Patrick Industries Inc

NASDAQ:PATK

Q3-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen, and welcome to Patrick Industries Third Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded.

And I'll now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may begin.

[Steve O’Hara, executive]

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; 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 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, 2024, and the company's other filings with the Securities and Exchange Commission.

I would now like to turn the call over to Andy Nemeth.

[Andy L. Nemeth, executive]

Thank you, Steve. Good morning, everyone. We appreciate you joining us on the call today. We delivered solid third quarter performance, demonstrating the resilience of our business in a dynamic and unique environment. Net sales for the quarter increased 6% to $976 million, with organic growth contributing more than 4% and offsetting an almost 2% decline in our industry shipment levels. Earnings per diluted share was $1.01, including approximately $0.07 of dilution from our convertible notes and related warrants.

On a trailing 12-month basis, net sales were approximately $3.9 billion. Our results reflect both the strength of our diversified business model, solid organic growth as a result of our team's innovation and advanced product efforts and their incredible execution as we continue to navigate dynamic demand levels across our end markets and challenges facing the broader economy.

Our OEM and dealer partners continue to exhibit disciplined production, leaving inventory even leaner across all of our Outdoor Enthusiast markets and positioning us positively for a potential restock when retail inflects. We remain well equipped to capture meaningful upside when that inflection occurs, both strategically and organically.

We ended the quarter with a strong balance sheet and total net liquidity of $779 million. Our financial position enables us to remain flexible and nimble in supporting our customers' growth needs with a variety of levers while continuing to execute a balanced capital allocation strategy. We expect to continue our investments in the aftermarket and new product development, both through heavy emphasis on model year prototyping and in combination with our Advanced Product Group, which is focused on product development several model years out.

Additionally, and importantly, we are continuing to invest in digital tools, data analytics and AI-powered solutions across our business to drive greater efficiency, accelerate decision-making, reduce costs and unlock new value for our customers. We continue to be proactive in strengthening the Patrick platform through strategic initiatives like the acquisitions of LilliPad Marine, Medallion Instrumentation Systems and Elkhart Composites, as well as the modernization of our processes, technology and equipment and optimizing our aftermarket resources to create new opportunities for our brands. These investments are expected to continue to contribute to our share gains across our end markets.

Building on strong revenue execution across our primary end markets, we continue to make meaningful progress in expanding our content per unit, or CPU, through a combination of innovation, collaboration and targeted investment. Our teams are working closely with OEM partners to integrate new products and technologies that elevate the functionality, design and consumer appeal of products like RVs, boats and side-by-sides.

In the third quarter, we achieved content gains across all of our Outdoor Enthusiast markets and our MH market, reflecting both our expanding product portfolio and the growing adoption of our integrated full solutions platforms. These content gains underscore the power of our diversified model and validate the continued demand for Patrick's high-valued, individualized and differentiated solutions that enhance performance, efficiency and aesthetics across every category we serve.

Subsequent to quarter end, our Marine brands had a successful and prominent showing at IBEX, the marine industry supplier show. Our increased presence unveiled the scale of Patrick's platform while reinforcing our commitment to a brand-forward approach and showcasing our innovative product lineup, fully demonstrating the depth and breadth of Patrick's solutions.

At the show, guests had the opportunity to explore our Full Solutions Experience Boat, allowing them to engage with numerous Patrick products, including Medallion's touchscreen displays, Wet Sounds speakers, BHE harnesses and wiring, LilliPad ladders, SeaDek flooring and lighted cup holders, XT carbon tops and TACO seating. I also want to congratulate the team at TACO on their IBEX Innovation Award for their Altura Luxury Helm Seat, a new flagship helm chair with a patented stainless steel frame concealed inside a teak ladderback.

Additionally, I'm proud to share that our former President of Marine, Rick Reyenger, was inducted to the NMMA Hall of Fame. With more than 40 years of leadership in the recreational boating industry, Rick has influenced many generations of colleagues and competitors alike.

