Patrick Industries, Inc. (NASDAQ:PATK) Second Quarter 2022 Earnings Conference Call July 28, 2022 10:00 a. m. m. , Eastern Time
Participating companies
Julie Ann Kotowski – Director, IR
Andy Nemeth – Executive Director
Jeffrey Rodino – President
Jake Petkovitch – Chief Financial Officer
Conference Call Participants
Brett Andress – KeyBanc
Craig Kennison as Baird
Scott Stember – MKM Partners
Daniel Moore – CJS Values
Michael Swartz – Truist Values
Rafe Jadrosich – Bank of America
Operator
Good morning, gentlemen, and welcome to patrick Industries’ 2022 quarter earnings convention call. My call is Robert and I will be your operator for today’s call. Right now, all participants are in listen-only mode. -The response query will be limited to the official presentation. [Operator Instructions] Please note that this lecture is recorded.
I would now like to speak with your host, Ms. Julie Ann Kotowski of Investor Relations. You can get started.
julie ann kotowski
Good morning everyone and welcome to our call this morning. With me today are Andy Nemeth, CEO, Jeff Rodino, President; and Jake Petkovich, Chief Financial Officer. Certain statements made in today’s convention call regarding Patrick Industries and its operations would possibly be considered forward-looking statements under securities laws. There are a number of factors, many of which are beyond the company’s control. , which may also cause actual effects and occasions to differ materially from those described in the forward-looking statements.
These points are known 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 assume no legal responsibility to update those statements to reflect cases or occasions that occur after the date. about which forward-looking statements are made.
Now I would like to move to the ground to Andy Nemeth.
Andy Nemeth
Thank you, Julie Anne. Good morning, gentlemen, and thank you for joining us today. We are pleased to announce our effects for the quarter and the first part of 2022, which reflect a number of points that we will discuss. Most importantly, the determination and commitment of our team members to serve our clients is a greater overall culture and continued execution of our strategic and operational initiatives.
Over the past 24 months, we have noticed an increase in the appeal of outdoor recreational and lifestyle products. These meaningful and impactful quality of life opportunities prioritize quality time with family and friends and have ushered in significant build-up in the number of new recreational lifestyle participants seeking excitement and exploring the wonderful outdoors. In addition, families and Americans have discovered artistic opportunities to travel, paint remote environments, and report by using private recreational vehicles, boats, and motorsports. products
There are now more people than ever before across the country participating in the recreational lifestyle experience, indicating continued participation rates and long-term, forward-looking optimism of expansion in this space. As demand has outpaced the source over the same period, our industries have worked tirelessly to meet the massive demand created through this resurgence in addition to already strong demographic trends and positive outlooks.
While supply chain constraints and other demanding situations created by the pandemic have affected virtually any and all markets, we have felt motivated and encouraged through competitive pace, creativity and innovation across our markets to meet visitor demand and additional advertising lifestyle. Second The first quarter and first part of 2022 production rates in the recreational, marine and motorsports market, which account for 77% of our revenue, were strong, and RV OEMs continue to show their agility and ability to scale to meet strong demand from the broker’s trading channel.
In the virtual reality aspect of our business, which accounts for 57% of consolidated sales in the current quarter, wholesale production rates for the first part were annualized to more than 600,000 units. Estimated overall range, which Jeff will highlight, and that there will be disciplined and significant wholesale production decreases with virtually any and all OEMs, which we are already seeing and preparing for. at the time of the year to encourage alignment and balance with long-term retailer. Ultimately, VR OEMs continue to do an impressive job of adapting their models to help and adapt to retail demand and focusing and paying attention to make sure the balance in the brokers’ stock channel is evident.
Alternatively, in the maritime and motorsports aspect of our business, which accounts for 20% of our current quarterly revenue, brokerage stock shares are still sold out relative to the old and expected new standards, indicating a longer replenishment window and superior production titles that are expected to last through the remainder of 2022 and likely through 2023, until the brokers’ stock channels are properly replenished and arrears are reduced.
Our manufactured and commercial home markets, which are primarily residential-based and collectively account for approximately 23% of our current quarter consolidated revenue, continued to gain advantages from similar momentum, primarily the popularity and price tag of spending quality time with a circle of family and friends. frifinishs. Similar to the recreational way of life over the past 24 months, strong retail demand and limited stock levels have also prevailed in those markets, adding that MH’s affordability and quality pricing proposition would become even more apparent given the existing major assets and emerging interest rates. Our MH finishing market, which accounts for about 13% of our turnover, serves OEMs that run on healthy order books and ASPas in the MH area are hot compared to existing costs for on-site housing.
