Patrick Industries, Inc. Aktie

Good morning, ladies and gentlemen, and welcome to Patrick Industries First Quarter 2026 Earnings Conference Call. My name is Sherry, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. And I will now turn the call over to Mr. Steve O'Hara, Vice President, Investor Relations. Mr. O'Hara, you may begin.

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Matt Filer, 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. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2025, and the company's other filings with the Securities and Exchange Commission. Before we begin, I would like to remind you that on April 17, 2026, Patrick announced the merger of equals discussions with LCI Industries. Andy will be providing a brief comment in his remarks. However, we are unable to answer any further questions or discuss the potential for a transaction beyond Andy's remarks at this time. I would now like to turn the call over to Andy Nemeth.

Thank you, Steve. Good morning, everyone. We appreciate you joining us on the call. Today, we'd like to talk about our first quarter results, industry conditions, expectations for the year and also briefly discuss our recent announcement related to discussions for a potential merger of equals with LCI Industries.

First quarter results continue to highlight the strength and resilience of our diversified platform, our innovation and product development efforts over the last 2 years and the incredible dedication of our team to support our customers in this dynamic environment.

Marine revenue growth in spite of shipment declines, along with powersports revenue growth helped to offset double-digit shipment declines in our RV and manufactured housing markets. Net sales for the first quarter were $997 million, up 1%, with overall organic growth contributing 8% Earnings per diluted share was $1.10, including approximately $0.10 of dilution from our convertible notes and related warrants. On a trailing 12-month basis, net sales were approximately $3.9 billion. I'm incredibly proud of our team's disciplined execution on our operational playbook to deliver results in an uncertain and unbalanced shipment environment.

Retail demand is seemingly constrained by macroeconomic factors, the war in Iran, consumer confidence and interest rate uncertainty. Importantly, OEMs and dealers have remained disciplined, keeping dealer field inventories lean, positioning our markets for a sustained recovery. Our diverse end market exposure and deep and broad brand-forward product portfolio remain a compelling advantage, enabling us to deliver more complete full solution-oriented offerings to our customers across the good, better, best framework while deepening our partnerships with OEMs.

We remain focused on empowering our brands to lead with innovation while engineering new products and experiences for our customers. The nimble scalability of the Patrick platform enabled us to deliver quality with speed, depth and consistency across every end market we serve, driving content expansion, deeper OEM integration and continued opportunity for aftermarket growth.

Our Advanced Product group is driving meaningful progress on multiple product solutions, including our composite strategy and an entry-level tower audio solution to help drive better affordability. We are increasingly collaborating with OEM customers to integrate solutions-based models into new and existing platforms, replacing legacy materials with higher-performing alternatives that offer durability, weight and design advantages. As a result of these benefits, coupled with OEMs placing greater emphasis on material sourcing, we believe our ability to procure, value-add value engineer and deliver full solutions will continue to position our value proposition as a true low-cost solution for our customers' ever-changing needs, representing durable long-term growth opportunity for Patrick.

Additionally, our investments in technology and innovation continue to generate real measurable impact as the integration of automation and AI, which is in its infancy, are enhancing visibility, efficiency and responsiveness across our operations. These investments will help us manage costs, optimize production, navigate demand variability and better align and communicate with our customers, providing enhanced customer service.

Regarding tariffs, our decentralized business structure, sourcing flexibility and close coordination with suppliers and customers have enabled us to mitigate impacts over time. Our team has expertly navigated changes to trade policy in the past, and we are confident that they will continue to operate with agility, maintaining our position of strength. We do not expect a material impact to our full year 2026 outlook from tariffs.

From a financial standpoint, we used cash in operations during the quarter, consistent with normal seasonality and reflecting a proactive strategy to add inventory that supports anticipated growth in customer demand for composites and other materials. Importantly, we continue to expect strong free cash flow generation for the full year, supported by disciplined working capital management and the underlying earnings power of our business.

While 2025 presented a more challenging valuation environment on the M&A front, largely related to macroeconomic uncertainty, we continue to be excited about the deals we did execute and the ones in the pipeline currently being cultivated.

Our teams are well equipped to advance our proven playbook, targeting well-run companies with durable value creation while prioritizing leadership, talent and cultures that align with Patrick's long-term objectives. Long term, we are confident in our ability to outperform as a result of our organic growth initiatives, structural advantages and financial strength, including end market diversification, strong balance sheet, robust free cash flow generation and operational agility.

Patrick is well positioned to continue generating value across a range of market conditions. And as demand in our markets recovers, we believe we will capitalize meaningfully.

Now turning to our recent announcement regarding discussions about a potential merger of equals with LCI Industries. While we cannot discuss or confirm specific details at this time, we believe the potential combination of our two companies could provide additional opportunity to drive value and better partnerships with our customers and in the form of innovation, value-add value engineering, cost-effective full solutions and an overall low-cost model to help partner in driving better affordability.

Together, the two companies could further enhance our overall value proposition by obtaining substantial cost savings through synergies, operating efficiencies and deployment of best practices as well as continued development of our bench strength for long-term shareholder value. We will communicate appropriately and alignment with regulatory guidelines as appropriate and in accordance with regulatory requirements as we continue to evaluate this opportunity.

I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.

Thanks, Andy, and good morning, everyone. Our first quarter RV revenue was $446 million, up 7% from the same period in 2025, representing 45% of consolidated revenue. We outperformed a 12% reduction in RV industry wholesale unit shipments during the first quarter, which equated to nearly 12,000 fewer units being shipped. Our team drove RV CPU on a TTM basis, up 8% to $5,277 through ongoing adoption of our composite products and solutions, coupled with market share gains during the period.

On a quarterly basis, CPU increased 6% year-over-year. Based on the data published by Statistical Surveys or SSI, we estimate RV retail unit shipments were approximately 63,200 -- and according to the RVIA, wholesale unit shipments were approximately 86,100 in the first quarter. This implies a seasonal dealer field inventory restock of approximately 22,900 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 19 weeks to 21 weeks. This is up from the 16 weeks to 18 weeks at the end of the fourth quarter of 2025, but remains well below historical averages of 26 weeks to 30 weeks.

We remain encouraged by the level of discipline shown by our RV industry and believe OEMs and dealers are committed to the long-term health of the industry. First quarter marine revenues increased 14% to $170 million, representing 17% of consolidated net sales and outperforming an estimated 7% reduction in wholesale Powerboat unit shipments. On a TTM basis, our estimated marine content per wholesale Powerboat unit increased 17% to $4,657.

On a quarterly basis, estimated marine CPU increased 23% year-over-year. Our above-market revenue performance and strong content per unit growth primarily reflect sustained benefits from our market share gains related to the latest model year changeover and the impact of acquisitions last year that expanded our marine electrical solution set and aftermarket presence.

Based on data from SSI and NMMA, we estimate marine retail and wholesale Powerboat unit shipments were 28,300 and 34,200 units, respectively, in the quarter. This implies a seasonal dealer field inventory restock of approximately 5,900 units. Dealer inventory in the field remains lean at an estimated 22 to 24 weeks on hand, up slightly from 20 to 22 weeks in the fourth quarter of 2025, remaining well below the historical averages of 36 to 40 weeks. Similar to RV, we believe disciplined inventory levels and improved alignment between retail and wholesale trends position the marine market favorably for a future rebound in demand.

Our powersports revenue increased 28% to $104 million in the first quarter versus the prior year period, representing 10% of our first quarter 2026 consolidated sales. The continued strength in our powersports revenue was driven by the further OEM adoption of our cabin closures we provide through Sportech and other integrated solutions. Team's ability to drive increased attachment rates and expand content across platforms has further solidified our position as a key supplier in the space. As noted before, Patrick primarily serves the utility side of the powersports market, which continues to demonstrate resilience relative to other categories, partially due to the adoption of innovative features, which have improved customer utility.

We remain incredibly confident about the opportunity ahead for Patrick in powersports space with enhanced focus on innovation and expanding the existing cabin closure solution and growing our aftermarket presence.

On the housing side of our business, first quarter revenue was $277 million, up 6% when compared to the prior year period, representing 28% of consolidated sales. Manufactured housing represented approximately 56% of our housing revenue in the quarter. Estimated content per MH unit on a TTM basis was $6,636, flat when compared to the prior year period as we focused on maintaining solid content in a softer demand environment. On a quarterly basis, estimated content per MH unit was flat year-over-year. We estimate MH wholesale unit shipments were lower by 11% in the first quarter, while total housing starts increased 1% as macroeconomic pressures, including interest rates and affordability constraints continue to impact demand.

We believe underlying demand for affordable housing remains intact, which we expect will be favorable for us over the long term, and we are positioned accordingly. Moving to the aftermarket side of our business. Our platform continues to grow traction, and we are aligning talent and infrastructure to support long-term profitable growth. Our investments are aimed at improving visibility into key metrics that can help us uncover incremental opportunities at existing business units and identifying appropriate candidates in the M&A pipeline.

Many of the targets we seek to acquire have existing presence in the aftermarket, supporting Patrick's broader diversification strategy while offering important margin accretion benefits.

Finally, I want to reiterate our excitement for the experience and provide an update on our first-of-its-kind digital design studio. The new technology is elevating how we engage with our OEM customers, and they appear energized by the ability to iterate in real time, enable faster and more collaborative decision-making. Our studio team continues to host a number of demos showcasing the capabilities of the space and collaborating with product leaders to make the experience a part of their design and engineering process. As we approach the next model year changeover, we have hosted more than 25 working sessions and have already eliminated dozens of prototypes through this process. We believe the experience further embeds Patrick as an indispensable partner in the OEM product life cycle and represents a meaningful durable competitive advantage as we drive greater operating efficiencies and more profitable growth over time.

I will now turn the call over to Matt Filer, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everyone. Consolidated net sales for the quarter were $997 million, up 1% from the first quarter of 2025. Our team delivered higher CPU on a trailing 12-month basis in each of our Outdoor Enthusiast markets, as Jeff highlighted, which helped drive revenue increases of 14% and 28% in our marine and powersports end markets, respectively, helping offset lower revenue in our RV and housing markets attributable to reduced wholesale shipment levels in the quarter.

The year-over-year change in our revenue was comprised of 2% acquisition growth, 8% organic growth and negative 10% industry. Gross margin was 22.8%, unchanged versus the first quarter of 2025. Operating margin of 6.5% was flat when compared to the prior year period. Our stable margins reflect our team's ability to flex our operations in response to lower-than-expected RV and housing demand in the first quarter. Our overall effective tax rate was 14.8% for the first quarter compared to 17.7% in the prior year.

Net income was up 3% to $39 million or $1.10 per diluted share compared to net income of $38 million or $1.11 per diluted share in the prior year quarter. Our diluted earnings per share for the first quarter of 2026 included approximately $0.10 in additional accounting-related dilution as a result of the increase in our stock price above the convertible option strike price for our 2028 convertible notes and related warrants. The prior year's diluted EPS included just $0.05 per share.

Adjusted EBITDA was $113 million compared to $116 million last year, while adjusted EBITDA margin was 11.4%, lower by 10 basis points from the first quarter of 2025. Cash used in operations for the first 3 months of 2026 was $14 million compared to cash provided by operations of $40 million in the prior year period. This reflects an increase in working capital, partially related to our strategic decision to increase composite material inventory in anticipation of customer demand.

Purchases of property, plant and equipment were $19 million during the quarter. Total net liquidity at the end of the first quarter was $734 million, comprised of cash on hand and unused capacity on our revolving credit facility of approximately $696 million. With no major debt maturities until 2028, we have the financial strength and capital necessary to capture long-term organic and inorganic growth opportunities. At the end of the first quarter, our net leverage was 2.8x. In the first quarter, we returned a total of $31 million to shareholders, including quarterly dividends of $16 million and $15 million for the repurchase of approximately 127,700 shares.

We remain opportunistic towards share repurchases and had approximately $153 million left on our existing repurchase authorization at the end of the first quarter. During the second quarter through April 29, 2026, we have repurchased approximately 153,100 shares for a total of approximately $15 million. I want to briefly frame our thoughts regarding the rest of the year. We recognize the broader macroeconomic environment remains uncertain, particularly with respect to consumer confidence, interest rates, conflict in the Middle East and thus, the timing of a more sustained recovery in our end markets.

Against this backdrop, we remain focused on executing operationally, driving content and share gains, advancing our aftermarket initiatives and maintaining a disciplined approach to capital allocation, including M&A. We believe these actions, combined with the strength of our diversified platform, position us to deliver solid financial performance even if demand conditions remain soft.

With that, our 2026 outlook is as follows: -- we now estimate RV retail will be down low to mid-single digits and RV wholesale will be 315,000 to 330,000 units in 2026. In Marine, we estimate retail shipments will be flat to down slightly and wholesale shipments will be up low single digits in 2026.

In our powersports end market, we continue to expect both full year unit shipments and our organic content to be up low single digits, implying an overall mid- to high single-digit increase for our business. For housing, we now estimate MH wholesale unit shipments and total new housing starts will both be down low to mid-single digits for 2026. Moving to our financial outlook. Based on the revisions to our end market shipments, we now expect our 2026 adjusted operating margin will improve by 30 basis points to 50 basis points versus 2025.

We have also updated our 2026 operating cash flow, which we now estimate will be between $370 million and $390 million, with capital expenditures totaling between $70 million to $80 million, implying free cash flow of approximately $300 million. For 2026, we continue to estimate that our effective tax rate will be between 24% and 25%. That completes my remarks. We are now ready for questions.

[Operator Instructions] Our first question is from Scott Stember with ROTH Capital.

Can you talk about the state of retail, what you're hearing in RV Camping World this morning, it sounds as if things are getting incrementally better from the doldrum of the winter, at least in April. What are you hearing through your touchpoints? And also on the production side from OEMs, what are you hearing and seeing from a production standpoint and also a mix standpoint?

Yes, Scott, this is Jeff. From a retail standpoint, I think I agree with what you heard from Camping World this morning. It is getting incrementally better. Certainly, a slow start to the year in January with some of the weather and into February. Some of the macroeconomic things and consumer confidence is tamped it down a little bit. But I think it's incrementally getting better. From a production standpoint from the OEMs, they're still being very measured in what they're producing. They're not overproducing. They're kind of falling in line with where things are at with retail, down a little bit over -- year-over-year.

But overall, keeping an eye on what retail is doing. So we feel really good about the patience and the discipline that's going on in that market. As far as the mix, we are seeing a little bit different mix than we have through '24 and into '25, we saw really heavy on the entry-level side. That mix is changing a little bit. We're seeing a little bit more on the fifth wheel side, but overall, not back to what we would call a normalized mix by any means. So overall, we feel good about where people are at and certainly hope to see the retail pick up even a little bit more.

Got it. And then looking at the aftermarket, it seems like there's some continued gains there. Can you talk about the ongoing cross-pollination efforts with the RecPro platform regarding powersports and marine and the existing RV products from Patrick?