Finally, I want to again recognize the remarkable efforts of the Patrick team. Their commitment, adaptability and focus on serving our customers has been extraordinary during these dynamic times and continues to drive brand-funded partnership model with our customers. Beyond cyclical dynamics, we expect to drive continued strategic growth through M&A, aftermarket expansion, innovative product development and our diversified portfolio. Our solid balance sheet and solutions-driven strategy keep us well positioned for sustainable long-term profitable growth.

I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.

[Jeffrey Rodino, executive]

Thanks, Andy, and good morning, everyone. Looking closer at our end markets, third quarter RV revenue increased 7% to $426 million versus the same period in 2024, representing 44% of consolidated revenue. Our RV content per unit on a TTM basis was $5,055, an increase of 3% from the same period last year. On a quarterly basis, CPU increased 8% sequentially compared to the second quarter of 2025 and increased 9% year-over-year.

The improvement in the revenue and CPU in the third quarter was driven by our commitment to working with and supporting our customers with model year innovations as they refine and upgrade their products, coupled with recent acquisitions. We estimate RV retail unit shipments were approximately 100,100, and according to RVIA, wholesale unit shipments were approximately 76,500 in the third quarter.

This implies a seasonal dealer inventory destock of approximately 23,600 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 14 to 16 weeks. This is down from 19 to 21 weeks in the second quarter of 2025 and reflecting continued OEM wholesale production discipline. This remains well below pre-pandemic historical averages of 26 to 30 weeks, and we further believe the number of discrete units in the field is well below levels seen during the pre-pandemic period.

Over the last year, we revealed a long-term strategy related to composite solutions. This highlights our efforts to seize emerging market opportunities through both acquisition and innovation. After several years of early-stage development and prototyping, we recently unified our composite solutions under the Alpha Composites brand name. Alpha Systems is a Patrick brand that is synonymous with high-level customer service, providing innovative solutions to RV and MH industries.

The team at Alpha Composites will continue to build on the foundation through continued collaboration with our OEM partners. We believe our unified branding approach and dedicated resources will further enhance our competitive position as a leading composite solution provider and an innovator in a market where weight, durability, overall cost and sustainability matters to our customers.

Our third quarter Marine revenues increased 11% to $150 million, outperforming what we estimate were flat wholesale powerboat unit shipments. Our estimated Marine content per wholesale powerboat unit on a TTM basis was $4,091, an increase of 4% from the same period last year. Estimated content per unit on a quarterly basis was up 15% sequentially compared to the second quarter of 2025 and increased 10% year-over-year. We estimate Marine retail and wholesale powerboat unit shipments were 42,700 and 32,300 units, respectively, in the third quarter, implying a seasonal dealer field inventory destock of approximately 10,400 units.

Dealer inventory in the field remains lean at an estimated 16 to 18 weeks on hand, down from 20 to 22 weeks in the second quarter of 2025, and 19 to 21 weeks on hand last year at this time, remaining well below historical pre-pandemic averages of 36 to 40 weeks. Like RV, we believe the discrete number of units in the field remains well below pre-pandemic levels.

Our broad Marine portfolio and design expertise position us as a key partner to new entrants and our existing base of valued customers alike. New entrants in the pontoon space have begun to leverage the breadth of our offerings and customer services early in their processes. Additionally, related to Andy's mention regarding IBEX, we've identified opportunities in the Marine market related to composites and are now offering a full composite deck solution, including composite flooring, woven fabric and the adhesive that brings it all together, enhancing the strength, sustainability and ease of installation for our customers.

During the quarter, we completed the acquisition of LilliPad Marine, a Traverse City, Michigan-based designer and seller of premium innovative boat ladders, diving board systems and other Marine accessories. LilliPad delivers their award-winning and patented products through both OEM and aftermarket channels, deepening our lineup of innovative solutions in the Marine space.

Our Powersports revenue increased 12% to $98 million in the quarter versus the prior year period, representing 10% of third quarter 2025 consolidated sales. Our revenues improved across all Powersports businesses, including those that serve recreation and audio markets, coupled with continued growth in attachment rates for Sportech's products. Entering the fourth quarter, we believe the OEMs and dealers will continue to carefully monitor and manage inventory in the channel despite some positive retail signals in recent months.

