Patrick Industries' (PATK) CEO Todd Cleveland on Q1 2016 Results - Earnings Call Transcript

| About: Patrick Industries, (PATK)

Patrick Industries, Inc. (NASDAQ:PATK)

Q1 2016 Earnings Conference Call

April 28, 2016 10:00 AM ET

Executives

Julie Ann Kotowski - Investor Relations

Todd Cleveland - Chief Executive Officer

Andy Nemeth - President

Joshua Boone - Vice President, Finance and Chief Financial Officer

Analysts

Daniel Moore - CJS Securities

Scott Stember - CL King & Associates, Inc.

Steve Anderson - Venture Capital Management

Operator

Good morning, ladies and gentlemen, and welcome to the Patrick Industries, Inc. First Quarter 2016 Earnings Conference Call. My name is Cynthiya, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. Please note this conference is being recorded.

I will now turn the call over to Julie Ann Kotowski from Investor Relations. Ms. Kotowski, you may begin.

Julie Ann Kotowski

Good morning, everyone, and welcome to Patrick Industries’ first quarter 2016 conference call. I’m joined on the call today by Todd Cleveland, CEO; Andy Nemeth, President; and Josh Boone, CFO. On the call this morning, we are going to discuss our first quarter results and provide an update on our business outlook and the markets that we serve.

However, before we do so, it is my responsibility to inform you that certain statements made in today’s conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. As a result, I must caution you that there are number of factors, many of which are beyond the company’s control, which could cause the actual results and events to differ materially from those described in the forward-looking statements. These factors are identified in our press releases, our Form 10-K for the year ended 2015, and in our other filings with the Securities and Exchange Commission.

Also, please note that certain financial measures we may use on this call, such as adjusted net income and the related diluted earnings per share amounts are non-GAAP measures. We undertake no obligation to update these statements after this call.

I would now like to turn the call over to Todd Cleveland.

Todd Cleveland

Thank you, Julie Ann, and thank you all for joining us on the call today. This morning, I’d like to briefly discuss the company’s results for the first quarter of 2016. Andy will then provide an update on the major markets we serve and Josh will provide specific details on our financial performance. I will then conclude by providing an update on expansion opportunities, strategic initiatives, and acquisitions in our overall business outlook.

The first quarter of 2016 marked the continuation of improved overall performance for the company with increased revenues, improved profitability, and cash flows. On the top line, our revenues increased 25% over the prior year, and on the bottom line, we posted a 36% increase in our net income per diluted share compared to 2015. The industries we serve as well reflected strong year-over-year improvement with RV wholesale shipments of a 11% in the first quarter over the prior year in anticipation of an increasing retail demand as we head into the height of the selling season.

MH shipments for the quarter increased by an estimated 18% compared to 2015, and new residential housing starts for the quarter were up 14% year-over-year. The strong start to the year was in alignment with our internal expectations and poise to a positive outlook for fiscal 2016.

Now, I’ll turn the call over to Andy, who will review our markets and our performance.

Andy Nemeth

Thank you, Todd. The first quarter of 2016 reflects the continued execution of our strategic plan and capital allocation strategy to drive content in all the industries we serve and position ourselves to be able to take advantage of expected continued growth trends in the marketplace.

With the full impact of our 2015 acquisitions and those we completed thus far in 2016, we project our full-year 2016 consolidated revenues to approach $1.1 billion. At the operating income level and on the bottom line, we continue to leverage our cost structure to drive efficiencies and improve our net income and earnings per share, which increased 32% and 36%, respectively, over the prior year.

In addition, we’re selectively adding capacity where appropriate in anticipation of our continued expectation of outperformance in each of the industries we serve. Our sales for the RV sector of our business, including the impact of acquisitions, which represents our largest market, comprising 78% of our revenues, grew 25% in the quarter, up over 11% overall increase in industry-wide RV wholesale shipments.

Wholesale shipments of travel trailers, which represent approximately 75% of the towable market, led the way, increasing approximately 14% versus the prior year. Contributing to our sales improvement was an overall increase in content per unit, new product offerings, and market share gains. The shift in buying patterns towards the larger concentration of entry-level, less expensive towable units that became evident in the industry around the April 2015 timeframe, particularly in a travel trailer sector is still continuing today.

