On Thursday, Patrick Industries (NASDAQ:PATK) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Patrick Industries reported first-quarter net sales of $997 million, a 1% decrease, with organic growth contributing 8%. Earnings per diluted share were $1.10.
Marine and powersports revenue growth offset declines in RV and manufactured housing markets. The company highlighted strong execution of its operational playbook.
A potential merger of equals with LCI Industries was announced, aiming to drive value through synergies and innovation.
The company remains confident in its diversified platform and operational agility to deliver strong financial performance despite macroeconomic uncertainties.
Patrick Industries expects its 2026 adjusted operating margin to improve by 30 to 50 basis points and estimates operational cash flow between $370 and $390 million.
Full Transcript
OPERATOR
Good morning ladies and gentlemen and welcome to Patrick Industries first quarter 2026 earnings conference call. My name is Sheri and I’ll be your operator for today’s call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star0 on your telephone keypad. Please note this conference is being recorded and I will now turn the call over to Mr. Steve O’Hara, Vice President, Investor Relations. Mr. O’, Hara, you may begin.
Steve O’Hara (Vice President, Investor Relations)
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 Matt Fieler, 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 10K for the year ended December 31, 2025 and the company’s other filings with the Securities and Exchange Commission. Before we begin, I would like to remind you that on April 17, 2026, Patrick announced the merger of equals discussions with LCI Industries. Andy will be providing a brief comment in his remarks. However, we are unable to answer any further questions or discuss the potential for a transaction beyond Andy’s remarks at this time. I would now like to turn the call over to Andy Nemeth.
Andy Nemeth (CEO)
Thank you Steve. Good morning everyone. We appreciate you joining us on the call today. We’d like to talk about our first quarter results, industry conditions, expectations for the year and also briefly discuss our recent announcement related to discussions for a potential merger of equals with LCI Industries. First quarter results continue to highlight the strength and resilience of our diversified platform, our innovation and product development efforts over the last two years and the incredible dedication of our team to support our customers in this dynamic environment. Marine revenue growth in spite of shipment declines along with powersports revenue growth helped offset double digit shipment declines in our RV and manufactured housing markets. Net sales for the first quarter were 997 million off 1% with overall organic growth contributing 8%. Earnings per diluted share was $1.10 including approximately 10 cents of dilution from our convertible notes and related warrants. On a trailing twelve month basis, net sales were approximately 3.9 billion. I’m incredibly proud of our team’s disciplined execution on our operational playbook to deliver results in an uncertain and unbalanced shipment environment. Retail demand is seemingly constrained by macroeconomic factors, the war in the Middle East, consumer confidence and interest rate uncertainty. Importantly, OEMs and dealers have remained disciplined keeping dealer field inventories lean, positioning our markets for a sustained recovery. Our diverse end market exposure in deep and broad brand forward product portfolio remain a compelling advantage enabling us to deliver more complete full solution oriented offerings to our customers across the Good, Better, Best framework while deepening our partnerships with OEMs. We remain focused on empowering our brands to lead with innovation while engineering new products and experiences for our customers. The nimble scalability of the Patrick platform enables us to deliver quality with speed, depth and consistency across every end market we serve, driving content expansion, deeper OEM integration and continued opportunity for aftermarket growth. Our advanced product group is driving meaningful progress on multiple product solutions including our composite strategy and an entry level tower audio solution to help drive better affordability. We are increasingly collaborating with OEM customers to integrate solutions based models into new and existing platforms, replacing legacy materials with higher performing alternatives that offer durability, weight and design advantages. As a result of these benefits coupled with OEMs placing greater emphasis on material sourcing, we believe our ability to procure