Recently, our Rockford Fosgate brand launched a new 2024+ HD aftermarket solution at Sturgis. This kit includes Rockford's first aftermarket motorcycle amplifier with a built-in A2B digital interface. Not only is this a Rockford first, it is an industry first. This digital amplifier pairs with Rockford's newly launched speakers to create a premium plug-and-play solution for newer Harley motorcycles.

Finally, on Powersports. As we have discussed on a number of calls, the utility segment of the Powersports market has shown much better resilience than the recreation market, leading to improving attachment rates with existing customers. We have begun to see an increasing interest in adding HVAC and other creature comforts from some of the traditional legacy Powersports OEMs, which should lead to a broader base of demand for enclosures, which Sportech provides.

On the Housing side of the business, our third quarter revenues were up 1% to $302 million, representing 31% of consolidated sales. In Manufactured Housing, which represented approximately 58% of our Housing revenue in the quarter, our estimated content per unit on a TTM basis increased 2% year-over-year to $6,682. We estimate MH wholesale unit shipments and total Housing starts both decreased 2% in the quarter.

As evidenced by our solid manufactured housing content per unit performance in the face of lower industry wholesale unit shipments, our team continues to perform with strong customer relationships and our ability to align and scale quickly to demand while maintaining a lean fixed cost structure. Despite recent softness in MH shipments, we continue to believe there is a lack of affordable housing options in the United States, and we believe our solutions can help both MH and site-built housing industries provide quality, cost-effective homes efficiently. We believe lower interest rates and improved customer confidence remain pivotal to unlocking pent-up demand.

I'll now turn the call over to Andy Roeder, who will provide additional comments on our financial performance.

[Andrew Roeder, executive]

Thanks, Jeff, and good morning, everyone. Consolidated net sales for the quarter increased 6% to $976 million. Our team drove increased revenues in both our Outdoor Enthusiasts and Housing end markets, including a 7% increase in RV revenues, an 11% increase in Marine revenues, a 12% increase in Powersports revenues and a 1% increase in Housing revenues. As Jeff noted, we generated solid content gains across our end markets during the quarter. Our total revenue growth of 6% was comprised of 4% acquisition growth, 4% organic growth and negative 2% industry. Gross margin was 22.6% versus 23.1% in the third quarter of last year. The decline reflected items, including short-term inefficiencies related to the model year changeover.

Operating margin was 6.8% compared to the prior year at 8.1%. This change was driven by the previously described factors. Our overall effective tax rate was 26.2% for the third quarter compared to 24.8% in the prior year. Net income was $35 million or $1.01 per diluted share compared to net income of $41 million in the prior year quarter. Our diluted EPS for the third quarter of 2025 included approximately $0.07 in additional accounting-related dilution as a result of the increase in our stock price above the convertible option strike price for our 2028 convertible notes and related warrants. The prior year's diluted EPS included just $0.04 per share.

Adjusted EBITDA was $112 million compared to $121 million, while adjusted EBITDA margin was 11.5%, lower by 170 basis points from the third quarter of 2024. Cash provided by operations for the first 9 months of 2025 was $199 million compared to $224 million in the prior year period. Purchases of property, plant and equipment were $26 million in the quarter and $65 million year-to-date. This implies free cash flow of approximately $134 million for the first 9 months of 2025.

Total net liquidity at the end of the third quarter was $779 million, comprised of $21 million of cash on hand and unused capacity on our revolving credit facility of $758 million. As a reminder, we have no major debt maturities until 2028 and continue to have the financial strength and capital necessary to capture long-term organic and inorganic growth opportunities. At the end of the third quarter, our net leverage was 2.8x. In the third quarter, we returned approximately $13 million to shareholders through quarterly dividends.

Regarding our share buyback, we remain opportunistic, having repurchased approximately 377,600 shares year-to-date through the third quarter for a total of $32 million, leaving approximately $168 million left on our repurchase authorization.

Regarding tariffs, our strategy remains unchanged and our teams are actively working with supply chain partners to minimize the potential impact. This remains a dynamic landscape, and we will continue to utilize all of our tools that we believe will help neutralize the absolute impact to our pricing pass-throughs and ultimately mitigate any material impact to our operating margin.

