine OEM had -- that continued to strive for more value-added content on boats, bringing increasing comfort and convenience to allow for the ideal leisure lifestyle experience. Our strong stable of component product lines have the ability to flex with the value stream both as Marine OEMs continue to increase content per boat as well in the event the consumers push towards a lower-end value related product. All indicators point towards another solid year in the marine industry and continued growth trajectory into 2019 of low to mid-single digits, on balance channel inventories, high churn levels and continued positive demographics. Turning to the housing and industrial side of our business, our manufactured housing sales represents 14% of our total revenues and we're up 26% over the fourth quarter of 2017, despite a 9% decline in wholesale shipments. The decline in MH shipments is off of base unit shipment level in the fourth quarter of 2017, which was up 15% and included certain MH units that were built and shipped to FEMA. Additionally above average rainfall in the fourth quarter in the southern regions of the country including the record wettest quarter in Georgia, hampered the ability to deliver inset units in the fourth quarter of 2018. For the full-year, our MH revenues were up 33% outperforming industry growth of 4% for the same period. In late November, we acquired LaSalle Bristol, a large supplier of plumbing, flooring, tile, lighting, air handling and other building products primarily to the MH market. While we expect LaSalle to be initially diluted to consolidate operating margins by approximately 50 basis points on an annualized basis, we believe there are significant annual operating synergy opportunities of approximately $4 million to $5 million to be realized over the next 12 to 18 months. We continue to see and feel the tailwinds in the MH space and are increasingly more excited about the overall long-term growth prospects in housing and in particular manufactured housing, driven by pent up demand, current demographic trends including multifamily housing capacity, lack of stackable housing contractors and subcontractors and the need for quality affordable housing. We've also seen changes in financial regulations as discussed in our previous quarter call including reversing part of the Dodd-Frank Act in efforts to ease the regulatory burden of smaller financial institutions and with Fannie Mae’s pilot program, which would reduce the total cost of borrowing and further drive increased demand in the space. Our industrial revenues, which represented 13% of our consolidated revenue base in the fourth quarter and are focused on the residential housing, hospitality, high rise, commercial construction and institutional furniture markets increased 26% in the quarter and 49% for the year reflecting both strategic and organic growth. Our industrial platform serves both single and multi-family including new construction of remodel markets and we continue to be excited about the opportunity of our component solutions based strategy to bring our stable of [indiscernible] products together for our customers. We currently estimate that combined single in multi-family residential housing starts were up 6% and 3% for full-year 2018 respectively with the Southern and Western regions driving the growth. While interest rates and tariffs are creating some current headwinds, the lack of affordable housing capacity and inventories, improving consumer credit, strong jobs and wage growth and demographic trends related to new buyers and those looking to downsize play well into our core housing and industrial market model. We are currently anticipating high single-digit growth in MH wholesale units for fiscal 2019 and low to mid-single digit growth and new housing starts in 2019. Favorable U.S. population statistics and projections and pent-up demand in housing including new housing for younger families point towards favorable consumer demand patterns in 2019 and beyond. On the acquisitions front, we continue to execute on our strategic growth initiatives and completed nine acquisitions in 2018 representing approximately $570 million in annualized revenues. In the last two years collectively we've completed 16 acquisitions representing a total of approximately $880 million in annualized revenues. Our current acquisition pipeline is full and spans across all form of our primary market sectors. We are going to continue to be opportunistic and disciplined in evaluating and prioritizing our acquisition model both as we continue to drive synergies from the latest acquired companies and as we expand our product portfolio. Our combined 2017 and 2018 acquisitions in general have a higher gross margin profile and higher operating expense margin profile compared to our consolidated margin profile and have resulted in incremental growth and operating margin accretion as well as overall organic revenue growth for the full-year 2018. Additionally, our acquisitions completed so far have met or exceeded our internal ROIC targets and we continue to evaluate expansion opportunities to continue to reinforce our value proposition as a component solutions provider to our markets. In 2018, we also returned capital to shareholders through our stock buyback initiatives, whereby we repurchased almost 2 million shares. Additionally, we optimally executed on several financing initiatives in 2018 to minimize cash interest rates and volatility risk. We are very comfortable with our debt levels. We have ample dry powder to continue to execute on our capital allocation strategy and remain confident, disciplined and opportunistic in that strategy to drive value for our shareholders, all the while maintaining a disciplined leverage ratio supported by the strength of our cash flows and high variable cost model of our business. We also have the ability to significantly flex our working capital needs and CapEx as the business model flexes to maintain flexibility and take advantage of market conditions to continue to drive value and returns for our shareholders. We delivered free cash flow diluted share of $6.81 in fiscal 2018 and extremely strong operating cash flows as Josh will further describe. We’ll continue to drive our model to maintain flexibility in our capital allocation strategy to drive predictable results and for the long-term value of the business and our shareholders, while continuously evaluating and assessing market conditions. I'll now turn the call over to Josh who’ll provide additional comments on our financial performance.

