Patrick Industries Inc Q3 FY2021 Earnings Call

Good morning, ladies and gentlemen, and welcome to Patrick Industries’ Third Quarter 2021 Earnings Conference Call. My name is Robert, and I’ll be your operator for today’s call. Please note, this conference is being recorded. And I will now turn the call over to Ms. Julie Ann Kotowski from Investor Relations. Thank you. You may begin.

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 Jake Petkovich, CFO. Certain statements made in today’s conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. There are a number of factors, many of which are beyond the company’s control, which could cause the actual results and events to differ materially from those described in the forward-looking statements. These factors are identified in our press releases, our Form 10-K for the year ended 2020 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update these statements to reflect circumstances or events that occur after the date the forward-looking statements are made. I would now like to turn the call over to Andy Nemeth.

Thank you, Julie Ann. Good morning, ladies and gentlemen, and thank you for joining us on the call today. Once again, we are pleased to report strong revenue and earnings growth in the quarter with sustained momentum in backlogs building across the end markets in all of our primary market platforms. Our team’s tremendous efforts, dedication, and flexibility in this highly volatile supply chain and labor environment is a testament to their will to take care of our customers and their ingenuity to deftly navigate difficult currents. The partnership with our customers is very real and tangible. Our sales and operations professionals have tirelessly continued to work and communicate very closely with their counterparts in our customers’ operations to absorb what is happening in real time, manage changing production schedules, and strive to anticipate the needs in this ever-changing dynamic environment. Layering this, our focus on investments in our culture, infrastructure, and automation tools will empower our team members to be able to do their jobs better and more efficiently and effectively create better balance and scale up and down with our customers’ needs and business models. Technology and data-driven solutions are just one of the strategic initiatives we are investing in and a primary focus of ours to enable and empower our team and our customers to collaborate, analyze opportunities, and improve the quality and delivery of our products and services. This includes AI and machine learning and cloud-based solutions, which transform low-resolution decision-making and data silos into high-resolution, collaborative solutions and deliverables. Our people and our critical emphasis on human capital and what it means today for our future success remain a focal point in how we do business. Our community and team member initiatives continue to enhance our better together, better community philosophy and afford the opportunity for our team members to pursue philanthropic and volunteer opportunities, both at the organizational and brand levels. Additionally, our new community outreach committee was initiated, created, and led entirely by employees and fosters our team’s commitment to service to our communities through the development of philanthropic initiatives and volunteer events with a grassroots approach. Our geographic footprint continues to expand both organically and strategically to meet the needs of the markets we serve. We continue to actively cultivate our acquisition pipeline and evaluate opportunities, which complement our portfolio of leisure, lifestyle, and housing solutions as well as expand our existing product capabilities and solutions model in other parts of the country to better serve our customer base. Trends in our primary end markets remained very positive, with channel restocking needed across all sectors and wholesale demand visibility that points well into 2022 and likely into 2023. While raw material shortages across many different commodities and products are constraining retail currently, retail traffic at the RV and marine dealers remains strong among new and existing buyers. The benefits of leisure lifestyle are now part of a mainstream narrative, which is growing on its own accord. The strong state of the residential housing market continues to ideally position our industrial and manufactured housing business models as viable component solutions in addition to DIY and home improvement activity being expensive and prevalent. The leisure lifestyle markets represented 76% of our revenue in the quarter and continue to be driven by strong consumer demand, traffic, and momentum, which continue to deplete dealer inventory on hand. On the RV side, private campground initiatives continue to develop to accommodate the entry of new demographics into the RV space and are absorbing the overflow from national parks, which continue to remain at capacity. At the same time, federal and state agencies are increasingly looking to accommodate boondocking opportunities, which expand the enjoyment of the RV camping possibilities. For both RV and marine, urban to suburban and rural migration and work-from-anywhere transit policies are increasingly prevalent, which has also translated into demand for all classes of RVs and boats. In our housing and industrial markets, which together represent approximately 24% of third quarter revenues, highly competitive housing demand conditions persist. And the popularity of DIY, repair, remodel, and home improvement trends continues to motivate the house consumer. The strong end market conditions mentioned once again unlocked increased profitability as we leveraged our fixed cost structure resulting in improvement in gross and operating margins, operating income, net income, and diluted earnings per share. Our third quarter revenues of $1.1 billion increased 51% or $360 million compared to the third quarter of 2020. Our net income increased 54% to more than $57 million, and we earned $2.45 per diluted share. I’ll now turn the call over to Jeff Rodino, who will provide further details into our end markets.

