Good morning, ladies and gentlemen, and welcome to Patrick Industries Second Quarter 2024 Earnings Conference Call. My name is Rob and I'll be your operator for today's call. At this time, all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. And I will now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may now begin.

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President RV; and Andy Roeder, CFO. Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Additional factors that could cause the results to differ materially from those described in the forward-looking statements can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2023, and the company's other filings with the Securities and Exchange Commission. I would now like to turn the call over to Andy Nemeth.

Thank you, Steve. Good morning everyone and thank you for joining us on the call today. Our second quarter and first half performance continue to be a reflection of the incredible dedication and commitment of our team members in our Better Together culture. Our diversified business model, highly variable cost structure, strong balance sheet, and liquidity position in complement with our increasing focus on delivering the best customer service and innovative quality product solutions continue to put us in a position of strength as we navigate current market conditions. In both Q2 and the first half of 2024, we delivered increased revenue, operating and EBITDA margins, and earnings year-over-year despite persistent volatility in our end markets. Our second-quarter revenues increased 10% to approximately $1.02 billion and on a trailing 12-month basis, our consolidated revenues were approximately $3.6 billion. Net income in the second quarter improved 13% to $48 million, with earnings per diluted share of $2.16. Our adjusted EBITDA grew by 14% to $130 million, with adjusted EBITDA margin expanding 40 basis points to 12.8%. As we look to the back half of the year, based on our detailed analytics and recent commentary from leading OEMs in our end markets, we are now anticipating that strict inventory discipline will continue across our markets, both at the OEM and dealer levels until more certainty is achieved as a result of the interest rate environment. Jeff and Andy will provide a more in-depth discussion on this later in the call. However, I want to highlight three key longer-term themes that are foundational to Patrick as we enter the second half of the year. First, our business is more resilient and nimble, with higher potential revenue margins and earnings power as a result of the strategic diversification investments, and cost management efforts we have made in each of our markets. For instance, in the first half of the year, stronger demand from the RV and housing markets helped offset lower revenue from our marine market. Furthermore, a recent expansion in the Powersports market through the margin accretive Sportech acquisition is outperforming our initial expectations and has already yielded positive results. Today, our RV business represents 44% of our total revenue, which is down from approximately 74% just 10 years ago. Despite the fact that RV revenue has grown at a 12% CAGR since 2014. In 2019, RV represented 55% of our total revenue and despite RV wholesale shipments being almost 20% lower in the current TTM period, RV revenue has increased at a 5% CAGR since then. Second, we are intensely prioritizing near and long-term innovation through our recently launched advanced product group. This initiative is enhancing our ability to bring value-added product solutions and services to our customers across our businesses. As an example, in our marine market, we recently began production and launched Gear Glass, a premium glass windshield solution debuting in the ski and wake market. With powerboat industry-wide potential, this further enhances our offering of a full suite of windshield solutions for our customers. With the incredible network of brands in our portfolio and in alignment with our Better Together initiatives to synergize our product power and solutions model, our business leaders now possess better visibility and ability to communicate, collaborate, and coordinate best practices with each other across our end markets. And third, acquisitions have been and will continue to be a key component of our strategic growth plan. Our pipeline remains robust and we are consistently cultivating and evaluating deals, both large and small, with the intent of continuing to execute on the model that has helped us produce our slow and steady consistent margin improvement. The acquisitions we have completed over the past 15 years have accelerated our growth and enhanced our margin profile, expanded the breadth of our product offerings to deliver full solutions, introduced us to new customers, deepened existing relationships, and brought tremendous talent to our organization. Our resilient financial performance and prudent inventory management has enabled us to maintain a strong balance sheet with no major debt maturities until 2027 and available liquidity of $519 million. We remain poised to allocate capital as advantageous opportunities present themselves. Our strong free cash flow generation has positioned us to reduce debt, invest in growth opportunities, all while returning cash to shareholders through dividends and opportunistic share repurchases. In anticipation of a cautious and disciplined third and fourth quarters and the expectation of improving tailwinds in fiscal 2025, our team will continue to aggressively control and leverage our highly variable cost structure without impacting the integrity of the business model while supporting and servicing our customers at the highest level and retaining our ability to nimbly react to positive changes in demand. 