Thanks, Andy. Our consolidated net sales for the fourth quarter increased 12% to $531 million, reflecting the impact of acquisitions and organic growth. On an annual basis, our sales were $2.3 billion, increasing 38% compared to the prior year, reflecting acquisitions, market share gains organic growth and industry growth and a non-RV related markets. As I previously highlighted on our Q3 2018 earnings call, our fiscal calendar for the fourth quarter of 2018 resulted in five less days which equated to an impact of approximately $50 million in revenues when compared to the prior year. Our fourth quarter and full-year operating results reflect organic and strategic revenue growth and the execution of acquisition-related growth synergies, incremental growth and operating margin improvement that was driven and supported by leveraging our fixed costs, plant operating efficiencies, reduced plant overtime and turnover, and by the overall accretive margin profiles of our acquisitions in addition to earnings per share accretion exclusive of the impact of certain tax items that we’ll elaborate on shortly. The nine acquisitions we completed in 2018 contributed approximately $89 million of revenues in the fourth quarter and $249 million for the full-year. Revenue from our leisure lifestyle markets which is comprised of the RV and marine markets increased 7% with RV revenues down 6% and marine revenues up 121% compared to Q4 2017. RV content per unit for the full-year increased 33% to $2,965 per unit. Estimated marine content per unit increased to 139% to $1,270 per unit. Revenue from our housing and industrial markets increased 26% in the quarter, with MH and industrial revenues both up 26% and our MH -- inmates content per unit increased 24% to $2,849 pre unit. On the subject of tariff, tariffs on additional Chinese products that went to effect in late September included certain items that the company sources directly from China, although not all the products the company sources from China are subject to the additional tariffs. The proposed increase from 10% to 25% related to tariff, that was originally scheduled to take effect in January 2019 has not yet taken place. However, we have actively dealt with any potential incremental cost in 2019 from the tariff by working with our China suppliers on sharing some of that costs and then ultimately partnering with our customers on pricing, in addition to exploring and sourcing alternative sources of product. We will continue to evaluate the tariff landscape and exposure by looking for ways to mitigate the impact and partnering with our customers. In addition, in the fourth quarter we have seen certain commodities stabilize and in some cases decline and will likewise pass along price decreases to customers as mentioned. As we’ve discussed previously, over the last three quarters, the RV, OEMs and suppliers alike positioned themselves to flex their production schedules to support both wholesale and retail expectations and balance the hours worked by their respective workforces in an effort to balance demand levels and provide healthier overall labor environment. As a result, we have continued to drive our turnover rate down resulting in an improved labor efficiencies. Additionally, we continue to look to execute on our synergies across all of our brands, leveraging our cost structure and deploy strategic and targeted capital investments to help drive operational improvements. All of these factors have helped drive incremental margin improvement in the quarter and the full-year 2018. Our gross margin in the fourth quarter increased to 120-basis point to 18.2% as a result of the contribution of our acquisitions over the past 18 months to 24 months and the factors previously described. Operating expenses were 10.9% of sales in the fourth quarter warehouse and delivery expenses and intangible asset amortization increased to 130 basis points primarily due to certain acquisitions completed in 2017 and 2018 have any higher operating expense profile relative to Patrick's overall operating expense profile. SG&A expenses declined 20 basis points to 5.5% in the quarter. Operating income increased 14% to $39 million in the fourth quarter. For the full-year operating income increased 46% to $178 million. The fourth quarter 2018 operating margin, a 7.3% increased 15 basis points compared to the prior year and full-year operating margin increased over 40 basis points, primarily due to the factors previously described. In 2018, in 2017, our net income per diluted share in both the fourth quarter and full-year included one-time tax benefits associated with share based compensation and in 2017 with U.S. tax reform legislation. As outlined in our earnings release for the fourth quarter of 2018 