Thanks, Andy, and good morning, everyone. Our RV revenues were up $212 million or 50% in the third quarter and represented 60% of our consolidated sales. RV wholesale unit shipments were up 23%, totaling approximately 152,000 units for the quarter. We currently estimate retail unit shipments decreased between 15% and 20%, primarily as a result of low channel inventories in the same period or resulted between approximately 145,000 and 155,000 units sold. Despite the decrease in retail shipments compared to the third quarter of 2020, retail is still outpacing wholesale on a year-to-date basis and matching up with wholesale on a quarterly basis. The velocity of dealer inventory unit turns continues to indicate that wholesale shipments are not satisfying underlying consumer demand, especially when considering growing OEM backlogs and as well indicating further extension of dealer inventory replenishment cycle. Restocking to meet customer demand levels still has not happened, and our estimates indicate that dealer inventories are down slightly year-over-year on TTM retail shipments that are up 15% to 20% over the same period. On the marine side of the business, retail trends parallel the RV and also continue to outstrip wholesale shipments. The delta between wholesale and retail shipments indicates continued depletion of powerboat inventory on dealer lots and resulting in a similar extension of the restocking cycle. Our marine revenues of $173 million, representing 16% of our sales and increasing as a percentage of our mix due to our organic and strategic efforts, were up $80 million or 85% for the quarter. Estimated marine wholesale unit shipments also increased 15% in the same period. We estimate marine retail shipments decreased 35% to 40% in the quarter, translating into between 47,000 and 52,000 units sold, again, not due to the lack of demand but due to lack of available inventory to sell. In comparison to estimated marine wholesale shipments of 35,000, the channel continues to be severely depleted and potential restocking that could carry well into 2023 based on our estimates on our OEM and dealer channel checks. New entrants in the marine market are further fostering a network effect and generating demand in key demographic touch points as wealth and family formation dynamics reach ideal levels. Outdoor recreation trends in fiberglass, pontoon, ski and wake, and fishing continue to be fueled by desire to use marine recreation activities as a way to spend time with family and friends, bolstered by favorable weather conditions, which are extending retail demand trends. Our estimates indicate that marine dealer inventories are down more than 50% to 55% on TTM retail shipments that are approximately flat to down 5% over the same period. Demand trajectory tailwinds continue for the marine wholesale unit shipments as manufacturers in the marine space are working hard to increase production levels to support the tremendous demand. Overall, our leisure lifestyle markets are ideally positioned, support sustained growth, and are expected to continue to benefit from tailwinds of lean inventory, an attractive interest rate environment, an extremely compelling outdoor recreation value proposition, strong demographic trends, and consumer credit and liquidity and expansion of the customer base with new buyers entering the market every day. Based on our checks, pricing inflation has not had an impact on the consumers to date. Retail demand has not subsided. And we believe that the leisure lifestyle markets are poised for continued strength through 2022 and into 2023 based on our estimates and current market conditions. Now turning to the housing and industrial side of the business. New single-family housing starts increased 5% in the quarter and multifamily housing starts increased 19%. Demand for building supplies remains firm driven not only by single and multifamily builds, but also by home improvement projects and related do-it-yourself activities, indicating continued positive demand trajectory for 2022. Housing demand supported by a formation and demographic trends, low interest rates, and household formation patterns that support migration from urban to suburban areas lend increasing validation to our MH and industrial markets in single-family and multifamily home improvement and the repair/remodel market. Tightness in the housing market and relative affordability of manufactured housing represents a strong dynamic for our housing and industrial markets. Urban, suburban, and state-to-state migration changes in household spending and the continued increase of builder and MH backlogs indicate supply-demand trends that we believe will lead to continued growth in our industrial and MH end markets into 2022 and beyond. Our manufactured housing sales of $135 million represented 13% of our total revenue in the quarter, increasing 25% over the third quarter of 2020 on an estimated increase in MH wholesale unit shipments of between 9% and 10%. OEMs continue to make progress working through substantial order backlogs as MH OEM even kill production levels through resolving supply chain challenges that all markets are currently facing, run rates are now trending towards wholesale unit shipment levels not seen since 2011. Revenues in our industrial market sector, which is primarily tied to residential housing and home improvement, were $119 million, or 11% of our overall sales mix in the third quarter, increasing 52% to the prior year. New housing starts increased 9% in the third quarter. We continue to allocate resources based on alignment of trends and customer momentum in our four primary markets. Thoughtful and creative anticipation and build of inventory, attention to amenities and features consistently in demand at customer level, our unlocking of capabilities through human capital and technology, and talent-driven missions to dynamically navigate and anticipate our supply chain, and our disciplined capital allocation and financing strategies have positioned our business to remain flexible and nimble through 2022 and beyond. As Andy noted, we are investing in data-driven solutions, automation, AI, and machine learning enabling solutions as well as specialized equipment that is connected to a unified data platform. These high-resolution solutions enable and will continue to empower our team members to have better balance and serve our customers at the highest level. I’ll now turn the call over to Jake, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everyone. Our