We’re excited by the continuing influx of younger consumers entering the RV market and believe this trend along with other favorable RV demographic trends point to significant opportunities for growth in this market over the long-term. Travel trailers, as previously discussed improved at the highest rate compared to the prior year, while production levels in the larger more expensive units, particularly in the fifth wheel sector, which represents approximately 22% of the towable market, was roughly flat year-over-year.

While the shift to lower end units continues to impact our overall dollar content per unit growth in the short-term, we expect these trends to reverse in the long-term as the natural tendency to upgrade takes place and consumers look to add more amenities and brand names.

As the mix of fifth wheel and travel trailer production levels shifts towards higher-end products, we expect our dollar content to increase accordingly. We saw similar trends in the motorized sector of the industry, which represents approximately 13% of all units shipped.

Class A shipments for 2016, representing approximately 44% of all motorized units shipped and the most expensive of the Class on average increased approximately a 11% year-over-year, while Class Bs and Cs, which represent smaller, less expensive motorized units, and approximately 56% of all motorized units shipped, increased approximately 23% year-over-year.

The overall balance and strength in the industry coupled with the continued entry of younger buyers into the channel and a significant number of baby boomers reaching retirement age over the next 10 years, indicates the potential for an extended cycle, especially in considering the general strength in the equity markets and consumer confidence levels.

As it relates to the correlation between retail inventories and overall production levels, industry reports and dealer surveys continue to indicate, RV dealer inventory levels are in line with anticipated retail demand, representing continued balance within the industry. In 2016, combined domestic and Canadian retail sales through February 2016 were up 7% year-over-year, compared to wholesale production, which was up a 11% over the same two-month period.

We generally see wholesale shipments exceed retail sales in the first part of the calendar year, as the retail selling season ramps up for the late first quarter and second quarter peak. Domestic RV retail sales, which represent 96% of overall sales through February were up 8% year-over-year.

The RVIA is currently forecasting RV wholesale unit shipment for fiscal 2016 to increase in the low single digits over 2015. Based on this forecast, current industry trends and our continuing market content improvement, we are excited to participate and partner with our customer base during high-quality products and service to support and enhance the overall RV brand, and as a result continue to grow our revenue base.

On the manufactured housing side of our business, our sales increased 23%, as we have gained content, again, outperforming the industry. Based on the industry data for the month of January and February, and our company forecasts for the month of March, we estimate MH wholesale shipments to increase by approximately 18% in the first quarter of 2016 versus the prior year, representing the highest quarter-over-quarter increase since 2012.

The MH industry as well is adapting to younger buyers focused on value and quality by concentrating on affordable energy efficient homes for both entry-level participants and those looking to downsize from traditional stick-built housing to a lot flexibility and convenience. We believe there’s significant opportunity for growth in this market over the long-term, based on pent up housing demand, multifamily housing capacity levels and increasing rental rates, improving consumer credit and financing conditions, and the value proposition of low-cost affordable single-family homes, among other factors.

The robust MH industry shipments start to 2016 could indicate a possible tailwind providing better than recent historical trends of 8% to 10% annual growth. We expect to continue to outperform the MH market, by capitalizing on a breath of product and focused expansion and acquisition strategies.

The company’s industrial revenues, which represented 11% of our sales in the first quarter of 2016 increased 29% in the first quarter, reflecting both acquisition and organic growth, particularly in the commercial and institutional fixtures markets. Approximately, half of our industrial revenue base was directly tied to the residential housing market, where residential housing starts were up 14% for 2015 first quarter, with the remaining one-half tied to growth in the commercial side of our business, mainly in the retail fixture, institutional furniture, and commercial furnishings market.

As already noted, in line with our plan, we continue to diversify our industrial business, which resulted in growing our commercial and institutional furnishings sales by 15% year-over-year. We will continue to concentrate in the residential cabinet, in furniture, retail, commercial, hospitality, and institutional markets to drive market share gains in sales growth and as well expand our presence in the new territories in order to capitalize on existing capabilities and core competencies.