value-add, value-engineer, engineer and deliver full solutions will continue to position our value proposition as a true low cost solution for our customers, ever changing needs representing durable long term growth opportunity for Patrick. Additionally, our investments in technology and innovation continue to generate real measurable impact as the integration of automation and AI which is in its infancy are enhancing visibility, efficiency and responsiveness across our operations. These investments will help us manage costs, optimize production, navigate demand variability and better align and communicate with our customers, providing enhanced customer service. Regarding tariffs, our decentralized business structure, sourcing flexibility and close coordination with suppliers and customers have enabled us to mitigate impacts over time. Our team has expertly navigated changes to trade policy in the past and we are confident that they will continue to operate with agility, maintaining our position of strength. We do not expect a material impact to Our full year 2026 outlook from tariffs. From a financial standpoint, we used cash in operations during the quarter consistent with normal seasonality and reflecting a proactive strategy to add inventory that supports anticipated growth in customer demand for composites and other materials. Importantly, we continue to expect strong free cash flow generation for the full year supported by disciplined working capital management and the underlying earnings power of our business. While 2025 presented a more challenging valuation environment on the M&A front largely related to macroeconomic uncertainty. We continue to be excited about the deals we did execute and the ones in the pipeline currently being cultivated. Our teams are well equipped to advance our proven playbook targeting well run companies with durable value creation while prioritizing leadership, talent and cultures that align with Patrick’s long term objectives. Long term we are confident in our ability to outperform as a result of our organic growth initiatives, structural advantages and financial strength including end market diversification, strong balance sheet, robust free cash flow generation and operational agility. Patrick is well positioned to continue generating value across a range of market conditions and as demand in our markets recovers, we believe we will capitalize meaningfully. Now turning to our recent announcement regarding discussions about a potential merger of equals with LCI Industries, While we cannot discuss or confirm specific details at this time, we believe the potential combination of our two companies could provide additional opportunity to to drive value and better partnerships with our customers and in the form of innovation, value add, value engineering, cost effective full solutions and an overall low cost model to help partner in driving better affordability. Together, the two companies could further enhance our overall value proposition by obtaining substantial cost savings through synergies, operating efficiencies and deployment of best practices as well as continued development of our bench strength for long term shareholder value. We will communicate appropriately and in alignment with regulatory guidelines as appropriate and in accordance with regulatory requirements as we continue to evaluate this opportunity, I’ll now turn the call over to Jeff who will
Jeff Rodino (President)
highlight the quarter and provide more detail on our end markets. Thanks Andy and good morning everyone. Our first quarter RV revenue was 446 million off 7% from the same period in 2025, representing 45% of consolidated revenue. We outperformed a 12% reduction in RV industry wholesale unit shipments during the first quarter, which equated to nearly 12,000 fewer units being shipped. Our team drove RV CPU on a TTM basis up 8% to $5277 through ongoing adoption of our composite products and solutions. Coupled with market share gains during the period on a quarterly basis, CPU increased 6% year over year. Based on the data published by statistical surveys or SSI, we estimate RV retail unit shipments were approximately 63,200 and according to the RVIA, wholesale unit shipments were approximately 86,100 in the first quarter. This implies a seasonal dealer field inventory restock of approximately 22,900 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 19 to 21 weeks. This is up from the 16 to 18 weeks at the end of the fourth quarter of 2025, but remains well below historical averages of 26 to 30 weeks. We remain encouraged by the level of discipline shown by our RV industry and believe OEMs and dealers are committed to the long term health of the