consolidated net sales for the third quarter increased 51% to $1.1 billion, driven by increases in all four primary end markets. Revenue from our leisure lifestyle markets, which are comprised of RV and marine, increased 57% with RV and marine revenues up 50% and 85%, respectively. RV content per unit increased 19% to $3,735 per unit and estimated marine content per unit increased approximately 66% to $3,166 per unit. Revenues from our housing and industrial markets increased 36% in the quarter with MH revenues up 25% versus the prior year and industrial revenues up 52% compared to the prior year. Estimated MH content per unit increased 10% to $4,961 per unit. Gross margin in the third quarter was 19.6%, increasing 50 basis points compared to the prior year. The gross margin improvement was primarily driven by the leveraging of our fixed costs with a tactical execution of our team’s operations efficiencies in production that we continue to realize as a result of our investment in processes and technologies, which maximize the effectiveness of production and delivery of our products and the contribution from margin accretive acquisitions. Warehouse and delivery expenses decreased 20 basis points as the scale of our operations benefited from an increase in the volume of activity and the associated leveraging of our fixed costs. Operating expenses were 10.8% of sales compared to 10.5% in 2020, attributed to an increase in SG&A, reflecting investments in personnel and human capital management initiatives. Operating income of $93 million increased 56% in the third quarter and operating margin of 8.8% increased 30 basis points as thoughtful strategic execution continued in the quarter. Our diluted earnings per share in the second quarter was $2.45, up 51% from $1.62 in the prior year. Our overall effective tax rate increased to 26.3% for the third quarter of 2021 compared to 24.3% in the prior year. We expect our overall effective tax rate for full year 2021 to be between approximately 24% and 25%. Looking to cash flows, we generated approximately $69 million of operating cash flows for the third quarter of 2021 compared to $73 million in the prior year quarter. Our proactive securement of inventory for the OEMs this quarter supported our strong operational performance. At the same time, this investment in inventory will eventually translate into an acceleration of the cash conversion cycle as normalized supply chain patterns begin to take shape. The size and scale of our operations, in combination with our strong liquidity, enabled our strategic intervention to secure materials and products for our customers in the context of a highly competitive and volatile supply chain. In alignment with our disciplined capital allocation strategy, we invested $18 million in capital expenditures for the quarter to support information technology initiatives, including automation and productive capabilities as well as capacity expansion to support growing end market demand. Business acquisitions in the third quarter of 2021 included the previously announced acquisitions of Coyote Manufacturing, a leading designer fabricator and manufacturer of a variety of steel and aluminum products, primarily for the marine OEM market, and Tumacs Covers, a leading manufacturer of custom design boat covers, canvas frames, and bimini tops, primarily serving marine OEMs and dealers. Both acquisitions represent a continuation of our strategic expansion of our marine portfolio and customer marine solutions capabilities. In the third quarter, in accordance with our dividend policy, we returned $6 million to shareholders in the form of quarterly dividends, and we further deployed $10 million in the form of opportunistic share repurchases. At the end of the third quarter, we had approximately $454 million of total liquidity comprised of $45 million of cash on hand, unused capacity on our revolving credit facility of $409 million, and total net leverage ratio of 2.2x. Our comfortable leverage and strong liquidity position us to drive forward our strategic growth initiatives while at the same time providing resources to support the success of our customers’ production needs. Our current RV wholesale shipment estimates point to a range of 595,000 and 605,000 units for the full year. Based on current market conditions and trends, we are presently estimating RV retail to be up low double digits for the full year. We currently anticipate marine wholesale unit shipments to be up 15% to 20% from the full year 2020, representing between 190,000 and 200,000 units on retail that is estimated to be down low single digits, representing between 210,000 and 220,000 units sold, with the availability of dealer inventory serving as a limiting factor in the retail space. Based on these estimates and the continued strong retail demand expectations, we believe channel inventories in both the RV and marine markets remain well below recent historic levels and also that a new normal as it relates to inventory weeks on hand at the dealer level has been created. We believe based on our estimates that the desired new normal as it relates to inventory levels will not be recalibrated until likely into late 2022 and 2023. For fiscal 2022, we are currently estimating RV wholesale unit shipments to be up low to mid-single digits. We estimate marine wholesale unit shipments to be up between 15% and 20%. For RV retail, we are estimating to be down low to mid-single digits. For marine retail, we are estimating to be up low to mid-single digits. In the manufactured housing and industrial markets, we currently expect MH wholesale unit shipments to increase low mid-double digits in 2021 and new housing starts to continue their strong trajectory of double-digit growth in 2021. For fiscal 2022, we are currently estimating a continuation of the current trends in both of our housing and industrial markets with unit growth of mid- to high single digits in both markets. Our strong cash flow and liquidity support investments in our end market platforms. We estimate approximately $300 million of operating cash flow and $55 million to $60 million of capital expenditures for the full year 2021, which reflects increased investment in automation projects to offset the expected continued tight labor market and long-term demand expectations, enabling us to continue to support and drive organic growth across all of our end markets. That completes my remarks. And I would like to kick the ball across the table to Andy.

