Patrick Industries Inc Q1 FY2022 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 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 2021 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. We are excited to report our first quarter results, which marked the continuation of strength across all four primary markets. Traction was gained from several areas, which we'll talk about, including acquisitions completed in 2021, our automation initiatives implemented over the past 21 months, efficiency as a result of improved consistency of material flow through procurement, better visibility into customer production scheduling with longer runs and our team's tireless commitment to taking care of our customers. In addition to our strongest financial performance to date and aligned with our disciplined capital allocation strategy, we strategically expanded our premium audio and aftermarket platform in the first quarter, exemplified by the acquisition of Rockford Fosgate. We are continuing to grow our presence in the power sports and leisure lifestyle enthusiasts, OEM and aftermarket, providing an extension of our strategic diversification initiatives while also creating margin expansion opportunities. We are very excited about this addition to our family and look forward to how this will continue to accelerate our strategic growth. While supply chain consistency and visibility continue to present challenges and resonate across our markets, our team and brands have worked together to leverage our combined global purchasing resources and value streams to drive as many synergies as possible. Dealer inventory recalibration and restocking has been taking place in our RV market, which represents approximately 61% of our revenues. Alternatively, marine dealer and housing inventory levels continue to be limited, providing a strong baseline of visibility and foundation in our other three primary markets to continue to drive our business model and capital allocation initiatives. Inflation and commodity pricing continues to remain elevated in our markets. However, consumers in general are also in a strong position to further drive strong leisure lifestyle and housing demand, as personal income levels are at the highest we've seen in the last 10 years and the ratio of debt service to personal income is at one of the lowest levels dating back to 1980. From a financial perspective, our first quarter revenues increased 58% to $1.3 billion, and our net income increased 137% to approximately $113 million or $4.54 per diluted share. Adjusting for the impact of the accounting treatment for our convertible notes, our adjusted diluted per share was $4.90. I'll now turn the call over to Jeff, who will provide additional detail on our business and end markets.

