Good morning, ladies and gentlemen, and welcome to Patrick Industries First Quarter 2023 Earnings Conference Call. My name is Karen and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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'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; Jake Petkovich, CFO; and Matt Filer, Senior Vice President of Finance. 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 2022 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, Steve. Good morning, ladies and gentlemen, and thank you for joining us on the call today. As we begin our discussion this morning, I want to take a moment and express our sincere and unwavering appreciation for our team members' continued dedication and commitment to drive Patrick forward through these dynamic times. Their focus on our goal of providing exceptional quality and customer service is inspiring and energizing. Through our Better Together culture, the brands that make up Patrick continue to collaborate and drive best practices, while developing new and innovative product solutions in an effort to improve our performance and the value that we provide to our customers, positioning us as a leading component solutions provider to the leisure lifestyle and housing markets. Today, our portfolio is more balanced across our end markets, as our first quarter results once again reflect the benefits of our focus on strategic growth and diversification. We are realizing the returns on the investments we've made in this strategy, particularly in the marine market which remained resilient through the first quarter. Highlighting this is the fact that despite a 54% decline in RV wholesale shipments in the first quarter, our consolidated net sales declined 33%. Our RV and marine revenue mix in the first quarter of 2023 was 41% and 31% of total revenues respectively, compared to 61% and 16% respectively in the first quarter of 2022. Additionally, for historical comparison purposes, this RV wholesale shipment tally represents a 21% decline versus the first quarter of 2019, or the last first quarter before the pandemic. Despite this decline in shipments, we earned adjusted EBITDA of $97 million and net income of $30 million, which are 78% and 45% higher respectively than the same quarter in 2019, when our business was much more heavily weighted towards RV. In short, although first quarter 2023 RV shipments were much lower than in the same period in 2019, our RV content per unit was 71% higher and our consolidated revenue was 48% higher. We have a more profitable and resilient business model and a stronger balance sheet with significant liquidity. While we've made progress, we continue to see significant opportunity to build an even stronger, more diversified company which we believe will benefit all of Patrick's stakeholders. Although our end markets continue to face headwinds from inflation, rising interest rates, and overall economic uncertainty, the leisure lifestyle markets have truly been the first markets into and out of economic cycles. Demographics across our markets remain strong, with younger buyers having begun to enjoy the benefits of the leisure lifestyle. Additionally, housing inventory in general remains low, while demand for affordable housing remains solid. Therefore, we believe these conditions will be temporary with a healthy and promising overall long-term trajectory. Turning to the numbers. Our first quarter revenues decreased 33% to $900 million, and on a trailing 12-month basis our consolidated revenues were approximately $4.4 billion. Our net income in the first quarter decreased 73% to approximately $30 million, and our net income per diluted share was $1.35. Finally, I'd like to share my sincere and heartfelt appreciation and best wishes to Jake as he begins the next chapter of his career in May and moves back home to North Carolina. He worked tirelessly to implement and strengthen our processes, software, policies, and procedures, and significantly enhance our overall financial foundation well-positioning us for the next stage of growth. While we are disappointed to see him depart, the team he leaves in place is first-rate and will continue to work together toward our continuous improvement long after his departure. As we begin the process of finding our next permanent CFO, we are confident both in Matt's abilities and expertise in the interim and that we will find the right individual who is ready to take on the opportunities and challenges that come as we begin the next phase of our 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. As mentioned, the uncertain economic environment has impacted demand across all of our end markets, with heavier emphasis on consumers more sensitive to rising interest rates. We continue to diligently flex and manage our production schedules across our business in alignment with our customer needs and remain in constant contact with these partners in all of our markets. Our RV market has experienced the most volatility as OEMs utilized their tremendous scalability to match wholesale production with balanced dealer inventory levels. RV wholesale unit shipments of 78,600 decreased by 54% or more than 93,000 units from the first quarter of 2022. We currently estimate first quarter retail registrations of approximately 84,000 units. As we head into the selling season based on our touch points, we believe the dealers are utilizing incentives to work through a larger-than-optimal mix of 2022 model year units as they position themselves for the upcoming 2024 model year change in the back half of the year. The metrics we have outlined imply a net decrease of approximately 5,400 units to dealer inventory in the quarter. Our estimates indicate that TTM dealer inventory weeks on hand at the end of the first quarter of 2023 have remained consistent with the levels beginning in the back half of 2022 at approximately 18 weeks to 21 weeks. This is below historical pre-COVID levels of approximately 26 weeks to 30 weeks, implying a potential new normal inventory level based on trends for the last four quarters. Our first quarter RV revenues decreased 55% from $821 million to $367 million and represented 41% of our consolidated total. Our RV content per unit increased 22% on a TTM basis to $5,349 per unit, driven by market share gains, pricing, and acquisitions. Staying with leisure lifestyle, the marine side of our business has remained resilient through the first quarter of 2023 as dealers in general have reached or are reaching basic wholesale retail equilibrium and inventory on hand. We further believe dealer inventories are balanced as we approach the spring selling season and model year change in the second half. We estimate marine wholesale unit