Finally, I would like to highlight our commercial market, which accounted for approximately 10% of our current quarterly revenue. Although single-family housing starts seem to be declining, there are still benefits from multifamily and DIY homes. family structure that lately shows no symptoms of weakness. To summarize and summarize, although production levels in the RV market are expected to decrease particularly compared to first-party rates, approximately 43% of our business, which is in the navy, Motorsport and housing markets are expected to be solid or even strong for the time being in 2022, highlighting our varied model.
We have invested heavily in automation, infrastructure and human capital projects during the same era to drive scalability as well. And this, in combination with our strategic market diversification projects and disciplined capital allocation strategy, deserve to help strengthen the margins of the former have an effect of such expansion on the VR market. Overall, consumers remain in a position of strength thanks to the resilience of employment. However, inflation and higher interest rates provide significant demanding situations for the consumer, and we are tracking those points closely.
And finally, move on to other numbers. Our current quarter earnings increased 45% to $1500 million, our year-to-date earnings increased 51% to $2800 million. And in 12 consecutive months, our consolidated profit exceeded $5 billion. Our net profit source for the current quarter was 98% higher at approximately $117 million or $4. 79 based on diluted percentage. And considering the effect of the accounting solution of our convertible notes, our percentage-adjusted earnings were $5. 20. So far this year, net profit source is 115% higher than $229 million or $9. 33 depending on the diluted percentage. Considering the effect of the accounting solution of our convertible notes, our diluted earnings adjusted for percentage were $10. 14.
Now I’ll pass the call on to Jeff.
Jeffrey Rhodine
Thank you, Andy, and good morning, everyone. As Andy said, we have higher revenues in all of our end markets, driven by sustainable power and performance gains, continued strength of OEM production levels, acquisition contribution, and market percentage gains.
In the current quarter of 2022, our RV revenue increased by $242 million or 41% to $837 million and accounted for 57% of our consolidated sales. new standard stock levels.
While wholesale shipments remained stable in the quarter, our unit-consistent VR content increased 34% on a TTM basis to $4,754 consistent with the unit, driven through the market consistent with percentage gains, acquisitions, and our investments in automation projects over the past 24 months. Consistency in production making plans has taken a step forward thanks to increased visibility, longer cycles, and our team’s artistic and specific ability to mitigate supply chain constraints.
Raw material costs remained strong during the quarter. However, this is starting to stabilize and we will continue to adjust prices in partnership with our OEMs as the changes occur. Shipments of retail units of recreational vehicles are estimated to have decreased approximately 29% in the quarter, totaling approximately 143,800 games. With the additional 8600 net sets added to brokers’ shares during the quarter, our estimates imply that TTM brokers’ shares available at the end of the current quarter are approximately 20 to 22 weeks, approximately two weeks longer than the 18 to 20 weeks compared to our estimates at the close of the first quarter of 2022.
We estimate that broker inventories have more, but are still below the old pre-COVID estimates in 2018 and 2019 for the current quarter of 22 to 26 weeks. Our marine revenue, which constitutes 20% of our overall consolidated sales, exceeds 74% in the quarter to $290 million, driven by acquisitions, market percentage gains and pricing. Wholesale marine unit shipments increased approximately 10% in the current quarter of 2022 compared to 2021 in retail unit shipments, which were estimated to be down approximately 16% to 18% basically due to stock availability.
Our estimated marine content, consistent with the wholesale unit, increased up to 66% on a TTM basis to $4699, consistent with the unit. Inventories of maritime intermediaries remain scarce. Our estimates imply that inventories of maritime intermediaries are approximately seven to nine weeks old compared to old averages of 35 to 40 weeks. Based on our estimates and channel verifications, we continue to estimate strong wholesale production for the remainder of 2022 and through 2023. We also expect our marine revenue to exceed one billion dollars in annual sales on a pro forma basis.
Our $200 million in manufactured home revenue in the quarter accounted for 13% of our total revenue, up 44% from the current quarter of 2021. Shipments of MH’s estimated wholesale units increased by as much as 14% in the quarter, and MH content consistent with the unit increased by as much as 22%. to $5,851 consistent with the unit. MH OEMs maintained a strong position in the current quarter with strong order books and also appear to be expanding capacity. Prefabricated homes remain a viable and cost-effective option for on-site housing construction.
Revenue came from our commercial market segment, which is rarely tied to single- and multi-family residential housing, which amounted to $148 million or 10% of our combined total sales in the quarter, up 24% from last year. Total housing starts for the current quarter of 2022 increased to 3%, with housing starts for unmarried families around 3% and multi-family housing starts around 20%. Rising interest rates are very likely to have an effect on residential housing; however, we believe that limited stocks and the need for multifamily housing remain strong in the existing hard work market.