industry. First quarter marine revenues increased 14% to $170 million, representing 17% of consolidated net sales and outperforming an estimated 7% reduction in wholesale powerboat unit shipments. On a TTM basis, our estimated marine content per wholesale powerboat unit increased 17% to $4,657 on a quarterly basis. Estimated marine CPU increased 23% year over year. Our above market revenue performance and strong content per unit growth primarily reflect sustained benefits from our market share gains related to the latest model year changeover and the impact of acquisitions last year that expanded our marine electrical solution set and aftermarket presence. Based on data from SSI and NMMA, we estimate marine retail and wholesale powerboat unit shipments were 28,330 4,200 units respectively in the quarter. This implies a seasonal dealer field inventory restock of approximately 5,900 units. Dealer inventory in the field remains lean at an estimated 22 to 24 weeks on hand, up slightly from 20 to 22 weeks in the fourth quarter of 2025, remaining well below the historical averages of 36 to 40 weeks. Similar to RV, we believe disciplined inventory levels and improved alignment between retail and wholesale trends position the marine market favorably for a future rebound in demand. Our Parsports revenue increased 28% to 104 million in the first quarter versus the prior year period representing 10% of our first quarter 2026 consolidated sales. The continued strength in our Powersports revenue was driven by the further OEM adoption of our cab enclosures we provide through Sport Tech and other integrated solutions Team’s ability to drive increased attachment rates and expand content across platforms has further solidified our position as a key supplier in the space. As noted before, Patrick primarily serves the utility side of the powersports market which continues to demonstrate resilience relative to other categories partially due to the adoption of innovative features which have improved customer utility. We remain incredibly confident about the opportunity ahead for Patrick in powersports space with enhanced focus on innovation and expanding the existing cabin closures solution and growing our aftermarket presence. On the housing side of our business. First quarter revenue was 277 million, off 6% when compared to the prior year period representing 28% of consolidated sales. Manufactured housing represented approximately 56% of our housing revenue in the quarter, estimated content per MH unit on a TTM basis was $6,636 flat when compared to the prior year period as we focus on maintaining solid content in a softer demand environment. On a quarterly basis, estimated content per MH unit was flat year over year. We estimate MH wholesale unit shipments were lower by 11% in the first quarter, while total housing starts increased 1% as macroeconomic pressures, including interest rates and affordability constraints, continue to impact demand. We believe underlying demand for affordable housing remains intact, which we expect will be favorable for us over the long term and we are positioned accordingly Moving to the aftermarket side of our business Our platform continues to grow traction and we are aligning talent and infrastructure to support long term profitable growth. Our investments are aimed at improving visibility into key metrics that can help us uncover incremental opportunities at existing business units and identifying appropriate candidates in the M and A pipeline. Many of the targets we seek to acquire have existing presence in the aftermarket, supporting Patrick’s broader diversification strategy while offering important margin accretion benefits. Finally, I want to reiterate our excitement for the experience and provide an update on our first of its kind Digital Design Studio. The new technology is elevating how we engage with our OEM customers and they appear energized by the ability to iterate in real time enable faster and more collaborative decision making. Our Studio team continues to host a number of demos showcasing the capabilities of the space and collaborating with product leaders to make the experience a part of their design and engineering process as we approach the next model year changeover. We have hosted more than 25 working sessions and have already eliminated dozens of prototypes through this process. We believe the experience further embeds Patrick as an indispensable partner in the OEM product life cycle and represents a meaningful, durable competitive advantage as we drive greater operating efficiencies and more profitable growth over time. I will now turn the call over to Matt Fieler who will provide additional comments on our financial performance.