Thanks, Jake. As noted, visibility in our end markets is strong. Retail and wholesale demand patterns and projections continue to point towards an extension of dealer replenishment and resulting OEM production requirements well into 2022 and likely into 2023. We have been actively focused on and investing in automation and innovation opportunities and initiatives across our platform as we plan for fiscal 2022 and beyond to enhance and drive scalability, flexibility, efficiencies and continuous improvement and balance with our team members across our platform. Additionally, ongoing supply chain initiatives, supported by our strong liquidity and investments in technology, systems, and human capital will continue to provide the opportunity to serve our customers as they flex their models and work to replenish depleted dealer lots and reduce record backlogs. We continue to maintain a patient, disciplined, and focused capital allocation strategy based on data and detailed models to drive long-term value for our customers, shareholders, team members, partners, and the communities in which we operate. The enhancement and well-being of our 11,000 and growing team members is an essential focus of our resources as we work together to continually improve and foster our team culture. Their dedication and outstanding execution during this quarter complement our investments and their success and will drive our efforts to unlock fragmented markets with a solutions-based, customer-centric model innovate and deliver quality products and reliable, dedicated, trustworthy, high-quality service. This is the end of our prepared remarks. We are now ready to take questions.

Our first question comes from Daniel Moore with CJS Securities.

Congrats on the strong performance. Quick clarification, the 2022 outlook, let me see if I heard this right, RV wholesale up mid-single digits on retail down low to mid-single digits. Is that right?

That’s right, Dan.

And marine up mid-teens on retail that’s up maybe single digits?

That’s right. We think retail is up low to mid-single digits.

Got it. Make sure I was typing fast enough, super helpful. Let’s go back to margins, really strong in the quarter, particularly in light of the rampant inflation and supply chain challenges that everybody is seeing. Wondering if you can quantify the impact of those on gross margin and operating margin in the quarter. In other words, what might margins have looked like at a more stable or normal operating environment?

Dan. This is Jake. Regarding margins, we continue to observe strong expansion in the cost of our raw materials this year. However, our field teams have effectively partnered with our customers to manage these increases. As you know, these costs are filtering through the value chain to consumers. Our ability to adjust prices accordingly has remained successful. We have a 30-day lag that aligns well with our inventory days, helping to smooth out the process. We've discussed before that our cost structure is highly variable, particularly related to materials, labor, and overhead. We have many opportunities to manage these costs as production volumes change. For gross margin, our primary focus this quarter has been on the tightness caused by rising raw material prices and availability challenges, leading us to sometimes source on the spot market when needed. Freight costs have also impacted us significantly, contributing to increased expenses. However, if we look beyond these temporary issues, we anticipate potential improvements of about 20 to 30 basis points at that level.

Really helpful. And then as we think about Q4 likely to see in terms of operating margin, likely to see a little bit of a dip given typical seasonality and holiday shutdown? Or do we think that levels in Q3 are sustainable?