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 Andy noted, demand across all primary end markets remains constrained by high interest rates and inflation. OEMs continue to aggressively manage their production levels to tightly balance the level and cost of inventory in the channel. Our strategic diversification worked as intended in the first half of the year with RV and housing revenue growth more than offsetting decline in the marine revenue. When combined with our team's tactical approach to managing our cost structure, these factors contributed to the year-over-year growth in revenue and earnings. As a solution supplier to the outdoor enthusiast and housing markets, we recognize that we cannot directly influence consumer demand and our team remains focused on what it is in our control and will continue to actively scale our business to match. We remain well positioned to capitalize on potential recovery given our focus on innovation, customer service, and our differentiated good, better, best value proposition. Our second quarter RV revenues were $450 million, increasing 17% compared to the same period in 2023 and representing 44% of consolidated revenue. RV content per unit on a TTM basis was $4,966, up about 2% from the same period last year. However, for the second quarter in a row, RV content per unit on a TTM basis increased sequentially, rising 2% versus the first quarter of 2024. RV wholesale shipments increased 7% in the quarter, with lower-end towables leading the way. Motorized unit shipments were down in the quarter and higher priced towable increased at a modest pace. We estimate total RV retail unit shipments decreased approximately 10% in the quarter, resulting in an estimated 18 to 20 weeks on hand versus historical 26 to 30 weeks on hand. While current weeks on hand is well below historical levels, we believe dealers will continue to focus on destocking inventory in the third quarter until retail velocity improves or floorplan interest rates come down. Our second-quarter marine revenues were $158 million, up 30% from the prior year, representing 16% of consolidated sales. Our estimated marine content for wholesale unit on a TTM basis was $3,935, down 10% from the same period last year and approximately 2% from the first quarter of 2024, primarily reflecting pricing given back to customers and product mix. As we've discussed, we are more heavily indexed towards higher engineered ski and wake and pontoon categories, which we estimate were down approximately 57% and 36%, respectively, in the second quarter and 55% and 39%, respectively, year-to-date. As a reminder, prior to the first quarter, we reported Powersports revenue in our marine market. We have restated our content for unit numbers and the current and prior year's figures to reflect these adjustments. For modeling purposes, you can find our 2023 revenues by end market in our earnings slide deck. We estimate in the quarter, retail and wholesale powerboat unit shipments were 68,400 and 39,300 units respectively, implying the inventory reduction of approximately 29,100 units. We estimate weeks on hand dropped to 23 to 25 weeks at the end of the quarter, which is well below the historical 36 to 40 weeks. While interest rates remain near-term headwinds, we are encouraged by the incredible discipline exhibited by our partners in our RV and marine end markets, which we believe will accelerate the need to restock when demand recovers. As noted, partially offsetting the decline in our marine-related businesses, our housing revenue was up 11% to $305 million, representing 30% of consolidated sales. In manufactured housing, which represents approximately 57% of our housing revenue in the quarter, our estimated content per unit on a TTM basis increased 1% year-over-year to $6,427 and was up slightly sequentially. Demand for affordable housing remains strong while supply is still limited. High interest rates continue to impact consumer's ability to purchase and willingness to sell, leading to a low velocity but stable housing market. MH unit shipments increased 19% in the quarter and total housing starts declined 7%, with single family housing starts up 7% and multifamily down 34%. Single-family housing represents 75% of total new housing starts in the quarter. Our Powersports revenues were $104 million in the quarter, representing 10% of our second-quarter 2024 consolidated sales. Our Powersports business is primarily centered around the side-by-side golf cart and motorcycle sectors of the industry, with an emphasis on the utility segment of the market. The utility segment has remained resilient with balanced inventory levels and our backlogs have remained stable while the recreation side of the market has been volatile with elevated inventory levels. As noted, Sportech has continued to deliver better than expected results both in the quarter and year-to-date due to continued solid demand for their products. We expect that Sportech will continue to be an organic and strategic platform for future growth in Powersports. On the innovation front, the advanced product group which Andy referred to, is continuing to gain momentum with our businesses while deepening collaboration between us and our OEM partners. As evidenced by the introduction of our proprietary RV composite component solutions during the quarter. Composites offer a more sustainable solution and positive benefits including durability, supply chain reliability, and weight savings, while improving production efficiencies for us and our valued customers. The new composite components are extremely versatile and can be used for numerous applications both on the interior and exterior of RVs, as well as in combination with our other products in our portfolio. This allows us to tap into areas of content where we are previously underrepresented and provides us the opportunity to capture significant potential revenue over the long term. Staying on the RV side of our business, this quarter we have begun the exclusive distribution of Tile Glass, a new low profile RV antenna which eliminates the need for bulky antenna installations, greatly improves connectivity options, and offers a sleek minimalistic design favored by RVers. On the marine side of the business, as Andy discussed earlier, we recently introduced Gear Glass to the market. This is a fully integrated windshield system that includes frame stanchions, integrated lighting, hinging, and mirror systems. Geremarie's preexisting infrastructure, highly automated production capabilities, and use of cutting-edge technology enabled advanced designs that are more difficult for others to replicate. We recently launched production with a small group of customers, but estimate the total addressable market for this solution is well over $100 million.