shipments were up 14% in the quarter to approximately 52,000 to 57,000 units on retail unit shipments that were down approximately 20% to a range of 32,000 to 37,000 units. Pre-pandemic production seasonality was generally spread between 50% to 55% of units produced in the first half of the year and 45% to 50% of the units produced in the back half of the year. We expect a similar cadence in fiscal 2023 as marine OEMs continue to work with dealers to keep inventory levels in balance with consumer demand. Our marine revenues, which represent 31% of our first quarter 2023 consolidated sales increased 25% to $276 million driven by acquisition, market share gains, and pricing. Our growing aftermarket portfolio complements our marine OEM-focused business where we offer an expanding array of products aimed at customization, upgrade, and replacement. In addition to higher margins and generally lower cyclicality, the aftermarket allows us to tap into a significant base of used boats that change hands annually, a market that is much larger than the new boat market on a unit basis. Our estimated marine content per wholesale unit has increased 27% on a TTM basis to $5,266 per unit. We estimate overall marine dealer inventories are at 20 to 23 weeks on hand increasing from the fourth quarter levels and potentially approximating or approaching a new normal based on current economic conditions. Pre-pandemic average weeks on hand approximated 35 weeks to 40 weeks. The housing side of our business is primarily tied to manufactured housing, single-family, multifamily, and big box, with an approximated split of about 52% manufactured housing and 48% single-family, multifamily, and big box. Manufactured housing estimated wholesale unit shipments were down 28% in the quarter. Total residential housing starts for the first quarter decreased 18%, of which single-family starts declined 29% and multifamily starts increased 5%. Revenues in our housing market decreased 14% to $257 million and represented 28% of consolidated sales. Our estimated manufactured housing content per unit increased 16% to $6,353 on a TTM basis. Although OEMs shipped fewer units in the first quarter, we expect production to improve sequentially in the second quarter and we continue to believe that manufactured housing remains a viable cost-effective alternative to site-built housing and remains highly relevant as consumers grapple with higher interest rates. On the operations front, we continue to invest in automation and innovation, improving our efficiencies and boosting our ability to compete in any environment. We recognize the relevance of technology and are continually exploring how it can enhance our manufacturing processes and infrastructure. We are keen to identify and implement cutting-edge technology with an eye towards improving our efficiencies and the satisfaction of our team members. Our innovation team continues to engage directly with our end consumers of RVs to understand their needs and preferences better and ensure we focus on customer utility and satisfaction. With our culture of embracing change and leading markets we serve, we remain confident that our investments in automation and innovation will position us for continued success in the years to come. As an example of our efforts, our innovation team visits Patrick Brands to find those that would benefit from deployment of collaborative robotic systems in our facilities. We have collaborated with multiple regional automation integrators to find ways within our organization to engage with robotic applications to improve safety, output, efficiency, and labor utilization. One of our major manufacturers of complex interior and exterior subassemblies for the automotive RV and marine markets recognized an opportunity in their manual drilling cells. The robotic drilling cell consists of two universal robots that control precision high-speed drill motors to complete the previous manual operation. We believe there remains significant upside from their efforts like these and our team remains eager to implement solutions to improve efficiencies, throughput, and safety. We will continue to focus on scalability and flexibility of our operations in alignment with our customer needs. We are aligned on capital allocation strategy to reinvest in our business, drive return on capital, and return value to our shareholders. Our acquisition strategy has brought us high-quality brands, premium products, and strong team members, allowing our growth to potentially outpace our individual end markets. We are ready and prepared to pivot when market conditions change and leverage the flexibility and resiliency of our business model and culture. Finally, I would like to personally thank Jake for his tremendous contributions to our team over the past 2.5 years. It was great working with you, and I wish you the best in the next chapter of your career. Now for the last time, I will turn the call over to Jake, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everybody. Our consolidated first quarter net sales decreased 33% or $442 million to $900 million. Our end markets were all impacted at the retail level by the headwinds of a slowing economy, rising interest rates, and inflation, with RV OEMs addressing softer demand through a significant reduction in production. As Jeff noted, while our RV revenue declined 55%, our diversification strategy continued to resonate with our marine revenue increasing by 25% and partially offsetting the declines in other markets. Our housing revenue declined 14%. Gross margin declined 40 basis points to 21.6%, as the negative impact of the significant decline in RV and manufactured housing shipments was partially offset by the contributions of portfolio diversification, recent acquisitions, and the realization of production and labor efficiencies coupled with our automation initiatives. Warehouse and delivery expenses declined $5 million to $36 million in Q1 2023 but increased 90 basis points as a percent of sales due to reverse absorption of overhead, primarily in our distribution operations. Operating expenses for the first quarter were 15.3% of sales, an increase of 530 basis points, due primarily to a 9% increase in SG&A expenses and a 17% increase in amortization due to acquisitions. SG&A increased 360 basis points as a percentage of sales, reflecting our investments in human capital and recent acquisitions, which tend to generate higher gross margins, but also carry a higher SG&A mix. Excluding a $5.5 million pretax gain on sale of property included in the SG&A in the first quarter of 2022, SG&A was essentially flat year-over-year. Operating income decreased $106 million, leading to a 590 basis point decrease in operating