PATRICK INDUSTRIES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Diversification and Resilience: Leveraged portfolio strength and diversification, offering a good-better-best value proposition to adapt to changing consumer preferences while maintaining competitive edge. Maintained strong operational performance and resilient margins despite challenging end-market conditions.
• Advanced Product Innovation: Invested in enterprise-wide innovation, with the Advanced Product Group leading development of next-generation solutions. Brands like SeaDek and MTXT showcased innovative products.
• M&A Strategy: Closed acquisition of RecPro in September, establishing an aftermarket platform with synergies to Marine and Powersports brands, including growing consumer-focused brand, introducing to OEMs, and expanding distribution.

Segment Performance

• RV: Third quarter RV revenues were $396 million, down 1% from the prior year, representing 43% of consolidated revenue. RV content per unit on a TTM basis was $4,887, up ~1% year-over-year.
• Marine: Third quarter marine revenues were $136 million, up 21% from the prior year, representing 15% of consolidated sales. Estimated marine content per wholesale unit on a TTM basis was $3,936, down 6% year-over-year but up 3% sequentially from Q2 2024.
• Powersports: Powersports revenues were $87 million in the quarter, representing 10% of third quarter 2024 consolidated sales.
• Housing: Housing revenue was $300 million, up 13% from the prior year, representing 32% of consolidated sales. MH shipments increased an estimated 17% in the quarter.

Guidance

• Third Quarter Results: Top-line growth of 6% to $919 million, net income grew 3% to $41 million, adjusted EBITDA increased 7% to $121 million, with adjusted EBITDA margin up 10 basis points to 13.2%.
• Full-Year Outlook: Revised RV wholesale unit shipments towards low end of previous range (320,000-330,000 units), Marine wholesale outlook more conservative (down 25-30% for full year), Powersports unit shipments expected to decline 10-20% sequentially, Housing MH wholesale unit shipments up 15%, residential housing starts flat. Operating margin expected to be down 20-30 basis points for full year.
• 2025 Outlook: Optimistic about 2025 inflection with improved consumer confidence and interest rates. Expect RV retail to be flat, Marine retail flat with improvement in second half, Powersports shipments down 10%, Housing MH shipments up 5-10%, operating margin to improve meaningfully (70-90 basis points).

Risks

• Industry-Wide Headwinds: OEMs and dealers maintaining strict inventory and production discipline, challenging end-market conditions impacting operations.
• Inventory Levels: Dealers maintaining minimal inventory levels, potential for reduced production levels in fourth quarter, affecting short-term operating margins.

Question and Answer

• Q: Talk about other markets like RV and Marine given incremental shutdowns A: OEMs are disciplined with inventory, reduced production levels in Q4, but expect restock when retail demand inflects as consumer confidence and interest rates improve.
• Q: RecPro aftermarket percentage and cushion A: RecPro is an aftermarket platform driving organic growth. Teams are adapting, showing traction in aftermarket product introduction to OEMs, with immediate opportunities in 3 key areas identified.
• Q: M&A contribution to revenue growth A: M&A acquisitions drove 9% revenue growth, industry down 4%, organic growth up 1% with pricing down 2% and content share up 3%.
• Q: RV content quarter-over-quarter change A: Shift to smaller units, but content numbers resilient due to team gaining business. Expect mix shift back to larger units when consumer confidence inflects.
• Q: 2025 operating margin expectation A: Expect 70-90 basis points improvement, with second half strength, and some sectors (RV) showing early improvement in inventory levels.