Patrick Industries Inc 2026 Q3 Earnings Call

Good morning, everyone, and welcome to our call this morning. I am 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, the joint proxy statement prospectus included in the registration statement on Form S-4 filed in connection with the proposed merger with LCI Industries and the company's other filings with the Securities and Exchange Commission.

Before we begin, I want to briefly address our previously announced merger agreement with LCI Industries. On October 19, 2026, the registration statement on Form S-4 was declared effective by the SEC, and the definitive proxy statement prospectus has been mailed to Patrick and LCI shareholders of record. The special meetings of Patrick shareholders and LCI stockholders are each scheduled to be held on November 18, 2026. As you would expect, we are limited in what we can say beyond the information that has already been publicly disclosed in our joint proxy statement prospectus and our other SEC filings. 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. I want to start by first and foremost recognizing and acknowledging the Patrick team, whose commitment and dedication to staying focused on the controllables in alignment with our diversified business model helped us not only deliver continued resilient performance in the quarter, but also in continuing to stay true to our strategic vision and plan. The team's efforts to drive innovation and product solutions, deepen customer relationships, and execute with discipline were evidenced in our quarter and in our results. Next, I would like to address the latest news regarding our merger with LCI Industries. As you are likely aware, a cash offer for all of the outstanding stock was made to LCI from an outside party. LCI's highly qualified board has been thoughtfully evaluating the offer in alignment with their fiduciary duties and responsibilities.

Regardless of the outcome of this evaluation, from Patrick's perspective, we remain highly confident in both Patrick's standalone strategy and vision to serve the outdoor enthusiast and housing markets, which is active in executing, as well as the value-added opportunity to combine with LCI Industries to further enhance that strategy and vision. We are excited about our brand-fronted deep and wide product portfolio, our team, our culture, and our position and partnership with the customers in the markets we operate, and we will continue to remain on offense to deliver on that strategy and vision. Now, turning back to the quarter. We delivered consolidated net sales of approximately $975 million, essentially flat year-over-year, as growth in our marine, Powersports, and housing revenue resulting from both organic and strategic initiatives nearly offset the pressure on the RV revenue caused by a 13% decline in industry wholesale shipments in the quarter.

We also grew our adjusted EBITDA margin by 40 basis points to 11.9% and delivered adjusted earnings per diluted share of $1.03. The broader macroeconomic environment remains challenging. Consumers continue to feel the weight of affordability and geopolitical uncertainty, including high interest rates and fuel costs, persistent inflation, and the two concurrent wars happening in Iran and Ukraine. In September, consumer confidence fell to its lowest level since 2014. That pressure is reflected in the RV retail shipment data and to a lesser extent in the marine industry. RV retail shipments have been down 56 of the last 60 months, and marine retail shipments are estimated to have been down 52 of the last 60 months. We remain encouraged, however, that our diversified business and industries are well-positioned heading into 2027 and for any potential positive inflection point.

Dealer field inventories across RV and marine remain well below historical norms, and OEM production is tightly aligned with retail demand, positioning both industries defensively and in need of a restock upon a potential retail inflection. Powersports demand for utility vehicles, where the majority of our products in that space are focused, remains solid. Following a period of realignment, manufactured housing shipments improved in the third quarter based on our estimates. Additionally, we continue to see positive underlying usage data for our outdoor enthusiast markets. Campground occupancy, time on the water, and time on the trail continue to suggest that consumers remain actively engaged in the outdoor enthusiast lifestyle. On the housing side, we are steadfast in our belief that there is pent-up demand for affordable housing with limited options available.

At Patrick, we continue to collaborate with our OEM customers to engineer differentiated products and solutions that can enhance the outdoor enthusiast experience. We are driving our model based on our broad and deep product portfolio to deliver a more solutions-oriented approach initiated by both innovation and value-add engineering. I want to be precise about what that means and the mutual benefit we believe it can offer Patrick and our customers. Full solutions is more than putting together a package of SKUs. It is about working in collaboration with customers to proactively engineer and design differentiated plug-and-play systems and solve real customer challenges that exist today. These include value add, value engineering, and ease of install, while also anticipating future challenges.

The Patrick team has thoughtfully curated a portfolio of individual brands, each with a unique product set that can be spec'd in and installed together, offering a fundamentally different value proposition. Although still in the early innings, we are already seeing initial wins and are excited about the opportunities ahead, including the chance to deepen our connection with customers. On the marine side, we recently showcased our brand-fronted, solutions-oriented portfolio at the International BoatBuilders' Exhibition and Conference in Tampa, where feedback was strong, and we are now delivering engineered electrical and tower systems to certain marine OEMs for model year 2027, with additional programs already in the pipeline for model year 2028. On the RV side, composite products, including floors and wall panels, continue to take shape in the market and gain traction in tandem with our printing solutions and adhesive and roofing systems.

We are extremely excited about the recent launch of Patrick Printing Solutions, which Jeff will walk through in more detail. From an operating platform perspective, we recently launched a strategic initiative we've captioned Patrick 2.0, in alignment with our ongoing continuous improvement efforts and cost reduction levers to optimize our operating model with organizational best practices at current run rates. This organizational initiative is designed to meaningfully capitalize on procurement synergies, structural adjustments, automation, information technology, software, and AI, and certain facility consolidations. These initiatives will not impact our customers or customer service and continue to preserve individual brand identity and our operating flexibility, scalability, and capacity. Additionally, as part of this initiative, we are going to enhance our operating efficiency, improve connectivity with customers, and make it easier to do business with Patrick and in alignment with our full solutions model.

We expect to incur certain non-recurring restructuring charges in the fourth quarter related to Patrick 2.0 that will provide recurring long-term savings and efficiencies while enhancing our customer service profile to better serve our customer partners. Now moving to our balance sheet, which remains a core strategic asset and differentiator in this environment and allows us to remain on offense and drive our capital allocation strategy. We ended the quarter with ample liquidity, no significant debt maturities until 2028, and a reduced net leverage ratio. Over the last 12 months, we've generated $203 million of free cash flow. These factors complement our disciplined and strategic approach to capital allocation, where we continue to prioritize investments in foundation and growth initiatives that have the potential to deepen our innovation pipeline, drive our solutions model, and bring new manufacturing processes and efficiencies to benefit our customers.

The end markets we serve are built around enhancing experiences for families who take the trip, launch the boat, ride the trail, and come home to a place of their own. We are enthusiasts, and everything we do is in service of the people who make that lifestyle possible. From the OEMs and dealers who design and deliver the end products, to the team members across our organizations who help build them, and to our communities where we are privileged to live and enjoy them. We will continue to show up for our customers and team members with enhanced capabilities, expanded collaboration, and a deeper commitment to the markets that have shaped our organization. We are excited about the path ahead and are grateful for the trust our stakeholders continue to place in us.

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 third quarter RV revenue was $362 million compared to $426 million in the same period in 2025, representing 37% of our consolidated revenue. RV industry wholesale unit shipments declined by 13% in the quarter, which equates to approximately 9,700 fewer units being shipped. On a trailing 12-month basis, RV content per unit, or CPU, increased 4% to $5,263. On a quarterly basis, CPU decreased 3% year over year. During the third quarter, OEMs and dealers remained disciplined with their production and inventory levels. Dealers managed lean field inventories and OEMs held production tightly aligned to retail sell-through. We estimate third quarter 2026 RV retail unit shipments were off 14% to 88,000 units, compared to RV wholesale unit shipments of 66,900, implying a seasonal dealer field inventory destock of approximately 21,100 units during the period.