Yes. So since we made the acquisition in September '24, we've added over 500 different parts to the RecPro site. I would tell you that within RV, I think we've added 6 brands or 7 brands in several offerings from those brands on the marine side and even some on the powersports. Certainly, it's been a little bit heavier on the RV side to start with, and we've really started to gain some traction in the marine and powersports parts that we're adding on to the system.

Got it. And just the last question on the margins. The lower growth outlook for this year. Is that just strictly based on the lower shipment forecast that you have?

It absolutely is volume related to shipments, Scott. And I think one of the things that Jeff mentioned related to just overall discipline remains very, very strong. I think everybody is working in partnership in [ Unison ] to keep things in check with flexibility to scale up when needed, but everybody is being very, very thoughtful about maintaining a balanced level of inventory to support the industry conditions today. But like I said, scalability. So for us, it's simply volume related. And I think what we're confident in is our continued development and delivery of innovative products.

Our content growth is under our control, and our teams have done a fabulous job of connecting with customers on our full solution. So overall, again, volume related, we're offsetting the things with what we can control.

Our next question is from Joe Altobello with Raymond James.

The first question on M&A, and I'm guessing you probably don't want to talk too much about the LCI or potential LCI transaction. But I guess my question there is while those discussions are ongoing, does that impact your M&A strategy? Is it on hold at this point?

It is not, Joe, and we're continuing to be very active. I think the strength of our balance sheet, the tremendous amount of liquidity that we have, the pipeline candidates, we're definitely active in the market right now cultivating deals regardless of an LCI transaction or not. And so we're we feel really good about our continued position to be on offense in this market and be able to take advantage of opportunities that are out there. So in no way are we impeded by any discussions at this point and certainly continuing to be aggressive on M&A.

Okay. And then just to shift gears a little bit over to Marine. I think you mentioned your content per unit there on a quarterly basis was up 23%. What's -- maybe talk a little bit more about what's driving that and how you see that over the balance of the year?

Yes. Our team has done a really good job with innovation. I think when you look at the content growth, not only in marine, but in RV as well and as well in powersports, the combination of our Advanced Products group really working with our annual prototyping work that the team does, just a tremendous amount of focus on innovation. And like I said, customer solutions are really what we're focused on today. And becoming more value-add for our customers, helping them bring costs down through those value-add solutions, but innovative solutions. And so just across the platform, our brands are continuing to work together to put solutions together in front of our customers that are compelling and exciting and help them differentiate their products. So just like I said, just tremendous effort and focus on collaborative brand-fronted, innovative solution-oriented products to customers is driving our content growth.

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

I guess maybe to drill down there a little bit more. TTM CPUs, I think, up 8% on the RV side, up 17% on the marine side. Could you just remind us, I guess, how you typically think about content growth as part of the kind of growth algorithm? And are you seeing or expecting kind of like a step change versus how you used to think about things? And if so, kind of what's driving that?

Yes. So typically, the algorithm on our model is centered around a target of 2% to 3% organic content growth net of industry on an annual basis. And so that's kind of the foundation for the model. As far as kind of ongoing step change, I'd say we're going to stay consistent with kind of expectations around that 2% to 3%. But I would also tell you, there's tremendous opportunity based on the continued innovative solution development that our team is working on to increase that number.

And so I don't know that we're moving off of the algorithm, but certainly, expectations internally continue to be elevated as it relates to the opportunities that are out there in front of us today, especially on the solutions front. So I think there's upside potential to that algorithm.

And then maybe just one on manufactured housing. Obviously, just to see the outlook down there. So kind of maybe just a quick update on what you're seeing in that end market?

Yes. Manufactured housing has been declining over the last several quarters, and it's fairly soft right now is what we would tell you. We're not seeing a lot of improvement at the moment. I think everything as it relates to consumer confidence right now is constrained. And so we're certainly seeing it on the MH side of the business for sure. So continued expectation right now is kind of standard. We're seeing declines in the MH industry. I think things are a little bit soft out there right now, hoping for some increase in consumer confidence. But overall, there hasn't been a lot of change. We've seen a decline, and it continues to decline.

Our next question is from Craig Kennison with Baird.

Yes, I wanted to start with tariffs and trade policy, which is impacting businesses in dramatically different ways this quarter. Could you just help us understand your supply chain and your production footprint and why that keeps Patrick insulated from some of these recent policy changes?

Yes, Craig, this is Jeff. So from some of the metal aspect of things on tariffs, a lot of what we're doing is domestic. Certainly, we're still seeing commodity prices move in an upward direction even if they are on the domestic side. But we've got a couple of different kind of ways that we go about our policies and some of it is direct importer of record -- we work through that through our business units.

And then in other cases, we're using importers or distributors in the states that are actually doing the importing. So it's just a couple of different ways that we look at it. And then as far as how we are trying to mitigate those tariffs as we work right back to the manufacturers to try to understand what the tariff impact is going to be, figure out how we can best mitigate those costs at the starting point.

And then we work directly with our customers to really communicate upfront what it means, what it will mean on a go-forward basis and really communicate with them to pass those along. I mean I think we've said in the past that our tariff I'm going to say, policy or how the way we handle it is that there's not an impact to our margins on the tariffs. But we're working very hard to mitigate those as best we can from the supplier all the way down through distribution.

Are your powersports partners cutting any cab orders, for example, as they wait for more clarity on policy?

We've not seen that as of right now. We've had a really good first part of the year on powersports, and they schedule out their units a little bit further than some of our other industries and the scheduling that we're seeing right now is still showing stronger orders.

And our focus on and concentration on the utility side has been extremely positive for us on the powersports. We just continue to see strong take rates on cab upfit for utility units, and that's been, again, a nice organic contributor for us and for our powersports team for the first part of the year and really through kind of the starting in the back half of last year. So we continue to be encouraged by the utility sector in powersports.

And then I guess, finally, to the extent you can comment on the proposed merger of equals, what would you share with respect to either shareholder or OEM reaction, any time lines or hurdles that you'd face? And maybe just comment on any potential portfolio overlaps that might be problematic as you discussed with [indiscernible].

Yes. So what I can comment on, Craig, is that we've been very thoughtful about these discussions from the beginning. And the first and primary focus was on the customer and how can we be a better partner to the industry. And I look at the opportunity to enhance product solutions and really be able to positively impact our customers and partner with our customers, especially in this environment where things are uncertain and affordability remains in question. And so first and foremost, I would tell you that we were very thoughtful about that.

And so we understand the risk, and we also understand the opportunity to be a true partner to our customers in this space. And so that's why -- that was kind of the overriding theme behind the discussions. And so that's what I can tell you at this moment, but customer first has been the priority and headline for us throughout the entire process. So we've been very thoughtful about that.

[Operator Instructions] Our next question is from Daniel Moore with CJS Securities.

Operating -- just in terms of kind of the cadence, operating margin in Q1, essentially flat year-over-year. How should we think about the cadence of the 30 basis point to 50 basis point improvement that you expect? Is Q2 kind of similar to Q1 with most of the improvement in the back half? Or would you start to expect to start to see some of that improvement coming through this quarter in a dynamic environment?

I think -- sorry, this is Matt. And I think we're definitely looking at the second half being a little bit stronger than the first half. As we saw in the first quarter, the markets were softer than what we were hoping for coming into the year, but we're going to control what we can control, and we still expect to see that 30 basis points to 50 basis points improvement over prior year.

Yes. Typical Q2, Q3 seasonality, Dan, we would expect to see an uptick in margins.

Okay. Free cash flow guidance, very little change despite the kind of lower EBITDA. Just are you seeing incremental opportunities in terms of working capital? And what's the offset there?

Yes, that's correct. So there's definitely some working capital benefit baked into that.

Okay. And then just housekeeping in terms of given where the stock is trading here, I know it was $0.10 dilution in Q2 -- Q1, what would that kind of quarterly dilution from the convert look like?

At this point, Dan, I mean, it's pretty dynamic. I can't really give specific guidance here. We would expect -- what we've seen, what, $0.05-ish kind of quarterly dilution is what I would continue to expect while we kind of move through this. Yes.

Sneak one more in. Aftermarket, just kind of -- you touched on this in some of the other questions, but where are you seeing the biggest opportunity in terms of cross-selling? Just kind of remind us what your margins are? And is that something -- would you consider breaking out aftermarket as a separate segment at some point?

At some point, we certainly will. And we've got a strategy as it relates to our aftermarket program, which includes M&A. And so as we continue to deepen our presence in the aftermarket, it's going to become more and more material as part of our vision and where we want to take that for the future. And so we will start to break that out and potentially break it out even further going forward. But the overall margin profile is accretive to Patrick's consolidated profile today.

And as we look at the aftermarket, there's still tremendous opportunity organically with our existing product categories to get that on to our DTC sites and RecPro in particular, and that presence to become kind of our overall outdoor enthusiast direct-to-consumer site. So as we think about it, we're still early in the game on aftermarket and -- but it's absolutely a strategy, and we see not only, like I said, potential for organic growth, but M&A potential out there, too, today that we're focused on.

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

Andy, you mentioned a couple of times kind of advanced integrated solution-based offerings as a benefit to the OEM, both from kind of like quality of life standpoint and also just improved affordability. Could you maybe give us a couple of examples of what those are?

Yes. I mean we talked about it in our release, but we've got a low-cost power audio solution that we're working on today. We're working on home solutions in the marine space. that integrate our products and can help our customers bring their overall build cost down because of those solutions and our ability to procure and bring these solutions together, I think on the RV side, our roofing solution is very exciting to us, but as well some flooring solution opportunities that are upcoming as we look forward into the future. And so we're really trying to -- and our brands have really opened up, again, the collaborative process with each other to start to really think about how we can get solution-oriented products to customers.

And so there's just a wide variety of things that we can do based on the depth and breadth of our portfolio that we're very focused on. But those are some simple examples that I can give you that are really compelling today.

And Tristan, one other thing I would add to that is our teams are really focused on the discussion of ASPs out there. we're working very diligently with customers with our good, better, best offering to figure out how we can kind of mix and match solutions to be able to drive some of those prices down and be a better partner as they look to try to drive down those ASPs, both on the RV and marine side.

Okay. That's a good segue into my next question. Where do you think ASPs for model year '27 shake out, both in terms of whether it's either your kind of incremental content gains and then also kind of what the industry is trying to do on a like-for-like basis?

Yes. I'll tell you, I mean, we're making a lot of strides on the composite side. So we'll see some gains on market share on the model change. So we feel really good about that on the RV side. The marine and powersports side, we've seen quite a bit of our CapEx that we've used so far this year go towards tooling on projects that we've been working on with customers leading into this upcoming model change. So we're really excited about what we're going to see on our model change in marine and powersports as well.

As far as ASPs, really, what we're seeing is we're seeing some higher prices on commodities that we're being forced to pass along. Some of those are driven by the higher fuel prices, higher resins and some of the things that we've seen on the commodity side there. How that's going to equate in the ASPs, I really couldn't give you that answer right today. But it will have an impact. That's why, like I said, our teams are kind of focused on that. So we're trying to figure out in our good, better, best offering, where we can take money out where we see we have to add money back in with the commodities doing what they're doing. So it's a challenge, but our teams are really, like I said, laser-focused on that for the customer and ultimately for the end customer.

Ladies and gentlemen, thank you. I will now turn the conference back over to Andy Nemeth for closing remarks.

Yes. I want to just once again thank our team for just incredible dedication and commitment to continuously serving our customers better in this environment, which is extremely dynamic. And I'm really confident in where the company is positioned today. We're sitting on a position of strength, especially as it relates to our balance sheet, our team, the strength of our bench to continue to really be aggressive in controlling what we can control and continue to drive our business forward in alignment with our strategic plan. And so I feel really good about where we're at, especially in this dynamic environment to be able to flex both up and down as well as deliver exceptional customer service. So I want to thank everybody for joining the call, and we look forward to talking to you on our next conference call.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Patrick Industries Fourth Quarter 2025 Earnings Conference Call. My name is Julian, and I will 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'Hare, you may begin.

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Matt Filer, SVP, Finance and Chief Accounting Officer. Andy Roeder, Chief Financial Officer, is also on the call and will be available for Q&A.

Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2024, and the company's other filings with the Securities and Exchange Commission.

I would now like to turn the call over to Andy Nemeth.

Thank you, Steve. Good morning, everyone, and thank you for joining us on the call today. I want to begin by expressing my gratitude to the entire Patrick team for their leadership, dedication, passion, hard work and relentless commitment to serve and partner with our customers throughout 2025. This team continues to elevate the standard at which we operate in alignment with our Better Together values. Their commitment is what has continued to drive and deliver strong operating and financial results in a very dynamic environment.

Our businesses once again proved resilient in 2025, and our focus over the past 2 years on product development and innovation efforts paid off in the form of meaningful content growth with the 2026 model year changes as we continue our ongoing evolution toward our full solutions model. Our teams remain focused on disciplined execution, scalability, strategic capital allocation and reinforcing our customer relationships, enabling us to further drive content gains in partnership with our customers across our Outdoor Enthusiast markets.

In 2025, despite macroeconomic uncertainty due to the tariff environment, we welcomed Medallion Instrumentation Systems, Quality Engineered Services, Aegis Group and Lillipad Marine to the Patrick family. These teams and businesses bring new technology, innovation, deep entrepreneurial spirit, strong engineering leadership and additional aftermarket content and runway to Patrick. All 4 of these organizations complement our existing marine full solutions platform, enhancing the value and breadth of products and services we can bring to our customers.

Additionally, early in 2025, we strategically complemented our existing investments in composites through the acquisition of Elkhart Composites. We continue to highlight the many benefits of these materials relative to the standard wood products used by both RV and marine industries, and are increasingly optimistic that we are just scratching the surface related to the long-term opportunity for composites.

We expect to debut further manufacturing capabilities in alignment with our industry-leading lamination and composites innovation and platform in 2026 that reinforce Patrick's leadership in providing next-generation solutions to our markets.

Turning to the aftermarket. Our growing aftermarket business has helped support both diversification and resilience through the cycle by enhancing our margin quality, deepening customer relationships and insights and enabling us to better capitalize on demand for replacement and upgrade components. This year, as noted, we increased our presence in the space through various channels and now have more than 500 Patrick SKUs on the RecPro site from across our Outdoor Enthusiast end markets. Simultaneously, we have formalized our unified aftermarket strategy and structure across Patrick, leveraging expertise from multiple facets of the organization to identify white space opportunities, target M&A candidates in the pipeline and continue the rollout of aftermarket products to consumers and dealers.

We also continue to invest in and use leading technologies to further embed our customer-first solutions. I want to introduce our industry-leading full-scale virtual design and reality solution that we call the Experience, which Jeff will further highlight, and which builds on our existing design platform at our product showcase studio in Elkhart. This technology provides actual scale modeling and product development through technology to further deepen our collaboration and partnership with our valued customers.