margin, primarily driven by the factors previously described. We continue to invest in several key infrastructure initiatives that are expected to bolster our ability to drive automation and efficiencies both operationally and administratively and provide excellence to our customers, while providing long-term value to our shareholders. These initiatives include IT, software, and automation as we seek to leverage cutting-edge technologies and enhanced analytical insight to streamline our operations and improve efficiency. We also continue to invest in human capital initiatives and our culture as we remain committed to our people, whose talent, training, and expertise are pivotal to our success. Net income decreased 73% to $30 million, which equates to $1.35 per diluted share. Adjusting for the impact of our 1% convertible notes, which matured and were fully repaid in February, our adjusted net income per diluted share was $1.38. Aside from full-year 2023 results, which will include one month of the adjustment, there will be no impact on our EPS related to these notes for the remainder of the year. Our overall effective tax rate was 20.1% for the first quarter, compared to 23.3% in the prior year. Although the first quarter rate was low due to the tax benefit of share-based compensation, we continue to expect our overall effective tax rate for 2023 to be approximately 25% to 26%. Looking at cash flows, cash used in operations was approximately $1 million compared to cash used in operations of approximately $23 million in the prior year's quarter. We continue to focus on the monetization of working capital. Reduction in net income alongside the seasonal timing of the collection of our receivables resulted in a use of cash. Given the reduction in production, we've seen we remain focused on inventory levels and note our inventory is down 10% year-over-year to $628 million and 6% on a sequential basis as well, reducing the operating cash outflow versus the prior year period. This quarter, we invested $20 million in purchase of property, plant, and equipment focused on automation which will drive improved efficiencies. In tandem with our highly variable cost structure, our investments have and will continue to allow us to seize opportunities intended to boost long-term growth. We now expect to spend $65 million to $70 million on capital expenditures in 2023. We continue to evaluate opportunities to strategically deploy capital and continue to focus on well-run quality businesses that champion the entrepreneurial spirit with a focus on growth and diversification. Our strong financial health allows us to actively explore attractive acquisition opportunities as a softer market may lend itself to more favorable valuation scenarios. We repurchased approximately 54,600 shares for a total of $4 million in the quarter and returned $11 million to shareholders in the form of quarterly dividends. At the end of the first quarter, we had approximately $489 million of total net liquidity comprised of $31 million cash on hand and unused capacity on our revolving credit facility of $458 million. Our total net leverage ratio was 2.3 times. In addition, by design, we have no major debt maturities until 2027. We've worked hard to build this robust liquidity profile and long-term capital structure, which enables us to navigate through the uncertain macroeconomic environment with confidence. Our financial flexibility has allowed us to quickly adapt to meet the changing needs of our customers while still being able to invest in our business effectively. Our long-term cash flow performance is a testament to our commitment to creating long-term value for our shareholders and our ability to adapt to changing market conditions. Moving to our end market outlook. As noted on our fourth-quarter call, we remain in a period of macroeconomic uncertainty. Starting with RV, OEMs are continuing to work with dealers to keep channel inventory appropriate as the industry's return to normal seasonality has coincided with the slowing economy and consumers impacted by higher interest rates and the effects of persistent inflation. Although the year is off to a slower start for both wholesale shipments and retail registrations, wholesale and retail remain close to parity, which means OEMs have remained disciplined in their production, a positive sign. Based on recent trends, we currently estimate full-year RV retail registrations will be down approximately 20% to 24%, implying approximately 335,000 to 360,000 units. Assuming current dealer weeks on hand remain consistent as Jeff discussed this approximates based on our retail estimates, full-year 2023 RV wholesale unit shipments of 310,000 to 325,000 units implying a decline of approximately 35% to 38% from 2022. In our marine market, we continue to estimate 2023 wholesale shipments will be down low double digits, marine retail to be down high single digits to low double digits. We believe dealer inventories are generally calibrated with retail with higher-priced categories leaner on inventory. On the housing side of the business, we expect manufactured housing wholesale shipments to be down 15% to 20% for 2023 retail sales absorbing available wholesale production on a real-time basis. In our residential housing end market, we expect 2023 new housing starts will be down low double digits. To wrap up, we've adjusted our end market outlook based on the most recent trends. We are entering the selling season for our end markets and expect the 2023 retail trajectory to become clearer as we progress through the year and as consumers calibrate to the current financing environment. We continue to estimate our operating margin will be between 7.5% and 8.5% for full year 2023 expect to generate operating cash flow at or in excess of $400 million this year as working capital aligns with revenues which implies free cash flow of over $320 million based on our CapEx estimates. Key to these expectations is the resilience of our marine business relative to our RV business in the current RV slowdown. Before we start the Q&A, I'd like to share my thanks to Andy, Jeff, and the entire Patrick family. While my tenure has been shorter than I expected, I enjoyed working with the people of Patrick and its brands. Although I'm excited to begin the next chapter of my career, I'm confident that the work we've done together will continue through the very strong and talented team that we have collectively put in place. Matt Filer, as noted, will be assuming the role of interim CFO upon my departure later in May. I'm highly confident in Matt's and our team's abilities and will be working with them to facilitate a smooth transition. That completes my remarks. We are now ready for questions.