net income and net income per diluted share were positively impacted by $4.5 million or $0.19 per diluted share. For the fourth quarter of 2017 Net income included the impact of one-time tax benefits related to both share based compensation and tax legislation of $8.8 million or $0.35 per diluted share in the aggregate. After adjusting for these items our fourth quarter 2018 and 2017 net income per diluted share was $0.96 and $0.81 respectively an increase of 19%. In full-year 2018 and 2017 net income per diluted share was $4.65 and $2.94 respectively or an increase of 58%. Our overall effective tax rate as reported was 11.4% and 21.2% for the fourth quarter and full-year 2018 respectively. Excluding the impact of the certain tax benefits previously noted our effective tax rate for the fourth quarter and full-year 2018 was 26.2% and 25.5% respectively. For the full-year 2019 we are estimating our effective all in tax rate to be in the range of 25% to 26% excluding the impact of one-time tax items. As we progress into the first quarter of 2019 we expect to continue to capitalize on the benefits from our growth initiatives driving both strategic and organic revenue growth net of industry growth. Based on the strong demand patterns in our core markets outside of RV We expect to drive consolidated organic revenue growth in the full-year 2019 despite the current expectation of RV shipments being down in the first quarter of 2019 compared to the first quarter of 2018. Now, turning to the balance sheet, our total assets increased approximately $365 million from December 31, 2017, primarily reflecting the overall growth in our business, and the addition of acquisitions. In 2018, operating cash flow is doubled to $200 million compared to approximately $100 million in 2017 and our free cash flow is approximately $165 million. Our current business model provides tremendous operating and financing flexibility and positions us to generate strong operating cash flows to both support our strategic and organic growth plans and pivot where necessary to prioritize capital deployment and debt reduction. Our leverage position relative to EBITDA was approximately 2.4 times at the end of the fourth quarter and includes the positive impact of the 1% convertible note offering, we executed on in January 2018, as well as the strategic targeted interest rate swaps, we put in place in Q3, to the hedge changes and variable interest rates over the remaining life of our existing credit facility. As of December 31, 2018, approximately 60% of our total debt outstanding is fixed at a blended cash interest rate of 3.1%. We strategically expanded our credit facility in the first half of the year and our credit availability at the end of the fourth quarter was approximately $412 million. This dry powder combined with ongoing operating cash flows, provides us with the flexibility to continue to execute on our disciplined capital allocation strategy. In alignment with our strategic growth plan, we continue to put capital to work having strategically invested approximately $485 million in 2018 of which $343 million was allocated to acquisition. We completed one acquisition without LaSalle Bristol at the end of November and nine overall in 2018, and further reinvested in the business through significant stock buybacks by taking advantage of volatility in the equity markets. In terms of stock buybacks, we've repurchased approximately two million shares at an average price of $54.21 per share for a total cost of $108 million. In addition, back in late October, our board of directors authorized an increase in our share repurchase program to 50 million of which we have approximately 30 million remaining under the current authorization. In the future, we may continue to repurchase shares from time to time in the open market based on volatility in our share price, market conditions in our pre-established guidelines as determined by management and our board of directors. Additionally, we continue to invest in directed capital expenditures to support our strategic growth and expansion plans for certain brands. Our capital spending in 2018 of approximately $34 million focused on strategic investments in capacity and geographic expansion, increased efficiency as well as new process and product development. For the full-year 2019, we will continue to make discipline strategic investments in our business to ensure we maintain sufficient capacity and can support expected volume levels. For 2019, we currently estimate maintenance CapEx of $5 million and our total capital spending to be approximately $30 million including strategic investments to capacity planning, increased efficiencies and efforts to reduce operating costs. That completes my remarks. Todd?