Moving to our financials. In the fourth quarter, net sales improved 9% to $924 million, primarily driven by solid organic growth and acquisitions, partially offset by wholesale shipment declines in each of our RV, marine and housing markets. Adjusted earnings per diluted share was $0.84, including approximately $0.06 of dilution from our convertible notes and related warrants. For the full year, net sales increased 6% to approximately $4 billion and adjusted earnings per diluted share was $4.44, including additional dilution of $0.26 related to the convertible notes and related warrants.

Our solid balance sheet and strong consistent cash flow generation continue to provide us with meaningful financial flexibility to thoughtfully execute our capital allocation strategy. We delivered free cash flow of $246 million this year, enabling us to reinvest in the business, pursue strategic acquisitions and continue to take advantage of our scalability when market conditions improve.

We further increased our dividend by 17.5% this year with our regularly quarterly dividend in November, reflecting the strength and resilience of our model and our continued confidence in our cash flows in the markets we serve. We are committed to redeploying capital back into the business in ways that support long-term value creation, including accretive M&A, organic investments and returning capital to shareholders when appropriate, all while maintaining a disciplined leverage profile.

Next, I want to take a moment to thank Andy Roeder for his leadership, partnership, dedication and contributions to Patrick. He is a tremendous talent, and we wish him continued success and are excited for him in his next chapter. We are also extremely confident that Matt Filer's deep financial expertise, organizational leadership and extensive knowledge of Patrick and our end markets solidifies us and positions us extremely well for the future as he steps into his new role as CFO.

And lastly, as we look ahead to 2026, we are focused on delivering profitable growth through the continued execution of our model while investing in the capabilities that differentiate Patrick. Our ability to consistently support our customers through evolving end market conditions while managing costs, maintaining balance sheet strength and allocating capital with discipline is more important than ever. With a strong foundation in place and significant opportunities ahead, we believe Patrick is well positioned to deliver sustainable, profitable growth and create long-term value.

I'll now turn the call over to Jeff, who will highlight the quarter and provide detail on our end markets.

Thanks, Andy, and good morning, everyone. Demand in each of our end markets continues to be shaped by a combination of macro uncertainty and tariff volatility, resulting in cautious consumer behavior. OEMs and dealers have shown tremendous discipline, while OEMs have remained thoughtful in aligning production schedules with retail demand, dealers have prioritized well-managed inventory levels and selective ordering patterns. Additionally, our team's commitment to supporting customers through scalability, product solutions, customer service and the goal of a good, better, best product offering have never wavered. This continues to help OEMs operate efficiently, execute model year changeovers and meet consumer expectations for designs, enhanced features and highly engineered products.

Fourth quarter RV revenues increased 10% to $392 million on a year-over-year basis, representing 43% of consolidated sales. RV content per wholesale unit for the full year was $5,190, which increased 7% from 2024. On a quarterly basis, content per wholesale unit increased 13% year-over-year.

For the fourth quarter, we estimate RV retail unit shipments were approximately 60,100, and according to RVIA, RV wholesale unit shipments were approximately 75,000. This implies a seasonal dealer inventory restock of approximately 14,900 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 16 to 18 weeks. While this reflects a modest increase from 14 to 16 weeks in the third quarter of 2025, it remains well below the historical averages of 26 to 30 weeks.

As discussed, we continue to invest in composites and believe they are a superior solution to wood products, which have been increasingly impacted by tariffs and other governmental actions. Teams, in collaboration with our Advanced Product Group are focused on the development and production of our new composite solutions that further unlock potential avenues of content not included in our current total addressable market. Testing on our previously discussed roofing solution has been successfully completed, and we are excited about the related organic content opportunities.

Finally, and as Matt will touch more on later, we have prioritized the strategic investment in composite inventory due to the expected capacity constraints in alignment with our capital allocation strategy, reflecting our customer-focused value proposition.

Our fourth quarter marine revenues increased 24% to $150 million year-over-year, significantly outperforming a 1% decrease in estimated wholesale marine powerboat unit shipments. Marine revenues represented 16% of our fourth quarter consolidated sales. Our estimated marine content per wholesale powerboat unit for the full year increased 11% to $4,327. On a quarterly basis, estimated CPU increased 25% year-over-year. We estimate marine retail and wholesale powerboat unit shipments were 17,300 and 33,000 units, respectively, in the fourth quarter, implying a seasonal dealer inventory restock of approximately 15,700 units.

Dealer inventory in the field at the end of the fourth quarter was estimated 21 to 23 weeks on hand, lean compared to historical averages of 36 to 40 weeks, down slightly from the end of last year and still extremely lean for the industry. As Andy mentioned, we remain focused on expanding our marine full solutions platform. And in 2025, we strategically acquired several complementary products and solution suppliers, adding critical capabilities to our existing value chain for electrical solutions and the aftermarket.

Medallion enhanced our instrumentation and control offering with digital switching, displays, sensors and integrated electronics, while QES strengthens our wire harnessing and full electrical systems by supporting reliable power and connectivity throughout the vessel. Aegis adds engineered components for power distribution, protection and connectivity, including terminal blocks, fuses, circuit breakers and relays to OEMs and the aftermarket. And finally, Lillipad Marine brings patented diving boards and other award-winning products selling to OEMs and directly to the customer through aftermarket channels. Together, these businesses complement our existing product portfolio, enabling Patrick to be the supplier of choice from bow to stern.

Our powersports revenue increased 39% to $109 million in the quarter, representing 12% of our fourth quarter consolidated sales. We continue to be encouraged by Sportech's solid performance as they increased their full year platform-specific content by approximately 8%. This improvement was driven by the demand for Sportech's cabin closure solutions and the preference for utility-focused vehicles along with the consumer's strong affinity for more feature-rich units. This reinforces the potency of our innovation solutions initiatives spanning our Outdoor Enthusiast brands.

I would like to also congratulate the Rockford Fosgate team on a well-received launch of their fully redesigned PUNCH speaker line. Bridging heritage, passion and the modern listening expectation of today's auto enthusiast, this new lineup retains the punchy sound and enthusiast appeal that built the brand while incorporating modern design, broader functionality and unparalleled acoustic technologies.

Our housing revenue was 29% of consolidated sales in the fourth quarter and decreased 5% to $272 million. Our total housing revenues in the quarter outperformed a 10% decrease in the MH shipments and a 10% estimated decrease in total housing starts. Our MH content per wholesale unit was flat at $6,633 for the full year. We are confident in the highly leverageable and scalable nature of this business and believe the underlying demand fundamentals, particularly for affordable housing, remains strong even as the industry shipments and backlogs have softened. Our brands in this space have continued to demonstrate resilience relative to a broader industry trends with a focus on market share gains and increasing content.

Our aftermarket sales increased approximately 30% year-over-year and are now 10% of our total revenues versus 8% in 2024.

Finally, I wanted to highlight the Experience. As Andy mentioned, we recently debuted this industry-leading investment, technology and venue that leverages virtual reality, advanced product scanners and a massive LED display to bring customizable life-size design product solutions and marketing showcase to our customers. This 50-foot wide by 14-foot tall screen is capable of presenting in virtual reality RVs, boats and powersport vehicles that we specialize in at a one-to-one scale. The Experience enables customers to walk through their virtual renderings of their products and experiment with design and solutions changing in real time, reducing the number of prototype units needed. Since the launch in late November, we have hosted over 30 comprehensive demos for our customers and the response has been overwhelmingly positive. We are very excited about the application of the industry-leading technology, and it's in alignment with our vast product portfolio, expertise and capabilities to continue to deliver innovative solutions in partnership with our customers.

I'll now turn the call over to Matt Filer, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everyone. I'd like to begin by thanking Andy Roeder for his partnership, both prior to and during this transition, and by saying how honored I am to be stepping into the CFO role at Patrick. I'm excited and eager to continue working with this incredible team, to be their business partner to drive long-term value creation through disciplined financial planning and execution.

Now moving to our financial results. Consolidated net sales for the fourth quarter increased 9% to $924 million, driven primarily by market share gains and M&A. This growth was comprised of 9% organic growth and 2% acquisition growth, partially offset by negative 2% industry. As Jeff discussed in detail, our Outdoor Enthusiast-focused businesses more than offset a 5% decline in our housing revenue for the fourth quarter.

For the full year, net sales increased 6% to approximately $4 billion. Full year RV revenue increased 9% to $1.8 billion, and marine revenue increased 6% to $606 million. Our powersports revenue increased 9% to $384 million, and our housing revenue increased 1% to $1.2 billion.

The improvement in revenues across our markets were largely supported by content per unit gains and acquisitions, including our increasing aftermarket penetration.

Our housing business remained resilient despite softening MH shipments in the second half of the year.

Gross margin was 23% in the fourth quarter compared to 22.1% in the prior year. The increase in margin was due to factors, including leveraging our fixed cost structure through content gains realized from the model year changeover season, stronger revenues and accretive acquisitions in the aftermarket space. For the full year, gross margin was 23.1% compared to 22.5% in 2024.

In the fourth quarter, adjusted operating margin expanded 110 basis points to 6.3%. This improvement was driven by stronger revenue in our Outdoor Enthusiast markets and increased gross profit, partially offset by higher SG&A expenses, primarily as a result of acquisitions.

Our full year adjusted operating margin was 7%, in line with the outlook we provided.

GAAP net income in the fourth quarter and full year was $29 million and $135 million, respectively, compared to net income of $15 million and $138 million, respectively, in the prior year periods.

GAAP EPS for the fourth quarter increased 98% to $0.83 and for the full year decreased 5% to $3.90.

Fourth quarter adjusted net income increased 63% to $30 million and adjusted EPS increased 62% to $0.84. Full year adjusted net income increased 5% to $154 million and adjusted EPS increased 2% to $4.44.

Our fourth quarter and full year adjusted diluted EPS include approximately $0.06 and $0.26 per share, respectively, in additional accounting-related dilution from our 2028 convertible notes and related warrants as a result of the increase in our stock price above the convertible option strike price.

Last year's fourth quarter and full year adjusted diluted EPS included approximately $0.02 and $0.10, respectively, from these instruments. As we've noted previously, we have hedges in place, which are expected to reduce or eliminate any potential dilution to the company's common stock upon any conversion of the convertible notes and/or offset any cash payments the company is required to make in excess of the principal amount of any converted notes.

For GAAP reporting purposes, these hedges are always anti-dilutive, and therefore, cannot be included when reporting earnings per share.

Adjusted EBITDA increased 17% to $105 million, and adjusted EBITDA margin increased 80 basis points to 11.4% for the fourth quarter. On a full year basis, adjusted EBITDA increased 4% to $468 million, while adjusted EBITDA margin decreased 40 basis points to 11.8%.

Our overall effective tax rate was approximately 26% for the fourth quarter and 24% for the full year. Cash provided by operations was $329 million for 2025 and purchases of property, plant and equipment were $83 million for the year, resulting in free cash flow of $246 million. For the quarter, operating cash flow was $131 million, implying free cash flow of $113 million. While free cash flow was strong during the quarter, as Jeff noted, we strategically added more than $30 million of inventory to support our investments in composites, innovation and product initiatives.

We remain aggressive in alignment with our industry-leading composite strategy and inventory in preparation of an environment where demand could outpace supply.

At the end of the fourth quarter, total net leverage was 2.6x compared to 2.8x at the end of the third quarter, reflecting our continued commitment to delever the business toward our target leverage range of 2.25 to 2.5x. Our strong liquidity position enables us to be opportunistic toward acquisitions that align with the company's long-term growth objectives, and our solid free cash flow generation enables us to delever the balance sheet quickly while remaining on offense.

Available liquidity at the end of the quarter was approximately $818 million, comprised of $26 million of cash on hand and unused capacity on our revolving credit facility of $792 million.

From a capital allocation perspective, in 2025, we invested $122 million in acquisitions as the team has already touched upon. We returned $87 million to shareholders, including the repurchase of approximately 377,600 shares for a total of $32 million and $55 million in dividends. At the end of 2025, we had approximately $168 million remaining under our current share repurchase authorization.

Moving to our end market outlook for 2026. We believe a meaningful retail demand inflection likely depends on consumer confidence and interest rate improvement, and we expect OEMs and dealers to remain thoughtfully disciplined in terms of production and inventory levels in anticipation of the upcoming selling season. For RV, we estimate full year 2026 RV retail registrations will be flat with wholesale unit shipments increasing low to mid-single digits as a result. For marine, we estimate full year 2026 marine retail registrations will be flat with wholesale powerboat unit shipments up low single digits. For our powersports end market, we expect full year unit shipments to be up low single digits, with our organic content estimated to be up low single digits for the full year, implying an overall mid- to high single-digit increase for our business. On the housing side, we estimate full year MH wholesale shipments will be flat to up 5%. In our residential housing end market, we estimate 2026 total new housing starts to be flat to up 5%.

Given the current end market outlook we've provided, we estimate our 2026 adjusted operating margin will improve by 70 to 90 basis points versus 2025. We estimate our operating cash flow will be $380 million to $400 million, and CapEx will total between $70 million and $80 million, implying free cash flow of approximately $300 million or more.

For 2026, we estimate our full year tax rate will be between 24% and 25%.

Finally, I would like to note that based on the recent trading prices of our common stock, our 2026 earnings per share would include additional dilution related to our convertible notes and warrants. That completes my remarks. We are now ready for questions.

[Operator Instructions] And our first question comes from the line of Joe Altobello with Raymond James.

I just want to go back to a comment you made earlier about content per unit. I think you mentioned you're seeing meaningful increases there with the new model year changeovers. Can you maybe elaborate on that a little bit more? Does that reflect larger and more content in units? Or is it largely share gains?

Yes, Joe, this is Jeff. It's a little bit of a combination of both. Certainly, over our model change, we did pick up some content in a few areas with the composites starting to come into play, some of the electronics and some further penetration on our core products. On the marine side, really the same across the board, some pickups at model change. On the RV side, we did see a little bit of help from the mix as we've seen some of the bigger, higher-contented units start to come into play in the third and fourth quarter. So kind of a combination of both.

Very helpful. And maybe just to shift gears a little bit. On the operating margin outlook, the expansion of 70, 90 basis points that you're calling for, can you give us a little bit more color on what's driving that? How much is coming from volumes, from pricing, from mix, et cetera?

Joe, this is Andy. I think as we look at the business and -- it's a combination of both and volumes certainly help as we're situated really nicely now when I look at the platform. When I look at our cost structure, we're just really well positioned to support a volume increase and a significant volume increase without adding significant overhead. So there's definite volume play there. But I think as well, when we look at the content gains that we've got, the solutions that we're presenting and working with customers on, the opportunity to help bring a low-cost alternative through a full solution to our customers is significant out there. And so we think that's going to add value as well from an overall margin perspective, even being more competitive in pricing with some of these solutions. So we're excited about kind of the entire platform, but leveraging volume, certainly as we look forward, and any upside that we see on the shipment levels, we're optimistic, especially as it relates to our cost structure today.