Move away from end-market effects to move on to quarterly operational and strategic highlights. We remain able to produce more with less through effective workforce control and production functions adaptable to OEM needs. We have noticed how our ability to scale our production and leverage our scale to make certain raw curtains available has resulted in new and existing consumers recognizing our ability to leverage our diversified operating model. temporarily adapt to visitor demand. Over the past 18 months, we have deployed more than $100 million in capital for power, viaput and scalskill.
During the same period, our innovation projects continue to foster practices in our facilities, resulting in synergies and increased production capacity. These investments and projects have resulted in remarkable overall functionality of our team for our clients, which in turn has resulted in a market share. earnings. Some examples of our ability to evolve come with our metals group, which has demonstrated its expertise in creating and sourcing products that OEM consumers needed over the past few months, allowing us to pivot into spaces that our competition couldn’t.
In a volatile supply chain environment, our corporations that manufacture and distribute aluminum products have benefited from available capacity building and artistic inventory sourcing, which has led consumers to turn to our products. Our mobile organization has resulted in increased production. penetration and we have benefited from several additional automated processes, product availability and exceptional visitor service.
We are also excited about our latest primary automation expansion assignment with our printing plant, whose production began in June. The new apparatus and facilities include a multi-million dollar printing press that has tripled the output of our existing printers with fewer staff and can also produce vinyl and paper, allowing for this ordinary flexibility, scalability and transferability to drive a higher market share and production efficiency.
Our automation projects have decreased and will continue to decrease the direct costs of hard work and our human capital investments are frequently innovating in our product offerings, and those two key investment focus themes remain a critical driving force of our margin resilience. On the acquisitions front, this quarter, we continued to execute on our diversification and strategic investments in the marine area through the acquisition of Diamondback Towers, a Florida-based manufacturer of high-end [indistinguishable] ski tours and accessories, and skiing for marine OEMs. The acquisition and equipment of Diamondback helped strengthen Patrick’s position as a market leader in the design, manufacture and supply of ski and wake towers.
As we pointed out, our 4 end markets constitute a diversification that we will obtain margins of advantage. We plan to continue to reap the benefits of our strategic investments, product offerings and scalability, which puts us in a suitable position to adequately meet the needs of visitors. while creating long-term price and expansion for our business. These investments will give us greater flexibility as production levels rise and fall. Our company’s victories this quarter are the result of our team’s determination as we continue to try to be the first selection of responsive products for our visitors.
I will now give way to Jake, who will provide further feedback on our monetary performance.
jake petkovich
Thank you, Jeff, and good morning, everyone. For the current quarter of 2022, our consolidated net sales increased $456 million, or 45%, to $1. 5 billion, driven by biological and market-driven expansion and continued strong demand and order activity in our key end markets.
Gross margin in the current quarter 22. 2%, 220 more core issues than the prior year quarter, basically due to contributions from our acquisitions for fiscal years 2021 and 2022, a production realization and hard work efficiency, our automation initiatives, higher production volumes and successfully leveraging our constant prices in an emerging price environment, at the same time that we begin to see a slowdown in incoming freight prices.
Operating margin increased by 250 basis points, from 9. 3% in the current quarter of 2021 to 11. 8% in the current quarter of 2022. The source of operating income increased by 83% or approximately $79 million to $174 million. Operating margin has benefited from a hard increase in working power and optimization of our consistent pricing as we continue to align with customers’ production schedules.
Our warehouse delivery prices decreased through 40 basic issues as a percentage of sales, mainly due to our increasing use of generation that allows us to better coordinate deliveries of goods to our consumers and also take advantage of constant and safe garage prices. Our selling, general and administrative expenses increased through 20 core issues as a percentage of earnings for the current quarter of 2022, reflecting continued investments in infrastructure and the effect of acquisitions.
Net revenue stream increased 98% in the current quarter of 2022 compared to the current quarter of 2021, increasing from $58 million to $117 million or $4. 79 based on diluted percentage. Considering the effect of the accounting solution of our convertible notes in effect in 2022, our adjusted diluted net profit consistent with the consistent percentage was $5. 20. acquire accounting and $1. 9 million in conditional care changes for a combined after-tax relief of $4. 2 million in net source of income or $0. 17 consistent with the consistent diluted percentage.
Our overall effective tax rate was 26. 8% for the current quarter of 2022, up from 26. 9% last year. We expect our overall effective tax rate for 2022 to be around 25% to 26%. Inflationary pressures continue for customers and the macroeconomic situation The environment remains turbulent. While demand remained at the highest during the quarter’s peak, we are beginning to see the effects of emerging interest rates and increased macroeconomic uncertainty on the client and remain committed to a prudent speed of production consistent with customer-driven guidance. ask for signs.