Matt Fieler (Chief Financial Officer)
Thanks Jeff and good morning everyone. Consolidated net sales for the quarter were $997 million off 1% from the first quarter of 2025. Our team delivered higher CPU on a trailing 12 month basis in each of our outdoor enthusiast markets as Jeff highlighted, which helped drive revenue increases of 14% and 28% in our marine and Power Sport end markets respectively, helping offset lower revenue in our RV and housing markets attributable to reduced wholesale shipment levels in the quarter. The year over year change in our revenue was comprised of 2% acquisition growth, 8% organic growth and negative 10%. Industry gross margin was 22.8% unchanged versus the first quarter of 2025. Operating margin of 6.5% was flat when compared to the prior year period. Our stable margins reflect our team’s ability to flex our operations in response to lower than expected RV and housing Demand in the first quarter. Our overall effective tax rate was 14.8% for the first quarter compared to 17.7% in the prior year. Net income was up 3% to $39 million or $1.10 per diluted share compared to net income of $38 million or $1.11 per diluted share in the prior year quarter. Our diluted earnings per share for the first quarter of 2026 included approximately $0.10 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 $0.05 per share. Adjusted EBITDA was $113 million compared to $116 million last year, while adjusted EBITDA margin was 11.4% lower by 10 basis points from the first quarter of 2025. Cash used in operations for the first three months of 2026 was $14 million compared to cash provided by operations of $40 million in the prior year period. This reflects an increase in working capital partially related to our strategic decision to increase composite material inventory in anticipation of customer demand. Purchases of property, plant and equipment were $19 million during the quarter. Total net liquidity at the end of the first quarter was $734 million comprised of cash on hand and unused capacity on our revolving credit facility of approximately $696 million with no major debt maturities until 2028. We have the financial strength and capital necessary to capture long term organic and inorganic growth opportunities at the end of the first quarter. Our net leverage was 2.8 times in the first quarter. We returned a total of $31 million to shareholders, including quarterly dividends of $16 million and $15 million for the repurchase of approximately 127,700 shares. We remain opportunistic towards share repurchases and had approximately $153 million left on our existing repurchase authorization at the end of the first quarter. During the second quarter through April 29, 2026, we have repurchased approximately 153,100 shares for a total of approximately $15 million. I want to briefly frame our thoughts regarding the rest of the year. We recognize the broader macroeconomic environment remains uncertain, particularly with respect to consumer confidence, interest rates, conflict in the Middle east, and thus the timing of a more sustained recovery in our end markets. Against this backdrop, we remain focused on executing operationally driving content and share gains, advancing our aftermarket initiatives and maintaining a disciplined approach to capital allocation, including ma. We believe these actions, combined with the strength of our diversified platform, position us to deliver solid financial performance even if demand conditions remain soft. With that, our 2026 outlook is as follows. We now estimate RV retail will be down low to mid single digits and RV wholesale will be 315,000 to 330,000 units in 2026. In Marine, we estimate retail shipments will be flat to down slightly and wholesale shipments will be up low single digits in 2026. In our power Sports end market, we continue to expect both full year unit shipments and our organic content to be up low single digits, implying an overall mid to high single digit increase for our business. For housing, we now estimate MH wholesale unit shipments and total new housing starts will both be down low to mid single digits for 2026. Moving to our financial outlook, based on the revisions to our end market shipments, we now expect our 2026 adjusted operating margin will improve by 30 to 50 basis points versus 2025. We have also updated our 2026 operating cash flow, which we now estimate will be between 370 and $390 million, with capital expenditures totaling between 70 to $80 million, implying free cash flow of approximately $300 million. For 2026, we continue to estimate that our effective tax rate will be between 24% and 25%. That completes my remarks. We are now ready for questions.
OPERATOR
Thank you. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Please limit to one question and one follow up question. Our first question is from Scott Stember with Roth Capital. Please proceed.
Scott Stember (Equity Analyst)
Good morning guys and thanks for taking my questions. Morning. Can you talk about the state of retail what you’re hearing in RV Camping World this morning? It sounds as if things are getting incrementally better from the dulness of the winter, at least in April. What are you hearing through your touchpoints? And also on the production side from OEMs what are you hearing and seeing from a production standpoint and also a mix standpoint?
Jeff Rodino (President)
Yes, Scott, this is Jeff. From a retail standpoint, I think I agree with what you heard from Camping World this morning. It is getting incrementally better. Certainly a slow start to the year in January with some of the weather and into February, you know, some of the macroeconomic things and consumer confidence is tamped it down a little bit. But you know, I think it’s incrementally getting better. You know, from a production standpoint. From the OEMs, they’re still being very measured in what they’re producing. They’re not over producing. They’re kind of falling in line with where things are at with retail down a little bit over year over year, but you know, overall keeping an eye on what retail is doing. So we feel really good about the patience and the discipline that’s going on in that market. As far as the mix, we are seeing a little bit different mix than we have through 24 and into 25. We saw really heavy on the entry level side. That mix is changing a little bit. We’re seeing a little bit more on the fifth wheel side, but overall not back to what we would call a normalized mix by any means.