And our next question comes from the line of Daniel Moore with CJS Securities.

Obviously, solid results in Q4. Following up maybe on Joe's question. I appreciate the market outlook for each vertical. Can you talk about any cadence you might be expecting embedded in those growth rates and those kind of market shipment growth rates? How do we see shipments shaping up for Q1 and H1 versus H2 kind of across verticals? And any commentary on cadence of the margin improvement as well would be really helpful.

Yes, Dan. Right now, I think where we see things is inventory levels are extremely lean even with a little bit of restock that we saw in the fourth quarter. We think inventories were incredibly lean at the end of Q3. And so what we're really excited about too is there's just tremendous discipline between the OEMs and the dealers today as it relates to managing inventories. And it's really positioned everybody well to be able to scale, at least us certainly to be able to scale going forward. And so right now, as we're in the early, early parts of kind of Q1, there is optimism is what I would say, and there's -- we're excited about the potential that exists, but dealers are staying very, very disciplined and OEs are staying very, very disciplined to maintaining these lean inventories.

And I think as we move into the selling season in late Q1, Q2 is when we would expect to start to see things move or hope to start to see things move. And so Q1 right now is what I'm going to say, disciplined and thoughtful. We would expect to uptick Q2 and Q3 as the selling season occurs and movement typically to that seasonal model for us where Q2 and Q3 are the highest. Q1 is patient right now is what I'd say, but thoughtfully patient. And like I said, I think we're really optimistic about where we can play in this, especially with our scalability value proposition. We've positioned ourselves really well. We used our working capital in the form of inventory. We're a little bit heavier on inventory in Q4 in anticipation of this uptick, but we're going to be able to move very, very quickly when things do move. And so that's where we kind of see things. But I like the discipline that we see today. Everybody is just being really thoughtful in Q1. And so it's a little patient and tempered right now, but with optimism that we move into Q2 and Q3, we'll see that uptick across all of our markets.

And our next question comes from the line of Craig Kennison with Baird.

So we're sort of coming through this period of very high inflation. I'm wondering if you can just give us an update on what you're seeing in terms of your cost pressure and whether that might subside and really help this affordability trend unlock?

Yes, Craig, this is Jeff. Across a lot of our products, we're seeing some stability in the pricing. We've seen that there are some commodities that are still moving, the copper, the aluminum. So we're managing through that. There are a few, I'm going to say, pieces of noise when it comes to the wood that we sell, specifically the Luan. So we're working and dealing with that. We'll see kind of the end result of where that happens probably in May. So I mean, overall, I think we're staying pretty consistent with our pricing with our customers, only moving where we have to. And really the only, I'm going to say, 3 places we're seeing that are some of the commodity items and wood.

And then to follow up on Joe's question about content per unit. As we look ahead, how much of your growth is tied to pricing related to cost pressures that you face versus mix and some of the acquisitions that you've done, if you could put those buckets together.

It's going to be a lot heavier on the mix and the organic growth on our content. It's going to be less on the pricing, at least in the near term here from what we see on pricing based on the comments I made before on the commodities that we're dealing with.

And our next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets.

I guess, first, just on the kind of marine revenue growth, could you help parse out, I guess, how much of that year-over-year increase was driven by the acquisitions versus kind of legacy business, that would be helpful?

Sure, Noah. This is Andy. I think, just in general, what we would say is there's definitely a piece of that related to the acquisitions, but our teams worked really hard on new product development and bringing new content to our customers. So most of it is going to come from the form of content and the solutions that we've been bringing to the table for customers in alignment with model year change in 2026. And a lot of this -- some of this starts really at the foundation, which is our marine concepts operation, which designs tooling for new boats. And this is really the foundation that we build off of as it relates to our solutions model to be able to put together kind of a full package for customers to be able to really go into their boats and make meaningful changes, especially as it relates to the prototyping that we do.

So again, we've seen it across a number of product categories, but tremendous effort by our team to really just get out there and bring new innovations to customers. So in answer to your question, without giving a specific number, which we don't break down between our markets, the majority of it's come in the form of content gains with new product development and innovation. And there is a piece of it, but most of it's come through our product efforts.

Great. Really helpful. Maybe just one on the RV side. Obviously, really nice performance there, particularly kind of relative to the industry. In terms of the content per unit increase during the quarter, how much of that is -- this might be difficult to answer, but how much of that is kind of related to maybe share gains versus mix? And to the extent that is a bit related to mix, how do you kind of see mix playing out next year in terms of RV units?

Yes. So we were saying before, we don't break it out by mix and -- what is organic growth through market share gains. There is definitely a component that is the mix in the fourth quarter, along with the market share gains that we saw through the model changeover. Moving forward, we're keeping a close eye on the production levels right now, Noah. They seem to be pretty consistent from where they were from the fourth quarter to the first quarter is looking across the spectrum. And we do see that it is starting to get a little bit closer to normalization with the spread between the fifth wheels and the travel trailer production. So I don't think we're going to see a different effect from the fourth quarter, but it's hard to say where that's going to take us into the second quarter as far as the mix.

Noah, additionally, I think when we look at mix traditionally and historically, certainly fifth wheel for us is more meaningful content just due to the size of the units. And so we did see a little bit of an uptick from a mix in Q4. Fifth wheels typically are around 20% of the overall towable, mix and fifth wheels were up to 22%, 23% of that overall mix in Q4. So there's some encouraging signs, I think, right now, but that's also typical restock in Q4 as we kind of enter the selling season in anticipation of where buyers are going to be. So we're optimistic. We absolutely like to see larger units from a content perspective. But again, right now, it's just too early to tell.

We think that it's seasonal, but also there are some -- there is a little bit of movement out there today at the retail level from at least what we're hearing as it relates to interest in some larger units. So we're optimistic, but cautious. And again, I revert back to kind of where the dealers and the OEMs are at. They're just being really thoughtful about where they sit today and waiting to make sure that things are moving before they do anything. And we feel really good about that. So again, long answer, but we are seeing a little bit of movement today on that mix. For us, it's a good thing. Hopefully, it plays out further as we move into the year, but we'll wait and see. In Q2, we'll have a better feel for that.

And our next question comes from the line of Scott Stember with ROTH Capital.

This is Jack Weisenberger on for Scott. Just within powersports, can you kind of give us an update on what's driving the good content per unit increases and how attachment rates are progressing?

Yes. This is Jeff. The attachment rates, as we've talked, continue to grow in favorability across the utility platform. We saw it in the fourth quarter. We continue to see it moving forward based on the projections we're getting from the OEMs we deal with. So we're really excited about that. That's really a big component of what's driving the growth on that side of the business.

Great. And then moving to the aftermarket and the RecPro, can you give us an update on where things are showing up in the segments the most? And what is kind of ahead of your expectations so far?

Yes. They've added quite a few SKUs to the RecPro site from our Patrick divisions. I will tell you, primarily heavily on the RV side to begin the year, but then as we got into the middle, end of the year, we started to get some more of the marine and powersports products online, which is really exciting. We saw a pretty good increase on our aftermarket sales year-over-year that we stated in the prepared remarks. And 2/3 of that came from acquisition, which was -- a big piece of that was the RecPro, and it's come along very well in our minds.

And our next question comes from the line of Tristan Thomas-Martin with BMO Capital Markets.

Just a couple of questions on composites. One, I was curious kind of the TAM and then where you think penetration is and kind of what's the cadence as we move forward? And then also, like how does it compare from a margin perspective relative to more traditional wood products?

Yes, Tristan, this is Jeff. As far as the TAM, what we've stated in the past, we think the overall TAM, on a long-term basis, is about $1.5 billion. I think on the short term, there's more like about $500 million of attainable. Certainly, there's a component there that has to do with the amount of capacity that we have on the composite side of the business versus what is currently wood products in the market. So we feel really good about that.

As far as margins, we don't talk about specific margins relative to products. So I will tell you that we're watching that, and we pay attention to where we're at on our margins and we're managing that very closely. But we don't talk specifically what the percentages are versus the other products.

And our next question comes from the line of Mike Albanese with Benchmark.

I was going to ask about aftersales. It was kind of touched on a couple of questions ago, but if I could just follow up briefly on that. You've obviously been adding SKUs now pretty consistently. As we think about -- or I guess the question is, I mean, how much incremental pull-through are you seeing from these SKU additions? Or how can we think about time line from all these product additions in terms of when you get that incremental lift on the back end within aftersales? Really just any context on how to think about that would be helpful.

Yes, this is Jeff. It's kind of a long-term game when it comes to getting the products onto the site. That's the easy part. Certainly, the marketing and the advertising to get some pull-through on those. We're also looking at how to -- the other piece of it is, is that they're a one-for-one replacement now out there for Patrick parts that weren't out there before. So I think over the next 6 to 12 months, we'll have a better gauge on what the pull-through is going to be on those products that we're adding. But again, we have to really get the advertising out there to be able to get the right clicks when it comes to what you're seeing on an e-commerce site like RecPro is. So it's a timing game, but certainly, getting the products on there is the -- I'm going to say the easy part, but getting the pull-through is what's going to come next.

Yes, absolutely. That's helpful. Have you commented previously on incremental marketing spend to kind of drive this initiative?

No, we haven't.

No. But it's -- I guess what I'd say, Mike, it's typical to what you're seeing in our profile today. I mean that's built into kind of the overall gross and op margins that we're seeing today. So I wouldn't expect a significant change. There's not a lot of -- there's incremental, but that's going to come with incremental volume. So it should be typical to [indiscernible] as an admin mix.

Yes. So I mean the quick answer is when I think about your 70 to 90 bps expansion, right, that's included. That's baked in there.

Correct. Correct.

And with that, there are no further questions at this time. I'd like to turn the call back over to Andy Nemeth for closing remarks.

Thank you. I want to once again just thank our team for tremendous, tremendous efforts, dedication, commitment, just tremendous contribution to the organization as a whole, but most importantly, with the partnership with our customers over the past year, which has been extremely dynamic and extremely volatile. And our team has just demonstrated tremendous resilience. We've just been shown versatility. I just feel really good about where we sit today. And our company is well positioned. The team is in great shape, and we're really excited about what we can control going forward despite what happens in our markets. And again, it's really reflective of the commitment from our team. But as well, I want to thank our customers and partners for all of their support throughout 2025. And we're optimistic about 2026 at this point, and we're really well prepared to, again, capitalize on the things that we can control in 2026. So thank you very much. We look forward to talking to you on our first quarter 2026 conference call.

Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.

Good morning, ladies and gentlemen, and welcome to Patrick Industries Third Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded.

And I'll now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may begin.

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Andy Roeder, 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. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2024, and the company's other filings with the Securities and Exchange Commission.

I would now like to turn the call over to Andy Nemeth.

Thank you, Steve. Good morning, everyone. We appreciate you joining us on the call today. We delivered solid third quarter performance, demonstrating the resilience of our business in a dynamic and unique environment. Net sales for the quarter increased 6% to $976 million, with organic growth contributing more than 4% and offsetting an almost 2% decline in our industry shipment levels. Earnings per diluted share was $1.01, including approximately $0.07 of dilution from our convertible notes and related warrants.

On a trailing 12-month basis, net sales were approximately $3.9 billion. Our results reflect both the strength of our diversified business model, solid organic growth as a result of our team's innovation and advanced product efforts and their incredible execution as we continue to navigate dynamic demand levels across our end markets and challenges facing the broader economy.

Our OEM and dealer partners continue to exhibit disciplined production, leaving inventory even leaner across all of our Outdoor Enthusiast markets and positioning us positively for a potential restock when retail inflects. We remain well equipped to capture meaningful upside when that inflection occurs, both strategically and organically.

We ended the quarter with a strong balance sheet and total net liquidity of $779 million. Our financial position enables us to remain flexible and nimble in supporting our customers' growth needs with a variety of levers while continuing to execute a balanced capital allocation strategy. We expect to continue our investments in the aftermarket and new product development, both through heavy emphasis on model year prototyping and in combination with our Advanced Product Group, which is focused on product development several model years out.

Additionally, and importantly, we are continuing to invest in digital tools, data analytics and AI-powered solutions across our business to drive greater efficiency, accelerate decision-making, reduce costs and unlock new value for our customers. We continue to be proactive in strengthening the Patrick platform through strategic initiatives like the acquisitions of LilliPad Marine, Medallion Instrumentation Systems and Elkhart Composites, as well as the modernization of our processes, technology and equipment and optimizing our aftermarket resources to create new opportunities for our brands. These investments are expected to continue to contribute to our share gains across our end markets.

Building on strong revenue execution across our primary end markets, we continue to make meaningful progress in expanding our content per unit, or CPU, through a combination of innovation, collaboration and targeted investment. Our teams are working closely with OEM partners to integrate new products and technologies that elevate the functionality, design and consumer appeal of products like RVs, boats and side-by-sides.

In the third quarter, we achieved content gains across all of our Outdoor Enthusiast markets and our MH market, reflecting both our expanding product portfolio and the growing adoption of our integrated full solutions platforms. These content gains underscore the power of our diversified model and validate the continued demand for Patrick's high-valued, individualized and differentiated solutions that enhance performance, efficiency and aesthetics across every category we serve.

Subsequent to quarter end, our Marine brands had a successful and prominent showing at IBEX, the marine industry supplier show. Our increased presence unveiled the scale of Patrick's platform while reinforcing our commitment to a brand-forward approach and showcasing our innovative product lineup, fully demonstrating the depth and breadth of Patrick's solutions.

At the show, guests had the opportunity to explore our Full Solutions Experience Boat, allowing them to engage with numerous Patrick products, including Medallion's touchscreen displays, Wet Sounds speakers, BHE harnesses and wiring, LilliPad ladders, SeaDek flooring and lighted cup holders, XT carbon tops and TACO seating. I also want to congratulate the team at TACO on their IBEX Innovation Award for their Altura Luxury Helm Seat, a new flagship helm chair with a patented stainless steel frame concealed inside a teak ladderback.

Additionally, I'm proud to share that our former President of Marine, Rick Reyenger, was inducted to the NMMA Hall of Fame. With more than 40 years of leadership in the recreational boating industry, Rick has influenced many generations of colleagues and competitors alike.

Finally, I want to again recognize the remarkable efforts of the Patrick team. Their commitment, adaptability and focus on serving our customers has been extraordinary during these dynamic times and continues to drive brand-funded partnership model with our customers. Beyond cyclical dynamics, we expect to drive continued strategic growth through M&A, aftermarket expansion, innovative product development and our diversified portfolio. Our solid balance sheet and solutions-driven strategy keep us well positioned for sustainable long-term profitable growth.

I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.