Thanks, Jeff, and good morning everybody. I've enjoyed my first full quarter working at Patrick and have been focused on immersing myself in the business, deepening and enhancing my relationships, and supporting our teams. Moving to our financial results, our consolidated second-quarter net sales increased 10% to $1.02 billion, driven by revenue growth of 17% in our RV market and 11% in housing, coupled with better-than-expected results in Powersports related to the Sportech acquisition. Together, these factors more than offset the impact of a 30% decline in marine revenue during the period. Our ability to actively control costs and effectively manage our production and labor was evident in the quarter. Gross profit increased 10% to $231 million and gross margin was 22.8% during the period consistent with last year. SG&A expenses increased $5 million or 6% to $84 million in the second quarter of 2024, primarily as a result of our acquisitions year-over-year, but decreased 30 basis points as a percent of sales. Total operating expenses increased 9% to $147 million in the quarter. Amortization expense increased 22% related to the acquisition of Sportech in the first quarter of 2024. Operating income grew $9 million or 12% to $85 million, while operating margin improved 10 basis points to 8.3%. The improvement in operating margin reflected stronger revenue from our RV and housing businesses, again representing successful efforts to diversify our business mix. This was partially offset by higher amortization as noted earlier, which increased 20 basis points as a percentage of sales from the second quarter of 2023, and lower revenue from our marine businesses which tend to be higher margin with a higher fixed cost profile. Net income increased 13% to $48 million or $2.16 per diluted share. Our EPS for the second quarter of 2024 includes approximately $0.03 per share in additional accounting-related dilution from our 2028 convertible notes as a result of the increase in our stock price. As noted last quarter, we have hedges in place which are expected to reduce or eliminate any potential dilution to the company's common stock upon any conversion of the convertible notes and or offset any cash payments the company is required to make in excess of the principal amount of any converted notes. For reporting purposes, these hedges are always anti-dilutive and therefore cannot be included when reporting earnings per share. Adjusted EBITDA grew 14% to $130 million versus $114 million last year. Adjusted EBITDA margin expanded 40 basis points to 12.8% for the second quarter of 2024. Our overall effective tax rate was 25.6% for the second quarter compared to 26.1% in the prior year. We expect our effective tax rate to be approximately 25% to 26% for the third and fourth quarters. Cash provided by operations for the first six months of 2024 was approximately $173 million compared to $178 million in the prior year period. This quarter purchases of property, plant, and equipment were $17 million, reflecting continued investment in automation and select facility enhancements. Our strategic deployment of capital reinforces our commitment to automation and innovation and creating long-term value for customers and stakeholders. We continue to estimate our 2024 capital expenditures will total $70 million to $80 million. Our balance sheet remains solid and our team continues to make progress on reducing our net leverage toward our target range. After repaying $82 million in debt during the quarter, we ended June with a total net leverage ratio of 2.6 times, down from 2.8 at the end of the first quarter and about 2.9 at the time we closed the Sportech acquisition. We ended the quarter with total net liquidity of $519 million, comprised of $44 million of cash on hand and unused capacity on a revolving credit facility of $475 million. We plan to remain opportunistic in our capital allocation strategy with specific focus on acquisitions that complement our existing businesses and expand our presence in our end markets. As we evaluate the strategic growth initiatives, we will balance these with reinvesting in our business and returning cash to shareholders. During the quarter, we generated $121 million of free cash flow and for the trailing 12-month period, we generated $348 million of free cash flow. With no major debt maturities until 2027, we continue to have the balance sheet strength, flexibility and liquidity to remain on offense, maintaining the ability to seize profitable strategic growth opportunities as they arise. We returned $12 million to shareholders in the form of dividends during the quarter. We did not repurchase any shares during the quarter. However, we will remain opportunistic on future share repurchases and had $78 million left authorized under our current plan at the end of the second quarter. As Andy noted earlier, we are prioritizing strategic opportunities while focusing on reducing our leverage to within our target range of 2.25 to 2.5 times. Moving to our end market outlook, we previously expected a one-for-one retail wholesale environment for the full year. However, dealers remain extremely cautious and we now expect RV and marine dealers to focus on maintaining minimum inventory levels in the third quarter and through the end of the year or until consumer confidence and the rate environment improves. As a result, we are keeping our retail estimates intact, shifting to the lower end of our range but reducing our wholesale unit shipment estimates for both RV and marine markets. Our full year RV wholesale unit shipment outlook is now 320,000 to 330,000 units. This represents a reduction at the high end of our previous forecast of 320,000 to 340,000 units. We estimate 2024 RV retail unit shipments will be down toward the lower end of our range, or approximately 10%, implying approximately 342,000 units. In marine, we now expect 2024 industry wholesale unit shipments for our overall product mix will be down 20% to 25%, which is below our first quarter estimate of down 10% to 15%. Similar to RV, we expect full-year industry retail unit shipments to be down toward the lower end of our range, or approximately 10%. At the midpoint, these estimates imply a calendar year dealer inventory reduction of approximately 26,000 RVs and approximately 17,000 boats, suggesting a significant restock opportunity on a recovery in demand or interest rate relief. In our Powersports end market, our outlook remains unchanged. We estimate Powersports unit shipments in our product categories will be flat in 2024 and our organic content will be up mid-single digits. In our housing market, we estimate MH wholesale unit shipments will be up 5% to 10% for 2024. On the residential housing side of the market, we estimate 2024 total new housing starts will be flat to up 5% versus 2023. The changes in our end market forecast, assuming current content per unit for each end market, imply a revenue reduction of approximately $100 million versus our prior end market outlook. Therefore, we now expect operating margin to be flat to up 20 basis points on an adjusted basis for the full year versus 2023. We continue to estimate our full-year operating cash flow will be $390 million to $410 million, implying free cash flow of $310 million or more based on our CapEx estimates. That completes my remarks. We are now ready for questions.