Yes. Good question, Dan. Again, this is Jake. We started this year with an expectation that we would improve our operating margin. I think we started at 100 basis points over fiscal year 2020. And we’ve adjusted that to 130 to 150 basis points up over that 7% number we had and we continue to stand by that. To your point, we see fourth quarter, there will be some shutdown activity. And we’ll see that in November, a little bit around Thanksgiving holiday, and we expect all of our customers and ourselves as well to take a little bit of a pause here around the Christmas and other holiday season late in December. And with that, you’ll see a little less absorption but you also see a lot of monetization of working capital, which heads towards our $300 million of operating cash flow number. But with that, it will bring down that average operating margin from 8.8% it has, but still, we feel very comfortable about that up 130 to 150 that we talking about since first quarter.

Our next question comes from Scott Stember with CL King.

Congrats on a great quarter as well. Can you maybe just parse out a little bit more the expectations for retail in the recreation markets, RV versus marine. You talked about, I guess, on the RV side, availability will be one of the big limiting factors. But is there any other reason why there should be such a divergence between RV and marine for next year?

Thanks for the question, Scott. When we assess the inventory situation, we’ve noticed that marine retail has been very strong, followed closely by RV retail. The marine inventory has moved faster, which means there are fewer units available. A couple of months ago, we began to see a decline in marine retail, primarily due to this limited availability. RV started to follow that decline about two months later. Currently, availability continues to be an issue, although dealer traffic remains strong. Earlier in the year, there was a temporary surge in traffic due to a COVID variant, but we’ve since observed consistent interest from new buyers at our lots. In summary, our inventory levels are critically low, which is currently limiting retail activity, but traffic and interest remain robust from our perspective. It’s primarily an inventory issue at this point.

Got it. And then related to price increases, a lot being made of or talked about with the OEMs continuing to put price increases through and worrying about protecting backlogs as the backlog of orders continues to get pushed out more and more. What are you hearing? Do you expect any potential pushback from OEMs, if indeed they do end up having to work with dealers to protect backlog? Anything coming back to you guys?

I think our expectation right now is that the raw material market is still elevated really across the commodity space that we’re dealing with and the products that we’re dealing with. And so I’d say they’ve somewhat stabilized, but still at an elevated level. And so we’re going to continue to partner with our customers and be proactive in that partnership as we are able to manage cost and input costs we’re certainly going to share that on the upside and the downside. And so our expectation is that we’ll continue to partner again with the customer base, make sure we stay with them and help them as they continue to push through pricing and be able to pull back pricing. I think everybody would certainly be happy with commodity prices coming down to be able to continue to stimulate tremendous activity out there. So we’re going to partner either way.

Got it. And then, Jake, just one last housekeeping item. Organic sales, what was it in the quarter, and just flesh out between industry and growth specific to Patrick?

Yes. Sure, Scott. Again, it’s Jake. So as we talked about, up 51% quarter-over-quarter, up 4% on a sequential basis. So that kind of 51% up quarter-over-quarter, I would tell you, the way to think about 16% to 18% of that is acquisition, so up 16% to 18% on acquisitions that didn’t show up in the third quarter of 2020. Industry growth about 19% to 20%. And we think about that net of industry and net of acquisitions, what remains about 3% of that is attributable to some market share gains and the rest comes through pricing and other activities.

Our next question comes from Daniel Moore with CJS Securities.

When you talk about the new normal in terms of inventory levels, based on your outlook for retail, in terms of units, what are we looking at from your perspective that we need to restock over the next year plus in both RV and marine?

Thank you, Dan. We have been considering the direction we are heading and analyzing trends for this year. Initially, we anticipated that wholesale would surpass retail. However, various factors, including the recent surge in COVID-19 cases and the growing popularity of leisure activities have led to stronger retail performance this year. As we review the year to date, wholesale and retail have reached a comparable level. Specifically, in September, we saw a record in wholesale shipments with 55,000 units, and there is some restocking activity occurring. Nevertheless, inventory levels at retail points are still significantly below pre-pandemic levels, around 60% to 70% lower. There has been considerable discussion regarding the units removed due to supply-demand imbalances across both RV and marine sectors. We view these sectors similarly, especially concerning inventory shortages and how to alleviate them. As we move through 2023, we still expect a robust production year, as indicated by our projections. We anticipate that by the end of 2022 and into 2023, we will be addressing inventory losses and focusing on restocking, moving towards a new normal. This adjustment will likely resemble a pendulum swing as we seek the optimal inventory velocity. We expect overall inventory levels to be higher than they are now but lower than pre-pandemic levels. On the RV side, that could mean around 80,000 to 90,000 additional units. It may take some time to stabilize unit inflow and outflow levels again, probably not happening until late 2022 or early 2023. Marine is likely to follow a similar trend, although it has faced additional challenges due to its geographic fragmentation and the diversity of marine units, which has slowed inventory replenishment. We believe the shift towards leisure activities is persistent and will require more time for marine inventory levels to recover, likely extending deeper into 2023. Overall, we anticipate that the marine sector will also need about 70,000 units to reach a more balanced inventory with good flow across the value chain.