As Andy mentioned, in the current quarter of 2020, we demonstrated prowess in our ability to maneuver in dubious conditions. Our variable load design allowed us then and allows us to remain agile and fluid in times of volatility. In addition to our diversification and development presence in the aftermarket, we will offer more coverage against possible headwinds.
In terms of cash flow, we generated approximately $97 million in operating cash flow for the current quarter of 2022, compared to approximately $28 million in the quarter of last year. This buildup is the result of increased profitability and a net source of revenue growth, partially offset through continued investments in operating capital during the quarter to better position our platform. As Jeff mentioned earlier, this allowed us to further assist our customers’ physically powerful production activity during the quarter and mitigate the global supply chain through 2021 and 2022.
Our stock levels are better than in the future due to supply chain constraints and extended lead times over the past 18 months, and to navigate, we have made strategic current capital decisions to ensure our ability to differentiate ourselves from our competitors. However, they are well placed from a stock to continue serving our consumers and gain market share, and we expect the monetization of running capital to materialize in the current part of 2022.
This quarter, we invested $26 million in capital expenditures, an increase of $14 million from the current quarter of 2021. As noted, our capital expenditures remain focused on operational power through investments in automation and generation improvements. Our focus on investment in automation and infrastructure will allow us to remain agile in the face of increased macroeconomic uncertainty in our key end markets. Combined with our highly variable charge structure, we are confident that our capital completion projects position us well to respond to any macroeconomic environment that materializes in the coming quarters.
Strategic investments and commercial acquisitions totaled $19 million in the current quarter of 2022. We acquired Diamondback Towers, a manufacturer of high-end ski tours and accessories for marine apparatus manufacturers, strengthening our marine presence. In addition, in the current quarter, we continued our percentage buyback business and repurchased approximately 288,600 percentages totaling approximately $17 million. In accordance with our dividend policy, we have returned $7 million to shareholders in the form of quarterly dividends.
At the end of the current quarter, we had approximately $346 million in total money, consisting of $77 million in money and $269 million in unused capacity in our revolving credit facility. Our overall net leverage ratio is 1. 9 times. Partly due to our liquidity profile, we are confident in our ability to navigate the macroeconomic environment, allowing for immediate changes to better meet the needs of our clients. This profile, together with our ability to monetize current capital at the moment, is part of the year, will allow us to continue executing our disciplined capital allocation strategy.
In our final RV market, we noticed an industry-wide replenishment of broker stocks at pre-pandemic levels. We are starting to see OEM production react accordingly. Lately we estimate that shipments of wholesale units of recreational vehicles for the year 2022 vary from 520,000 units, approximately 60% to 65% of unit production in the first part of the year, and lately we expect full-year retail shipments to decline, to double-digit average figures or around 19% to 22%.
In our maritime market, we expect wholesale ocean shipments to grow more or less in single digits and maritime retail sales to fall by double digits, basically limited by supply chain constraints. on the prefabricated house and industry side, we continue to expect wholesale HD shipments to grow to a double-digit high by 2022. Retail sales absorb in real time to sell wholesale production. In our commercial end market, which is primarily similar to residential housing, we expect new housing starts in 2022 to be solid or increase by a few digits.
That completes what I’m saying. We are now in a position to answer the questions.
Q&A session
Operator
At that time, we will organize a response session. [Operator Instructions] The first comes from Brett Andress with KeyBanc. Continue with your Array
Andres Brett
Hi, hey guys. So just by updating the shipping forecast from 500 to 520 RVs, obviously, a big drop in the back, but there’s still debate there, is that enough to get the right channel?And what is the point of accepting as true with in the industry that you can temporarily return to those points. So just another color, I guess, about how you see the back playing with what you’re seeing right now.
Jeffrey Rhodine
Yes, Brett is Jeff. That’s a smart question. And I can tell you that we see OEMs, we think we’re reacting accordingly, cutting days and weeks, moving to 3 days or four days a week in production, taking a week off here or there. So I think they’re watching this closely, and they go on to convey production levels and give us a pretty smart forecast of what they happen to be, so we can also react accordingly. But we think there’s definitely a tone that they sense what’s going on, they’re very aware of what’s going on and they’re pushing back their production levels to react to that.
Andres Brett
they gave it to me Okay. And then when we’re sitting here, I guess, thinking about the style of the back half, their business is quite different, maybe since the last time we saw a major role in VR expeditions. Think about the declining margins in that component of the business or maybe your total business, I guess, this time?Just any signs there.
jake petkovich
Yes, Bret. I’m Jake and I appreciate that question. Since we think a lot about where margins go for the rest of the year and think about making plans in the aspect of the portfolio of corporations that we have, you are detecting that, as Jeff discussed in his comments, 500 to 520 large recreational vehicles, 65 or more, 60% to 65% that weight in the first component of the year. We expect some tension in the current component of the year in this component of our business, which represents 57% of our revenue, at least from a final quarterly and annual outlook, on a uniform basis. But we think about the remaining 43% of our business, which has very smart tailwinds, whether it’s the maritime aspect or the MH and other homes similar to our business activities, provides us with a bit of dynamism there.