Thank you. We'll now be conducting a question-and-answer session. And our first question today will be coming from the line of Daniel Moore with CJS Securities. Please proceed with your questions.

Thank you. Good morning, Andy, Jeff, Andy. I appreciate the color.

Good morning.

Maybe start with the RV side. Again, appreciate the color on the inventory discipline at the dealer levels. Not a surprise from what we've heard here. I guess, first, how low can inventories go in terms of weeks on hand from your perspective? That's one. And any update on just the cadence of how the summer has developed from a retail perspective, whether it's consistently lower year-over-year, getting incrementally worse, better, anything on that? Just kind of anecdotally what you're hearing on retail to give us some signals would be great.

Sure, Dan. This is Andy. As it relates to weeks on hand and where we're at, we're at 18 to 20 weeks here at the end of Q2. We think there is going to be continued destocking in Q3 with a little bit of uplift back towards the end of the fourth quarter as we get towards kind of the next show season. So at this 18 to 20 weeks right now is kind of, we feel like we do expect to see a dip in Q3 again, but I think it should. Our expectation right now, based on our estimates, would be putting, coming back to this 18 to 20 weeks. So again, I think it can go lower. I think there is tremendous discipline in the marketplace today. Dealers are being very thoughtful, and the OEs are being extremely thoughtful as well to make sure that they keep these inventories in check. I think what we get more optimistic and excited about is when we do see an inflection point, the need to restock. Our view would be based on our analytics and numbers that we think 18 to 20 weeks is too low for a more normal, seasonalized impact. So from a weeks-on-hand perspective, again, I think we're kind of bouncing along the bottom from our perspective as it relates to kind of average weeks on hand. As it relates to retail numbers, we've seen kind of consistent trends, really throughout the year so far, a little bit more in May-June from the comps that we saw a year ago. But overall, nothing that's kind of spooked us at this point in time. And again, we're still estimating, we haven't changed our estimates from Q1 of being 10% down on the retail side. We just think that the weeks on hand is going to come down a little bit here again in Q3, as everybody's thoughtful and watching for the next inflection point.

