Good morning, ladies and gentlemen, and welcome to Patrick Industries’ Fourth Quarter 2023 Earnings Conference Call. My name is Paul, and I’ll be your operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Steve O’Hara, Vice President of Investor Relations. Mr. O’Hara, you may begin. Steve O’Hara: Good morning, everyone, and welcome to our call this morning. I am joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President RV; and Matt Filer, Interim CFO; as well as Kip Ellis, Patrick’s President, Powersports and Housing, who is available for Q&A and is joining us remotely. 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 which -- many of which are beyond the company’s control, which could cause the actual results and events to differ materially from those described in the forward-looking statements. These factors are identified in our press releases, our Form 10-K for the year ended 2022 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update these statements to reflect circumstances or events that occur after the date the forward-looking statements are made. I would now like to turn the call over to Andy Nemeth.

Thank you, Steve. As we look back on fiscal 2023, I’m incredibly proud of the efforts our team has shown as they continue to deliver solid and resilient performance and results in a challenging environment. Despite sharply lower shipments across our end markets as we face macro and industry headwinds attributable to high inflation and interest rates, our business generated strong revenue, margins, profits and cash flow, particularly when compared to the pre-COVID time period when our business was less diversified. For the full year, we achieved record gross margin, delivering on our operating margin target and generated record free cash flow. To highlight the evolution of our business and the benefits of the strategic diversification and investments we’ve made, we’ll compare the full year’s 2023 results with full year 2019. This year, RV wholesale unit shipments declined 37% and were 23% lower than 2019. Despite the materially lower unit volumes and less favorable environment, total revenue in 2023 was 48% higher than 2019. Gross margin was 450 basis points higher and operating margin was 90 basis points higher. EPS was 69% higher and free cash flow was more than twice what we produced in 2019 on significantly higher interest rates. We expect to continue to drive our growth trajectory with the execution of our strategic plan, and our team’s hard work and determination has continued to position us to actively pivot where necessary to stay nimble and flexible. Our foundation is solid as we spent the year, streamlining our model and placing our company in a great position not just to weather the uncertain macro environment, but to proactively grow our company through our successful diversification and automation strategy, among other strategic and capital initiatives. We optimized our cost structure based on current run rates in our markets, paid…

Thanks, Andy, and good morning, everyone. If there are 2 key themes that define our markets in 2023, they were inflation and interest rates, which negatively impacted end consumers’ desire to finance their purchases of RVs, boats, and houses while also increasing floor plan lending rates and limiting dealers’ willingness to hold excess inventory across our markets. We believe the RV market bottomed in 2023 and our analysis suggests inventories are lean in the field. We are optimistic about potential trajectory of the RV market with the peak selling season just around the corner in the spring. Our teams, along with the OEMs across the market are poised and ready to meet demand with many exciting innovations coming to the market for model year 2025 introductions later this year. For 2024, generally, we believe our end markets are operating at below normalized levels, and there has been real growth over the past several years in consumers’ affinity for the outdoor enthusiast space. Post pandemic, an increasing number of consumers see the benefits of enjoying the outdoors with family and friends, including 25 million new camping households from 2020 to 2022 according to KOA, which should positively impact normalized demand for years to come. Looking at the RV industry, RV OEMs have continued to show incredible operating discipline to keep inventories lean, while preparing for future growth. Our strategy in the RV space continued to be centered around our goal of providing best-in-class customer service and a growing portfolio to OEMs through our full solutions model, therefore, helping them innovate and build quality units across a spectrum of feature and price. Our fourth quarter RV revenues decreased 14% to $353 million, representing 45% of consolidated sales. RV wholesale unit shipments of approximately $75,000 in the quarter decreased 3% as OEMs continue…