When I think about margins and the effect that comes out of that, in fact, on the VR side, we’re going to see an opposite absorption, so to speak, as we reduce production levels and take some of that ability out of the formula to adapt to what wholesalers are doing. so we hope they will continue that trend and be disciplined. But we continue to take charge of the other facets of our business. Once again, we see this dynamism of 23%.
When you think about the margins that we have, and you saw that we had another wonderful quarter of margins, which is consistent with the last quarter, where we went up a few hundred basic problems. And this quarter makes no difference from an overall perspective, we have a gross margin of more than 22%, a buildup of 220 core issues compared to the comparable quarter. The same things that generate this price are the same kind of things that will drive us in the current part of the year, and this is the result of all the innovations in automation and productivity, our ability to handle labor, which, of course, are either a very significant variable component of our load structure, than in materials, as we have said in the past. , about 70% of turnover.
But we’re thinking about that and productivity, acquisition, and as you’ve pointed out in previous conversations, we’ve weighed a lot on this strategic capital allocation for the maritime aspect of our business, which plays very well into how we think at the moment. part of it is going to play. We’re still thinking about this year and we think from an operating margin perspective, we’re going to be between 100 and 150 core issues since last year, and all of those points are going to resonate and lead to that good fortune for us this year.
Andres Brett
they gave it to me Thank you.
Operator
The following is from Craig Kennison with Baird. Continue with yourArray
craig kenison
Brett asked a lot of smart questions that he intended to ask. Maybe you’ll just turn to the housing aspect of your business. Perhaps it can only help us understand how interest rates are rising and that demand in this area is slowing. How does this commercial segment react to this type of environment compared to its recreational vehicle sector?
Andy Nemeth
Hi Craig. I’m Andy. Thank you. As for the housing component of our business, it is above all a complement to single-family and multi-family MH homes. So right now, we think the increases in interest rates are having an effect basically on the single-family aspect. We’re seeing resilience in the multifamily component of our business, and we also believe that the manufactured home aspect of the business will be more resilient to those interest rates as single-family home buyers migrate to a value level, and that’s where MH’s appeal really comes into play. That’s part of the cost of on-site housing. So, we think, again, we’re going to see a migration from the built single-family home site to MH. So we have a great complement of single-family, multi-family, MH housing and then also, we have DIY and retail through supermarkets.
craig kenison
Are you seeing assignment cancellations at a time when tariffs are turning and the economy is turning for builders?
Andy Nemeth
We are at this moment.
craig kenison
Super. Thank you.
Andy Nemeth
Ok thanks.
Operator
The following is from Scott Stember with MKM Partners. Continue with your parent company
Scott Stember
Hi, guys.
Andy Nemeth
Hi Scott.
Scott Stember
Could you tell us about the production speed that exists on the VR side, I guess, since last year?
Andy Nemeth
Yes, Scott. I’m Andy. So, thinking about it and if you think about it, if you do any calculation with our numbers, what we’re seeing right now for part-time, which started in June/July, is that we think the two brands in the VR industry are going from five days a week to four days with probably and potentially a week off included in most cases. to 65% of shipments in the first part, that equates to a drop of about 35% to 45% in the current part of production rates, which deserve to keep things normalized from our point of view to a week available that is in this new normal.
And I also think, anecdotally, if you think about the last time the RV industry recalibrated in 2018, 2019, before the pandemic. Inventory grades are now based on our calculations and estimates, right where stocks recalibrated to a sweet spot, so I feel like it’s in balance. We have the impression that brands are doing the right thing. Surely they are aggressively adjusting their production rates to align with retail. And this all fits together pretty well. But we think it will be a smoother rear in the lineup, however, we think inventories are calibrated.
Scott Stember
And going back to the manufactured houses, I guess he alluded in his comments to the fact that demand absorbs everything that is sent to distributors right now. Maybe you can communicate what you’re seeing in retail right now and how it’s going. the total for the year?
Jeffrey Rhodine
Yes. We see it again. It’s still a pretty strong year. I think the delays, as they are today with the brands we talked to, give the impression that they will take them out for the rest of the year. As Andy had mentioned, some of those interest rates will potentially push some of the single-family home buyers into the MH market. So let’s see some of that. But we feel encouraged enough by what they are doing in the housing aspect with their talents and what they are doing there. So for the rest of the year, it looks pretty solid.