Thanks, Andy, and good morning, everyone. Looking closer at our end markets, third quarter RV revenue increased 7% to $426 million versus the same period in 2024, representing 44% of consolidated revenue. Our RV content per unit on a TTM basis was $5,055, an increase of 3% from the same period last year. On a quarterly basis, CPU increased 8% sequentially compared to the second quarter of 2025 and increased 9% year-over-year.

The improvement in the revenue and CPU in the third quarter was driven by our commitment to working with and supporting our customers with model year innovations as they refine and upgrade their products, coupled with recent acquisitions. We estimate RV retail unit shipments were approximately 100,100, and according to RVIA, wholesale unit shipments were approximately 76,500 in the third quarter.

This implies a seasonal dealer inventory destock of approximately 23,600 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 14 to 16 weeks. This is down from 19 to 21 weeks in the second quarter of 2025 and reflecting continued OEM wholesale production discipline. This remains well below pre-pandemic historical averages of 26 to 30 weeks, and we further believe the number of discrete units in the field is well below levels seen during the pre-pandemic period.

Over the last year, we revealed a long-term strategy related to composite solutions. This highlights our efforts to seize emerging market opportunities through both acquisition and innovation. After several years of early-stage development and prototyping, we recently unified our composite solutions under the Alpha Composites brand name. Alpha Systems is a Patrick brand that is synonymous with high-level customer service, providing innovative solutions to RV and MH industries.

The team at Alpha Composites will continue to build on the foundation through continued collaboration with our OEM partners. We believe our unified branding approach and dedicated resources will further enhance our competitive position as a leading composite solution provider and an innovator in a market where weight, durability, overall cost and sustainability matters to our customers.

Our third quarter Marine revenues increased 11% to $150 million, outperforming what we estimate were flat wholesale powerboat unit shipments. Our estimated Marine content per wholesale powerboat unit on a TTM basis was $4,091, an increase of 4% from the same period last year. Estimated content per unit on a quarterly basis was up 15% sequentially compared to the second quarter of 2025 and increased 10% year-over-year. We estimate Marine retail and wholesale powerboat unit shipments were 42,700 and 32,300 units, respectively, in the third quarter, implying a seasonal dealer field inventory destock of approximately 10,400 units.

Dealer inventory in the field remains lean at an estimated 16 to 18 weeks on hand, down from 20 to 22 weeks in the second quarter of 2025, and 19 to 21 weeks on hand last year at this time, remaining well below historical pre-pandemic averages of 36 to 40 weeks. Like RV, we believe the discrete number of units in the field remains well below pre-pandemic levels.

Our broad Marine portfolio and design expertise position us as a key partner to new entrants and our existing base of valued customers alike. New entrants in the pontoon space have begun to leverage the breadth of our offerings and customer services early in their processes. Additionally, related to Andy's mention regarding IBEX, we've identified opportunities in the Marine market related to composites and are now offering a full composite deck solution, including composite flooring, woven fabric and the adhesive that brings it all together, enhancing the strength, sustainability and ease of installation for our customers.

During the quarter, we completed the acquisition of LilliPad Marine, a Traverse City, Michigan-based designer and seller of premium innovative boat ladders, diving board systems and other Marine accessories. LilliPad delivers their award-winning and patented products through both OEM and aftermarket channels, deepening our lineup of innovative solutions in the Marine space.

Our Powersports revenue increased 12% to $98 million in the quarter versus the prior year period, representing 10% of third quarter 2025 consolidated sales. Our revenues improved across all Powersports businesses, including those that serve recreation and audio markets, coupled with continued growth in attachment rates for Sportech's products. Entering the fourth quarter, we believe the OEMs and dealers will continue to carefully monitor and manage inventory in the channel despite some positive retail signals in recent months.

Recently, our Rockford Fosgate brand launched a new 2024+ HD aftermarket solution at Sturgis. This kit includes Rockford's first aftermarket motorcycle amplifier with a built-in A2B digital interface. Not only is this a Rockford first, it is an industry first. This digital amplifier pairs with Rockford's newly launched speakers to create a premium plug-and-play solution for newer Harley motorcycles.

Finally, on Powersports. As we have discussed on a number of calls, the utility segment of the Powersports market has shown much better resilience than the recreation market, leading to improving attachment rates with existing customers. We have begun to see an increasing interest in adding HVAC and other creature comforts from some of the traditional legacy Powersports OEMs, which should lead to a broader base of demand for enclosures, which Sportech provides.

On the Housing side of the business, our third quarter revenues were up 1% to $302 million, representing 31% of consolidated sales. In Manufactured Housing, which represented approximately 58% of our Housing revenue in the quarter, our estimated content per unit on a TTM basis increased 2% year-over-year to $6,682. We estimate MH wholesale unit shipments and total Housing starts both decreased 2% in the quarter.

As evidenced by our solid manufactured housing content per unit performance in the face of lower industry wholesale unit shipments, our team continues to perform with strong customer relationships and our ability to align and scale quickly to demand while maintaining a lean fixed cost structure. Despite recent softness in MH shipments, we continue to believe there is a lack of affordable housing options in the United States, and we believe our solutions can help both MH and site-built housing industries provide quality, cost-effective homes efficiently. We believe lower interest rates and improved customer confidence remain pivotal to unlocking pent-up demand.

I'll now turn the call over to Andy Roeder, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everyone. Consolidated net sales for the quarter increased 6% to $976 million. Our team drove increased revenues in both our Outdoor Enthusiasts and Housing end markets, including a 7% increase in RV revenues, an 11% increase in Marine revenues, a 12% increase in Powersports revenues and a 1% increase in Housing revenues. As Jeff noted, we generated solid content gains across our end markets during the quarter. Our total revenue growth of 6% was comprised of 4% acquisition growth, 4% organic growth and negative 2% industry. Gross margin was 22.6% versus 23.1% in the third quarter of last year. The decline reflected items, including short-term inefficiencies related to the model year changeover.

Operating margin was 6.8% compared to the prior year at 8.1%. This change was driven by the previously described factors. Our overall effective tax rate was 26.2% for the third quarter compared to 24.8% in the prior year. Net income was $35 million or $1.01 per diluted share compared to net income of $41 million in the prior year quarter. Our diluted EPS for the third quarter of 2025 included approximately $0.07 in additional accounting-related dilution as a result of the increase in our stock price above the convertible option strike price for our 2028 convertible notes and related warrants. The prior year's diluted EPS included just $0.04 per share.

Adjusted EBITDA was $112 million compared to $121 million, while adjusted EBITDA margin was 11.5%, lower by 170 basis points from the third quarter of 2024. Cash provided by operations for the first 9 months of 2025 was $199 million compared to $224 million in the prior year period. Purchases of property, plant and equipment were $26 million in the quarter and $65 million year-to-date. This implies free cash flow of approximately $134 million for the first 9 months of 2025.

Total net liquidity at the end of the third quarter was $779 million, comprised of $21 million of cash on hand and unused capacity on our revolving credit facility of $758 million. As a reminder, we have no major debt maturities until 2028 and continue to have the financial strength and capital necessary to capture long-term organic and inorganic growth opportunities. At the end of the third quarter, our net leverage was 2.8x. In the third quarter, we returned approximately $13 million to shareholders through quarterly dividends.

Regarding our share buyback, we remain opportunistic, having repurchased approximately 377,600 shares year-to-date through the third quarter for a total of $32 million, leaving approximately $168 million left on our repurchase authorization.

Regarding tariffs, our strategy remains unchanged and our teams are actively working with supply chain partners to minimize the potential impact. This remains a dynamic landscape, and we will continue to utilize all of our tools that we believe will help neutralize the absolute impact to our pricing pass-throughs and ultimately mitigate any material impact to our operating margin.

I'll now move to our outlook. We estimate RV retail unit shipments will be down low single digits in 2025 with estimated full year RV industry wholesale unit shipments between the range of 335,000 to 345,000 units and continue to anchor on equivalent dealer inventory weeks on hand year-over-year. In Marine, we estimate retail shipments will be down high single digits and estimate wholesale shipments will decline low single digits, again, with dealer inventory weeks on hand year-over-year remaining approximately the same.

In our Powersports end market, we now estimate that wholesale industry shipments will be down high single digits and our organic content will be up high single digits, offsetting the industry decline as our content continues to grow given ongoing increasing attachment rates for our cab enclosures. In our Housing market, we estimate MH wholesale unit shipments will be up low- to mid-single digits for 2025. On the residential housing side of the market, we estimate 2025 total new site-built housing starts will be down mid- to high-single digits year-over-year.

Moving to our financial outlook. We expect our full year 2025 adjusted operating margin to be approximately 7%. We continue to estimate that our effective tax rate will be approximately 24% to 25% for 2025, implying a quarterly effective tax rate of approximately 26% for the fourth quarter. We estimate operating cash flow will be between $330 million to $350 million, and we estimate capital expenditures will total $75 million to $85 million as we continue to reinvest in the business, focusing on automation and innovation initiatives. This implies free cash flow of at least $245 million.

For modeling purposes, we'd like to give our initial thoughts regarding 2026 based on where we sit today. We expect RV wholesale shipments to increase low- to mid-single digits and RV retail to be flat. For Marine, we expect wholesale shipments to be up low-single digits and retail to be flat. In Powersports, we expect low-single digit shipment growth and low-single digit organic content growth. For MH and Housing starts, we expect both to be flat to up 5%. We believe improved consumer confidence and lower interest rates are key factors necessary for our end markets to rebound more aggressively.

Based on these estimates, we expect our operating margin in 2026 to improve meaningfully, an estimated 70 to 90 basis points.

That completes my remarks. We are now ready for questions.

[Operator Instructions] And our first question comes from the line of Scott Stember with ROTH Capital.

A lot has been made of some of the increased optimism coming out of Open House. What are you currently seeing from your OEM customers regarding production? What are they telegraphing as far as their desire to start ramping up production to potentially put more units into the field?

Yes, Scott, this is Jeff. As I look at our production numbers or production numbers from the OEMs, we are seeing -- we saw a little bit of a slight increase in October. We're seeing a little bit more of an increase in November. So we do feel like just the pure production numbers would tell us that there is some ramping up to what degree that will be consistent through into the first quarter. But right now, we're seeing a little of that.

As I look forward, after this week, we really only have 6 more weeks of production in 2025 with a week off for Thanksgiving. There is some production in Thanksgiving, and then we'll take 2 weeks off for Christmas. So I think early indications are, if I look year-over-year, we're seeing some increases in the back half of the fourth quarter.

Got it. And then moving over to the aftermarket. I know you guys have been doing a lot of cross-pollination with RecPro. Can you give us an update of new SKUs or just -- is that accelerating? Just give us an idea of what's going on.

Yes, Scott, this is Jeff again. On the RecPro side, we've had several hundred SKUs that have carried over from other Patrick divisions into RecPro this year so far. We'll be close to 400 or 500 when it's all said and done since the inception of the acquisition. We are looking to accelerate that a little bit. We've really got them entrenched with our Marine side now and all of our Marine divisions to really start to grow that portfolio within the RecPro side. So really excited. We've put a little bit more capacity in that area to help accelerate that. So we're excited about what we've seen so far and what we're going to see going forward.

One of the other things -- Scott, this is Andy -- is that we just formally launched our aftermarket strategy, which includes a combination of not only direct-to-consumer but direct to dealer and third-party distribution. So we've rolled out a formal strategy. We're implementing structure to really kind of formally launch kind of an overall vision for where we want to take the aftermarket in alignment with our RecPro platform on the direct-to-consumer side. So we're looking forward to really driving some real value in the aftermarket.

Got it. And maybe just a little bit more granularity on your comments about the 70 to 90 basis points of operating margin expansion next year. I assume there will be some sales growth. Just trying to get a sense of how much is sales leverage? How much is internal self-help like things that you have going on like automation and AI and things like that? Just trying to flesh that out.

Sure, Scott. This is Andy. A lot of it is going to be sales leverage. But I would also tell you, content gains, the solutions that we're putting together for customers, allowing them to reduce cost overall, but allowing us with more product content with our customers is going to add value there. And then I think as it relates to the automation efforts, we're going to continue to push forward aggressively on automation amongst our facilities and continue to invest in CapEx.

And we're definitely picking up nickels and dimes along the way as it relates to the automation efforts that we expect to see. So a combination of all of those across the platform to drive that margin improvement. And certainly, volume plays heavily in there, especially if we go above and beyond kind of our industry expectations. So we expect to be able to really leverage our fixed cost structure today. We don't need to add a lot of overhead to support significant incremental volumes.

Our next questions come from the line of Joe Altobello with Raymond James.

I guess just to follow up on that operating margin commentary. Obviously, the outlook for '26 is encouraging, but it sounds like you're looking for operating margin this year towards the lower end of your prior range. So maybe what's kind of weighing on margin this year ahead of the '26 improvement?

Well, Joe, here in the third quarter, we really experienced some model change inefficiency. If you look back through the first couple of quarters, we've seen gross margin expansion driven primarily by the addition of our direct-to-consumer aftermarket business, RecPro last fall. Along with that came a heavier OpEx profile. This quarter, our OpEx is in line, but we just had some, I'll call them one-timers, short time -- short-term investments. We brought on significant new business here in the quarter. CPU was up 9% and 10% for RV and Marine. So significant new business. And with that just comes some material and labor inefficiencies.

Got it. Okay. And in terms of the -- what were you seeing so far in terms of production and shipments in October and November? I think it was on the last call, you guys thought that we might see some sort of restock either in the fourth quarter or maybe the first quarter of next year. Are you starting to see that potential restock? Or is this just kind of noise at the end of a year?

I think there might be a little bit of potential restock. I mean we're getting ready to get into the selling season. You got Tampa right around the corner at the beginning of January. I think if you noted during the prepared remarks, 14 to 16 weeks on hand is extremely low. I mean, that's really the lowest we've seen since the pandemic, where it was in the high-single digits of weeks on hand back then. So there's a lot of room there. At the end of 2025, we're at about 17 to 19 weeks on hand. So there's got to be a little bit of restock in there to be able to get the right units on the lots and be prepared for the selling season that's going to come in the first quarter.

Our next question is from the line of Noah Zatzkin with KeyBanc.

I guess, first, maybe if you could expand upon how you're thinking about CPU opportunity in '26. And I guess within that, you talked quite a bit about composites. So just would love to hear some more thoughts on how that kind of plays into CPU opportunity.

Noah, this is Jeff. In 2026, we expect all of our businesses, as we always do, to pick up anywhere between 3% and 5% organic growth. Our expectation is composites is going to be a big part of that. I would tell you, if we look right now where we sit today, we believe the total addressable market in that composite area is about $1.5 billion. If you net out some of the cannibalization that may happen, it's close to $1 billion. Our teams are poised and ready to attack that piece of the market. And I think with some of the other things going on in the market, that opportunity continues to be very strong.