Thanks, Andy, and good morning, everyone. As noted, we increased our revenues across all of our end markets on the backs of strong wholesale manufacturing driven by continued robust consumer demand. In the first quarter of 2022, our RV revenues were up $319 million or 64% to $821 million and represented 61% of our consolidated sales. RV wholesale unit shipments were up 15%, reflecting the continued impressive scalability of the OEMs and the return to a more normal seasonal restocking in anticipation of spring and summer selling seasons. Wholesale unit production was approximately 171,500 units during the quarter. Our RV content per unit increased 33% on a TTM basis to $4,370 per unit as we ran record unit volumes during the quarter driven by our automation initiatives over the past 21 months. We have seen improved production scheduling due to better visibility, longer runs and market share gains. Additionally, commodities have continued to increase over this period from the prior year due to tremendous demand. RV retail unit shipments are estimated to have decreased by 14% during the quarter, totaling approximately 111,000 units. With the addition of approximately 60,500 net units to inventory in the quarter, our estimates indicate TTM dealer inventory weeks on hand at the end of the first quarter are at 18 to 20 weeks, up 7 weeks from our estimates at the end of December 2021. Inventory levels at the dealers have increased, but they are still below the historical pre-COVID average for the first quarter at 26 to 30 weeks. We estimate that dealer inventories are currently equivalent to the inventory levels we saw at the end of 2019. Our marine revenues representing 16% of overall consolidated sales increased $84 million or 62% in the quarter to $221 million. Revenues were driven by acquisitions, market share gains and commodity price increases. Marine wholesale unit shipments were relatively flat in the first quarter of 2022 compared to 2021. On retail unit shipments estimated to be down approximately 8% to 10% due primarily to inventory availability. Our marine content per unit increased 73% on a TTM basis to $4,113 per unit. Marine inventories are still lean with certain raw products such as resins, wire harnesses, computer chips and small components continuing to be scarce in supply. As a result, marine inventory channels are not rebuilding and marine dealer inventories are far from ideal levels of weeks on hand. Our estimates indicate that marine dealer inventories haven't changed much since Q4 of 2021 at roughly 12 to 13 weeks on hand compared to historical averages of 35 to 40 weeks across the industry. Based on our estimates and channel checks, we continue to estimate strong wholesale production to carry well into 2023 and likely into 2024. Despite the marine industry's current supply chain environment, we expect our marine revenues to surpass $1 billion in annual revenues on a pro forma run rate basis. In addition, our marine aftermarket business has grown to over $250 million in annualized revenues, with contributions on a forward basis from Rockford and Wet Sounds. Both metrics showcased the steady revenue growth experienced by our marine team and the continuation of our deliberate diversification strategy. We expect marine to continue to grow as a percentage of revenue and expect our aftermarket component to grow as well. Manufactured housing sales of $174 million represented 13% of our total revenues, increasing 44% from the first quarter of 2021. MH wholesale unit shipments were up 11% and MH content per unit increased 19% to $5,501 per unit. MH is in its strongest position in over two decades. MH ASPs are at their highest, and backlogs are approaching gross dollar value levels that surpass historic milestones, giving us confidence in continued MH growth going forward. Revenues in our industrial market sector were $127 million or 10% of our overall sales mix in the first quarter, increasing 39% compared to the prior year. Total housing starts for the first quarter increased 10% with multifamily housing increasing 26%. Housing demand continues to provide us with opportunities for the remainder of 2022 and into 2023, driven by a fundamental need to supply materials and solutions to the housing needs in single and multifamily projects, which continues to grow across an expanding footprint. Moving away from end market results and further into our quarterly operating and strategic highlights. In March, we shared the exciting news of the entrance into the dynamic power sports market and aftermarket with our acquisition of Rockford Fosgate. Rockford increases the penetration of our existing premium audio platform alongside Wet Sounds, which we acquired in the fourth quarter of 2021, to serve our leisure lifestyle markets and full solution strategic model. These two brands combined tremendous engineering and design capabilities with innovation, premium quality sound and creative marketing to form a powerful tag team that overlays our previous acquisition of Progressive Group, who has been and continues to be one of the leading rep groups for audio products in the United States. We anticipate having more to tell about power sports and aftermarket in future updates. Over the last 21 months, we have deployed over $100 million in capital investments to drive automation, capacity and