Thank you. And we'll take our first question from Daniel Moore from CJS Securities. Please go ahead, Daniel.

Thank you. Good morning. I'll start very briefly just by saying Jake, thank you very much for all the help and best of luck on to bigger and brighter. I'm sure you'll do extremely well. I appreciate the help. Let me start with a question on content per unit continues to see really healthy growth across the board. Maybe just walk through the segments in high-level terms starting with RV and break down growth between acquisition, pricing, organic volume gains, and what your expectations for growth look like going forward? Thanks.

Hi, Dan, thanks. It's Jake. I appreciate the kind words at the beginning. I completely agree. We've seen significant growth in our content per unit. As you know, we've made several acquisitions in our end markets, particularly in leisure lifestyle with RV and Marine. The capital allocated to strategic purposes in our marine business has really been effective, as evidenced by the sequential and year-over-year growth we saw in our content per unit and overall revenues for Marine. Last year, we created a $1 billion top-line market business, which we are very proud of. To take a step back and discuss the overall changes in our revenue on a quarter-over-quarter basis, we indicated a decline of over 35%. The main factors contributing to this decline start with the industry growth or, in this case, decline, heavily impacted by the well-known changes in wholesale shipments for RV. Overall, marine showed a slight positive, but on a net basis, we experienced a 40% decrease related to industry growth. In terms of organic growth, we are still seeing positive results, particularly reflected in our content per unit. We remain focused on achieving 3% to 5% growth, which we've exceeded on several occasions in the past couple of years. Our proactive approach to rebuild inventory ahead of expected supply chain issues and maintaining strong liquidity with our banking partners enabled us to invest in working capital, ensuring we can meet our customers' needs and continue to grow, despite some downturns in the market. Acquisition growth has been somewhat lighter than in the past, as it has been relatively quiet lately. Still, Rockford, Diamondback, and others contributed about 4% to our growth. Therefore, considering all factors, the industry is down 40%, we’re up 3% organically, and up 4% from acquisitions, leading to a net decline of around 33% quarter-over-quarter. Regarding content per unit, we typically don’t break that down by market but prefer to view it at a higher level. As I mentioned, RV growth is largely driven by share gains. The acquisition of Alpha Systems over a year ago has significantly impacted our content per unit. It's mainly about capturing market share and striving to maintain our pricing gains, influenced by stabilized commodities and better innovation and product offerings. On the marine side, we've seen substantial acquisition activity, contributing over $1 billion in revenue over the past couple of years. This, combined with some pricing improvements keeping pace with commodities, has boosted our growth in content per unit. Overall, this growth primarily stems from revenue gained through acquisitions and an increased share in the industry, as we work to rebalance our portfolio towards leisure lifestyle and the marine business. In housing, we haven’t seen many recent acquisitions, just a few minor tuck-unders that aren't significant enough to mention. However, there's a lot of innovation happening across our end markets, whether it's RV, housing, or marine, with a focus on improving products, including solar and other technologies. This has resulted in significant share gains, along with our ability to build and maintain inventory, contributing to the growth in the housing content per unit related to manufactured housing.