Scott Stember (Equity Analyst)
So overall we feel good about where people are at and certainly hope to see the retail pick up even a little bit more. Got it. And then looking at the aftermarket, seems like there’s some continued gains there. Could you talk about the ongoing cross pollination efforts with the REC Pro platform regarding Powersports and Marine and the existing RV products from Patrick? Yeah. So since we made the acquisition in September 24, we’ve added over 500 different parts to the REC Pro site. I would tell you that within rv, I think we’ve added six or seven brands in several offerings from those brands on the marine side and even some on the Powersports. Certainly it’s been a little bit heavier on the on the RV side to start with. And we’ve really started to gain some traction in the marine and power sports parts that we’re adding onto the system. Got it. And just the last question on the margins, the lower growth outlook for this year is that just strictly based on the lower shipment forecast that you have,
OPERATOR
it absolutely. Is volume related to shipments, Scott. And I think one of the things that Jeff mentioned related to just overall discipline remains very, very strong. I think everybody is working in partnership, in unison to keep things in check with flexibility to scale up when needed. But everybody’s being very, very thoughtful about maintaining a balanced level of inventory to support the industry conditions today, but like I said, scalability. So for us it’s simply volume related. And I think what we’re confident in is our continued development, delivery of innovative products, our content growth is under our control and our teams have done a fabulous job of connecting with customers on our full solution. So overall, again, volume related, we’re offsetting the things with what we can control. Got it. That’s all I have for now. Thank you. Thank you.
Joe Altabello (Equity Analyst)
Our next question is from Joe Altabello with Raymond James. Please proceed. Thanks. Hey guys, good morning. Your first question on M and A and I’m guessing you probably don’t want to talk too much about the LCI or potential LCI transaction. But I guess my question there is, while those discussions are ongoing, does that impact your M and A strategy? Is it on hold at this point? It is not, Joe. And we’re continuing to be very active. I think the strength of our balance sheet, the tremendous amount of liquidity that we have, the pipeline candidates, we’re definitely active in the market right now cultivating deals regardless of an LCI transaction or not. And so we feel really good about our continued position to be on offense in this market and be able to take advantage of opportunities that are out there. So in no way are we impeded by any discussions at this point and certainly continuing to be aggressive on M and A. Okay. And then just to shift gears a little bit over to Marine, I think you mentioned your content per unit there on a quarterly basis was up 23%. You know, what’s. Maybe talk a bit more about what’s driving that and how you see that over the balance of the year. Yeah, our team’s done a really good job with innovation. I think, you know, when you look at the content growth not only in Marine, but in RB as well, you know, and as well in powersports, the combination of our advanced products group really working with our annual prototyping work that the team does, just a tremendous amount of focus on innovation. And like I said, customer solutions are really what we’re focused on today and becoming more value add for our customers, helping them bring costs down, you know, through those value add solutions, but innovative solutions. And so just across the platform, you know, our brands are continuing to work together to put solutions together in front of our customers that are compelling and exciting and help them differentiate their products. So just like I said, just tremendous effort and focus on collaborative, brand fronted, innovative, solution oriented products to customers is driving our content growth. Thank you.
OPERATOR
Our Next question is from Noah Zatzkin with Key Bay and Capital Markets. Please proceed.