Thanks, Jeff, and good morning, everyone. Our consolidated net sales for the fourth quarter decreased 18% to $781 million, driven by a decrease in wholesale shipments across our RV, marine and MH end markets. For the full year, net sales decreased 29% to $3.5 billion. The decline in sales was driven by continued discipline among RV OEMs as they maintained low production levels, along with marine OEMs aggressively cutting production in the second half of the year to ensure inventory balance in the field. We note that on a full year basis, 2022 is the toughest comparison in the history of our company, representing records for both sales and earnings per share. Full year marine revenue decreased 11% to $924 million, while RV revenue decreased 42% to $1.5 billion. Within our housing business, which is comprised of our MH and industrial end markets, our revenue decreased 17% to $1 billion for the year. Gross margin was 22.9% in the fourth quarter and increased 180 basis points from the prior year as a result of prudent labor and material management, our diversified business model and our continued investment in higher engineered, higher-margin products. For the full year, gross margin increased by 90 basis points to 22.6%. Warehouse and delivery expenses declined 9% in the fourth quarter and 12% for the full year versus the respective periods last year. For the fourth quarter and full year, respectively, SG&A expenses declined 12% to $68 million and 9% to $299 million. As a percentage of sales, SG&A and warehouse and delivery expenses increased due to lower sales and the difference in the operating expense profile of our marine businesses due to the nature of their higher engineered products. Operating income for the fourth quarter declined 15% to $57 million and declined 48% to $260…

[Operator Instructions] Our first question is from Mike Swartz with Truist Securities.

Maybe just to start off with the EBIT margin target that you outlined for ‘24. Maybe just give us a sense of some of the puts and takes there. I’m assuming mix will be slightly negative, but I assume that includes -- that also includes the Sportech acquisition. I guess that should be additive. But what are you anticipating for amortization as well from that business? Maybe give us just the moving pieces there?

Sure, Mike. This is Andy. So when you think about the puts and takes and where we sit looking as we’re looking into 2024 right now, I think we feel good about, first of all, where we put the company as it relates to the structure. We’ve leaned the operations out, spent the fourth quarter kind of really making sure that we were lined up for the current run rates as they exist in our markets today. And as we’re looking forward we’ve made a little bit of movement on our forecast as it relates to RV shipments with some potential marine improvement that -- from where we were at before and the mix that we’re seeing. And so all the puts and takes kind of net to what I would say, opportunity for us to be able to leverage, especially as we look out further into the back half of next year. And so we’re positioned to operate at the current run rates with our margin profile and expect to pick up as we noted, 30 to 50 basis points. I think when we look out and see the opportunities for some up-contenting when we see the opportunity for some increased shipments due to the potential retail environment improving in the back half of the year, we feel good about the ability to leverage this model and drive incremental margins. So there’s a lot of puts and takes when you think about just sitting where we’re at today, looking out, but they net to what I would say is us being very well positioned to operate at current run rates. We can certainly make adjustments if we need to on the downside, but we feel like things have bottomed out, and we will be able to leverage that on a go-forward basis as the conditions improve.

And just clarification, Andy. That outlook for the 30 to 50 basis points in growth does include Sportech. And I guess what is the assumption for amortization since you don’t back that out when it comes to EPS?

Yes, Mike, this is Matt Filer. We’re looking at about $15 million for amortization of the Sportech acquisition annually.

Okay. Okay. Great. And then just a second question, as it pertains to the quarter, the 18% decline in revenue. Could you -- as we typically do, could you give us the kind of the moving pieces there between M&A and pricing?

Sure, Mike. So the 18% revenue decrease for the quarter, if you look at that, it’s about 11% down on industry. And then from an organic standpoint, we’re down 8% and acquisitions had a positive 1% impact. And when we break out that organic impact, pricing is down 9%, and we have a share increase of 1%.

Our next question is from Craig Kennison with Baird.

It’s been a very helpful call, of course. But I wanted to pursue this powersport channel, if we could. I mean if there’s a channel that deals the most at risk, its powersports in terms of how much inventory is out there and maybe trends in some of these end markets. I know you have some confidence based on just your mix of higher-end consumers where the affluent consumer is doing better, I guess. But how much have you stress tested your acquisition for just potential weakness and potential destocking? We frankly have seen destocking risk hit a lot of different acquisitions and categories and I want to make sure we’re stress tested on that one.

Sure, Craig. This is Andy. I’ll kick it off, and then I’ll turn it over to Kip as well for some additional color. But as we looked at certainly the Sportech model and what got us confident in the ability to be resilient, especially during a time like this, was certainly the up content on Sportech, the utility concentration that Sportech has and the premiumization of the units that we see. And so we’ve definitely seen in all of our markets the price-sensitive consumer has been impacted and that’s where, again, across markets, we’re seeing more, let’s just call it, volatility or softness. And so on the upside, though, with the utility vehicle segment and we looked at the backlog that Sportech has in their portfolio today, especially with new product introductions and some of the upfitting that was supposed to take place in ‘22 and ‘23 that didn’t get through the system, we’ve got ourselves confident with some of the volatility that could be there as it relates to some potential softness and feel pretty good about the model that we’ve put together. So again, we stress tested that model. We liked the business. The team is extremely talented, well-connected with the customer base, but we got comfortable with their mix and their backlog and opportunity with the upfit models. And so Kip, if you have anything else to add, certainly, feel free to chime in.