I'll now move to our outlook. We estimate RV retail unit shipments will be down low single digits in 2025 with estimated full year RV industry wholesale unit shipments between the range of 335,000 to 345,000 units and continue to anchor on equivalent dealer inventory weeks on hand year-over-year. In Marine, we estimate retail shipments will be down high single digits and estimate wholesale shipments will decline low single digits, again, with dealer inventory weeks on hand year-over-year remaining approximately the same.

In our Powersports end market, we now estimate that wholesale industry shipments will be down high single digits and our organic content will be up high single digits, offsetting the industry decline as our content continues to grow given ongoing increasing attachment rates for our cab enclosures. In our Housing market, we estimate MH wholesale unit shipments will be up low- to mid-single digits for 2025. On the residential housing side of the market, we estimate 2025 total new site-built housing starts will be down mid- to high-single digits year-over-year.

Moving to our financial outlook. We expect our full year 2025 adjusted operating margin to be approximately 7%. We continue to estimate that our effective tax rate will be approximately 24% to 25% for 2025, implying a quarterly effective tax rate of approximately 26% for the fourth quarter. We estimate operating cash flow will be between $330 million to $350 million, and we estimate capital expenditures will total $75 million to $85 million as we continue to reinvest in the business, focusing on automation and innovation initiatives. This implies free cash flow of at least $245 million.

For modeling purposes, we'd like to give our initial thoughts regarding 2026 based on where we sit today. We expect RV wholesale shipments to increase low- to mid-single digits and RV retail to be flat. For Marine, we expect wholesale shipments to be up low-single digits and retail to be flat. In Powersports, we expect low-single digit shipment growth and low-single digit organic content growth. For MH and Housing starts, we expect both to be flat to up 5%. We believe improved consumer confidence and lower interest rates are key factors necessary for our end markets to rebound more aggressively.

Based on these estimates, we expect our operating margin in 2026 to improve meaningfully, an estimated 70 to 90 basis points.

That completes my remarks. We are now ready for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Scott Stember with ROTH Capital.

[Scott Stember, analyst]

A lot has been made of some of the increased optimism coming out of Open House. What are you currently seeing from your OEM customers regarding production? What are they telegraphing as far as their desire to start ramping up production to potentially put more units into the field?

[Jeffrey Rodino, executive]

Yes, Scott, this is Jeff. As I look at our production numbers or production numbers from the OEMs, we are seeing -- we saw a little bit of a slight increase in October. We're seeing a little bit more of an increase in November. So we do feel like just the pure production numbers would tell us that there is some ramping up to what degree that will be consistent through into the first quarter. But right now, we're seeing a little of that.

As I look forward, after this week, we really only have 6 more weeks of production in 2025 with a week off for Thanksgiving. There is some production in Thanksgiving, and then we'll take 2 weeks off for Christmas. So I think early indications are, if I look year-over-year, we're seeing some increases in the back half of the fourth quarter.

[Scott Stember, analyst]

Got it. And then moving over to the aftermarket. I know you guys have been doing a lot of cross-pollination with RecPro. Can you give us an update of new SKUs or just -- is that accelerating? Just give us an idea of what's going on.

[Jeffrey Rodino, executive]

Yes, Scott, this is Jeff again. On the RecPro side, we've had several hundred SKUs that have carried over from other Patrick divisions into RecPro this year so far. We'll be close to 400 or 500 when it's all said and done since the inception of the acquisition. We are looking to accelerate that a little bit. We've really got them entrenched with our Marine side now and all of our Marine divisions to really start to grow that portfolio within the RecPro side. So really excited. We've put a little bit more capacity in that area to help accelerate that. So we're excited about what we've seen so far and what we're going to see going forward.

[Andy L. Nemeth, executive]

One of the other things -- Scott, this is Andy -- is that we just formally launched our aftermarket strategy, which includes a combination of not only direct-to-consumer but direct to dealer and third-party distribution. So we've rolled out a formal strategy. We're implementing structure to really kind of formally launch kind of an overall vision for where we want to take the aftermarket in alignment with our RecPro platform on the direct-to-consumer side. So we're looking forward to really driving some real value in the aftermarket.