Thanks, Josh. As we look ahead to 2019 and beyond, we remain confident and optimistic about the long-term fundamental growth potential on both the leisure family lifestyle and housing and industrial markets. Our acquisition pipeline continue to be full with opportunities in all of our markets and we will remain disciplined in our strategic thought process and valuation modeling as we navigate through a volatile political environment and dynamic market conditions. The strong diversified foundation we've built coupled with the talent, drive and dedication of our 8,200 plus team members has well positioned us to continue to drive performance and results and provide solid footing for the execution of our strategic and organic growth plan. We remain focused on driving shareholder value and aligning our capacities and our operations with the expected industry growth and contraction patterns changes in consumer demand and the potential in all our primary markets we serve. We have ample dry powder and extremely strong cash flows to execute on our long term strategic growth initiatives and on our capital allocation strategy which includes a combination of acquisitions capital expenditures expansions stock repurchases and debt reduction. As we enter into 2019 we're excited about the opportunities in our markets and look forward to further strengthening our product portfolio better serving our customers and creating long term shareholder value. This is the end of our prepared remarks. We’re now ready to take questions.

Thank you. We will now begin the question and answer session. [Operator Instructions] And our first question online comes from Mr. Scott Stember from C.L. King. Please go ahead.

Good morning, guys, and congratulations on a very strong quarter.

Thanks, Scott.

Maybe just dig a little bit deeper into the comments about where you think we are as far as how much longer do we have to get to equilibrium at the dealer level as far as inventories and specifically the comments about OEMs talking about I guess as soon as the weather breaks potentially increasing their order rates.

Sure. Scott this is Andy. As it relates to dealer inventory equilibrium, we're seeing continued run rates from the fourth quarter through really the first quarter of this year, we expect things to start ramping up as we had in the March and into the second quarter as it relates to the OEM production levels, we do believe that as the weather breaks, we’ll start to see that retail demand kick-in and we do think that based on where we're sitting today as it relates to weeks of inventory on hand and inventory turns that we're in a good position to be able to execute upon that, especially as it relates to the OEM production levels are lining up with retail demand.

And Scott to further follow-up with Andy’s comment to some of our prepared remarks about some of the lowest weeks on hand that we’ve seen, just as we've been keeping track, some kind of data metrics that we have based on our estimates, we're looking at dealer inventory about 190,000 to end this 2018. And if you look at where we think retail is going to ends up with the year about 490,000 units that would put them into returns about 2.6 times in 2018. And if we kind of look back from 2014 to 2017, dealer inventory turns average about 2.4 times to 2.5 times over the same time period. And so, when we kind of put that in perspective, we kind of think about where the industry is at what's calibrated to; as in our prepared remarks, we think that the industry from a dealer inventory level is the later innings for be in a good position heading to 2019.

Got it. And as far as acquisitions go, could you give us a number. I mean, of course, all things being equal and then the run rates at the industry level are not changing, incremental acquisition revenues, that you would expect to come through in 2019. Assume you do no other acquisitions this year.

Yes, so as far as what our expectations for 2019 revenues from acquisitions.

Yes.

So we really don't break that out specifically, what we can say is we expect to grow organically in 2019, operating under the assumption that the RV industry is going to be down mid-single digits for 2019, so all in all, going to be down mid-single digits for 2019. So, all in all, we expect incremental revenues from acquisitions that we acquired in 2018 and both organic revenues for 2019.

No, that definitely helps. And in the past, you've talked about trying to maintain I guess an operating margin expansion rate annually of 30 to 50 basis points. Does that hold true for 2019 as well?

Sure, Scott, this is Andy. So based on our 2019 assumptions at this point, with RV wholesale shipments down low-to-mid-single digits, RV retail kind of flat to up low single digits, marine up low single digits, MH up high single digits and our industrial markets up low to mid-single digits. Our expectation is that we will see a little bit of operating margin erosion from the 30 to 50 basis points, but we expect to be flat net of the impact of LaSalle Bristol, which is going to cost us estimated 50 basis points as we talked about. So, we do expect that whole operating margins are fairly consistent, but we will expect flat at this point certainly based on what we're seeing in the RV market space especially as it relates to kind of low to mid-single-digit decline on wholesale.

Got it. And just last, I know you've talked about with most of your business units I guess with the exception marine, you have the flexibility of just switching production between different business segments I guess, whether it's MH, industrial or RV. Can you talk about how that's -- that ability is helping you to put up these very strong margins despite the fact that we see such a decline on the RV side?