That's great color. And you've killed a couple of birds with one stone, which is very helpful. Just talk about how April is shaping up in terms of OEM production levels relative to March, and your expectations for the remainder of Q2. I appreciate the updated color in terms of the full-year forecast, just kind of seeing how Q2 shapes into that. Thank you.

Dan, this is Jeff. As we move through March into April, production levels stayed relatively flat. We're still seeing those shutdowns as far as three-day four-day work weeks, an occasional week off here or there for an OEM. But overall, we see that kind of continuing now through the end of the second quarter as dealers are really trying to rightsize their 2022 inventory, get that through the system and really prepare for 2024 model year. So, I think we'll see some continued shutdowns in pockets as they try to keep those inventories in line.

Perfect. Regarding margins, we are still expecting them to be between 7.5% and 8.5% for the year. I would like to hear about how gross margins performed in Q1, especially considering the decline in RV shipments. What is your outlook for Q2 regarding gross margins and operating income in relation to the levels seen in Q1? Thank you.

Dan, it's Jake again. I appreciate the question. We still believe that our gross margins show strong resilience. Despite a significant reduction in our primary market, specifically in RVs, we are adjusting our mix. The gross margin profile from our marine segment, which is typically a top contributor to our margins, is offsetting some losses in the RV segment due to lower production levels and absorption against a modest fixed cost base. We are down about 40 basis points on a quarter-over-quarter basis in gross margin, but we are maintaining costs for materials and rebalancing inventory, ensuring we partner with customers on stabilized commodities and product pricing. On the labor side, we have implemented substantial cost-saving measures and rebalanced our workforce according to anticipated production levels in the near to intermediate future. Although building up our labor force has been challenging, we managed to ease some of the pressures through automation from prior capital expenditures. We want to retain some labor to adequately meet customer demands as we experience fluctuations with new model year launches. The recent decline in margins is primarily related to overhead absorption and labor costs that are higher than ideal. Our gross operating margin is impacted by SG&A, which has seen significant investment and cost-cutting over the last two years, balancing out to about a $25 million annual impact each way, but ultimately creating a more robust infrastructure. Although we are seeing margin pressure as revenues trend down, this is part of our planned strategy as we build the necessary cost structure to support the business through macroeconomic uncertainties. Over the next couple of quarters, we expect similar conditions as we did in the first quarter, where production, particularly in RVs, was slower than we expected due to shutdowns in December that extended into January and February for some brands. While production for 2023 models is progressing, we also have 2022 models available. We are closely monitoring production schedules and margins, aiming for operating margins of 7.5% to 8.5% for the year.

Extremely helpful. Thanks again. Hope to see you in New York next week. And best of luck.

Sure. Thanks Dan.

Good morning guys. Thanks for taking my questions and I echo Dan's comments, Jake it was great working with you and I wish you all the best of luck in your new opportunity.