Additionally, our current stable of products have expansion opportunities that we look to capitalize on in our existing regional locations and potentially new locations, as Todd will describe in more detail. Overall, we are continually assessing both the short-term and long-term prospects and risks for our business model.

On the RV side of our business, we are well-positioned to support and grow in alignment with the industry’s current projection of over 382,000 unit shipments for 2016, and we will align, both our business model and our organizational structure for continued slow and steady growth in this market, based on the strong demographic indicators previously mentioned that point to a positive long-term outlook, with limited downside risk, when compared to the past cycles in this space.

The changes in seasonal production schedules, namely the open houses held by the OEMs for dealers in the September timeframe have been the norm of the business for the last several years. Model year changes have accelerated to earlier in the first-half of the year in anticipation of these shows and we have accordingly adjusted our business model to accommodate the seasonality structure, as well as the market mix shift to smaller travel trailers and motorized units.

On the MH side, we continue to believe there is significant potential for this market in the long-term, based on the current upward trend we are experiencing in shipment levels. We are excited about the potential to capitalize on the upside potential of the MH markets, as we are well-positioned in this space and are optimistic about the future of this industry, especially given the combination of our nationwide geographic footprint, available capacity in our current MH concentrated locations, and the continued growth of our content, which is in excess of $1,800 per unit.

We are currently forecasting an approximate 10% growth in MH wholesale unit shipments for fiscal 2016, and expect to see continued year-over-year improvement with limited risk in the near-term, as we believe there is potential of this market to grow at a much higher rate in the future, especially given historical trends in the growth we are currently seeing in single-family residential housing starts.

The industrial markets represent a breath of product opportunities for us, both through acquisition and organic market penetration. Our industrial sales team is well-positioned to continue to penetrate the residential housing market, particularly given the rise in single-family housing starts and as well diversify further into the commercial hospitality and institutional markets.

For the full-year 2016 and 2017, the NAHB is predicting housing start to increase in the neighborhood of 10% and 17%, respectively, versus the prior year periods. On the commercial side, we are anticipating increased commercial market penetration, as we continue to gain credibility as a high quality supplier with our continuing efforts to drive specialization and expertise in these markets, both in our operations and with our extremely talented and dedicated industrial sales force.

Now, I’ll turn the call over to Josh, who will provide additional comments on our financial performance.

Joshua Boone

Thanks, Andy. Our net sales for the first quarter of 2016 increased $55 million, or 25% over the prior year period to $279 million, reflecting the combination of acquisition, industry, and market share growth, despite the continued mix shift towards smaller, less expensive units in both the towables and motorized sectors of the RV industry.

Our RV revenue base, which accounts for 78% of our first quarter sales, was up 25% in the first quarter of 2016 over the prior year, reflecting the impact of acquisitions and a 11% increase in wholesale unit shipments in addition to overall content growth. Our RV unit content on a trailing 12 months basis grew 17% from $1,629 per unit in 2015 to $1,905 per unit in 2016.

Our MH revenue base, which accounts for 11% of our first quarter sales, increased 23% for the quarter on estimated unit shipment improvements of approximately 18%. Our estimated content per unit on a trailing 12-month basis increased 5% from $1,718 per unit in 2015 to $1,808 per unit in the first quarter of 2016.

Our MH content continues to outpace the industry, reflecting further penetration within our existing customer base. We continue to be well-positioned and ready to capitalize on the positive shipment trends we’re seeing in the MH industry. Our industrial revenue base, which accounts for the remaining 11% of first quarter sales, was up 29% in a quarter over the prior year period, driven by acquisitions and the continued penetration into new sales territories and market share gains, particularly with strong growth in the commercial and institutional fixtures markets.

Our gross margin grew 50 basis points in the first quarter to 16.3% from 15.8% in the first quarter of 2015, primarily reflecting improved operating efficiencies, leveraging of our fixed costs, and positive contribution of acquisition-related revenue. Operating expenses remain flat at 8.9% of sales in the first quarter 2016, compared to the prior year period.