scalability and elevate technology as a strategic advantage in our plants. As a result, we have been able to better position labor, and production capacity has expanded to flex with the varying pace of OEM production. So more is made with less. One big win that highlights this quarter's story is our North American Forest Products division in Southern Michigan. Previously, RV Boat Trucks were produced by North America and were built manually through a very tedious process. Our team proactively pushed design and automation boundaries to drive a fully automated robotic solution, which eliminated 42 jobs from the manufacturing cell, allowing us to move that labor to other capacity-constrained cells. This initiative has proven to be game-changing for this particular product category. In addition, quality has increased, safety has improved and our team members are energized by the commitment to improving morale and customer satisfaction, resulting in a win-win for our customers and team members. Another example is across our spraying and finishing platforms where we use significant quantities of gelcoat, stains and paints in our operations. Gel and paint are material cost input and have had a clear shortage over the past 18 months. To the extent we can reduce overspray, we can save material costs, resulting in better efficiency, productivity, operating margin and waste reduction. In 2021 and early 2022, our dedicated innovation team targeted this opportunity. As a result, we have driven VOC reduction through a proprietary technology solution, which will be further enhanced in 2022 with a virtual training module inspired by our innovation team across several of our facilities. At each facility where this process has been implemented, we have been able to reduce VOC emissions by as much as 30%. While that reduction is significant environmental win for us, it is also a human capital win in technology training and raw material savings. Our extensive manufacturing capabilities and how we gained market share in the quarter were attributable to how we're able to supply the OEMs with needed product where capabilities were constrained elsewhere. An example of additional technologies implemented, as a result of capacity constraints, have been at our lamination operations, where margins are generally lower and we run high volumes. Continuous improvement initiatives can be game changing and add up in material dollars in the aggregate. We continue to implement automation and robotics to improve precision and ease labor constraints to drive improved quality, capacity and speed, less waste goes to recycle and up cycle, more goes directly to the OEM. As a result, operating margin and productivity have expanded here as well, further driving and energizing our team's creative spirit. Our customers have benefited from increased volumes, increased quality and just-in-time production flexing. Again, a win for us and a win for the customers we serve. As noted, our strategic investment in transformative automation and innovation in our facilities has inspired and energized our team members and produced material savings, allowing us to improve scalability. We will continue to harness this energy and passion and push our teams to find creative solutions that will benefit our operations during times of both exponential growth and contraction. These actions afford us the opportunity to be the premier supplier of choice for our customers with added benefits of reducing waste and enhancing safety for our team members. I will now turn the call over to Jake, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everybody. For the first quarter of 2022, our consolidated net sales increased by $492 million or 58% to $1.3 billion, driven by share growth and continued strong demand and customer order activity in each of our principal end markets. Gross margin in the first quarter was 22%, increasing 300 basis points compared to the prior year quarter, driven primarily by contributions of our fiscal year 2021 acquisitions, a realization of production and labor efficiencies, and higher production volumes, partially offset by the continued pressure of raw material pricing environment and inbound freight costs. Operating margin expanded by 400 basis points from 8.1% in the first quarter of 2021 to 12.1% for first quarter 2022, lifting operating income by 136% or over $93 million to $162 million. Operating margin also benefited from the contributions of our strategic acquisitions which typically maintain a margin profile in excess of our average profit margins, realization of the value of our efficiency and continuous improvement programs and expenditures and the leverageability of our flexible operating model. First quarter operating margin also included a one-time benefit related to a $5.5 million gain on sale of assets, which translated into a 40 basis point benefit to margin for the quarter. Our warehouse and delivery expense decreased by 40 basis points as a percentage of sales on leverageability of our platform, more efficient route planning and realization of technology implementations. Our SG&A expense included the benefit of the one-time gain on sale of assets also decreased by 40 basis points as a percentage of revenue for the first quarter of 2022. The previously mentioned strategic actions, labor management and realization