Scott Stember
It is ok. And finally, in the secondary market. It turns out there are many in marine and motorized sports. Is this higher in terms of the percentage of the entire company in the last two quarters?And just communicate how you expect this component of the business to perform particularly well in a recession environment?
jake petkovich
So, pretty consistent with some of our comments in the past, that’s around $250 million to $300 million in annual activity for us and it keeps growing. A lot of that leans towards the maritime aspect of our business which, as you know, accounted for about 20% of our business in the last quarter. One thing to think about, the start of the sailing season has been a bit slow. Some of the northern climates had rainy, bloodless weather that made them come out a little slower.
Therefore, it will be mandatory to increase a little more the rest of the summer and autumn. But we still expect to see something that stays at the speed of what we would expect, similar to R-type spending.
But again, when you think about the marine side, there’s smart buoyancy and favorable winds in this business, and we expect that to happen in 2023 before you even replenish. So, it’s encouraging that there’s a pretty significant boat park out there. And there’s also a little bit of aging that allows those other people to faint and handle spare expenses for some kind of R.
Scott Stember
they gave it to me That’s all I have. Thank you.
Operator
The following is by Daniel Moore of CJS Securities. Continue with yourArray
dan moore
Thank you and hello, Andy, Jeff and Jake. Thank you for all the color. The first is a crystal ball problem. where do you see it stabilizing?And then I have a quick follow-up. Thank you.
Andy Nemeth
Of course, Dan. Es Andy. I think when we take a look at RV retail right now, we think it will shrink to double digits year-round at a diversity of $4. 40 to $4. 60, if you need to compare it to an annualized number. . And again, I think we’ll see it in double digits. I think we see a wholesale rating in that number. And I think, from our point of view, we’re going to see where everything goes here with the economy. Situations and headwinds that are there. But there is still a lot of traffic on the dealership grounds.
Customers arrive in a position to buy. Traffic has decreased a bit, but there are: the resilience of the visitor who is in a position to buy at that time, that point of sale is still resilient. Therefore, we are optimistic. We think things are going well, but in fact we are tracking them and we are prepared for them. And calibration inventories are really, again, what we have smart confidence in.
dan moore
And then, when we think a little more, updating the operating margin orientation, it’s a big help. Does this point, when we think about it for exercise, mean for the moment a part of the year?Is this a point that is sustainable in your opinion as we move to [indistinguishable] and beyond?
jake petkovich
Hello, Dan. I’m Jacques. Us. As I mentioned, we’re thinking a lot about where the innovations came in here in our gross margin line and how that is reflected in our revenue statement source. Last quarter and this quarter, we are finding that the sustainable productivity-related improvement is greater with work, greater with all of our power gains, as well as our investments in the business, either organically and strategically to generate that sustainable advantage, and we will be waiting for it to resonate in the future. Now, as I mentioned, in the current part of this year, in the VR aspect of our business, we’re going to see some of that opposite absorption, because some of the constant prices are coming back. , although we have a very variable charge structure, and we hope to release many of the levers of some to make sure we can maintain the margins of some.
Andy Nemeth
Dan, I’m Andy. Just a little bit of added color. When you think about the part of the year where the RV industry is shrinking on the wholesale side, when we take a look at our operating margins, as we’ve communicated, we feel, once again, that there’s sustainability out there. We think you’ll see a small harvester replacement, so we like to talk about operating margins. Our gross margins will remain resilient given the margin profile of 43% of our business, not VR. We expect to see more operating expenses, however, net-net is an accumulation in operating margin. And so we’d like to communicate about operating margins, but we’re going to see a little bit of combining replace in. But overall, again, I think the resilience of operating margins, and we’re optimistic, will be evident as we move into the third and fourth quarters with 43% of our non-RV business.
dan moore
Perfect. Last for me. CapEx alone deserves to be still around $100 million. And then, obviously, if you start freeing up current capital, your money will be significant for the next few quarters, more or less expectations of speed of mergers and acquisitions, as well as purchases, given that EBITDA will likely decline at least over the next few quarters.
jake petkovich
So when it comes to CapEx, we’ve been at around $44 million since the beginning of the year, and we’re still thinking about $90 million to $100 million for the year. Again, we continue to think about how to invest in this infrastructure to continue to generate those productivity and power gains that are, in fact, reflected in our gross and operating margins right now. We continue to think about the balanced allocation of capital as we have historically done. We have been active with percentage buybacks. I think we’re at $41 million since the beginning of the year for about 654,000 stocks, I think the average value and we’re going to have more in the tail above the ’60s.