Thanks Scott. I appreciate that.

I'm just trying to drill down to 2022 how much excess inventory there really is still out there. There's some commentary out there about dealers starting to face curtailments in May and June. So, I was just wondering through your touch points through your logistics company, what are you guys hearing from the dealers? Thank you.

Yes, it varies. Really it varies among OEMs and dealers alike as far as what type of inventory they have with regards to 2022s. We've heard varying discussions from 10% to 20% upwards of maybe even around 30%. So, really it's something that is dependent on the product line and really the dealers themselves. I know they're working very hard with the OEMs to diligently get through that product. I think it slowed down the 2023 production a little bit to make sure that they're not bringing anything on the lots new so they can really focus on that 2022 product so they can really get that really in alignment to where they feel like they need to be going into the 2024 model year that's coming up in July.

Got it. And then on the organic side, obviously, being within that 3% to 5% range in this environment is very impressive. But just trying to get a sense of how much of it is coming from some of your customers' inability to work through the supply chain crisis and how much of it is just through innovation and stuff like that?

Scott, this is Andy. I think one of the things that we're really excited about especially in an environment like this is that we've been able to really work between our brands to bring solutions to our customers and grow our business organically. So, there's some price that's rolling in through the TTM numbers as it relates to our content. But the new business that we've been able to not only bring on to date because of the innovations that we've been bringing the product solutions opportunities that we've been bringing have been fabulous. And then as we look forward there's still significant opportunity out there to be able to go after organic share with our customers. And as we've kind of pivoted a little bit here as it relates to kind of our acquisitions and kind of working through the market here and being very, very balanced and disciplined we've certainly focused inward to be able to see and focus on all the opportunities that we think we have to bring more and more value to our customers. So, it's been a great transition to that. And I think it's reflected in our organic numbers which we expect to continue.

All right. And then last question on the margins. The 7.5% to 8.5% maintaining that for the full year, is there any step-down function that we should worry about in the next quarter or two? I'm just trying to figure out the ramp-up towards that number for the rest of the year.

Scott, this is Andy. As we consider the second and third quarters and our full-year estimate of 7.5% to 8.5%, we anticipate an increase in margin during those quarters, followed by a return to levels more typical of the first quarter in the fourth quarter. Looking ahead to the next couple of quarters, many factors are aligning, particularly with commodities stabilizing and our success in implementing automation initiatives. We expect the rise to occur in the second and third quarters, then return to more standard margin levels typically seen in the first and fourth quarters.

Got it. That's all I have. Thanks again guys.

Thanks Scott.

Hi. Thanks for taking my questions. I think you might have touched on this a little bit as it relates to 2022s. And I know you touched on the shipment side. But in terms of RVs, what are you hearing or seeing in April in terms of retail? And any color on how March kind of shook out would be helpful, as it relates to kind of the lower industry outlook there? And then, second if you could provide any color on inventory cadence as well as target operating cash flow for the year that would be helpful. Thank you.

Sure, I'll begin. On the retail side, we are seeing varying touch points from dealer to dealer across the country. Generally, traffic remains quite positive, though it can fluctuate weekly. People are looking for units on the lots, but there is variation in activity. We are being attentive to these changes and keeping a close watch on retail to understand how it develops. This is evident in the production levels we’re observing from the OEMs, which have leveled off between March and April. We will continue to monitor retail closely as we move forward.

This is Andy. I think when you think about the 2022s, as we look at it, I think the OEMs are really utilizing their tremendous scalability to manage that inventory that's out in the field. And as we look at Q2, we would expect to see the OEMs continue to be very disciplined in their production to make sure that they're very well positioned for the 2024 model season post-July 4th shutdown. So that's how we're thinking about it. I think Q2 is that calibration point that the OEMs are utilizing again very, very aggressively as they think about their scalability. They're so good at it. That's how we think about them managing the inventory mix of 2022s that's out there. So I think as everybody is looking forward to kind of that July new model season for the 2024s.