Got it. Very helpful. Regarding Powersports, could you provide more details about the end market, particularly in terms of the utility sector compared to the consumer side? Additionally, how are you positioned to achieve content gains and outpace the market in both the short and long term? What does organic growth look like for you in this business? I know there are multiple questions here, but how are things trending in the near term and what does the long-term outlook look like?

Sure. As it relates to Powersports and Sportech is really supercharged. Our presence in this space today, we're seeing attachment rates go up. And so from an organic perspective, we're optimistic about what we see there, especially as it relates to the Sportech product solution, especially on the utility side, which is really where that's focused. And so while the rec side is seeing a lot of volatility, the utility side has been much more stable. Our backlogs are stable, and again as attachment rates are going up, the Sportech team has been a fabulous addition, to our portfolio of brands, both culturally and from an operational perspective. And we expect continued content gains with Sportech, not only for the short term, but for the longer term as well as they are extremely innovative, fits right in line with our advanced product group, which is out in advance of the current model year, looking out two and three model years to really partner with our customers. And so we continue to see upside potential with that business, as well as it being a strategic platform to continue to grow in that Powersports market. So feel really good about the Powersports space. We feel really good about the utility side that Sportech participates in. But as well, their tremendous innovation and automation, as well as really working with customers to be forward-looking in that space. So we're optimistic short term and long term.

All right. Very helpful. One more, I'll jump back in queue. MH, obviously a smaller piece of your business now overall, given you expanded in other areas, but it's been a nice pleasant surprise. Year-to-date shipments up close to 20%. Are you experiencing similar growth in that part of your business? And what are you hearing from customers about their production plans and outlook for the remainder of the year? I think you set up 5% to 10%. So curious if that implies a decline, softer growth in the back half or just being conservative, any thoughts there?

I think we're just being cautious as it relates to MH towards the back half of the year. We've been pleasantly surprised with MH production levels. We think inventories are in balance in the channel. We absolutely believe in the housing market and the long-term value there as it relates to certainly inventories in the space, especially on the single-family side. And so, MH has been very positive for us. Our team has done a great job, we're gaining content, we've got new products out there. So I feel good about MH and again I think 5% to 10%, just being cautious, looking out. I also think that as if we do see some interest rate inflection point similar to the outdoor enthusiast market, that we'll get some uptick, as well on the MH side. So nothing negative is what I would say and expected, continued positive results from our housing group.

Our next question is from the line of Mike Swartz with Truist Securities. Please proceed with your questions.

Good morning. I’d like to follow up on the Powersports side of the business, understanding that you're more focused on the utility aspect. Can you provide some insights? Andy, you mentioned that the acquisition is performing better than expected. Could you clarify what you mean by that? Are you referring to the top line, industry demand, margins, or integration? Any additional details would be appreciated.

Certainly, looking at Sportech, the developments have been positive. The team has shown a good cultural fit and alignment. We have explored synergy opportunities and introduced our brand portfolio to the Sportech team and vice versa. Customers in our outdoor enthusiast sectors have inquired about Sportech's capabilities. Overall, there's a positive atmosphere related to this space. The utility sector, where Sportech primarily operates, has shown resilience concerning cabin closures, and they have a comprehensive solutions model akin to what we are implementing in our other businesses. We have observed an increase in attachment rates, which is encouraging, and we are very excited about it. Additionally, there are strategic opportunities to leverage the capabilities and talent of the Sportech team to enhance our presence in the Powersports sector. Overall, everything has been very positive from multiple perspectives, including the operational and financial performance of the business meeting our expectations.

And I think you had previously mentioned, I may have missed this, but you had mentioned on the first quarter call that you anticipated about $400 million in annualized revenue in Powersports, your Powersports segment. Is that still the right way to think about it?

Yeah, Mike. This is Andy Roeder. Yeah, we're tracking to that number. So yeah, things are going well with that business and that's still what we're tracking towards.

Okay. Just to touch on the margin aspect, I understand you have some exposure to areas that are performing softer compared to the broader industry. My question is related to the content per unit. Can you provide insight into how much higher the content per unit is in the segments you focus on compared to the overall content pool? For example, is your content for ski and wake manufacturers 20% higher than that of the average boat manufacturer? I'm trying to get a clearer picture of this.