Warehouse delivery and SG&A expenses were down 30 basis points, offset by the increase in intangible asset amortization of 30 basis points related to acquisition activity over the past two years. Operating income increased $5 million, or 32% in the first quarter of 2016, compared to the prior year and operating margins increased 40 basis points from 7% in the first quarter of 2015 to 7.4% in the first quarter of 2016, primarily due to factors previously described.

The acquisitions we completed in 2015 – in the first quarter 2016, coupled with our continued focus on leveraging synergies across the organization, implementing best practices, and driving operating efficiencies have enabled us to continue to outperform our market and drive content growth, in addition to increased overall consolidated operating margins. Our net income per diluted share in the first quarter of 2016 was up 36% to $0.80, compared to $0.59 in the prior year.

Now, turning to the balance sheet. Our total assets increased $73 million from December 31, 2015, primarily reflecting overall growth in our business year-over-year, the full impact of acquisitions completed in 2015 and thus far in 2016, and the related working capital ramp up in the first quarter and traditional seasoning trending in our legacy businesses.

Our operating cash flows were approximately $14 million in the first quarter, compared to cash usage of approximately $3 million in the first quarter of 2015, reflecting our continued focus on leveraging our working capital relative to our sales growth. Our strong operating cash flows continue to provide us flexibility to execute on a capital allocation strategy.

Additionally, to meet our current and projected operating needs, as well to improve operating efficiencies, our total capital expenditures thus far in 2016 of approximate $3 million included facility expansion costs that Todd will describe in more detail, and the strategic replacement upgrading of production equipment to improve efficiencies and increase capacity.

Our full-year 2016 estimate of total capital expenditures remains at 10 million. Our leverage position relative to EBITDA remains well within our comfort level at the end of the first quarter of 2016 and we expect to continue to maintain the appropriate leverage position consistent with our capital allocation strategy. Unused availability under our credit facility, including cash on hand was approximately 67 million.

Finally, as we previously described on our last conference call, in the first quarter of 2016, we repurchased the remaining $3 million authorized under our 2013 stock repurchase plan. And in January 2016, our Board of Directors approved a new stock repurchase program that authorized the repurchase of up to $50 million of our common stock over 24-month period. We do not repurchase any stock under the 2016 plan in the first quarter.

That completes our remarks. Todd?

Todd Cleveland

Thanks, Josh. Overall, we’re pleased with the sales and earnings growth results for the first quarter and are optimistic about the continued growth, as we head into the height of the selling season, both in the short and long-term, as we continue to build the momentum in the industries we serve.

The investments we’ve made in strategic acquisitions during 2015 and thus far in 2016, both increased our scale in existing markets and open the doors to new markets within the North American footprint, which we’ve now expanded into 14 states. To continue to maintain a disciplined approach and identifying additional opportunities to expand our product portfolio and design capabilities.

In the first quarter of 2016, we acquired in excess of $50 million of annualized revenues attributable to acquisitions, Parkland Plastics at the end of February and The Progressive Group at the beginning of March. We are very excited about the opportunity to expand both of these.

Parkland is a designer, manufacturer, and distributor of polymer-based products, primarily using RV architectural and industrial markets. Progressive is a distributor and manufactures representative for major name brand electronics, primarily serving the auto and home electronics, retail and custom integration and commercial channels.

Our focus on successful integration of these acquisitions, as well as others acquired over the past several years, in accordance to our plans and expectations has resulted in organic market share growth, accretion to earnings, in addition of high-quality members of the Patrick organization. We expect the realization of these and other tangible benefits to benefit the organization on a go-forward basis.

To support our continued focus on increasing market share and expanding our geographical product reach outside our core Midwest market, we announced at our last call several expansion plans that are now complete with new facilities up and running. We added a manufacturing plant in Southern California to fabricate solid surface countertops and two new facilities in Idaho to provide laminated products and interior doors to the growing customer base in that region, both in alignment with facility expansions of core OEM customers.