Again, our APG groups are coming up with new product development, both on the Marine, RV and Powersports side. We believe that the further, I guess, increased attachment rate on the Powersports side is going to give a lot of opportunity to Sportech as more and more OEMs are looking to go to that full attachment. So I think across all of our markets, we have a lot of opportunity to grow that CPU and continue to grow the business.

Really helpful. And maybe just one more. Maybe an update on just M&A and what you're seeing out there and kind of how you're thinking about that?

Sure, Noah. This is Andy. On the M&A front, we've been really active in the last quarter for sure as it relates to cultivating the acquisition pipeline. We've got candidates identified really across our markets. And so we've been out actively kind of talking, kind of building that pipeline up. But as well, we're starting to see more deal flow come at us from outside sources as well. So both the organic side of it, where we're working with potential targets, as well as the deal feed coming in from investment bankers has increased over the last probably 30 to 45 days in particular. So we're seeing increased activity on the M&A front.

Our next questions are from the line of Daniel Moore with CJS Securities.

I appreciate all the color. I want to maybe ask -- obviously, I appreciate the color about dealers' weeks on hand, both in RV and Marine. As you talk to OEMs and dealers, and we have the sort of historic backdrop of what averages look like pre-pandemic, do you have a sense for or a guess for what a new normal could look like in terms of weeks on hand in those key end markets when we get back to, say, low- to mid-single digit retail growth cadence?

Dan, this is Andy. So if we look at historical numbers pre-pandemic, pre-pandemic RV weeks on hand was roughly 26 to 30 weeks and Marine weeks on hand was roughly 36 to 40 weeks pre-pandemic. So if you look at where we're kind of sitting today, RV at 14 to 16 weeks and finishing out last year at roughly, let's just call it, 18 weeks, we definitely think there's some restock needed. We absolutely feel that the inventories in the channel today across the spectrum are low and that there is a restock needed even in the current environment. So we feel like there's some restocking needed.

We don't expect to see the historical pre-pandemic levels, 26 to 30 on RV and again 36 to 40 on Marine. That being said, we definitely know it's -- and we feel like it's bigger than where we're at today. So Marine today, as Jeff mentioned, 16 to 18 weeks on hand. Last year, at the end of the year, we were at 22 weeks. So again, we feel like there's some restock coming and needed. We do feel like inventories are low. But we do think -- I'm going to say let's just say 22 to 24 weeks is probably a good range to kind of think about right now, at least in our estimation.

But we also know that dealers have gotten really good at working with less inventory. That being said, we also do feel across our spectrum. And we have multiple touches with the dealer network, whether it's our transportation business or whether it's our touches with the OEMs or dealers themselves. We get a feel that inventories are lean and dealers will need some more balance out there. So we do feel like there's some, again, restock needed.

Really helpful. Switching gears, initial guidance for '26 implies operating margin getting back close to 8%. As you look across the businesses and when demand starts to return, where do you see the most significant capacity and strongest kind of incremental margins and opportunity for further expansion beyond that across the various businesses?

Sure. Given what we've done with our business, our team's discipline and really managing their businesses, some of the consolidations that we've done -- but as well, we're just really maintaining a lean operating structure and continuous improvement environment. There is leverageability across all of our pillars in all of our business segments. So incrementally, there's a few puts and takes. But overall, I'd tell you there is significant incremental opportunity for us to leverage the business in each of our markets.

Got it. And if you did and I missed it forgive me. Could you maybe quantify in ballpark terms the impact of inefficiencies related to the model year changeover in this quarter?

Yes, Dan. I mean, we saw in the first 2 quarters our gross margin expand by near 100 basis points. There's some noise in there with tariff impacts and timing. But for the most part, I think that's -- we expect a meaningful gross margin expansion driven by our RecPro direct-to-consumer margins and that acquisition last fall. So we were down 50 basis points. I guess I'd expect us to be up 50 basis points in that ballpark as we look forward.

The next question is from the line of Tristan Thomas-Martin with BMO Capital Markets.

Do you have any kind of thoughts or have you seen any of the consumer kind of changes based on model year '26 pricing being up, call it, mid- to high single digits?

Can you repeat that question, Tristan? Sorry.

Yes, just asking with model year '26 pricing up mid- to high single digits kind of like-for-like, how are you seeing consumers and dealers react to that?

Yes, this is Jeff. I think they've certainly passed that along into the channel. As we could tell, we did see some increased retail year-over-year in June and July. That came down a little bit in August. But overall, we can only tell you what the production numbers are telling us right now since we haven't really seen retail for September and October. So once we see those, we'll get a better feel overall of the retail demand.

But from what we can tell from production levels and where we think wholesale shipments are going, there's still demand out there, and we feel good that they've been able to absorb that into the pricing. And we have seen a little bit of interest rate help, which certainly will help mitigate some of the pricing that's happened. But overall, we feel good about kind of where the pricing has ended up.

And I think that as far as what tariff noise has been out there earlier in the year, we've got a few more countries they need to sort some things out with. But as we look -- we've been working very closely with customers. We know that affordability is a big concern, and partnering with our customers to help with that affordability is something that we've been very active in over the last quarter.

All right. Just kind of the obvious follow-up is how is the production mix been looking in terms of like are we seeing maybe a little shift towards fifth wheel from single axle?

Yes, we've seen a little of that. I mean it certainly does occur a lot of times in the fall where we'll see a little bit more on the fifth wheel side as you get the full-time RVers. They're going to use it for the full winter, getting into a fifth wheel versus the smaller entry level. Certainly, the mix is not back to what I would call a normal mix that we've seen in the past with fifth wheel and travel trailer and the smaller travel trailers. But we have seen a little bit of a shift in the third quarter. We expect that, that will stay for the fourth.

If we get into the first part of next year -- I think the dealers were so kind of keen on the entry-level product for most of 2025 as we see that they need to refill some of the stock that's out there. I think we're going to see that's going to be in some of the mid- to higher-end product. So we feel good about where the mix is at. I don't think it will go backwards into the more small travel trailers, but we're keeping an active look at that.

Okay. Got it. And then let me squeeze one more in. Is there any way to think about the composite $1 billion addressable market opportunity, kind of how that breaks out across your end market?

Yes, it's primarily in the RV market right now. When you look at the roofing and flooring solutions that we're providing, something that we're really not into that business right now with roofing, flooring and slide outs. The interior and exterior skins are something that we're participating in right now, and we're very active in shifting from some of the wood products that we're currently selling into composites.

And we feel really good about all the prototyping that we've done and the activity and the products we've been able to bring to market. Certainly, we see some opportunity on the Marine side. That's pretty fresh on the Marine side. We've done a lot on the wood products within Marine, and now we're starting to shift over into some of the composites. So I would tell you that the majority of what we talked about in the addressable market is going to come on the RV side to start with.

The next question is from the line of Craig Kennison with Baird.

Apologies for joining a little late. I wanted to ask about Slide 15, talking about Powersports' organic content growth up low-single digit. What is driving that?

Craig, without question, content gains that we've seen as it relates to attachment rates for our enclosures in particular, we've seen, as we've talked about kind of the utility side of the business, which is really where we've got tremendous focus, being more resilient than the rec side of it. But that being said, the overall take rate continues to go up on enclosures, and the continued take rate on HVAC systems, which in the side-by-side markets, continues to go up.

So we're seeing that. We're seeing some new entrants come back -- come into the market in 2026, but as well as some of the product innovations that we've had teed up over the last couple of years are expected to continue to drive content as well. So we're excited about not only the uptake rate, but some of the solutions we're bringing and then the opportunity for us to really exhibit our full solutions model as well into the Powersports market.

So not only in enclosure, for example, but also a sound system, a wiring harness, a dash panel, instrumentation system, all combined into one solution for our customers going forward. So a tremendous opportunity for us to continue to realize additional content gains in the side-by-side market.

And then maybe just to follow up on the RecPro topic. How do you manage any sort of channel conflict that might come about from setting up a direct-to-consumer platform?

Yes, Craig, this is Jeff. I don't see a lot of channel conflict in what we're doing. Prior to having RecPro on board, which gives us that direct-to-consumer avenue for our products, we had very little aftermarket touch points with -- if you look at the content that Patrick is putting into RVs and Marine and then not really having an outlet to be able to get that product into the hands of the end consumer, this has really just given us that avenue. So I don't see a lot of conflict there.

And then maybe finally on the MH side, what will it take to see a more sustained recovery? It feels like there's ample need for affordable housing and we're going to get interest rates moving in our favor. What are your industry context suggesting is necessary for that really to take off?

Sure, Craig. This is Andy. It's a good question. I think as we look at the MH side of the business, we certainly continue to believe in the model that it provides the low-cost alternative, especially for first-time entrants into the Housing market. Historically, MH has run 9% to 11% of single-family housing starts if you go back in history, and we continue to see that trend continue.

As far as I'm concerned, as we continue to watch that, we're going to continue to look for an inflection point where we see that trend change a little bit. We see a greater percentage of single-family housing starts as our indicator. But overall, the model, the narrative makes a lot of sense, especially with where things are at. We just think some of the pent-up demand needs to be released into that market. But we're fully supportive of it. And as well the quality of the homes have gotten so much better over the years. And so it really is an attractive solution. We're as well waiting for kind of that inflection point.

[Operator Instructions] Our next question comes from the line of Mike Albanese with Benchmark.

Just want to touch on -- Craig had asked a question about the Powersports segment. And as we think about attachment rates and products like HVAC and audio, is it possible to kind of frame maybe from an industry standpoint what percentage of the overall utility industry comes with enclosures?

Let me think about that for a minute, Mike. So the percentage of the industry probably today...

Utility side-by-side. Like how -- yes, I guess what percent...

How many utility vehicles are coming with enclosures?

Yes.

I mean, I got to take a guess. Probably 60%, 70% is a guess. I can't tell you exactly.

And it's definitely going to be heavier on the utility side versus the side-by-side, Mike. And then we're dealing primarily with a couple of the large manufacturers. There are some of the manufacturers out there that aren't even offering that yet, but we believe that's a big tailwind for us when they start to go into that market. So within our customers, it's that 60%, like Andy was talking about. But the overall market, I think there is opportunity beyond that.

Yes, that's exactly where I was going with the question, to get a sense of -- as just enclosures proliferate, with that comes more opportunities to drive new product and increase attachment rates, right? So I was trying to get a sense on...

Not only that, Mike, but the frame -- not only -- so some come with a frame, right, some come with a windshield, the attachment to add doors, to add windows. Then the additional content that we've talked about on top of that from a solution perspective kind of all play into that.

Thank you. Ladies and gentlemen, I'll turn it back to Andy Nemeth for closing remarks.

Thank you. Once again, I just really want to acknowledge and thank our incredible team for just their continued efforts, dedication, passion for really partnering with our customers, bringing new products to market, managing the tariff situation and continuing to deliver consistent and predictable results. I'm just so proud of the team and all their efforts. And as well, I want to thank our customers for their tremendous support through these incredibly dynamic times as we continue to really work to partner to make sure we're promoting kind of the industry as a whole in alignment with their goals and objectives. So really appreciate all the efforts of the team.

We will continue to push forward. I think there's a ton of opportunity for Patrick as we look at where the industries are teed up and where they can go. And not only that, the resilience and scalability of our model and the ability to inflect when our customers need it I'm really excited about.

So once again, thank you very much for joining us. We look forward to talking to you after our fourth quarter results.

Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Patrick Industries Second Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may begin.

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President, RV; and Andy Roeder, 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. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2024, and the company's other filings with the Securities and Exchange Commission. I would now like to turn the call over to Andy Nemeth.

Thank you, Steve, and good morning, everyone. We appreciate you joining us on the call today. Our incredible team continued to deliver disciplined performance and results in the second quarter of 2025 despite very dynamic market conditions. We produced top line growth of 3%, resulting in revenue of approximately $1.05 billion and on a trailing 12-month basis, approximately $3.8 billion. Adjusted earnings per diluted share was $1.50 in the second quarter, including approximately $0.03 of dilution from our convertible notes and related warrants. To date, as a result of our sales team's continued efforts and partnerships with customers and along with new product development and advanced product group efforts, we've secured over $100 million in new business tied to the 2026 model year in our outdoor enthusiast end markets.

We had platform wins across multiple markets this quarter, including our recently developed composite roofing system for RV OEMs, a new pontoon tower incorporating our own Power Bimini system and a new windshield program in powersports, which Jeff will touch on later on the call. We are excited about the energy and momentum being created internally across our brand platform toward our full solutions model, enhancing product integration and innovative design at scale. The diversification of our portfolio continues to be a core strength, providing resilience across our business model in this dynamic environment. April's tariff announcements resulted in a pause in consumer activity in our markets. However, we're encouraged that this appears to be a confidence-related pause rather than a fundamental shift in underlying demand. Based on recent commentary from leaders in the industries we serve, we believe people continue to enjoy the outdoor enthusiast lifestyle, which should create meaningful pent-up demand across our end markets.

The sustained discipline at both the OEM and dealer level in our RV, marine and powersports markets gives us confidence in the longer-term trajectory as economic certainty improves and interest rates stabilize. As Andy will highlight, we remain in a position of strength with a solid balance sheet and liquidity of $835 million, enabling us to execute on our capital allocation strategy with discipline and confidence. To that point, we are actively cultivating our acquisition pipeline, and we continue to invest in automation and innovation, which includes advanced data analytics and AI-driven capabilities, further paving the way for a more efficient and profitable Patrick in the future. Our strong cash flow generation, balance sheet and liquidity position enable us to act quickly when opportunities align with our strategic and financial criteria.

While we continue to evaluate strategic opportunities, we are also returning value to shareholders as demonstrated in the second quarter through quarterly dividends of $13 million and over $23 million in share repurchases. Looking to the back half of the year, we believe dealers will remain strategic in their approach to ordering, likely waiting until the fourth quarter or first quarter of calendar year 2026 to begin meaningfully restocking. Dealer inventories across our channels are lean. OEMs have maintained production discipline, and we are strategically positioned to scale quickly and continue executing the long-term vision that we outlined at our Investor Day last December.

Additionally, we have continued to invest in innovation and automation, created our advanced product group and enhanced and launched our full solutions model while also cultivating the next generation of talent that will take Patrick's to the next level. We remain focused on executing on our capital allocation strategy, optimizing our cost structure, maximizing cash flow generation, delivering best-in-class quality and service and continuing to innovate for both our OEM and growing aftermarket customer base. This disciplined approach bolsters the resilience of our model while preserving our ability to capitalize on opportunities to outperform our end markets. And finally, in the second quarter, we welcomed back our former CFO, Jake Petkovich, to the Patrick family as President of our Marine businesses.

Beyond his past success with the company, Jake is an avid outdoor enthusiast, and we are confident that Jake's leadership will further advance our full solutions model in the marine business while solidifying our position as a market innovator and leader. Rick Reyenger, prior President of Marine and one of the architects of our marine strategy remains an important member of the team, acting as a strategic adviser. We remain incredibly appreciative of Rick's dedication, passionate service and commitment to the Patrick team, vision and culture. I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.