As for dividends, of course, it’s scheduled, from $7 million to $7. 5 million consistent with the quarter. But we believe that cash flow generation is actually what we expect completely, as we discussed in the opening remarks about how we can lose some of this current capital accumulation that we had for very significant scale and mitigation rather than the on-chain supply, which has demonstrated through our actions over the past two quarters, all the expectations to decrease this and put ourselves in a position where we can be very agile and remain very opportunistic while thinking about the biological and strategic tools of the company.
dan moore
Very well. Thanks for the color.
jake petkovich
thanks
Operator
The following is by Mike Swartz of Truist Securities. Continue with yourArray
michel swartz
Hi, hey guys. I just looked to stick to margin issues and more particularly gross margin. Maybe just look at it from another point of view. Can we characterize mergers and acquisitions rather than automation, some of the power benefits you’re talking about are more structural compared to things that may happen differently in front of you in the coming quarters?Just a way to get Rid of it.
jake petkovich
Thank you, Mike. I’m Jake again. When it comes to this margin, it’s nothing more than what we talked about last quarter. We are approximately between 50 basic problems and 75 basic problems of this margin that continues to increase specialized products, either through the employment of our innovation groups and doing a greater task and providing new products and introducing new products organically or through our procurement business, which, again, focused on the marine, which sometimes has a higher gross margin profile. So, like I said, that’s about 50 base problems to 75 base problems. And the maximum of that, I would say, a hundred to 125 is driven through power gains. We are able to disintermediate some of the pressures of hard work, which we can do very well now, either through automation, but also by normalizing in the VR context in the coming months.
Hardware still has a bit of a headwind, that’s called under pressure, about 50 core issues this quarter. And cargo: incoming cargo, not as much of a headwind as last quarter, it’s starting a little bit, still there’s still a little bit of tension there. And then the most that’s left in that margin, there’s actually a little bit of absorption in our overhead in some of our SG categories.
michel swartz
It is ok. It helps. And just as we look at the reported 45% increase, could it help us perceive how much of that was mergers and acquisitions in the quarter?And then, from organic, what percentage would come from prices, what percentage would come from market percentage gains, and volume expansion?
jake petkovich
So when I think about the composition of that, call it, 45% quarter-over-quarter increase, about 10%, we’re up 10% in acquisition activity, so the contribution of acquisitions to our profit line. About 4% of that’s the only industry boost and tailwind in more sets and higher production levels than, as you know, on a monthly basis to fall a bit in the first part of the year. We are thinking about biological increases and value increases. Therefore, we increased the values by about 20%.
And as Andy and Jeff discussed in their comments, it’s starting to flatten out a bit as we start to see the origin strings unlock a little bit. Certainly, some pressures manifest themselves in particular with resins and some other of our inputs. But in many cases, we expect the time of year portion to stabilize. So maybe there isn’t as much pricing activity there, which leaves us with around 11% as organic, either simply, and in many cases we’re participating, as Jeff discussed, with some of his vignettes in his ready comments, similar to ours, not just with the current capital investments we had, to supply our consumers when others simply don’t, but also our ability to get there temporarily and on time with higher quality products.
michel swartz
It is ok. It’s useful. Just one last quick query about: I apologize if I missed this, however, I think on your previous call, you had projected around $450 million, and I think it was money for the whole year. Is it still the bogey?
jake petkovich
We think it’s probably more than the $350 million, $400 million range, as we think about how temporarily we’re going to get through this stock monetization in the context of probably a little more stock investment than what’s going on in the other 43% of our company as strong production activity continues. So monetization, we expect it to take place on the VR side, but we’re still waiting to be able to make sure we’re that provider of choice, to have the product that other people want to continue to drive the maritime, MH, and commercial businesses that we have.
michel swartz
It is ok. Perfect. Thank you so much.
Operator
[Operator Instructions] The next one comes from Rafe Jadrosich’s line with Bank of America. Continue with yourArray
Rafe Jadrositch
Hello. Hello. Rafe speaks. Thank you for answering my question. Can you tell us a little about your inventory, what is the percentage of the volume value?
jake petkovich
Yes, Rafe, I would say it probably largely follows the way we think about the biological component of our growth, which is quite a lot — if you mix biological and value, and we think about that outside of industry and procurement, it’s about 30%. Therefore, the accumulation of about 20% in inventories is similar to pricing activity. Always in volume too. But undoubtedly, from the point of view of popular costs, the value of aluminum, the value of resin, the value of fiberglass, etc. , have contributed to inflate this figure.
So if you take a look at our shifts, and we think about it a lot in the context of the pricing business and our ability to monetize, we’re in a smart position with our 30 to forty-five days of stock that puts us in such a position that we don’t get too bogged down if there are dramatic jumps to the negative; however, from a commodity value perspective, we do not expect an impairment, but a flattening and leveling of commodity values in the current part of this year.