[Scott Stember, analyst]

Got it. And maybe just a little bit more granularity on your comments about the 70 to 90 basis points of operating margin expansion next year. I assume there will be some sales growth. Just trying to get a sense of how much is sales leverage? How much is internal self-help like things that you have going on like automation and AI and things like that? Just trying to flesh that out.

[Andrew Roeder, executive]

Sure, Scott. This is Andy. A lot of it is going to be sales leverage. But I would also tell you, content gains, the solutions that we're putting together for customers, allowing them to reduce cost overall, but allowing us with more product content with our customers is going to add value there. And then I think as it relates to the automation efforts, we're going to continue to push forward aggressively on automation amongst our facilities and continue to invest in CapEx.

And we're definitely picking up nickels and dimes along the way as it relates to the automation efforts that we expect to see. So a combination of all of those across the platform to drive that margin improvement. And certainly, volume plays heavily in there, especially if we go above and beyond kind of our industry expectations. So we expect to be able to really leverage our fixed cost structure today. We don't need to add a lot of overhead to support significant incremental volumes.

[Operator]

Our next questions come from the line of Joe Altobello with Raymond James.

[Joseph Altobello, analyst]

I guess just to follow up on that operating margin commentary. Obviously, the outlook for '26 is encouraging, but it sounds like you're looking for operating margin this year towards the lower end of your prior range. So maybe what's kind of weighing on margin this year ahead of the '26 improvement?

[Andrew Roeder, executive]

Well, Joe, here in the third quarter, we really experienced some model change inefficiency. If you look back through the first couple of quarters, we've seen gross margin expansion driven primarily by the addition of our direct-to-consumer aftermarket business, RecPro last fall. Along with that came a heavier OpEx profile. This quarter, our OpEx is in line, but we just had some, I'll call them one-timers, short time -- short-term investments. We brought on significant new business here in the quarter. CPU was up 9% and 10% for RV and Marine. So significant new business. And with that just comes some material and labor inefficiencies.

[Joseph Altobello, analyst]

Got it. Okay. And in terms of the -- what were you seeing so far in terms of production and shipments in October and November? I think it was on the last call, you guys thought that we might see some sort of restock either in the fourth quarter or maybe the first quarter of next year. Are you starting to see that potential restock? Or is this just kind of noise at the end of a year?

[Jeffrey Rodino, executive]

I think there might be a little bit of potential restock. I mean we're getting ready to get into the selling season. You got Tampa right around the corner at the beginning of January. I think if you noted during the prepared remarks, 14 to 16 weeks on hand is extremely low. I mean, that's really the lowest we've seen since the pandemic, where it was in the high-single digits of weeks on hand back then. So there's a lot of room there. At the end of 2025, we're at about 17 to 19 weeks on hand. So there's got to be a little bit of restock in there to be able to get the right units on the lots and be prepared for the selling season that's going to come in the first quarter.

[Operator]

Our next question is from the line of Noah Zatzkin with KeyBanc.

[Noah Zatzkin, analyst]

I guess, first, maybe if you could expand upon how you're thinking about CPU opportunity in '26. And I guess within that, you talked quite a bit about composites. So just would love to hear some more thoughts on how that kind of plays into CPU opportunity.

[Jeffrey Rodino, executive]

Noah, this is Jeff. In 2026, we expect all of our businesses, as we always do, to pick up anywhere between 3% and 5% organic growth. Our expectation is composites is going to be a big part of that. I would tell you, if we look right now where we sit today, we believe the total addressable market in that composite area is about $1.5 billion. If you net out some of the cannibalization that may happen, it's close to $1 billion. Our teams are poised and ready to attack that piece of the market. And I think with some of the other things going on in the market, that opportunity continues to be very strong.

Again, our APG groups are coming up with new product development, both on the Marine, RV and Powersports side. We believe that the further, I guess, increased attachment rate on the Powersports side is going to give a lot of opportunity to Sportech as more and more OEMs are looking to go to that full attachment. So I think across all of our markets, we have a lot of opportunity to grow that CPU and continue to grow the business.

[Joseph Altobello, analyst]

Really helpful. And maybe just one more. Maybe an update on just M&A and what you're seeing out there and kind of how you're thinking about that?