Thanks, Andy, and good morning, everyone. Looking closer at our end markets, second quarter RV revenue increased 7% to $479 million versus the same period in 2024, representing 46% of consolidated revenue. Our RV content per unit on a TTM basis was $4,952, which was flat from the same period last year despite the continued heavy mix of smaller, less contented units. The improvement in RV revenue was driven by acquisitions and market share gains. RV content per unit on a quarterly basis increased 5% sequentially compared to the first quarter of 2025 and increased 6% year-over-year. We estimate RV retail and wholesale unit shipments were approximately 109,600 and 92,900 units, respectively, in the second quarter. This implies a seasonal dealer field inventory destock of approximately 16,700 units in the quarter. Dealer inventory weeks on hand was approximately 19 to 21 weeks in the second quarter, down slightly from 20 to 22 weeks in the first quarter of 2025 and reflected continued wholesale production to retail sales discipline.

This remains below pre-pandemic historical averages of 26 to 30 weeks. Within our RV business, we recently expanded our product offering to include baggage doors, responding directly to specific customer demand. By leveraging our existing fabrication capabilities, utilizing our automation expertise and the raw materials we already supply, we have enhanced the quality and efficiency of this common component in RVs while entering a new product category that expands our total addressable market. This move highlights our ability to utilize our operational footprint, scale and flexibility and highlights the value of our long-standing customer relationships. Our second quarter marine revenues were $156 million, off just 1% from the prior year, outperforming an estimated 5% decrease in wholesale powerboat unit shipments. Through the model year transition, we were able to win additional business in product categories, including electronics, towers, audio and other high engineered solutions while bringing new customers in.

These wins position us to have a positive impact on our content per unit in the back half of the year and into 2026. Our estimated marine content per wholesale Powerboat unit on a TTM basis was $4,012, an increase of 2% from the same period last year. Estimated marine content per wholesale Powerboat unit on a quarterly basis was up 2% sequentially compared to the first quarter of 2025 and increased 4% year-over-year. We estimate marine retail and wholesale Powerboat unit shipments were 60,800 and 38,000 units, respectively, in the second quarter. This implies a seasonal dealer field inventory destock of approximately 22,800 units. Dealer inventory in the field remains lean at an estimated 20 to 22 weeks on hand, down from 26 to 28 weeks in the first quarter of 2025 and 22 to 24 weeks on hand last year at this time, remaining well below the historical pre-pandemic averages of 36 to 40 weeks. Our powersports revenues were $96 million in the quarter compared to $104 million from the prior year period, representing 9% of our second quarter 2025 consolidated sales.

We estimate wholesale powersports shipments were down year-over-year in the second quarter as OEMs and dealers work to optimize inventory. We believe our position in the powersports market remains advantageous given our emphasis on the utility side of the market, which has shown more resilience compared to the recreation side. We see continued runway in powersports space, in part grew to the consumers' preference for creature comforts like HVAC, which requires the cabin closures Sportech manufactures. As an example of organic content gains, our Sportech team recently added an incremental polycarbonate windshield solution in the golf cart market. This program demonstrates how our integrated approach creates value for customers while driving higher content for Patrick. On the housing side of our business, our second quarter revenues were up 3% to $315 million, representing 30% of consolidated sales.

In manufactured housing, which represents approximately 58% of our housing revenues in the quarter, our estimated content per unit on a TTM basis increased 3% year-over-year to $6,670. MH wholesale unit shipments increased an estimated 3% in the quarter, while total housing starts decreased 1%. Within housing, our manufactured housing business continues to see relative stability. We continue to support our customers through a wide breadth of offerings in the space while benefiting from a lean cost structure and the ability to scale most efficiently to serve our customers. We believe our focus on leveraging our depth and breadth of our product and brand portfolio to deliver our full solution strategy is continuing to create value for Patrick, our customers and our shareholders. For Patrick, it represents a significant opportunity to capitalize on the creativity and design capabilities of our team to integrate additional value-added components, value-engineered savings and capture higher content per unit.

For our customers, we believe it will deliver meaningful supply chain simplification and overall cost savings, reduce risk through fewer vendor relationships, improve quality through integrated design and faster time to market for new products. This mutual value creation is the foundation of one of our sustainable competitive advantages. Another example of our Advanced Product group penetration is the development and prototyping of an innovative RV solution that combines our adhesives, roofing membranes and our recent investment in composite panels from 3 of our business units. We're in the final stages of prototyping and are preparing to supply to the industry in the back half of the year.

On the marine side of our business, Medallion Instrumentation Systems, whose digital display and dashboard capabilities solidify our ability to provide a complete electrical solution, which includes wiring, fiberglass helms, switches and gauges and a customizable digital dash that consumers favor and OEMs can offer at a premium option. Additionally, as Andy noted, our team recently developed a proprietary Power Bimini system with our own actuator targeting multiple market categories while still offering a good, better, best solution in a growing segment of the market. I will now turn the call over to Andy Roeder, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everyone. Our financial results in the second quarter were largely in line with our plan. Consolidated net sales for the quarter increased 3% to $1.05 billion, driven by revenue increases of 7% in RV and 3% in housing, which helped offset revenue declines of 1% in marine and 7% in powersports. Our total revenue growth of 3% was comprised of 4% acquisition growth, 3% organic growth and negative 4% industry growth. The organic growth consists of 2% share content gains and 1% related to pricing. Gross margin was 23.9%, up 110 basis points from the same period last year, reflecting the positive impact of the diversification of our business model, our margin-accretive aftermarket acquisition of RecPro, disciplined labor management and returns on our CapEx and automation initiatives. Operating margin was flat at 8.3% compared to the prior year quarter, driven by margin-accretive acquisitions, absorption from our RV and housing businesses, offset by softer demand within our higher-margin marine and powersports businesses.

Our overall effective tax rate was 25.3% for the second quarter compared to 25.6% in the prior year. Net income decreased 32% to $32 million or $0.96 per diluted share. As noted in our release this morning, we recently settled a nonproduct-related legal matter related to a motor vehicle accident, which resulted in a double fatality. We extend our sympathies to the families of those involved for this tragic loss of life. This settlement impacted our GAAP pretax income and our GAAP net income. Given the nonrecurring nature of the settlement, we are also providing non-GAAP adjusted net income and earnings per share. After adjusting for this nonrecurring item, adjusted EPS increased 4% to $1.50 compared to $1.44 in the prior year period. Additionally, our reported and adjusted diluted EPS for the second quarter of 2025 included approximately $0.03 in additional accounting-related dilution from our 2028 convertible notes and related warrants as a result of the increase in our stock price above the convertible option strike price. The prior year's diluted EPS included $0.02 per share.

As we've noted in the past, we have hedges in place, which are expected to reduce or eliminate potential dilution to the company's common stock upon any conversion of the convertible notes and/or offset any cash payments the company is required to make in excess of the principal amount of any converted notes. For accounting purposes, these hedges are always anti-dilutive and therefore, cannot be included when reporting earnings per share. Adjusted EBITDA grew 4% to $135 million, while adjusted EBITDA margin increased 10 basis points to 12.9% for the second quarter of 2025.

Cash provided by operations for the first 6 months of 2025 was approximately $189 million compared to $173 million in the prior year period, and purchases of property, plant and equipment were $18 million in the quarter and $38 million year-to-date. This implies free cash flow of approximately $151 million for the first 6 months of 2025. After repaying approximately $157 million in debt during the quarter, total net liquidity at the end of the second quarter was $835 million, comprised of $22 million of cash on hand and unused capacity on our revolving credit facility of $813 million.

With no major debt maturities until 2028, we have the financial flexibility and dry powder necessary to capture long-term organic and inorganic growth opportunities. As Andy touched on earlier, we returned cash to shareholders through dividends and opportunistic share repurchases in the second quarter. In total, we repurchased 277,800 shares at an average price of $84.43 for a total of more than $23 million. Year-to-date through the end of the second quarter, we repurchased approximately 377,600 shares for $32 million. At the end of the second quarter, we had approximately $168 million left on our repurchase authorization.

At the end of the second quarter, our net leverage was 2.6x, down from 2.7x at the end of the first quarter. We continue to allocate capital strategically while maintaining a solid balance sheet and pursuing high-value opportunities. Regarding tariffs, we have stated in the past that our total import exposure is approximately 15% of COGS with 1/3 China, 1/3 Canada and Mexico and 1/3 rest of the world. We continue to derisk our exposure to China, explore alternative sourcing options and monitor tariff updates.

We have previously outlined a number of tools at our disposal that we believe will help to mitigate the absolute impact to our pricing pass-throughs and ultimately mitigate any material impact to our operating margin. Moving to our end market outlook. We estimate full year RV retail unit shipments will be down mid-single digits, and we are tightening our estimated RV industry wholesale unit shipments to be 320,000 to 335,000 units and continue to anchor on equivalent dealer inventory weeks on hand year-over-year. In Marine, our estimates for retail and wholesale powerboat unit shipments remain unchanged with retail shipments estimated to be down high single to low double digits, implying a low single-digit decrease in wholesale unit shipments, again, with equivalent dealer inventory weeks on hand year-over-year. In our powersports end market, we continue to estimate that wholesale industry shipments will be down low double digits and our organic content will be up high single digits as our content continues to grow given ongoing increasing attachment rates for our cabin closures.

In our housing market, we continue to estimate MH wholesale unit shipments will be up mid-single digits for 2025. On the residential side of the market, we continue to estimate 2025 total new site-built housing starts will be down approximately 10% year-over-year. Moving to our financial outlook. We continue to expect our full year 2025 adjusted operating margin to be between 7% and 7.3%. We continue to estimate that our effective tax rate will be approximately 24% to 25% for 2025, implying a quarterly effective tax rate of approximately 26% for the remaining 2 quarters of the year. Regarding the share count, please note that the current share price is higher than in Q2, which, if sustained, would add additional accounting EPS-related dilution going forward, more so than we saw in Q2.

Following the legal settlement included in our second quarter results, we now expect that operating cash flow will be between $330 million to $350 million, and our estimated capital expenditures will total $70 million to $80 million as we continue to reinvest in the business, focusing on automation and innovation initiatives. This implies free cash flow of at least $250 million. With the cyclical nature of our businesses, we believe it is important to remain well positioned, balancing our commitment to deliver value to our shareholders and support customers at any demand level. Should the macro or end market environments change significantly from our current expectations, we are prepared and ready to act accordingly. That completes my remarks. We are now ready for questions.

[Operator Instructions] Our first question comes from the line of Scott Stember with ROTH MKM. Standby one moment gentlemen, we have to get Mr. Stember's line back. Mr. Standby, Mr. Stember. [Operator Instructions]

Yes. Let's -- maybe we can move on to the next one.

Sure. The next question comes from the line of Joe Altobello with Raymond James.

I wanted to talk about the end market outlook you guys laid out this morning. Not a ton changing. But if I look at your RV Marine outlook, for example, it sounds like you're expecting some slowdown in shipments in RVs in the second half, at least versus what we saw in the first half and the opposite on the marine side, where you're expecting some increase in shipments in the second half despite the fact that demand is still pretty soft. So maybe can you talk us or walk us through how you're thinking about both of those end markets in the back half relative to where you expect retail to be?

Yes, this is Jeff. On the RV side, with the production levels that we have -- that we're looking at right now, we are going to see the traditional seasonal slowdown of production in the second half, while dealers try to work through their inventories and get their inventories in a better place. We feel like inventories are very good. We feel like our OEMs have been very disciplined with their production levels to match up with retail. And so really in the second half, I think that it's kind of our normal seasonal change as we move through the third and fourth quarter. As far as Marine, you saw a lot of product being pulled out of the inventory in the first half. Again, inventories are very solid across all of our markets. We feel like the OEMs and the dealers have done a great job monitoring what retail is out there and only keeping the production levels where they need to be to keep those inventories in check. So with as much that came out in the first half, we believe there's a little bit of opportunity for some upside with the Marine on the second half.

Okay. Very helpful. And just a follow-up on the cash flow outlook. Is the reduction purely the legal settlement? Or is there anything else going on there?

Yes, Scott, this is Andy Roeder. No, it's purely the legal settlement. Not much has changed, as you noted in our end market outlook. So we pulled down our op cash guidance just based on that cash out the door due to the legal settlement.

The next question is from the line of Daniel Moore with CJS Securities.

Start with powersports, maybe talk a little bit about where inventories are today, both kind of the OEM and dealer level. And what are you hearing from your customers regarding retail demand? Any signs of getting closer to the bottom? Or do you see that weakness maybe persisting into '26? And secondarily, just talk about momentum on the attachment rates. Obviously, content growth is really healthy at high single digits demand for enclosures accelerating? Would you say penetration rates are sort of progressing steady? Any update and color there would be great.

Sure, Dan. I think as we look at the inventory in the channel, we do feel like things are stabilizing there in the powersports market. We do feel like things are kind of becoming more normalized. As we look at our attachment rates, I think that's where we're really optimistic. We've seen an increase in attachment rates on units while unit production has gone down, our attachment rates have gone up. And I think one of the things that we're really optimistic about, not only in powersports, but across all of our end markets as we look at kind of model year 2026 and model year 2027 is all the new product development that we've had in each of our markets and the additional content opportunities and gains that are out there for us as we look back half and into 2026. So it's not just attachment rates, but it's additional products and product solutions that have really come to fruition in the back half and 2027 model year that we're really optimistic about.

Very helpful. And that leads to my next question. I'd love to hear a little more color on some of those products and systems that you described briefly. I think you mentioned composite roofing system in RV, new Bimini and marine, and I kind of missed the new product or system in powersports, but maybe any more color there? And just how do you think that more generally, the shift -- think about the shift from products-based company to more systems and solutions provider. How do you see that impacting your content growth as a whole over the next kind of 3 to 5 years?

Yes, Dan. I mean, just to start, I mean, we believe that it's really what we need to do to continue to grow that content across all of our markets. We put the advanced product groups for all of our different markets in place in the last couple of years, and we're starting to see the fruits of their labor. And when we talk about the roofing system, we have 3 different divisions within our RV markets that are working together to develop the products that can go together to give one nice roofing solution in a composite with the membrane and the adhesives. So as we've seen our APG group start to look across all of our capabilities, it helps them to understand exactly what we can put together and really simplify things for the customers and bring them a new solution, again, helping our content per unit because in some cases, these are products that we don't have any -- it's not an addressable market for us currently that we're getting into.

So we're not really cannibalizing any of our current business with portions of that system. As far as the Power Bimini and what we've done on the marine side, same thing. Our team has worked the last couple of years to find a solution that works really to keep us in the market within that Bimini and that Power Bimini solution with a good, better, best solution for our customers. And then the one thing I talked about was a polycarbonate -- excuse me, windshield for golf carts that Sportech has been working on, something that they've worked with customers on to put together a new solution for the golf cart market.