Yes, Scott, this is Todd. I would tell you that you've You hit the nail on the head as it relates to our ability to flex and move with the industry and all along we've kind of shared with you guys that that's one of of our strengths, our core competencies when it comes to maybe a little bit softer market that we're seeing as it relates to the RV industry. I think the teams have done a great job of kind of handling and coping with the moving product lines. We will continue to take advantage of that where we see opportunities and again that flexibility has truly given us an opportunity to capitalize on efficiencies within our organization as anticipated.

Got it. That's all I have for now. Thanks again, guys.

Thank you

Thank you. Our next question online comes from Mr. Daniel Moore from CJS Securities. Please go ahead.

Good morning.

Good morning.

And just echoing certainly impressive results on the margin front given the RV declines I think it kind of speaks volumes. I wondered if Todd or Andy might elaborate a little bit on LaSalle Bristol in terms of the kind of core products and the opportunities you mentioned $4 million to $5 million of cost synergies but the opportunities for operational synergies and how that sort of fits into your strategy and image going forward.

Sure. This is Todd. I guess I'll touch on the synergy piece in the sense that going into the acquisition we had identified a number of opportunities both from kind of the buy side, the potential consolidation of overlapping facilities and then also I would say implying best practices across the different facilities. So as we look at that going forward we definitely see as I think Andy mentioned the opportunity to $4 million to $5 million in synergy opportunities. We’ve matched very well with the team. We’ve been very opened to discussions and thought processes related to all these things, and we’re really excited about the potential there. As it relates to product categories, I think Andy covered that in his prepared remarks but maybe reiterate some of those that we’re looking at and then what we've added to our product portfolio. Andy?

Sure, Dan. This is Andy. As it relates to LaSalle’s core product lines, we’re really excited about the plumbing, flooring and tile product lines that's a nice compliment to what we're doing in other spaces. We're looking to continue to gain content on the MH space. We've got a nice set of poor products already. So the combination of LaSalle in addition to our product lines, and then as Todd mentioned, as it relates to the synergy opportunities and the 15 locations that LaSalle currently exists in we've got some close proximity to that to be able to harmonize product lines between facilities and touch the customer base across the domestic U.S. So, again we feel like the core products fit well with our stable of building products in the MH space.

And then just to add on to that, Dan. I think as usual in our acquisitions customer strengths are critical and I think there were places where maybe LaSalle didn't have as strong relationships as we have kind of across the MHRV industries and the net result is as we're hoping to utilize those relationships to take LaSalle’s product to even a broader route of customers.

Helpful. And then just maybe a little bit of macro if you will on the image side, obviously this indicates your continued confidence there, but there a lot of crosscurrents last couple of months given the declines in Q4, inventory tough comps, investors are kind of grappling with just -- what is the outlook look like? So maybe just talk about your confidence in that kind of high single-digit growth outlook and whether your mid-term view of MHS change at all? Thanks.

Sure, Dan, this is Andy. We're still very, very confident in the MH space. We think the demand for affordable single family housing is incredibly strong today. The lack of available contractors and subcontractors out in the marketplace, the pent up demand that's being created by multi-family housing living today plays right into the fold as it relates to MH. And so, if you look at kind of 2018, we saw a little bit of movement as it relates to wholesale shipment levels. A lot of that was impacted in the back half of the year by weather just a very wet season down south, really precluding the ability to set homes. And so, as we look at kind of the opportunities that exist today and the excitement and energy that's behind MH, we're still very excited about. We think it really offers their ideal opportunity again for affordable housing, which hits the demand demographic that fits right into our product space. So, we're still very confident in it. We feel very good about it. We've got great content in the space and we expect kind of that high single-digit increase. Mid-to-high single-digits is great as well. So, we're very confident [indiscernible] position and we do think that at some point MH will break loose and we will see better than kind of single-digit increases.

Perfect. And then lastly, they’ll have the full balance sheet yet, but obviously very strong cash generation. You gave CapEx for next year, Josh, how should we be thinking about working capital puts and takes as we’d be thinking about working capital puts and takes as we sort of build a cash flow model for fiscal 2019. Thanks, again.