[Andy L. Nemeth, executive]

Sure, Noah. This is Andy. On the M&A front, we've been really active in the last quarter for sure as it relates to cultivating the acquisition pipeline. We've got candidates identified really across our markets. And so we've been out actively kind of talking, kind of building that pipeline up. But as well, we're starting to see more deal flow come at us from outside sources as well. So both the organic side of it, where we're working with potential targets, as well as the deal feed coming in from investment bankers has increased over the last probably 30 to 45 days in particular. So we're seeing increased activity on the M&A front.

[Operator]

Our next questions are from the line of Daniel Moore with CJS Securities.

[Dan Moore, analyst]

I appreciate all the color. I want to maybe ask -- obviously, I appreciate the color about dealers' weeks on hand, both in RV and Marine. As you talk to OEMs and dealers, and we have the sort of historic backdrop of what averages look like pre-pandemic, do you have a sense for or a guess for what a new normal could look like in terms of weeks on hand in those key end markets when we get back to, say, low- to mid-single digit retail growth cadence?

[Andy L. Nemeth, executive]

Dan, this is Andy. So if we look at historical numbers pre-pandemic, pre-pandemic RV weeks on hand was roughly 26 to 30 weeks and Marine weeks on hand was roughly 36 to 40 weeks pre-pandemic. So if you look at where we're kind of sitting today, RV at 14 to 16 weeks and finishing out last year at roughly, let's just call it, 18 weeks, we definitely think there's some restock needed. We absolutely feel that the inventories in the channel today across the spectrum are low and that there is a restock needed even in the current environment. So we feel like there's some restocking needed.

We don't expect to see the historical pre-pandemic levels, 26 to 30 on RV and again 36 to 40 on Marine. That being said, we definitely know it's -- and we feel like it's bigger than where we're at today. So Marine today, as Jeff mentioned, 16 to 18 weeks on hand. Last year, at the end of the year, we were at 22 weeks. So again, we feel like there's some restock coming and needed. We do feel like inventories are low. But we do think -- I'm going to say let's just say 22 to 24 weeks is probably a good range to kind of think about right now, at least in our estimation.

But we also know that dealers have gotten really good at working with less inventory. That being said, we also do feel across our spectrum. And we have multiple touches with the dealer network, whether it's our transportation business or whether it's our touches with the OEMs or dealers themselves. We get a feel that inventories are lean and dealers will need some more balance out there. So we do feel like there's some, again, restock needed.

[Dan Moore, analyst]

Really helpful. Switching gears, initial guidance for '26 implies operating margin getting back close to 8%. As you look across the businesses and when demand starts to return, where do you see the most significant capacity and strongest kind of incremental margins and opportunity for further expansion beyond that across the various businesses?

[Andy L. Nemeth, executive]

Sure. Given what we've done with our business, our team's discipline and really managing their businesses, some of the consolidations that we've done -- but as well, we're just really maintaining a lean operating structure and continuous improvement environment. There is leverageability across all of our pillars in all of our business segments. So incrementally, there's a few puts and takes. But overall, I'd tell you there is significant incremental opportunity for us to leverage the business in each of our markets.

[Dan Moore, analyst]

Got it. And if you did and I missed it forgive me. Could you maybe quantify in ballpark terms the impact of inefficiencies related to the model year changeover in this quarter?

[Andrew Roeder, executive]

Yes, Dan. I mean, we saw in the first 2 quarters our gross margin expand by near 100 basis points. There's some noise in there with tariff impacts and timing. But for the most part, I think that's -- we expect a meaningful gross margin expansion driven by our RecPro direct-to-consumer margins and that acquisition last fall. So we were down 50 basis points. I guess I'd expect us to be up 50 basis points in that ballpark as we look forward.

[Operator]

The next question is from the line of Tristan Thomas-Martin with BMO Capital Markets.

[Tristan Thomas-Martin, analyst]

Do you have any kind of thoughts or have you seen any of the consumer kind of changes based on model year '26 pricing being up, call it, mid- to high single digits?

[Andy L. Nemeth, executive]

Can you repeat that question, Tristan? Sorry.

[Tristan Thomas-Martin, analyst]

Yes, just asking with model year '26 pricing up mid- to high single digits kind of like-for-like, how are you seeing consumers and dealers react to that?