And Dan, as we look at moving the migration towards product solutions and our full solutions model based on the breadth and depth of our product portfolio, we really believe this is an additional opportunity to really partner with our customers to expand not only the good, better, best solution or offering for our customers, especially in this dynamic pricing environment related to tariffs and all the mitigation efforts we can use on that front, but really to be able to value-add value engineer products for customers to help them take cost out in these markets where affordability is a big concern today as we know. So as we look at our solutions opportunities and really the opportunity to really embed our partnership even further with our customers, that's what gets us pretty excited again about where the content opportunities can lead to in the future.

Helpful. I'll sneak in one more and then jump out. But just talk about the M&A pipeline, number one; and number two, $800 million plus in liquidity, kind of in the mid-2 range in terms of leverage, just your willingness to either take leverage higher for the right deals or prefer to work it down a little bit from here? Any thoughts on the balance sheet?

Sure. We feel like we're in a position of strength, certainly in these market conditions with our liquidity, our leverage position. The M&A pipeline continues to be actively cultivated. I would say more so on the organic basis than the deal flow that we see from investment bankers, but we're always actively cultivating the organic deal pipeline. And so again, we're out there. We're talking to candidates today. So we're going to stay active in the M&A market regardless of whether we're seeing investment banking deals or not. But overall, when we look at leverage as well, so at 2.6, we feel very comfortable with our cash flow, the strength of our cash flows, the ability to delever. We'll stretch that if we need to for the right deal, a little bit above 3x with the ideal and goal of getting back to 2.25 to 2.5x within 2 to 3 quarters. So we can be very active in that. But we feel very comfortable where we sit today as it relates to our liquidity position, our leverage position and the opportunities that exist in the M&A market, especially through our organic cultivation efforts.

Our next question is from the line of Scott Stember with ROTH MKM.

Can you guys hear me this time?

Yes, Scott.

So yes, question on pricing, what you're seeing right now for '26 in your discussions with the OEMs with tariffs coming through, it doesn't seem like it's a tremendous impact for you. But just maybe talk about what you expect the inflation to be for next year. I know a lot of folks have been saying mid-single digits. And how does that affect your content expectations going forward for '26?

Yes, Scott, this is Jeff. In general, in partnership with our customers so far through the first half of the year, we've kept pricing relatively flat. We've had to pass along a little bit here and there. I think we will see some additional pricing in the second half as the tariff and increased pricing in the market starts to hit our inventories. And we'll work directly with our customers, and we are in contact with our customers to give them an idea of when and how much. I would say that low to mid-single digits is kind of, I guess, a pretty good mark on where we need to be in some of our product lines. That's not across the board.

And we're being very active as it relates to looking at our supply chain and making sure that we're mitigating as much increase as we can. We're seeing some of the increases out of domestic supply as well as what's going on with the tariffs. So it's kind of across the board, and it's our team is working very hard to mitigate those and work with our customers and our partners to make sure that we're keeping those as low as possible. Whatever that ends up being, that will affect the content as we roll into 2026 as we get through the end of the year here with, I'm going to say, some low to moderate increases in some product categories.

Got it. And then did you guys give an update on your operating margin expectations for the full year?

Yes, Scott, we kept it unchanged. 7% to 7.3% for the year.

Got it. And then lastly, maybe talk about the aftermarket. Obviously, you have RecPro going on. You have a lot of white space there as far as cross-pollination efforts with marine. Could you just talk about any wins there and the status of that initiative?

Yes, Scott, this is Jeff. Really, RecPro has done a great job connecting with all of our businesses across all of our markets, just to get a sense and a feel for what products they have available that need to be in the aftermarket are already in the aftermarket and how they can help increase the -- I guess, the visibility of those products into the market across not just the direct-to-consumer, which RecPro is really good at, but also in the dealers and in the distribution side. We put a pretty hard push on the marine side with regards to getting out there into more distribution with our aftermarket products.

But in particular, with RecPro, we've added well over 100 SKUs into the RecPro site that are from Patrick. That puts us over 500 product -- excuse me, Patrick SKUs that are on RecPro. So we're starting to get that exposure out there on that direct-to-consumer side. And we're putting more emphasis on aftermarket across our company. We're putting some additional structure in place to be able to really capitalize on what we think is a lot of white space, as you mentioned in your question. So we're excited about where we're at, kind of everything that we know about what we can do in this space and where we're going.

The next question is from the line of Craig Kennison with Baird.

You've addressed many of my questions. But I wanted to ask about the RV shipment trends we've seen lately. May was down significantly, and then June was up. What are you seeing in July? And what's maybe the broader message from the production side of the RV industry?

Yes, Craig, this is Jeff. From the production side, I think there's a few things in there with the down in May, up in June and where we are in July. I'll tell you in May, as there was a lot of transfer or switch over from their '25 to their '26 model year, really, we had a really light week over the Memorial Day week as a lot of those transitions were happening at the plant level. June, a little bit different than previous June, a lot of the 4th of July shutdowns would happen with 1 week out at the end of June and 1 week out in July.

This year, most of the OEMs ran through the month of June and then took off the first 2 months of July, which leads me to the other part of your question about July. July is going to look light because of that. I mean you got 2 full weeks out of July's production levels. However, I would tell you that the production levels that we're seeing moving forward at the last 2 weeks of July and into August, seem to be pretty consistent with where we left the pre-July 4 shutdown production levels. And we feel pretty good that the OEMs, again, are being very disciplined with what they're running versus what they're seeing on the retail side.

And going back to the Advanced Products Group question -- line of questions. I'm just curious, if we probe that a little bit, are you -- you make a lot of acquisitions in and of themselves, they're generally very good businesses and you can grow them. But are you seeing more synergies or more magic happen between or among those businesses as you try to create products that really you couldn't build if you didn't make acquisitions?

I'll take that, Craig, this is Andy. Without question, the energy amongst our brands and the excitement towards the opportunity to expand not only their product categories, but to bring a solution together, we've absolutely seen that. We did our own internal product expo to make sure that all of our brands had awareness of the other product capabilities amongst our broad portfolio. So there's just a lot of excitement. And I think the other thing that we think about, especially in today's environment with shipments and the discipline that's out there and retail wholesale production levels, the tremendous efforts that have been put towards new product development in the last 6 to 12 months have been significant and the opportunities that we see being created, especially with this pricing environment for us to bring these solutions together are really an opportunity for us. So I think the excitement amongst our brands, the continued education to keep them in the loop on all of our capabilities, all that is working in positive towards our Advanced Product Group.

And maybe just as a last question. Looking at the tax legislation that just passed, I'm just wondering, are there -- is there anything in there that might drive decisions? I know, for example, there's interest deductibility for towables that should be good for the industry. But I'm wondering if maybe there are provisions that might affect how you think about CapEx or R&D decisions because of the legislation?

I'd say I don't know that there's any headwinds in that legislation, only tailwinds. I think though, as we look at our cash flow, it really hasn't changed our mindset in the way that we think about managing our business. Certainly, again, I think it's a tailwind versus a headwind. And we'll certainly look at opportunities there to stay opportunistic. But overall, given the strength of our cash flows and the discipline inside our capital allocation strategy and the way that we think about our return models, I feel really good about our ability to continue to leverage the business regardless of the tax legislation. But again, if anything, I would say it's tailwinds versus headwinds.

The next question is from the line of Tristan Thomas-Martin with BMO Capital Markets.

How should we think about the margin profile of some of these higher engineered products and systems relative to some of your commoditized products?

Without question, the higher engineered products have a better margin profile as we solutionize. I'd say the other side of that, as we think about things is that, again, the ability to bring a good, better, best product offering to our customers. I think that as we look at it, it's a tremendous opportunity to partner to help them take cost out while adding value and adding higher engineered products with our customers. So I think we can bring benefit to our customers in this affordability where we're sitting in an affordability issue right now in the marketplace. We think we can bring a lot of value. So -- but overall, the margin profile is better on higher engineered products.

Okay. And then I know you called out dealers probably waiting until 4Q or 1Q next year to meaningfully restock. What do you think they're looking for to start kind of ordering in more volume? Or what are the signs that goes on?

Right now, I think the overall headline is affordability at the consumer level. Consumer traffic is there, but consumers are looking for deals, at least from everything that we've heard in the marketplace. And so I think there's tremendous discipline is the other headline. Dealer wholesale production to retail sales, unit sales is roughly at 1:1, if not a little bit less, and that's tremendous discipline in the space at the dealer level. But overall, I think at least what we hear is just, again, affordability, consumers are there. We need a little -- we need some movement on interest rates, which certainly help things when we move things along. But I think consumer confidence as well with all the volatility that we've seen in the last quarter has impacted the consumer and really kind of paused the consumer in the quarter. So hopefully, as we get through that, consumer confidence will improve and then hopefully, we'll get some rate relief that will help as we move forward.

Okay. And then I'm going to sneak in one more. Just in terms of thinking about kind of the industry mix shift in the back half of '25 and into '26, is it strictly just affordability improves, rates get cut, consumers can afford more? Or is there any opportunity for the industry to innovate and try to encourage trade-ups relative to kind of what we were at before with all the single axle?

Yes. I think it's going to be a combination of a few things. Certainly, any macroeconomic help they can get, interest relief to help with the affordability. I think continued innovation by the OEMs to be able to add components and add value to units without adding a lot of cost, and we'll work with them on those type of innovations. But overall, the second half of the year isn't going to be as much single axle, I think, as it has been. But I don't think the trend isn't going to change, I should say. It's going to be -- the mix is going to be there. I don't think it's going to get any different or any -- I'm going to say, worse towards the single axle. So I think as the affordability happens and we get into kind of a core trade-in and trade-up cycle with some of the lifetime RVs that I think have kind of held off as they've waited for some affordability to happen will help and especially the interest rates will help them bring them back to the market as well.

Our next question is from the line of Mike Albanese with Benchmark.

Just have a quick one here on RecPro and aftermarket exposure. You obviously highlighted some strong internal momentum, adding SKUs, right, gaining DTC exposure, I guess, building the infrastructure. Is -- from your seats, I mean, how much visibility do you have? Or is that large enough for you to get a read-through into overall kind of aftermarket demand? And I guess from your seats, what are you seeing in terms of end market activity, overall usage, et cetera? If you could just comment on that, that would be great.

Yes, it does give us a good view into the aftermarket. We've been able to kind of look at that. I mean it hasn't been -- as far as year-over-year, it's been up. I can't tell you if it's been up across the board with everybody with aftermarket. I mean some of the aftermarket is specifically attachment to new units. And if retail is down, and some of that aftermarket will get a little bit slower. So I mean, it really does give us an opportunity to understand a lot more about what's happening in the aftermarket. They have a -- as I mentioned, there's over 500 Patrick SKUs on the RecPro site, which they have a broad breadth of product across many different product categories outside of Patrick.

So we can kind of see what's being bought out in the market and what's -- I guess, what's hot and what's not on the aftermarket side. So overall, I mean, we feel good about kind of our visibility and what's happening there. And we'll continue to utilize RecPro as that visibility into the market. We do have other channels within our other markets in marine and even within RV, where we're selling through distribution and into dealers that continues to give us good visibility on those channels.

Got it. That's helpful. So I guess just as a follow-up and maybe to take the question a step further. I mean, you mentioned a lot of it attachment tied to new units, but I'm trying to get a sense of the product portfolio here and how much benefit you would get maybe from an increase in the used markets and obviously, just general activity kind of going hand in hand with that within your business? Does that make sense?

Yes, I don't know if -- I don't think I meant to imply that the majority of what we had was attachment for new units. I'm just saying that within the aftermarket, some of the products are attachment to new units. The majority of the product categories that we have are for upgrade and refurbish of RVs versus something that's only going to happen on a new retail unit. So that's where we're going to see the majority of the sales that come out of RecPro and any of our other direct-to-consumer products.

The next question is from the line of Noah Zatzkin with KeyBanc Capital Markets.

Most have been asked and answered, but maybe just one on powersports. There was a major OEM who recently announced that retail for UTVs was positive in the second quarter. Obviously, your wholesale shipments for powersports are unchanged at down low double digits. So just kind of wondering how you're thinking about that dynamic and maybe -- when maybe inventory is in a better spot and dealers kind of want to begin restocking there? Like are you thinking about kind of timing given that there appears to be pretty resilient demand for those products?

Sure. Noah, I think we've -- as we look at our backlogs and our order patterns, we have some decent visibility into kind of where we see production levels. And so the resilience in the utility side of the business certainly has outweighed that in the recreational side of the business. That being said, I think we're still kind of anchored around model year '27 units and really that kind of being the baseline increase for us on a production level as we head into 2026 for the '27 model year. So we're still pretty consistent, expecting kind of flat, down a little bit, but stabilizing inventories out there. And in the utility side, we don't feel like utility inventories are out of balance. So I think, again, as we look at the back half, we really haven't changed much of our thoughts as it relates to increased production levels we're still kind of thinking, hey, it's going to be late this year and into next year. But the new content opportunities, again, that we've talked about in addition to the increasing attachment rates, give us optimism for the 2026 calendar year, 2027 model year.

Maybe just one more, not to get kind of too detailed on powersports, but what percentage of the business would you say is indexed to UTVs versus like golf carts or kind of other types of products? And then like maybe not to harp on golf carts, but like are there other pieces within that business that are growing even faster?

It's a little bit fragmented. But just in general, if you think UTV to Rec, probably 60-40, 60% UTV, 40% Rec. Then the golf cart market for us is -- I don't want to say it's untapped. We're hitting it, but there's a ton of potential there as it relates to content opportunities. Audio as well and then even into the motorcycle market where we participate heavily on the audio side, it plays into the powersports. So it's somewhat fragmented within the entire powersports market, but our categories are generally going to be ATVs, UTVs, motorcycles, golf carts, watercraft, those are -- that's really where we play on the powersports side.

At this time, I will now turn the call back to Andy Nemeth for closing remarks.

Thank you, everybody. I really want to thank our more than 10,000 team members out there. They've just worked so hard and their dedication and discipline and diligence in these dynamic conditions has been incredibly inspiring and energizing. We also want to thank our customers for their support and their partnerships in these volatile times. But again, hopefully, we continue to really embed ourselves as a valued partner, which is our goal. And again, as I think about where we head as we look into the back half of the year and into next year, we remain really energized about the opportunities that are in front of us, the earnings power of the business, the team that we've got in place today, the customer partnerships that we have and really the ability to positively impact lives not only in our markets, but in our communities. And so again, we feel good about where we're at. The team has done a great job, and we're incredibly appreciative of the opportunities that we have in front of us. So want to thank you again. Really appreciate everybody's participation, and we look forward to talking to you next quarter.

Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for participating, and you may now disconnect.