Hey Noah, it's Jake. I want to address your question about inventory cash flow. We discussed the intentional build-up of inventory over time, and we reached a critical point last year where we began to consider the normalization of production levels, especially in the RV sector. Our expectations for this year are somewhat lowered, and we've revised our forecasts for RV wholesale shipments downward. In terms of inventory, we've reduced it by over $40 million since December 31 across both our balance sheet and prepaid inventory categories. We're making significant efforts to monetize this inventory by slowing down or even halting purchases, as we are confident in our existing raw materials and the inventory available in our distribution sectors, which constitutes around 23% of our business. This positions us well to keep monetizing those products. Our balance sheet will show that we typically lean towards raw materials, giving us flexibility across different business units serving various markets. We still observe steady wholesale shipments and ongoing demand in the marine sector, which compensates for the decline we've experienced in RV and housing sectors. As I noted, we’ve reduced inventory by $40 million, and this quarter usually sees an increase in working capital. Our consolidated cash flow statement indicates a significant decrease in cash burn compared to the same quarter last year. We plan to enhance the monetization of inventory and balance sheet throughout the year, with expectations for cash generation from inventory to peak in the latter half of the third quarter and into the fourth quarter. Additionally, as mentioned earlier, we anticipate generating a baseline of $400 million in cash flow from operations. Given the significantly reduced production and its effect on year-over-year top line results, we aim to maintain or slightly increase cash flow from operations. Factoring in our projected capital expenditures of $65 million to $70 million still positions us favorably for free cash flow, enabling us to strengthen our balance sheet, invest beyond our CapEx targets, consider acquisitions, or return capital to shareholders. We are confident in our ability to execute our capital allocation strategy in 2023 and beyond.

Thank you. Very helpful.

Good morning. Thank you for answering my question, Jake. It's been great working with you. I wanted to inquire about the M&A pipeline and if you could provide any additional insights on it. Also, as a broader question, considering your focus on automation, do you believe that Patrick has an enhanced capability as a buyer for certain opportunities, enabling you to create more synergies compared to before you gained some of this manufacturing and automation expertise?

On the M&A front, we are actively nurturing our M&A pipeline regarding deal flow from external sources, which has certainly slowed down due to market uncertainty. However, we are consistently ensuring that our pipeline remains filled with opportunities. Today, we are maintaining discipline; our pipeline is strong, and there are many opportunities for execution. As we assess the markets, we aim to be both disciplined and opportunistic in our acquisitions and capital deployment, as Jake mentioned. We feel well-positioned to pursue advantageous acquisitions and effectively allocate capital to maximize value and returns in the current market. We remain focused on the return model, recognizing the various opportunities available. In terms of our value proposition as a buyer, we can create significant synergies with potential candidates to enhance value. We're currently collaborating among our brands to harmonize and provide solutions to our customers while preserving the uniqueness of each brand. Overall, we are in a great position, and the investments we've made in infrastructure, automation, and IT will enable us to capitalize when the market changes. We believe these investments will enhance our ability to leverage future opportunities, affirming that we maintain a strong value proposition as a buyer and as Patrick as a whole.

Hi. Good morning. Thank you for my question, and Jake, I wish you the best moving forward. I wanted to ask a broad question about what you are hearing regarding potential financial stress related to tighter credit throughout the value chain, both in terms of opportunities and challenges from your competitors. Additionally, what insights do you have about any issues on the dealer side?

Rafe, this is Andy. I think just in general overall, we are not seeing or hearing tremendous pressure on the financing side as it relates to the retail environment today. Retail financing is available. Certainly, rates are higher but lending is available and we're not hearing that as a constraint really across our platform. We believe it's really just a matter of kind of the new normal and consumers getting used to the new normal as we kind of go forward. We look at kind of where the rate environment could land. So I think that's what we're seeing out there today as it relates to that sort of pressure. From an internal perspective, I think we're in a really, really good spot. Jake's done a fabulous job of really positioning our balance sheet and positioning our financing structure to be able to be very opportunistic as it relates to opportunities that are there. But as well, from a liquidity perspective, we're in a really good spot. So overall, I think that we feel like we've got an advantageous position with where we sit today. And there could be some financial stress out there in the markets. But the markets that we play in are very resilient, as it relates to our competitors and our customers that we've been through these cycles before. And I think that as we look at it we're going to remain opportunistic and we will take advantage of opportunities that come our way. But overall, again, we're not seeing the overall financing environment create a tremendous amount of pressure today.

That's very helpful. You mentioned in your prepared remarks the aftermarket opportunity in marine. It seems like an interesting and promising avenue for growth. Could you provide more details on the size of this opportunity and the margins in that segment, as well as your initiatives there?