of efficiencies drove 137% growth in our first quarter 2022 net income, increasing from $48 million in the first quarter of 2021 to $113 million. In the first quarter of 2022, we adopted a new accounting standard that requires our 1% convertible notes due 2023 to be presented on an if-converted basis in the calculation of diluted earnings per share. As a result of the adoption of this standard, our first quarter 2022 diluted earnings per share was reduced by $0.39. Excluding the impact of the new accounting standard, our diluted earnings per share would have been $4.93, which is a non-GAAP metric. We do not intend to issue shares in the settlement of convertible notes that may be converted by their holders. Our overall effective tax rate was 23% for the first quarter of 2022 compared to 17% in the prior year. The increase reflects the change of excess tax benefits of share-based compensation. We expect our overall effective tax rate for 2022 to be approximately 25%. Jeff highlighted some great examples of how automation and strategic initiatives have translated into the realization of meaningful operating efficiencies. The value of these actions is felt across our organization. So they most directly resonate through the improvement of cycle time, reduction and changeover disruptions, improved raw material utilization and leverageability of our team members' time. Our ability to leverage technology as well as our productivity and infrastructure investments should continue to provide benefits for the remainder of 2022 and beyond. Looking at cash flows, we used approximately $23 million of operating cash flows for the first quarter of 2022 compared to a generation of $50 million in the prior year's quarter. Investments in working capital drove the use of our operating cash in the quarter to better position our growing platform, which enabled us to better support our customers' robust production activity in the quarter and mitigate the effects of the various events and circumstances that impacted the global supply chain through 2021 and into 2022. We are well positioned from an inventory perspective to continue serving our customers and gain market share. We expect monetization of working capital to materialize in the latter half of 2022. Moving on to our capital expenditure strategy. We invested $19 million in capital expenditures for the quarter, increasing $5 million over the first quarter of 2022. Jeff mentioned some great examples of how our investments create increased capacity and value for our operations and customers. Strategic investments and business acquisitions totaled $132 million for the first quarter of 2022. We acquired Rockford Corporation and the Rockford Fosgate brand, a global leader in designing and producing high-performance audio systems and components, primarily serving power sports, marine and automotive markets and aftermarkets. In the first quarter, following our dividend policy, we returned $8 million to shareholders in the form of quarterly dividends. In addition, we continued our share repurchase activity and repurchased approximately 365,600 shares for a total of $25 million in the quarter. At the end of the first quarter, we had approximately $319 million of total liquidity comprised of $64 million cash on hand, unused capacity on our revolving credit facility of $255 million and a total net leverage ratio of 2.2x. Our leverage and liquidity profile enabled us to be nimble and execute a variety of objectives, including our recent acquisitions, operational improvements, as Jeff mentioned earlier, and capital returns through dividends and opportunistic share repurchases. We believe our disciplined capital allocation strategy further supports our value proposition. Additionally, our leverage and liquidity profile allows us to navigate market fluctuations, adjust to dynamic supply chain environment and meet our customers' needs. As RV manufacturers have continued to scale their business models impressively and quickly, inventory channels in general, depending on product mix, are healthy as we enter into the spring and summer selling seasons. We currently estimate full year 2022 RV wholesale shipments to range from 560,000 to 570,000 units with an estimated 55% to 60% of the unit production to be in the first half of the year, and we currently expect full year retail shipments to be down low to mid-double digits or approximately 12% to 15%. Assuming these estimates, we believe overall dealer inventories will still be at reduced levels when compared to pre-pandemic historical averages. In our marine market, we expect marine wholesale shipments to be up low mid-single digits and marine retail to be flat to up low mid-single digits, primarily limited by capacities and supply chain constraints. As noted, the resulting inventory implications point towards lean dealer inventories throughout 2022, with restocking to appropriate levels not occurring until 2023 or even 2024. On the housing and industrial side of the business, we continue to expect MH wholesale shipments to be up mid- to high single digits for 2022 with retail sales absorbing available wholesale production on a real-time basis. In our industrial end market, we expect 2022 new housing starts to also grow in the mid- to high single digits. That completes my remarks. We are now ready for questions.