Yes, Dan. This is Josh, when you look at working capital where we ended for 2018. Obviously, there's a step up, there related to acquisitions. If we pull out acquisitions in 2018, we actually pulled working capital out of the business with softness we saw in Q4. I think that kind of reflects one into 2019; our ability to flex working capital with the business with revenues. So as we think about 2019 and the outline for the RV market and our other industries, we're projecting that we'll do operating cash flows in excess of $200 million for 2019 and targeting capital expenditures of $30 million. So we put free cash flow excess of $170 million, $175 million.

Very good. Great color Thanks, again.

Yes.

Thank you. Our next question online comes from Mr. Brett Andress from KeyBanc Capital. Please go ahead.

Hey, guys. This is Dan Charrow on for Brett. Congrats on impressive quarter against this backdrop.

Thank you.

I just wanted to touch on the organic growth during the quarter. I may missed that in the prepared remarks, but can you give us that and how you're thinking about share gains this year, given some of this end market lumpiness.

Yes, Dan, this is Josh. So organic growth in Q4; in my prepared remarks we talked about the impact of having five less days in the calendar for Q4 here in 2018 compared to 2017. And so, it's really two parts of that equation, our total revenues were plus 12% in the quarter. If we look at just pure organic growth, it would be minus 10% and if we adjust for the five less days as a comparison year-over-year, we would be flat. It's what that equates to, is really a plus 10% net of industry growth, adjusting for the five days. And as we look toward 2019 our expectations are wherever the market lands with RV being down mid-single digits. We expect to do three to four points better than that. So if we take all of our industries and the organic growth in those industries for 2019 our expectations are we're going to do low to mid-single digit growth above industry growth for 2019.

Got it, helpful and kind of in line with that, can you touch on your retail outlook for the RV space. You mentioned the replacement demand that's kind of coming online. I mean how much of your flat to up outlook is driven by new entrants versus that replacement demand seems like it could be a nice tailwind.

We do think that the replacements will be a nice tailwind especially and we'll see a lot. We'll see what happens this year really this will be kind of the first year as we talked about we would expect to see a little bit of that demand kick in. So, most of it today is baseline, new demand consistent with the demographic trends that we've been following. So and tracking too. So again I think that that could be a tailwind to our flat to up low single digits as it relates to the placement side.

Great. Thanks, guys. Congrats on the quarter.

Thank you.

Thank you.

Thank you. Our next question online comes from Mr. Craig Kennison from Baird. Please go ahead.

Hey, Good morning, thanks for taking my question. I wanted to ask just about any planning you're doing around an eventual downturn in some of your end markets and your stock seems to reflect a view that people are concerned about what that downturn might look like. So maybe you could just shed some light on how your margin structure might lock in a downturn if you have any sort of incremental or decremental margin profile for any of your segments that might help us frame it as well.

Sure, Craig this is Andy. As it relates to our modeling and our ability to flex the operating structure and alignment with end market demand we are very confident in where we sit today. The high variable cost structure of our business makes it very scalable our working capital flexes significantly as well with ebbs and flows in the market. So and then we've got the ability to be very, very disciplined as it relates to managing our cash flows. And so we do modeling under various scenarios to make sure that we understand what we need to do in the event that we see certain downside scenarios in any of our markets. So we always stay confident and positioned to be able to manage according to where the industry is at as well as it relates to our comfort and confidence in where we sit today from a leverage perspective. We throw off a ton of cash flow and we stay very, very focused to cash flow. And so that's know we talk about kind of where our capital allocation strategy and our leverage model we're very comfortable and confident in that. We know we can flex that model very quickly and the ability to de-lever I think it's discounted a little bit. We are very confident in our ability to de-lever the business really at any point in time as we see kind of industry trends move and flex and so again we're comfortable with that model. And again the high variable cost structure allows us a lot of flexibility and scalability.

And Craig, as a follow up just briefly with that, with Andy on the de-lever front, we’re going to kick off a tremendous amount of cash $200 million here in 2018, and excess of $200 million in 2019 and that's even with RV being down mid-single digits. As Andy said with the high variable cost structure we pull cost out of the business in a declining market. We also pull working capital out of business. And so if we had a sustained downturn and one or multiple core portion of our end markets, we could de-lever to know acquisitions in 2019 and full three quarters of return out of leverage, three quarters of full turn by just paying down debt with the casualties that we kick off here. So, again to reiterate, Andy, we feel confident if there was a sustained downturn we can pivot at any point time, redirect our capital if we chose to pay down debt and de-lever very quickly.