Yes. Thanks, Andy. I think it’s been [indiscernible] we’ve got to know the Sportech team better and appreciate how they look at the market. It’s very much an innovation-driven company and the take rate on the products they’re bringing to market, the cabin closure concept is something that we’re seeing expand beyond some of the players that are get covered in the market, the bigger players to broader spectrum of the manufacturers. So we see some growth potential there with our new products. But to reiterate what Andy said, they do a nice job of taking a look at the data they’ve got available to them to get a sense of what they see from a mix from the OEs and how these premium fitups play into that. And we do see resilience in the backlogs. And so we’re very much aware of what’s been reported from an inventory standpoint for side-by-side and the recreational sports side of the business, the baseline pieces in the market and the impact of finance rates and what have you on consumer attitudes towards that. There’s certain bits of incentives that have been extended by the OEs to assist with that, but continued strength and recognition for the runway that what Sportech sees from order backlog standpoint. So I feel like we got a good grasp of that. Is there a potential for a cycle down the road, certainly possible, but the trajectory they’ve got from an innovation standpoint and the improving share and take rate that they see platform to platform something that gives us further encouragement.

Yes. And just as a follow-up, is this a category where you might be able to convey your share gains through a content per unit like metric? Or is the unit side of that equation just too hard to pinpoint?

We’re working on just that, something we take pride in across our leisure lifestyle, what we term leisure lifestyle perform outdoor enthusiast markets now, RV and marine, in particular. Obviously, there’s less visibility of wholesale data within this particular space. And because it’s such a fast-growing and evolving platform space, the differentiation at the time of registration for retail sometimes difficult to pinpoint, but Sportech does have the ability to see line rates and see mix and on a historical basis, looked at it as well. So as we prepare to report out on a quarterly basis, what’s going on in our powersports segment, we will be assembling a look at that and continue to refine it to get a better appreciation. But the data is a little more difficult without a question to come across, but we feel like because they serve essentially the full spectrum of players in the space they’ve got visibility of what’s going on from platform to platform.

Our next question is from Daniel Moore with CJS Securities.

Maybe just start off with kind of the near-term outlook. You mentioned H1 could look a lot like -- H1 ‘24 look a lot like H2 ‘23. If we take Sportech out for the moment, how would you describe your expectations for Q1 in terms of revenue, margins, earnings relative to the Q4 results you just reported?

Sure, Dan. This is Andy. I think as we look at where we’re running today, continuing run rates consistent with what we saw in Q4 and Q3. We’re really kind of projecting that through the first quarter. We do expect incremental margin improvement quarter-over-quarter, first quarter to first quarter, second quarter to second quarter. And so we’re kind of looking at our model today, like I said, we’re positioned very well to operate at these levels. We’ve leaned the organization to be streamlined to operate at these levels with opportunity for incremental uptick if we do see that take place in the wholesale shipments. But we’re being cautious in our modeling right now as we look at the business, but we’ve sized it appropriately. And again, like I said, we will be able to flex that up very, very quickly, and we’re positioned well from a liquidity perspective. We’re ready to take care of our customers in the event that they do -- we do see some flex up.

Very helpful. And in terms of Sportech, excluding -- I appreciate the color around the charges, excluding those kind of onetime do you expect it to be accretive right away in Q1? And how do we think about the kind of impact to the full year?

Absolutely, we expect it to be accretive, net of the onetime charges. And again, we feel like where we’re at today and what we’re seeing in the order book, we fully expect to be on plan at this point.

Got it. Maybe just kind of longer term, when you put -- add Sportech layered in and along with the automation and cost reduction initiatives you’ve made, when you think about gross margin, operating margin over the next 3 to 5 years, once your kind of primary core end markets have recovered to more normal demand in shipment levels, where do you see those -- where do you see kind of the opportunity or where those gross and operating margins level off over a long-term perspective? I appreciate it.