Dan, this is Andy. I just want to add a little bit to that. When we look at our numbers and the expectations that we’re looking at for 2021 and 2022, we include that new normal as kind of where we’re estimating at the end of 2022. And I think we’d like to see some seasonality at this point in time, give our teams a break here in Q4. So as you see some fluctuations in OEM shipments versus retail pull, the backlogs are still strong out there. People taking units. We’d like to see a little bit of seasonality to give the teams a break. And so we’re not so laser-focused on just every single month and annualizing it as much as we’ve kind of modeled out some seasonality into our plans, and it still doesn’t get us to an expectation until the end of 2022.

Excellent. And when you look at the supply chain, labor, and everything else, your RV outlook would imply something in the low 50s, 52,000, 53,000, 54,000 monthly shipments on average, comfortable that what you see now you and your OEMs can handle that.

Yes. Dan, this is Jeff. We agree with that. We kind of keep a pretty good pulse on where our production levels are through the marine and RV sectors and believe that there’s still strong activity, but it’s measured in that 48,000 to 52,000 range through the rest of the year, and then we’ll see things kind of bump up from there as we get into 2022.

Got it. And if you’ll indulge me for 1 or 2 more. Just any sense for some of the automation and AI initiatives that you’re pursuing as well as the potential benefits? Any commentary there would be interesting and helpful.

Yes, this is Jake. In the quarter, we've made $18 million in capital expenditures, totaling about $44 million for the year so far. Of that $44 million year-to-date, around $30 million has been dedicated to capacity expansion. Out of this expansion, roughly $20 million to $21 million has been directed towards improving our transport business, including building a new facility and enhancing infrastructure like ventilation to facilitate efficient operations. This investment also encompasses true machinery expenditures and productivity enhancements, with a significant portion integrating heavy automation and software, as well as a bit of robotics in our efforts to optimize production while minimizing waste and addressing challenges in staffing for increased production demands. We're heavily focused on this initiative, and we're investing in software solutions across our operations, from the factory level to our headquarters in Elkhart. This will enhance our ability to collect and analyze data more effectively, covering areas from automation in accounting to implementing robotic process automation in future phases. We anticipate these initiatives will yield significant benefits both now and in the future, improving our flexibility and production capabilities. I encourage you to see the progress at our North American Forest Products business, where they have transformed from a manual process for bow trusses to a highly automated line, significantly improving efficiency and reducing staff pressures. We're enthusiastic about these developments, and the returns on investment are encouraging. Given the rising costs of labor and materials over the past 1.5 years, this investment makes even more sense now for future growth.

Excellent. Last one, just a little bit of a reporting question, but amortization expense is now upwards of $60 million annually. And if you tax effect that, you get back similar to what Winnebago just reported last week, you get to an adjusted EPS number this quarter, somewhere near $3. Just wondering if that’s something you’d consider on a go-forward basis.

That’s a great question, Dan. Again, it’s Jake. And Andy and I were just speaking about this yesterday as a matter of fact. One thing we really pride ourselves in is that cash flow yield that we have on our shares and our ability to convert any measure of financial reporting from EBITDA to operating income into free cash flow. And that drives our capital allocation strategy, whether we’re returning capital to shareholders, which was $16 million this quarter, or the continued investment in our business, which you can see is just under $300 million of strategic acquisitions through year-to-date. It’s a great measure for how we’re able to generate that cash flow, which is, in my experience, very nontypical for an industrial company, but we’ve been doing it for a long time. And it speaks to the nimbleness of our platform and that controllable cost element where 70% to 80% of our as measured as a percentage of revenue are manufacturing controllable and variable costs. So something we’re thinking about. More to come on that. We’re thinking a lot about that as well as everything else and that goes into these calculations and making sure people appreciate the earnings and cash flow power of our business.

We have no further questions at this time. I’ll now turn the call back over to Ms. Julie Ann Kotowski for further remarks.

Thanks, Robert. We appreciate everyone for being on the call today and look forward to talking to you again at our fourth quarter 2021 conference call. A replay of today’s call will be archived on Patrick’s website, www.patrickind.com under For Investors. I’ll now turn the call back over to our operator.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. We thank you for participating. You may now disconnect.