Our first question comes from Daniel Moore with CJS Securities.

Maybe to start with the RV side of the house. So obviously, you mentioned inventory is improving and you gave an updated outlook. So are OEMs starting to slow production at this point in Q2 after an exceptionally strong March? Just trying to recalibrate, I think you said you expect 55% to 60% of full year shipments in H1. So I just want to make sure I heard that right.

Dan, this is Jeff. Yes, we are seeing that. It was an exceptional first quarter, maybe even working its way into April also. But as we start to get into May, we are seeing some rightsizing of production levels more so with the retail levels that are going on out there. So we feel pretty good about the OEMs and their attentiveness to what's happening in the market and adjusting production levels appropriately.

Very helpful. Appreciate it. On the margin side, the 22% gross margin, obviously exceptional. Talk about how much of that relates to just operating leverage on higher volumes versus how much is the automation and some of the other streamlining efforts? Just trying to get a sense of the sustainability where margins might level off as production comes down moderately?

Thank you for the question, Dan. This is Jake. We have put a considerable amount of effort into this topic, especially during the last few quarters following our $65 million CapEx investment in 2021, which focused on improving productivity and efficiency while easing some pressure on our workforce. Regarding the 300 basis points margin increase, we break it down into different components, emphasizing the importance of durability. It's important to note that approximately 80% to 85% of our COGS is variable costs, primarily related to materials and labor, aside from a few fixed elements. The productivity improvements we experienced have positively impacted both our gross and operating margins, with a significant effect coming from labor costs as reflected in our income statement. However, before discussing the 300 to 400 basis points increase in our operating margin, it's essential to mention we faced about 100 basis points of headwinds from freight and some lagging material costs. Although we have been proactive with pricing, these factors still temper some of our results. Analyzing the components, we believe that some absorption exists in the remaining 15% of fixed COGS, which has been stable over the last few quarters due to strong production. On the labor front, there are about 200 basis points attributable to productivity improvements—with approximately 100 basis points coming specifically from those enhancements. This aligns with Jeff's earlier comments about achieving more with fewer resources. We've seen consistency in our labor force stabilization and a boost in wholesale shipments, along with some restocking from OEMs. Through our advancements in automation, new software implementations, and better planning for longer production runs, we project that at least 100 basis points of this margin lift is likely to be sustainable moving forward.

Very helpful. One more, if I might. A smaller piece of your business now, but MH, I'm just wondering if you're seeing any signs or concerns of slowdown on part of your customers given the rising interest rate environment, et cetera?

Yes, Dan, this is Jeff. It's a great question. Right now, the MH side seems very strong, really the strongest we've seen in several years. Most customers I've talked to have repeatedly told me that their backlogs are strong, really out through most of this year with a lot of demand out there. They've had a little bit more of a difficult time increasing their production levels, unlike the RV guys who have been able to turn it up a little bit quicker. So I believe that there's still strong demand there, and it will continue through the rest of this year.

Our next question comes from Mike Swartz with Truist Securities.

Jake, can you provide an overview of the 58% top line growth? How much of that growth was organic, and how much came from pricing and unit volume?

Yes, thanks, Mike. It's Jake. To explain the 57% to 58% top line growth, about 45% of that was not related to acquisitions. Approximately 12.5% came from our acquisition growth in the second quarter of 2022. Breaking down the 45%, we experienced a growth of about 5% to 5.5% from share gains. This opportunity, as Jeff mentioned, stems from our earlier strategy to deliberately build inventory, which positioned us well to serve the market and enhance availability, allowing us to capture a significant amount of market share that we believe will remain strong. So, we can attribute about 5.5% to true organic share gains and around 10% to 11% to industry growth, particularly seen in the RV and manufactured housing segments, aided by solid wholesale shipment activity. Additionally, pricing contributes about 28% to 30% to our top line growth throughout the year.

Got you. Okay. Moving on to gross margin, you mentioned some points in the previous question. I'm curious about the level of sustainability going forward, especially considering the efficiencies you're achieving through automation projects and recognizing that a significant part of your cost of goods is variable. How should we view the situation in a scenario where production or industry volumes decline across all your sectors? Is it reasonable to expect that you can maintain 20% gross margins at this point?

We do have a few key pieces to discuss. The flexibility and agility of our production platform help us maintain margins in both up and down markets. You raised a valid point regarding the sustainability of the improvements we've observed. While we recognize there is some absorption linked to increased production levels, we are facing headwinds from rising raw material input costs as well as freight expenses, which many are experiencing. However, we believe that 100 to 125 basis points of the overall margin lift we see is linked to our productivity enhancements. These improvements stem from the capital expenditures made last year, which is why we are focused on continuing this trend, with a planning number of $100 million for this year. This should result in 100 to 125 basis points of sustained margin improvement. Additionally, our strategic diversification efforts, including the Rockford acquisition, are expected to contribute 50 to 70 basis points of margin expansion due to the higher value-added products from these acquisitions. This is before we implement efficiency improvements and cost synergies, as well as leverage our extensive distribution networks and customer relationships. We anticipate continued margin lift and benefits from our acquisitions.

Our next question comes from Brett Andress with KeyBanc.

If I could focus on that 560,000 to 570,000 RV shipment forecast for a second. There's been downward pressure on a lot of industry wholesale forecast lately. So I guess do you think that that's low enough? Or is there more downside risk than upside risk to that from here?