Yeah. This is Andy. Mike, without question, we believe there is continued runway in those areas where we're higher indexed towards as well, which we talk about, especially as it relates to ski and wake and pontoon. And one of the things, again that we're excited about is our advanced product group, which is bringing solutions to these markets and to these customers. And the breadth and depth of our portfolio really is showing itself today in the opportunities that exist from a solutions perspective across the spectrum. And so as it relates to kind of where we can go, we absolutely believe we can continue to grow content in those spaces that were heavily indexed and certainly in the spaces that were not as heavily indexed. So the runway is there. We really kind of target from an organic perspective, 2% to 3% annually. And we fully expect to achieve that, if not exceed that on an annual basis going forward in all of our markets, including marine, and also including those markets where we're heavily indexed.

Okay. And just one final one for me, just housekeeping, in terms of the 10% growth that was reported in the quarter, can you give us the breakout between industry, M&A, organic, please?

Yeah. Sure, Mike. This is Andy Roeder, again. Overall industry, we have down 2%, acquisition growth up 7%. And then organic growth up 5%. Of that organic growth breaks down with pricing down 2%, and share content up 7%.

The next question is from the line of Craig Kennison with Baird. Please proceed with your questions.

Yeah. Thanks. Good morning. Thanks for taking my question as well. And we've been concerned about this Powersports destock for a while, and I think you've correctly called that you're in a better position, given where you're exposed. But just curious, what signals you look for a slowdown in that utility category and whether you're seeing any sign at all that consumer might be more reluctant to spend?

We're not observing any signs of a slowdown at this time. We see solid backlogs and growth in our attachment rates, so we believe the outlook remains stable to positive regarding our expectations. The indicators we monitor are primarily focused on our backlog situation. We're consistently communicating with our customers to gauge their status, but we feel that inventories are balanced. Our market penetration has been robust, and we see exciting opportunities ahead with new products and innovations. Therefore, we do not detect any signs of weakening in this segment of the business, even if there is a slight pullback in utility, which we currently do not see. Moreover, attachment rates are continuing to rise, and we serve both the original equipment (OE) side and the aftermarket side, with the aftermarket side flowing through the OEs. Additionally, there is significant potential for upgrades on existing units currently in the market. We view Sportech within the utility sector and its ongoing ability to boost attachment rates in that area.

That's helpful, Andy. And maybe just a follow-up as it relates to Sportech, you seem very excited about that as a platform, a new platform in Powersports, you've also acquired Rockford Fosgate. I'm curious if you can help us understand how synergies develop from your acquisition. It's hard for us on the outside to see some of those internal developments related to synergies and what the platform can do as one. Maybe you can shed some light on that.

Sure. From the operational side of the business, a lot of the manufacturing processes that Sportech does today are existing processes and capabilities that we have across our spectrum as it relates to equipment, our understanding of best practices. And so there is a lot of linkage amongst the products that Sportech produces for us. And then when we think about bringing full solutions to the customer, Sportech already has a solution as it relates to the cabin closure, whether it's the doors, the windows, the tubing, the framing, but we've got electronics capabilities, we've got audio, we've got dash panel and wire harnesses. We've got technology that we can incorporate even further into a full solution that Sportech brings today to bring kind of a one-stop shop for our customers in that space and really again be able to be extremely innovative. So it's not just the manufacturing. Again, we do a lot of similar processes that Sportech already does, but their engineering, their look forward, their ability to be out in front, as it relates to innovation and in alignment with where we want to go. Just a tremendous amount of synergies and partnership. And again, and I don't want to understate the impact of the cultural fit with the team. It's just a fabulous group of leaders who are extremely motivated and energized and connected. And again they fit perfectly with our portfolio of companies.

And Craig, I would add that last week we were very excited to bring operational managers from all of our companies across the country into Elkhart to start collaborating and ensuring that all of our divisions understand the capacities and capabilities of our operations. This collaboration will help us grow relationships across all of our companies. If there are ways that some of the other operations teams can assist, it would be very beneficial to foster that collaboration, as that's where synergies can begin to develop behind the scenes.

That's great. Thank you. And quickly on 2025, I know it's early. I'm just wondering, as you plan for next year, what is your set of assumptions around demand and stocking levels in your end markets?