Sure, Dan. I think that’s one of the things that we’re most excited about is the position of the organization today, the infrastructure that’s been put in place, the caliber of the team and then the automation and operational efficiencies that we’ve been able to deliver and drive and invest in over the last couple of years, have really positioned us to be able to flex up very quickly and leverage the infrastructure that we’ve got in place without adding a lot of incremental overhead and cost to support that. And so we see incremental opportunity both at the gross and op margin level, especially with the run rates that we’re running at today, which we do not believe our normalized run rates on a longer-term go-forward basis. So I think that’s one of the things that gets us most excited is the opportunity to leverage this and the earnings power of the organization based on the investments that we made in this business over the last couple of years. And we’re going to continue to invest in automation, as we noted, with our CapEx plans for 2024. We’re going to stay focused on continuing to drive those efficiencies to be able to improve our throughput, our quality and be able to continue to take care of our customers as they flex up. And so again, I think we feel good about incremental margin growth at both the gross and op margin level for the foreseeable future.

Our next question is from Tristan Thomas-Martin with BMO Capital Markets.

Two questions. So OEMs took a lot of price on model year ‘24 relative to ‘23. Do you think they need to take more price on ‘25? Or do you think they’re in a decent place there? And then second question, was there any delta in between industry shipments versus industry production, i.e., where there are a lot of opens that were shipped out in 4Q, maybe that were built in earlier quarters?

Yes, Tristan, this is Jeff. Just to answer your first question, I don’t think that there was a lot of opens out there. I mean they really started to manage their inventory way earlier in the year tied to what was being ordered was really what was being shipped or what was being run with what was being shipped. We see that a lot in our transportation business, so we got a good eye on that. So I think that there’s not a lot of extra there. Definitely not a lot of opens being run by the OEMs. We’ve been very disciplined in that manner. As far as pricing, it’s a little interesting out there, because I think you’ve heard a little bit about decontenting or smaller units and different mix out there. Prices definitely have come down from the 23s to the 24s. I believe there was some decontenting in a few units, but ultimately, I think the consumer is looking for the contented unit. So I think the prices will remain pretty stable or even maybe go up a little bit with some additional contenting in that 2025 where I believe the brands are trying to differentiate themselves in the market with a higher-end product and something that’s more valuable to that retail customer.

Our next question is from Noah Zatzkin with KeyBanc Capital Markets.

Just hoping you could maybe provide any color in terms of how you’re thinking about CPU opportunity across the different end markets and any puts and takes we should keep in mind?

Yes. This is Andy. I think we – again, we said we’re positioned today. We feel like we’ve bottomed as it relates to kind of industry production. We think wholesale retail is at one for one. And from a content perspective, we also think we bottomed in Q4 and believe that there’s upside, and we expect upside as we go into 2024 as it relates to our content per unit. We’re still carrying some of the pricing that we gave in the first half of the year on a TTM basis through kind of Q4 when you compare to prior year Q4. And so again, as we look at kind of 2024, we feel like our CPU has upside potential and are expecting upside potential. We’re picking up business. We have not lost any business. The only shifts really in the content have been related to pricing and mix as it relates to production in the field. And so we feel good about our content perspective. We think that’s bottomed out and look for the upside potential. And we’ve picked up a lot of new business as well to support that. So on the CPU side, we feel good about where we’re at.

Our next question is from Brandon Rollé with D.A. Davidson. Brandon Rollé: Just briefly on your outlook for the RV industry. It seems like you have a little more cautious outlook than some of the other industry participants. Could you talk about what happened during RV show season? And did anything come out of the month of January that influenced maybe a more cautious outlook on the RV industry?

Yes, Brandon, this is Jeff. I would tell you, so far this year, shows have been mixed. We’re really, really just a month into it. Our OEM touches have varied from weekend to weekend about what’s going on the shows and on that front. I think we’re just trying to give a range kind of similarly to what we’ve seen in the industry and where we’re at. I think we still feel like we’re optimistic that there’s some upside to what’s going on. But certainly, what we see in retail, probably over the next month in the shows is really going to help us hone in a little bit closer to where we think things will be at. As we’re talking to the OEMs, that’s really what they’re communicating to us is that these next month, 1.5 months of shows will show us where the retail ends up, and we believe it’s still going to be one for one. And so that’s kind of where we came up with that range. Brandon Rollé: Okay. Great. And then just on a -- from a competition perspective, obviously, with pricing being a big focus right now for the customer. Can you talk about the competition going on among suppliers for business with those OEM partners as they work to get prices lower?