Yes, it's Jake. Thank you for the question. We are highly focused on maintaining strong production levels in our markets and ensuring robust connectivity with our OEM customers. There are many vehicles and manufactured homes out there that we want to serve effectively, leveraging the advantages of the aftermarket to alleviate cyclical pressures. We estimate our annualized aftermarket exposure at around $200 million, although it's slightly lower on a run rate basis at present. The global aftermarket experienced significant momentum through 2022 due to factors like stimulus spending and increased consumer engagement in DIY projects while working from home. We made key investments in aftermarket companies like Sea-Dog, Wet Sounds, and Rockford Fosgate during this time. Although the aftermarket has recently cooled off and normalized under that $200 million level, we see considerable opportunities for further penetration into the installed base of products. It's challenging to quantify the total addressable market, but with approximately one million boats and about 600,000 RVs available, there's a substantial market to tap into. While we may not have reached the ceiling in this area, we are actively exploring those opportunities. Regarding margins, they can vary depending on the product. For commodity items like T-shirts, margins tend to be lower, but for our value-added products like those from Rockford, Wet Sounds, and others, the margin profile is generally better than OEM offerings, often sold directly to consumers. This adds value not just in terms of margin contribution but also through typical renovation and upgrade spending in housing and our markets. We want consumers to enhance their existing boats with our products. While we won't disclose specific margin profiles, we recognize the significant value the aftermarket brings, and we are committed to it. We are pleased with the progress we've made with our investments.

That's really helpful. I have one more question regarding how you're managing your labor levels. We've just experienced a challenging period for labor acquisition, and with the recent manufacturing slowdowns, many have significantly reduced their workforce, yet the overall job market remains quite robust. How do you approach managing your labor force to minimize turnover during this downtime or a cyclical downturn, considering the eventual recovery? I'd appreciate your insights on this.

Rafe, this is Andy. I think as we look at the talent that we've got in the organization we feel really good about our core talent levels and the engagement in our culture. I think our team is very much aligned. We've got great players and some hard chargers that are fun to work with and be a part of. So our culture is about engagement and talent development and opportunities and so just from the kind of the overhead side of the business, we feel good about the foundation that's there. And then on the variable side of the business as you mentioned our team as well has done a really good job of managing the labor workforce today. We're not seeing tremendous labor issues out there. We are doing a great job of flexing our labor to make sure we're matching up with customer demand. And again, I think as we focus and continue to focus on engagement and talent planning and opportunities in front of team members we just think there's an incredible runway that supports the talent that we've got here. So we feel overall good about where we sit from a labor position. Our team has done a great job of flexing. It's not something that we're seeing a tremendous amount of pressure on today but we remain focused on engagement with our team members.

Thank you. And we'll take our next question from Griffin Bryan from D.A. Davidson. Please go ahead.

Yeah. Thanks, guys. So just one for me. We've had some pretty negative news from marine dealers and OEMs this morning. I guess can you just kind of talk about what categories are currently holding up the best? And then maybe which ones are lagging as we head into May? And then I guess just your overall sense of where retail is currently at.

Sure. This is Andy. As we assess our product mix, we cater to all segments of the retail marine environment, with a stronger focus on fiberglass, saltwater, ski, and wake products compared to aluminum and pontoon offerings. We continue to observe strength in the fiberglass and saltwater markets, and there is also resilience in the freshwater market. Our product mix leans towards higher-end boats, which have remained robust. So far, we haven't experienced a significant decline in retail, although we anticipate some softening, which we have factored into our full-year market estimates. Overall, we believe there is a healthy balance in the current market conditions, especially regarding dealer inventories, which are lower than historical averages. We are not expecting a drastic drop in retail and feel optimistic about our current position. In conclusion, as we navigate these dynamic market conditions, we remain committed to our goal of providing the highest quality products and services through our Better Together values which guide us in everything we do. We will continue to strategically invest in our business driving scalability, and pursuing strategic diversification to ensure our long-term success. Our resilient business model has withstood the challenges of the past year and we remain confident in our ability to pivot and deliver value to our shareholders over the long term. We thank everyone who has joined us on the call today, and look forward to continuing to create long-term value for our stakeholders.

Thank you. 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 great day.