Additionally, in 2016, we have plans to open a countertop manufacturing facility in the Southeast and increased capacity in our footprint in Pennsylvania to support the growing industrial opportunities in the Northeast. We continue to prudently invest and ensure the high level of responsiveness to our customers to support the profitability growth of our company.

In addition, in March 2016, we opened the studio, our new 45,000 square foot design innovation center and showroom located in Elkhart, Indiana. The studio has been extremely well receivedby our customers and has generated many new business opportunities for our company in addition to being instrumental and more optimally presenting our ever-expanding capabilities and services offered by each of our business units.

We’re very excited to bring customers to the studio and to engage and join creative planning processes to address, both near and long-term opportunities in the markets we serve. The pipeline continued to be fold with acquisition opportunities in all three of the markets we serve; RV, MH, and Industrial, and we have the capacity to continue to grow our business and bring new innovative product lines to our existing customer base and to customers we have not yet reached.

In terms of our business outlook for the remainder of 2016, our disciplined execution goals continue to be focused around driving our organizational strategic agenda and utilizing our capital allocation strategy to strategically grow our business, increase customer awareness of the – throughout the products we can provide, expand operations, and targeted regional territories, and drive shareholder value by generating improved operating income, net income, earnings per share and free cash flow.

Our team remains focused on meeting any challenges that we face head-on with the goal of always striving to provide the highest level customer service and high-quality innovative products, executing our strategic plan, and increasing overall shareholder and stakeholder value.

This is the end of our prepared remarks and thank you for your time today. We’re now ready to take questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Daniel Moore with CJS Securities. You may begin.

Daniel Moore

Thank you. Good morning and congrats again on another very solid quarter.

Todd Cleveland

Thank you, Dan.

Andy Nemeth

Thanks.

Daniel Moore

Andy, you mentioned content for RV up 17% year-over-year and you also mentioned the mix shift to lower price point, given that and is it possible to breakout the growth in content for RV on a organic basis versus acquired?

Andy Nemeth

So overall Dan, yes we estimate that organic content due to pricing de-contenting, lower end units really attributed to about a 10% organic shift in just net organic content exclusive of industry growth. So outside of that we believe that based on our estimates that we were able to maintain and in fact pick up a little bit of market share exclusive of those uncontrollable situations.

Daniel Moore

Certainly and you also mentioned that we’re coming up on anniversary in that trend at least for one year, but crystal balls are difficult. But what are your expectations as we get out of the remainder of year in terms of that shift between – the mix between fifth wheels and travel trailers?

Andy Nemeth

We do think that’s going to anniversary coming up here on the second quarter around the April, May timeframe. Last year if you kind of just looked at where the statistics were at from a shipment perspective, fifth wheels were up about 6% in the first quarter of last year versus flat this year.

We’ve definitely seen the shift towards a bigger concentration of travel trailers and the low-end travel trailers. So as things kind of normalize again we will – we expect to see that shift here in Q2. But we also expect to participate in the – kind of the upswing as though as the units shift back towards larger units and towards that fifth wheel normalize mix shift.

Daniel Moore

Okay, and then now lastly MH the manufacturing housing segment shipments of 18% year-over-year. Do you have a sense of what’s driving that acceleration and I think you sound more bullish in your prepared remarks about MH and I’ve heard, we’ve heard in some time does that signal a shift in terms of focus and as far as M&A is concerned or is that perhaps reading a little too far into it?

Joshua Boone

Sure, so the first question relate to MH strength, we did see strength out of the gates on the MH industry this year, mainly concentrated in the southeast. So the northern regions are still a little bit off to certainly – and really based on the weather condition. So we are encouraged by what we’re seeing in the MH space, as it relates to our M&A perspective in that space. We’ll tell you I don’t know that anything has changed. We’ve been opportunistic and looking at deals in the MH space as well as the RV space and industrial markets. So we expect to be able to participate in that and continue down that path, so nothing has changed. We’re still aggressive and bullish about that market and looking for opportunities inside the MH market.

Todd Cleveland

Hey, Dan this is Todd. But I would just add that given the Canada shift and an increase we’ve seen in the MH market, we’ve talked in the past about asset values, our cash flow values being below asset values, we’d see the shift in that and would not be surprised to see that turn into some opportunities for us in the future.