Sure. Craig, this is Andy. I think initially, and again, we're early in this phase. We've certainly done modeling under various scenarios, but we expect kind of 2025 again at this point in time to be up. And as we look at where inventory levels are at, we think there needs to be a restock. And if rates come down, it's going to certainly be more opportunistic for everybody in the space, at the retail level, at the dealer level, for everyone to be able to participate in that restock. So, it's early. We think it's going to be up in each of our markets next year. You can say mid-single-digit percentages if you want to low-double as a guess at this point an estimate. But certainly, the restock factor points to bigger numbers than that. So that's where we can get really optimistic at the inflection point. I don't know that we're ready to pinpoint that specifically yet, but that's where we get excited again as the restock plays, especially given the weeks on hand that we see today in our markets.

Our next question is from the line of Scott Stember with ROTH MKM. Please proceed with your questions.

Good morning, guys, and thanks for taking my questions.

Good morning.

Good morning.

You mentioned the OEMs, particularly on the recreational side, with RV and marine markets being more cautious in the latter half of the year. It seems that the rollout for model year '25 has been delayed. What are your expectations regarding orders from the OEMs, especially for RVs in the third quarter, and what trends are you observing in July?

So far, we've observed fairly stable production levels. I don't believe there have been any delays in the model year as you mentioned earlier. Everything has been consistent to this point. During this part of the year, we will experience some temporary shutdowns, perhaps a few days off here and there, especially around the Labor Day period, but nothing unexpected has arisen from our review of current production figures. We anticipate some fluctuations, but as Andy has noted several times, dealers are likely to reduce their inventory weeks on hand. Therefore, we expect some slower weeks occasionally. Overall, the daily production rates appear to remain steady.

Got it. And the 7% organic content that you talked about, very impressive. But going into next year, again we know it's early, but just trying to get a sense, I guess, over the next 12 months, where would you expect that content number to be, as far as on a growth perspective?

Yes, this is Andy. Generally, we're aiming for 2% to 3%, but we're particularly excited about the significant business we've secured that should materialize over the next 12 to 18 months. Our teams have been very proactive in engaging with customers. The volume of prototyping we're currently undertaking is higher than we've experienced in the last five years across both markets. We're observing a lot of innovation. While we've set our expectation for organic growth at 2% to 3%, I anticipate that we will surpass this over the next 12 to 18 months due to the penetration we've achieved, the innovation taking place, and the solutions marketing efforts we are implementing with our customers in the long term.

Hi. Thanks for taking my question. Just kind of piggybacking off of a question, I think a couple of questions ago, just around the volume expectations across end markets for next year. If you guys were to grow like mid-single digits to low double digits next year, how do you think about the margin opportunity relative to this year? I assume, and you may have mentioned this, but the vast majority of kind of like the margin guide tweaked down this year was the maybe $100 million of kind of incremental end market softness this year. So just trying to think through the leveragability of margins next year as volumes increase. Thanks.

Sure. This is Andy. I won't provide an exact number regarding the incremental margin factor, but I can say that we have positioned our businesses in each market according to the current run rates. When discussing the earnings potential of the organization today, we believe we have the capacity to scale back up without incurring significant fixed costs to support the volume levels in question. Therefore, we see strong upside margin potential, which is exciting for us in every market. We have adjusted our operating margins slightly, reducing our marine numbers from a wholesale perspective to align with consistent run rates for the remainder of the year. This segment is characterized by high-margin, highly engineered products with a substantial fixed cost base, making the leverage potential significant. We anticipate a potential mid-single to double-digit increase in volume across the board, which enhances our enthusiasm about our earnings potential. While I can't provide specific incremental numbers, we are very optimistic about our ability to scale up without adding substantial incremental fixed costs.

Thank you.

Thank you. I want to end the call today by once again thanking our dedicated employees for their contributions to Patrick, and their commitment to our Better Together culture, which helps drive our success each and every day. Their expertise and leadership allows us to deliver on our good, better, best value proposition, support our customers, and develop innovative, customer-focused solutions. We remain energized about the future of Patrick and will continue to grow through organic growth, innovation, and the pursuit of accretive acquisitions that complement our existing portfolio. We're focused on driving resilient results, maintaining our strong balance sheet, generating free cash flow, and maximizing returns to our shareholders. Thank you for your continued support.

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