Brett, this is Andy. As we assess the situation, there is significant awareness regarding inventories and their balance with retail. From the perspective of weeks on hand, we believe dealers are in a strong position at the moment. Manufacturers have also been very careful in their production strategies, setting us up well for the upcoming spring and summer selling seasons. We are noticing a gradual decrease in production levels, which aligns with the discipline we're maintaining, especially considering that retail is expected to decline in the low to mid-double-digit range for the year. Currently, the 560,000 figure we are experiencing seems positive, and we are pleased with the developments. It feels like we are ahead in terms of inventory rebalancing. While there could be some downside risks to the wholesale numbers, that isn't necessarily negative. Overall, we appreciate the discipline being implemented, as Jeff mentioned. March was robust, and we anticipate April will be strong too, although we have observed some declines in days in April that may continue into May and potentially through the second and third quarters. We are optimistic about a strong first half, with a planned tapering in the second half while maintaining balanced inventory levels and optimal weeks on hand. Everything appears well-balanced, and there is a shared commitment to sustaining that.

Got it. Okay. The full year marine wholesale forecast has decreased significantly. Is this change based on what you observed in the quarter, or is it information coming from the OEMs? It seems a bit challenging to achieve those retail targets with the current production numbers, considering inventory levels. I am trying to understand what might have influenced that forecast.

Yes. In the marine wholesale sector, we are observing various supply components that are still inconsistent. Manufacturers are doing an excellent job adapting their models to address incoming challenges. As the supply chain improves, we expect them to enhance their efficiency and maintain a more consistent scheduling process. Overall, while they are managing well in a tough environment, the marine market operates under different conditions now. Retail demand is currently limited due to the availability of wholesale products, and manufacturers are aware of this. They're effectively managing their production, and we are collaborating with them. Although we've adjusted our forecasts downward, we appreciate the stability present. We strongly believe that the prospects for the wholesale sector, despite some potential risks to retail, extend through 2023 and into 2024. We feel confident about the marine side and are pleased with the efforts of the manufacturers.

Our next question comes from Rafe Jadrosich, Bank of America.

It's Rafe. I wanted to ask about the strong share gains you've mentioned. Can you discuss how the supply chain challenges faced by some of your smaller competitors might be creating opportunities for similar share gains? Also, do you expect these share gains to last as the supply chain situation improves?

Rafe, this is Andy. When we emerged from the pandemic, we quickly shifted our focus to increased automation and enhancing capacity while ensuring our teams had sufficient inventory to capitalize on market share gains. We've intentionally maintained high inventory levels for the past 18 months to position ourselves advantageously. Additionally, our brands have collaborated effectively on the procurement side, leveraging best practices and synergies across our platform. This deliberate approach has equipped our teams fully, providing us with a competitive edge as a substantial partner for manufacturers. We're committed to ensuring our partners are well-positioned to serve their customers. Currently, we are intentionally keeping high inventory levels because it has proven beneficial and we anticipate that it will continue to yield positive results. We value our partnership with our customers and are dedicated to adjusting our operations to support them optimally.

And then you made some acquisitions in power sports; marine has obviously been growing for you. How should we think about the long-term end market mix? And where would you expect it to continue to grow? And how might that play out longer term?

Sure. This is Andy again. At the end of the day, we're a leisure lifestyle enthusiast. We're housing enthusiasts. We believe in taking care of our team members and their families. I think we're optimistic about where each of our markets is at. We definitely see the runway that's there in that leisure lifestyle market, and it's been very successful for us. As Jake mentioned, the margin profile has helped lift our margins, which in turn allows us to get back to our team members and communities. So I think we're going to continue to focus on that leisure lifestyle space. And we continue to cultivate and keep that pipeline full. So we like what we see there. We like our four markets. But as we look at it, we definitely see attractive opportunities in leisure lifestyle. So if you're going to ask, probably geared a little bit more towards that, but that doesn't mean we're excluding other opportunities in the housing and industrial space. We see opportunity there as well.