Daniel Moore

Very helpful and thanks. I’ll jump back in queue.

Operator

And our next question comes from Scott Stember – CL King. You may begin.

Scott Stember

Good morning gentlemen.

Todd Cleveland

Good morning.

Andy Nemeth

Good morning.

Scott Stember

Just a question about the operating margin growth you guys are doing fantastic job in the growing your gross margin lot of it has to do with the efficiency improvements and the synergies that we’ve seen from acquisitions. But on the operating expense line that’s pretty much been flat to up, I know you guys were making a lot of investments in probably some integration with acquisitions. But where the expectation is there for let’s say this year and coming into 2017 when we could – will we start to see some operating expense leverage or are you guys still in a – aggressive investment mode?

Todd Cleveland

We’re not necessarily investing in overhead today Scott. We believe we’re well positioned from a structure perspective on the operating expense side to be able to capitalize and grow the business, which includes our acquisition strategy. So we would expect to begin to leverage that as we kind of move throughout this year and certainly in the 2017. It’s our expectation to be able to again not attached significant incremental overhead cost to be able to support the revenue increasing initiatives that we’ve got on the table. So I would tell you that our expectation is as we continue to flow through 2016, we’ll start to see some of that, but definitely into 2017 we expect to see that.

Scott Stember

Gotcha. And as far as the geographical expansion with these new facilities out in the West Coast did you guys actually start shipping product and generating revenues out of the net and what the timing be? And again if you could just remind us I think the last quarter you talked about the collective opportunity in total from this geographic expansion?

Todd Cleveland

Right so we just got up and running out in both – on both the West Coast and in the Idaho area in mid-to-late March. So we haven’t seen any significant revenues at this point in time. We are wrapping up operations are running and we are producing and shipping. So Q2 we expect to see that and into Q3 we did incur some nominal expenses as it relates to those ramp ups, which impacted our EPS by probably a $0.01 a share. But overall again we did not start shipping until really late in March. So we expect to see the results from that really throughout 2016 the remainder of 2016.

Scott Stember

Gotcha. And…

Todd Cleveland

Hello, Scott I’m sorry total estimated market is still around $160 million for the expansion initiatives that we repeat up.

Scott Stember

Got it and just one last question and I’ll jump back in the queue, on the industrial side. Did you – I don’t remember if you quantify how much the nonresidential portion of the business grew versus the residential side?

Todd Cleveland

The nonresidential grew somewhat in proportion to the residential side. So our mix is really around that 46% to 50%, it may shift back and forth between the two components, but they were both relatively equal.

Scott Stember

Gotcha, okay. Thanks again.

Todd Cleveland

Thanks.

Operator

[Operator Instructions] And our next question comes from Daniel Moore with CJS Securities. You may begin.

Daniel Moore

Thank you again. Maybe just talk a little bit as you did, Todd, about Parkland Plastics and Progressive, what they bring to table? What accretion might look like for each this year, you’re willing to share and kind of longer-term growth opportunities?

Todd Cleveland

Sure, I guess I’ll address the opportunities on what kind of Andy addressed the accretion. But yes, I mean Parkland has a great management team and a new product line for us, it focuses on the RV market and also the industrial even has a little bit of big-box exposure. Their product line is for the most part made up of two particular products, flooring that goes into the RV industry and then also sheet goods that are used for industrial purposes. Those products we had in our stable prior to the acquisition.

So what we’ll be able to do is, leverage our current relationships in the industries we serve both in the RV space and industrial space. I think the other pieces is that that we now have a fairly strong connection with some new industrial customers that hopefully will be able to leverage those relationships with our stable products that we’ve built over the past four or five years.

On the progressive side of things again really a new market for us and quite a few new products from electronics and just component standpoint. So again we’ll hopefully be able to cross pollinate both full of market standpoint and a product standpoint going into the RV market and also taking current products in this customers that progress we had. So I look for those both to create some pretty strong opportunities for us in the future.