[Jeffrey Rodino, executive]

Yes, this is Jeff. I think they've certainly passed that along into the channel. As we could tell, we did see some increased retail year-over-year in June and July. That came down a little bit in August. But overall, we can only tell you what the production numbers are telling us right now since we haven't really seen retail for September and October. So once we see those, we'll get a better feel overall of the retail demand.

But from what we can tell from production levels and where we think wholesale shipments are going, there's still demand out there, and we feel good that they've been able to absorb that into the pricing. And we have seen a little bit of interest rate help, which certainly will help mitigate some of the pricing that's happened. But overall, we feel good about kind of where the pricing has ended up.

And I think that as far as what tariff noise has been out there earlier in the year, we've got a few more countries they need to sort some things out with. But as we look -- we've been working very closely with customers. We know that affordability is a big concern, and partnering with our customers to help with that affordability is something that we've been very active in over the last quarter.

[Tristan Thomas-Martin, analyst]

All right. Just kind of the obvious follow-up is how is the production mix been looking in terms of like are we seeing maybe a little shift towards fifth wheel from single axle?

[Jeffrey Rodino, executive]

Yes, we've seen a little of that. I mean it certainly does occur a lot of times in the fall where we'll see a little bit more on the fifth wheel side as you get the full-time RVers. They're going to use it for the full winter, getting into a fifth wheel versus the smaller entry level. Certainly, the mix is not back to what I would call a normal mix that we've seen in the past with fifth wheel and travel trailer and the smaller travel trailers. But we have seen a little bit of a shift in the third quarter. We expect that, that will stay for the fourth.

If we get into the first part of next year -- I think the dealers were so kind of keen on the entry-level product for most of 2025 as we see that they need to refill some of the stock that's out there. I think we're going to see that's going to be in some of the mid- to higher-end product. So we feel good about where the mix is at. I don't think it will go backwards into the more small travel trailers, but we're keeping an active look at that.

[Tristan Thomas-Martin, analyst]

Okay. Got it. And then let me squeeze one more in. Is there any way to think about the composite $1 billion addressable market opportunity, kind of how that breaks out across your end market?

[Jeffrey Rodino, executive]

Yes, it's primarily in the RV market right now. When you look at the roofing and flooring solutions that we're providing, something that we're really not into that business right now with roofing, flooring and slide outs. The interior and exterior skins are something that we're participating in right now, and we're very active in shifting from some of the wood products that we're currently selling into composites.

And we feel really good about all the prototyping that we've done and the activity and the products we've been able to bring to market. Certainly, we see some opportunity on the Marine side. That's pretty fresh on the Marine side. We've done a lot on the wood products within Marine, and now we're starting to shift over into some of the composites. So I would tell you that the majority of what we talked about in the addressable market is going to come on the RV side to start with.

[Operator]

The next question is from the line of Craig Kennison with Baird.

[Craig Kennison, analyst]

Apologies for joining a little late. I wanted to ask about Slide 15, talking about Powersports' organic content growth up low-single digit. What is driving that?

[Andy L. Nemeth, executive]

Craig, without question, content gains that we've seen as it relates to attachment rates for our enclosures in particular, we've seen, as we've talked about kind of the utility side of the business, which is really where we've got tremendous focus, being more resilient than the rec side of it. But that being said, the overall take rate continues to go up on enclosures, and the continued take rate on HVAC systems, which in the side-by-side markets, continues to go up.

So we're seeing that. We're seeing some new entrants come back -- come into the market in 2026, but as well as some of the product innovations that we've had teed up over the last couple of years are expected to continue to drive content as well. So we're excited about not only the uptake rate, but some of the solutions we're bringing and then the opportunity for us to really exhibit our full solutions model as well into the Powersports market.

So not only in enclosure, for example, but also a sound system, a wiring harness, a dash panel, instrumentation system, all combined into one solution for our customers going forward. So a tremendous opportunity for us to continue to realize additional content gains in the side-by-side market.

[Craig Kennison, analyst]

And then maybe just to follow up on the RecPro topic. How do you manage any sort of channel conflict that might come about from setting up a direct-to-consumer platform?