And then in terms of the M&A environment, what are you seeing in terms of multiples and then the pricing out there? Does it differ by end market?

We've observed that multiples have decreased due to the uncertainty experienced in the second and third quarters of last year. However, we've seen some stabilization recently, leading to attractive multiples and returns. Looking ahead to 2023 and 2024, particularly in the leisure lifestyle and housing sectors, we believe there are opportunities to take advantage of. In summary, while multiples have edged down slightly, the overall situation has stabilized, which is a more accurate description of the deals we are currently pursuing. I can't comment on the global situation, but what we're experiencing suggests a stabilization that keeps our pipeline robust and aligns well with our business model.

Okay. For my last question, regarding the inventory adjustment on the RV side, it seems wise that they're addressing it early. It appears that retail activity has slowed down in recent months. Do you have any insights into what might be causing this change in retail? Is it related to higher interest rates, gas prices, or something else?

Today, we're not seeing much resistance concerning rates and fuel prices. We believe that fuel prices are not significantly affecting buyers. What we're observing suggests that there is a shift in the mix of products. There is a greater availability of lower-end towable units, while demand for higher-end towables and motorized units is stronger in comparison to the inventory available. We think this indicates a mix shift. However, dealer traffic remains robust, and younger buyers continue to support the market. We're only noticing a slight adjustment, but we don't believe that inflationary pressures have had a significant impact on buyers thus far. As I mentioned, dealers are in a strong position leading into the spring and summer selling seasons. While there are challenges related to inflation and pricing, these have not yet shown to be a major concern for buyers at this time.

Our next question is from Daniel Moore with CJS Securities.

You documented this quarter and before. Obviously, the working capital build has been strategic, although I assume some inflationary pressures are impacting near-term cash flow as well. Just any update in terms of outlook for direction of working capital and cash generation or cash from ops generation for the remainder of the year?

Thanks for the question, Dan. It's Jake here. Absolutely, as Andy noted, we've been intentional about building inventory, influenced by several factors regarding our production expectations. In the first quarter, we dealt with significant port activity causing disruptions, including gray outs and the China Olympics. Looking ahead for the balance of the year, as we've discussed, we expect to have a front-end balance, with more units in the first half compared to the second. We also plan to reduce our inventory over time and anticipate monetization as the year progresses. We expect our cash flow from operations to be around $450 million, which is an increase compared to the last couple of years, aligning with our growth. As RV volumes move back to a typical seasonal pattern, we expect improved monetization, above our planned levels, especially as we prepare for the end of the selling season. We'll keep focusing on our capital allocation and will share more updates on that soon. Regarding your question about pricing, raw material costs have generally risen, which has influenced our pricing and revenue growth tied to our inventory. However, we don't foresee any major pressures, and we aim to manage our inventory to ensure it remains suitable for our business needs.

We are incredibly proud of our team's performance and Better Together philosophy. As we continue to leverage our combined resources, capacity, capital investments and acquisition strategy to enhance our operating platform and position our business to better serve our customers. Consumer demand remains strong despite inflation and rising interest rates and RV dealer inventories are better calibrated versus a year ago. These factors point towards more historical seasonal trends thus providing the opportunity for better balance for our team members. And marine, MH and overall housing inventories remain lean with extended channel refill runway. We remain focused on heavily investing in driving automation and innovation initiatives which are producing the anticipated results, and we expect our financial performance to continue to benefit from these initiatives. We will continue our disciplined capital allocation strategy to drive value over the long-term horizon for our customers, team members, partners, communities and shareholders. I want to thank all of the Patrick team members and partners for their continued support and efforts. We couldn't do it without you.

Thank you, ladies and gentlemen. This concludes today's teleconference. We thank you for participating. You may now disconnect your lines. Thank you.