Andy Nemeth

Dan, on the equation side both acquisitions were immediately accretive to earnings, we had requirement in late February and in mid-March, early to mid-March. And so we really the impact was nominal for Q1, but we do expect continuing improvement in accretion to EPS on a go forward basis we don’t necessarily breakout individual acquisitions as it relates to their individual component of accretiveness, but effective immediately – they are immediately accretive to earnings.

Daniel Moore

Okay, and last question just curious RVIA is still looking for low double-digit growth from wholesale shipments for 2016 for whatever reason they’ve been significantly conservative that last few years given the 11% growth it was on Q1. Do you expect or see potential upside to that projection as we go out the remainder of the year?

Todd Cleveland

Their estimates are the low single-digit and we expect that there could be some potential upside to that. We certainly take – and then I start to the industry through first quarter. We would expect the normal seasonal pattern to start to take shape. However, we don’t have any concerns as it relates to any significant issues in the space today. So we are – we’re still inline with what we think the RVIA is at with low single-digit growth for the year. We could see some seasonal movement, but nothing that Scott has alarmed.

Daniel Moore

Okay, thank you again.

Todd Cleveland

Thank you.

Operator

And. Our next question comes from Steve Anderson with Venture Capital. You may begin.

Steve Anderson

Good morning, how are you?

Todd Cleveland

Good morning.

Steve Anderson

I just had quick question on manufactured housing side of your business. Where is this capacity utilization currently, I know you kind of booklet at last quarter I was wondering if you give that again? And then talk about some of the impacts of leverage on the EBITDA line as that comes back up next year?

Todd Cleveland

Sure as it relates to overall MH capacity, we have facilities that that are both specific to MH and we have facilities that run a combination of manufactured housing RV and industrial product line. So we have the ability to utilize our capacity in certain areas and move between industries within certain plants.

On the MH specific plants, we’re running in the neighborhood of 35% to 40% capacity today. So we’ve got upside potential certainly to be able to execute on that and certainly be able to leverage our content today with opportunities certainly in the acquisition space in there to be able to, to integrate and bring opportunity to leverage our earnings, but as well we have the opportunity to gain some market share in that space as well. So we’re excited about the opportunities that exist there and certainly the strong start to the year with MH.

Steve Anderson

And three cash flow positive on that business now?

Andy Nemeth

Yes.

Steve Anderson

Yes and that’s why you’re referring to on the cash flow model, okay.

Andy Nemeth

Yes.

Steve Anderson

Okay, great. Thank you.

Todd Cleveland

Thank you.

Operator

And. Our next question comes from Scott Stember with CL King. You may begin.

Scott Stember

Andy, what was the leverage ratio in the first quarter I’m not sure if you gave that and also maybe just give some high-level commentary about the acquisition pipeline as you see it going forward today?

Andy Nemeth

Sure, well our leverage ratio was right around two times just a little bit, but less than two as it relates to the pipeline the acquisition pipeline today is extremely full. We’ve a tremendous amount of opportunity out there to be able to execute, we got capacity to be able to continue to execute. So we’re optimistic about the potential based on the space they, but just the overall pipeline is extremely full.

Scott Stember

And as we’ve seen in the last couple of quarters the idea is not just strictly RV cross-selling into other markets as well whether it be industrial. Is that still the process?

Andy Nemeth

Yes, so we’re still looking at acquisition opportunities in all three market sectors. As Todd mentioned, multiples and cash flows are starting to improve certainly with the MH space. So things are fitting more into the boxes or relates to those opportunity. So we’re continuing to look at all three markets for potential.

Scott Stember

Got it. That’s all I have and tanks for taking my questions.

Andy Nemeth

Thank you.

Operator

[Operator Instructions] We have no further questions at this time. I would like to return the presentation back over to Julie Ann Kotowski.

Julie Ann Kotowski

Thanks, Cynthia. We appreciate everyone for being on the call today, and we look forward to talking to you again in our second quarter 2016 conference call. A replay of today’s call will be archived on Patrick’s website www.patrickind.com under Investor Relations. I’ll now turn the call back over to our operator.

Operator

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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