[Jeffrey Rodino, executive]

Yes, Craig, this is Jeff. I don't see a lot of channel conflict in what we're doing. Prior to having RecPro on board, which gives us that direct-to-consumer avenue for our products, we had very little aftermarket touch points with -- if you look at the content that Patrick is putting into RVs and Marine and then not really having an outlet to be able to get that product into the hands of the end consumer, this has really just given us that avenue. So I don't see a lot of conflict there.

[Craig Kennison, analyst]

And then maybe finally on the MH side, what will it take to see a more sustained recovery? It feels like there's ample need for affordable housing and we're going to get interest rates moving in our favor. What are your industry context suggesting is necessary for that really to take off?

[Andy L. Nemeth, executive]

Sure, Craig. This is Andy. It's a good question. I think as we look at the MH side of the business, we certainly continue to believe in the model that it provides the low-cost alternative, especially for first-time entrants into the Housing market. Historically, MH has run 9% to 11% of single-family housing starts if you go back in history, and we continue to see that trend continue.

As far as I'm concerned, as we continue to watch that, we're going to continue to look for an inflection point where we see that trend change a little bit. We see a greater percentage of single-family housing starts as our indicator. But overall, the model, the narrative makes a lot of sense, especially with where things are at. We just think some of the pent-up demand needs to be released into that market. But we're fully supportive of it. And as well the quality of the homes have gotten so much better over the years. And so it really is an attractive solution. We're as well waiting for kind of that inflection point.

[Operator]

[Operator Instructions] Our next question comes from the line of Mike Albanese with Benchmark.

[Michael Albanese, analyst]

Just want to touch on -- Craig had asked a question about the Powersports segment. And as we think about attachment rates and products like HVAC and audio, is it possible to kind of frame maybe from an industry standpoint what percentage of the overall utility industry comes with enclosures?

[Andy L. Nemeth, executive]

Let me think about that for a minute, Mike. So the percentage of the industry probably today...

[Michael Albanese, analyst]

Utility side-by-side. Like how -- yes, I guess what percent...

[Andy L. Nemeth, executive]

How many utility vehicles are coming with enclosures?

[Michael Albanese, analyst]

Yes.

[Andy L. Nemeth, executive]

I mean, I got to take a guess. Probably 60%, 70% is a guess. I can't tell you exactly.

[Jeffrey Rodino, executive]

And it's definitely going to be heavier on the utility side versus the side-by-side, Mike. And then we're dealing primarily with a couple of the large manufacturers. There are some of the manufacturers out there that aren't even offering that yet, but we believe that's a big tailwind for us when they start to go into that market. So within our customers, it's that 60%, like Andy was talking about. But the overall market, I think there is opportunity beyond that.

[Michael Albanese, analyst]

Yes, that's exactly where I was going with the question, to get a sense of -- as just enclosures proliferate, with that comes more opportunities to drive new product and increase attachment rates, right? So I was trying to get a sense on...

[Andy L. Nemeth, executive]

Not only that, Mike, but the frame -- not only -- so some come with a frame, right, some come with a windshield, the attachment to add doors, to add windows. Then the additional content that we've talked about on top of that from a solution perspective kind of all play into that.

[Operator]

Thank you. Ladies and gentlemen, I'll turn it back to Andy Nemeth for closing remarks.

[Andy L. Nemeth, executive]

Thank you. Once again, I just really want to acknowledge and thank our incredible team for just their continued efforts, dedication, passion for really partnering with our customers, bringing new products to market, managing the tariff situation and continuing to deliver consistent and predictable results. I'm just so proud of the team and all their efforts. And as well, I want to thank our customers for their tremendous support through these incredibly dynamic times as we continue to really work to partner to make sure we're promoting kind of the industry as a whole in alignment with their goals and objectives. So really appreciate all the efforts of the team.

We will continue to push forward. I think there's a ton of opportunity for Patrick as we look at where the industries are teed up and where they can go. And not only that, the resilience and scalability of our model and the ability to inflect when our customers need it I'm really excited about.

So once again, thank you very much for joining us. We look forward to talking to you after our fourth quarter results.

[Operator]

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