Rafe Jadrositch
It is ok. Who helps. And then, just in your COGS, can you just update some kind of parts?I guess that’s been replaced in recent years. But how much do raw materials, hard work, and overhead cost?
jake petkovich
When you think about. . . I’ll give you more as a percentage of the revenue, Rafe. And I would tell you that. . . obviously, the maximum variable elements of that are fabrics and hard work and those that are about 68% to 72% of our income. Of course, there’s a constant component and a variable component in overhead, which rounds up what you see there to the gross profit line we achieved at 22. 2% this quarter. And then there are elements of another constant variable combinations at the maximum of our total under the gross margin that we have, the ability to actively manage as we continue to move forward in the current part of this year.
Rafe Jadrositch
And then, what do you see in terms of hard work, inflation burden with brands cutting days?How did you start to see relief there?
Jeffrey Rhodine
We haven’t noticed, I think it’s flattening on the side of the paintings. We don’t have that tension that we’ve had, that we’ve had for the last 18 months with the strength of paintings. So with the days off and a kind of relief in the hard work of the contract over time, we find that it’s being trimmed and doesn’t have as much upward tension as in the past.
jake petkovich
To add a little bit to that, as we mentioned, the component of this sustainable improvement in our gross margin, which lately suits the categories that our direct workforce enters, is actually the benefit of automation spending, which has helped, as Jeff mentioned, to eliminate much of the transient workforce, as you can understand, it’s a highly appreciated component of the paint hotline and we’re thinking about the non-stop RV industry component the size of a passod at the moment. this year, the ability to look back over time and think about how we can take care of it. But from an absolute dollar consistent with an hour consistent with the outlook, it started airing again, yet those high-cost securities are cutting back and helping us manage our – and maintain that gross margin merit, and then take credit for that automation to keep us in a position where we can be as efficient as possible.
Rafe Jadrositch
It is ok. And only on your – If I missed this, still on the convertible ticket of your adulthood in 2023. I know you have a lot of money and you’re going to make money. But more or less, what is the plan in terms of adulthood?, what are you going to refinance or just pay?Do you have any kind of feasibility in that?
jake petkovich
Yes, Rafe. De new one, it’s Jake. So we think it will take place in February 2023. As you mentioned, we have maintained very significant liquidity and plan to generate even more as we go out. I would tell you to take a look at the debt capital markets right now, they’re a little dislocated, and either in the bond market, where we have. we have the right credit. We are less than 2 times in debt, but our bond industry particularly with the rest of the market. It’s to the markets a little locked up with all those [indistinguishable] ones that’s there.
And the convertible market is a bit catty Walter (ph), this hybrid between stocks and debt. So we take a look at that and say it doesn’t make sense right now to block any kind of transaction. So we keep that liquidity for our revolving credits and our money on the margin completely to achieve that and we have all the arrows in our quiver and we’re going to use the most productive one. But if you ask me how I’m buying it right now, I would eliminate it with a quick money revolving facility and refinance it at a point of debt advantageous to us.
Rafe Jadrositch
they gave it to me So it will count on the prices of the loans as we get closer to that term, that’s a lot. . .
jake petkovich
To be very clear, think about the bond market as it trades, I’m not going to. . . we are a great credit. I’m not going to block an 8-9% debt just because I want to convert 1%. when you have a very favorable banking organization with some of the most productive banks in the country supporting us. Therefore, we will be able to be agile and flexible in our approach, while keeping the liquidity layers good enough that we want to execute. our business and be opportunistic.
Rafe Jadrositch
It is ok. It makes a lot of sense. Thank you.
Operator
Thank you, and Messieurs. Je will give the floor to Andy for the final comments.
Andy Nemeth
The creativity, ingenuity, cooperation, sacrifice and hard work that our team members have demonstrated this quarter and over the next two years are very consistent in Patrick. Our team members have positioned us to succeed, either offensively and defensively, as we explore new opportunities together to serve our consumers and finish markets. Their dedication, coupled with our company’s strong resource offering, has resulted in a quarter of the market’s profit percentage and strengthened our existing relationships.
We will continue to invest in our platform and look forward to seeing operational innovations that are in place this year. We are aware of the market adjustments we have noticed amid inflation and emerging interest rates and are in a position to deal with them. However, our portfolio focuses on balance, as our scalability and strategic diversification allow us to monitor the ebb and flow of our 4 end markets with the certainty that the overall state of our business is not only sustainable, but also strong.
Thank you to the members and partners of our Patrick team who are so important to Patrick’s successes, existing victories and the key to our future.
Operator
Thank you, gentlemen. This concludes today’s teleconference. Thank you for participating. You can now log out.