Yes. This is Jeff again. We have competitors in every one of our markets that we serve. We have – we pride ourselves on our customer service, our ability to scale our size and have to be able to provide the customer not only with the best product in the market, but the most economical product in the market. In all of our product lines, we provide good, better and best across the board. And that gives us a lot of flexibility to work with customers to design our products to make them work for them along with getting it into the price point they need for the price point they’re trying to hit in the market. So we feel very comfortable with where we’re at in the market. Certainly, there’s competition, and there always – really always has been for us with all of our product lines. So as we move forward, I think the one thing that we’re most proud of is our ability of our teams to be able to flex with the customers for their needs and give them what they want and then really kind of hone in on that price point at the same time.

Our next question is from Rafe Jadrosich with Bank of America.

I just wanted to follow up on the outlook for 30 to 50 basis points of margin expansion in 2024. Can you just give a little bit more color of SG&A versus gross margin? And then some of the expectations in terms of mix, price/cost. And could you just talk a little bit about the sales assumption that’s behind that? I know you talked about by end market. Just what is the rough sort of outlook for production?

Sure, Rafe. I’ll handle that. I think as we -- when you look at the cost structure of our business, our RV business is extremely variable and highly scalable. When you look at our marine and powersports businesses, there’s a little -- there’s a higher engineered component to that has a higher fixed cost structure and especially when you look at where we’re operating today with the Marine business, we’re certainly losing some absorption, but that’s being offset by the flexibility that we see in the RV business from a diversification perspective. So again, we’re running today at -- we’re operating and assuming our model based on run rates that we’re seeing today. And that’s where we get confidence as it relates to our ability to drive incremental margins as we start to see production improve across these markets. So again, from an SG&A perspective, we would expect a higher SG&A concentration or percent of the mix, but we also expect a higher gross margin component to that with our RV -- or I’m sorry, with our marine and our powersports businesses due to the higher engineered nature of those 2 businesses. So that’s as it relates to our OpEx and op margin improvement with the opportunity for incremental margins over and above kind of what we’ve said. I think from an overall mix perspective in the marketplace today, again, we think we’ve kind of bottomed. We think that the opportunity for up-contenting in the RV market exists, especially with the mix that we’re seeing today. As Jeff mentioned in his prepared remarks, it’s usually -- that’s usually the start of the next run when we start to see the RV industry start to improve as we start to see some up-contenting trends. And I think marine content really hasn’t changed a lot. The marine OEMs continue to automate, innovate, add content to units and the consumer wants that up-contented unit is I think the feel that we see out in the marketplace today. So when you look at the mix that we’re running at, we feel like it’s, let’s just call it, abnormally low as it relates to lower end with opportunity for upside with up-contented units on a go-forward basis. So bottomed out as it relates to mix and then upside potential is how we look at it.

That’s really helpful. And then my second question, just in terms of the longer-term M&A strategy, you’ve done a really good job of broadening your end market exposure and diversifying away from RVs. How do we think about that mix longer term? Do you expect to go more into powersports, housing, marine? Are there any end markets that you’re like focused on from here?

So we love the outdoor enthusiast space and definitely are focused on that, especially with regards to the runway that exists and the opportunity for not only margin accretive businesses, but opportunities to continue to provide innovative solutions across our product spectrum with new businesses that we can partner with in those spaces. So we have cross-market opportunities. And certainly today, we’re working across markets with our businesses in the outdoor enthusiast space. So the ability to leverage that and provide a solution for our customer with additional runway is very compelling as we look at the M&A going forward. And so we would tell you, RV, marine and powersports are kind of a lane and the total addressable market, certainly with the recent acquisition of Sportech, has absolutely expanded for us to have a lot of options as it relates to M&A on a go-forward basis. And again, I look at where our liquidity position at today, the strength of our capital structure, the opportunity to be opportunistic in the space and continue to look at deals, even today, we are continuing to maintain an active pipeline and want to continue to pursue M&A in that outdoor enthusiast space to continue to drive the business forward.

Thank you. Ladies and gentlemen, I will turn it over to Andy for closing remarks.

Thank you. As we wrap up 2023, we must extend our sincere gratitude to the backbone of our success, our team members whose unwavering commitment has been instrumental in navigating the uncertainties that characterize the macroeconomic and industrial landscape this year. We performed impressively versus a record-breaking 2022 and feel confident bolstered by our organizational structure that will continue to grow stronger as a company. Our team’s collective efforts this year not only solidified our foundation but have set the stage for a future with continued strategic advancements and long-term growth. Thank you for your continued support.

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