And just a couple additional points, I'd make is obviously all these great points that Andy and Josh are making. The reality of it is, is none of that gets accomplished without the leadership within the organization. And what you're – Craig what you're looking add is a management team that's been together since the last recession. The teams that we've acquired most of those are still intact with leaders that have been through a downturn and I would just say that while some may be concerned of our -- kind of our decentralized approach, all our leaders have the capabilities in the knowledge and experience to cut where they need to cut and do what they need to do during a time where either the industries fall off more than we – maybe we expect or even the adjustments we’ve made in 2018 is a great example even if there's – even a slight slowdown. So, I feel very good about where the team sits and then our abilities to pull those levers.

And Craig, just to add a specific metric, if we did nothing in 2019 and we pulled back CapEx $5 million in my prepared remarks were allocated to maintenance CapEx, the remaining $25 million allocated to what we consider strategic which is going to be value-add, profit add, pulling cost out of the business. If we did nothing in 2019 for acquisitions, we could have leverage below 1.75 to end 2019.

That's terrific color. Thank you for that. And then just on the M&A front is there any evidence that multiples are coming down as people maybe look into their horizon, it may be a slowing environment. And if so, would you be patient and just wait till things get even cheaper or you have to strike while those opportunities come to light?

I think it's all different, Craig, this is Todd. And we look -- we're looking at that I would say differently amongst different industries, but we definitely in most cases have seen the multiples come down. I think the reality of kind of a -- kind of a stable market versus an extremely hot market, everybody's kind of come to grips with that on the sell side. So, from a multiple standpoint, we have seen some declines there. Given depending on the industry and I would say given our abilities to synergize the product potentially cross-sell the product, we may sit back -- we may become more aggressive, then there'll be some other cases where we will obviously sit back and let kind of the current months or current year's earnings flow through the financial segments and be patient. So, I don't think there's a one size fits all answer to that question. But those are just a little color on how we think of things based on market conditions in different markets and also what the value of that particular acquisition brings to our organization when we look at harmonizing our abilities with the potential acquisition great.

Great. Thank you so much.

And thank you. Our next question comes from Mr. Stephen O’Hara from Sidoti. Please go ahead. Stephen O’Hara: Yes. Hi, good morning.

Good morning. Stephen O’Hara: Good morning. Just quickly again on the acquisition front, within the four core end markets that you cover right now, is there maybe another one that appeals to you outside of those or is there one kind of within one or the other segments that at some point you begin to break out or what do you think is especially attractive or kind of comfortable with the current end markets that you're in now?

Yes, Steve, this is Todd. I would tell you that as we look at things today, we feel very good about the four primary end markets that we're serving and the available acquisitions in those markets, as we’ve continued to say we’d like to do what we know how to do and we're going to stay consistent with that that approach. That's not to say that again we may -- something came along that would be – that we would view as a great opportunity, we may look at it. But as of today we feel like there's plenty of opportunities in our core competencies that that we know to take advantage of in 2019. Stephen O’Hara: Okay. And then maybe just on Europe, I mean, LCI was talking about Europe quite a bit on their call especially now that Thor owns Erwin Hymer. And I'm just wondering what your – what maybe – what your international sales are at this point if any, and then what’s your outlook there and if that's a market you're looking to go into? It sounds like that market looks similar to what the U.S. did may be 10 or 15 years ago from [indiscernible] consolidation. Thank you.

Yes. Again, this is Todd. I would tell you that and Andy, Josh, correct me if I'm wrong. But our international sales are very limited…

Very negligible, yes.

Yes. And so, I think right now, we would -- we want to be supportive of Thor and their movements. I think if they would come to us with some opportunities and approaches in a way that we could help them out, we’d definitely consider it. I think other than that we'll probably sit back and kind of watch that particular end market where we take advantage of our existing opportunities within the U.S. Stephen O’Hara: Okay. All right, thank you very much.

And - thank you. We have no further questions at this time. I’ll now turn the call over to Julie Ann for closing comments.

Thanks, Richard. We appreciate everyone for being on the call today and look forward to talking to you again at our first quarter 2019 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 our operator.

Thank you, ladies and gentlemen, this concludes today's teleconference. Thank you for joining. You may now disconnect.