Noah Zatzkin (Analyst)
Hi. Thanks for taking my questions. I guess maybe to drill down there a little bit more, you know, TTM CPUs, I think up 8% on the RV side, up 17% on the marine side. Could you just remind us, I guess, how you typically think about content growth as part of the kind of growth algorithm and are you seeing or expecting kind of like a step change versus how you used to think about things and if so, kind of what’s driving that? Thanks. Yeah, so typically the algorithm on our model is centered around a target of 2 to 3% organic content growth net of industry on an annual basis. And so, you know, that’s kind of the foundation for the model as far as kind of ongoing step change. I’d say we’re going to stay consistent with kind of expectations around that 2 to 3. But I would also tell you there’s tremendous opportunity based on the continued innovative solution development that our team is working on, to increase that number. And so, you know, I don’t know that we’re moving off of the algorithm, but certainly expectations internally continue to be elevated as it relates to the opportunities that are out there in front of us today, especially on the solutions front. So I think there’s upside potential to that algorithm. Thanks. And then maybe just one on manufactured housing obviously just took the. The outlook down there. So kind of maybe just a quick update on what you’re seeing that end market. Yeah, manufactured housing has been, has been, you know, declining over the last several quarters and it’s fairly soft right now is what we would tell you. We’re not seeing a lot of improvement at the moment. You know, I think everything as it relates to consumer confidence right now is, is constrained. And so we’re certainly seeing it on the MH side of the business, for sure. You know, so continued expectation right now is kind of standard. You know, we’re seeing declines in the MH industry. I think things are a little bit soft out there right now. Hoping for some increasing consumer confidence, but overall there hasn’t been a lot of change. We’ve seen the decline and, you know, it continues to decline. Thank you.
OPERATOR
Our next question is from Craig Kennison with Baird. Please proceed.
Craig Kennison (Analyst)
Thank you. Yeah, I wanted to start with tariffs and trade policy, which is impacting businesses in dramatically different ways this quarter. Could you just help us understand your supply chain and your production footprint and why that keeps Patrick insulated from some of these recent policy changes?
Jeff Rodino (President)
Yeah, Craig, this is Jeff. So you know, from some of the metal aspect of things on tariffs, a lot of what we’re doing is domestic. Certainly we’re still seeing commodity prices move in an upward direction, even if they are on the domestic side. But we’ve got a couple different kind of ways that we go about our policies and some of it is direct importer of record, we work through that through our business units and then in other cases we’re using importers or distributors in the states that are actually doing the importing. So, you know, it’s just a couple different ways that we look at it. And then, you know, as far as how we are trying to mitigate those tariffs is we work right back to the manufacturers to try to understand what the tariff impact is going to be, figure out how we can, you know, best mitigate those costs at the, at the starting point and then we work directly with our customers to really communicate up front what it means, what it’ll mean on a, on a go forward basis and really communicate with them to pass those along. I mean, I think we’ve said in the past that our tariff, I’m going to say policy or the way we handle it is that there’s not an impact to our margins on the tariffs, but we’re working very hard to mitigate those as best we can from the supplier all the way down through distribution.
Craig Kennison (Analyst)
Are your powersports partners cutting any CAB orders, for example, as they wait for more clarity on policy?
Jeff Rodino (President)
We’ve not seen that as of right now. You know, we’ve had a really good first part of the year on powersports and they schedule out their units a little bit further than some of our other industries. And you know, the scheduling that we’re seeing right now is still showing stronger orders and our focus on and concentration on the utility side has been extremely positive for us. On the powersports side, we just continue to see strong take rates on CAB upfits for utility units. And that’s been again a nice organic contributor for us and for our powersports team for the first part of the year and really through kind of the starting in the back half of last year. So we continue to be encouraged by the utility sector in powersports.
Craig Kennison (Analyst)
And then I guess finally, to the extent you can comment on the proposed merger of equals, what would you share with respect to either shareholder or OEM reaction, any timelines or hurdles that you’d face and maybe just comment on any potential portfolio overlaps that might be problematic as you discuss with Reg. Yeah, so what I can comment on, Craig, is that We’ve been very thoughtful about these discussions from the beginning, and the first and primary focus was on the customer and how can we be a better partner to the industry. And, you know, I look at the opportunity to enhance product solutions, you know, and really be able to positively impact our customers and partner with our customers, especially in this environment where things are uncertain and affordability remains in question. And so, first and foremost, you know, I’ll tell you that we were very thoughtful about that. And so, you know, we understand the risk and we also understand the opportunity to be a true partner to our customers in this space. And so that’s why that was kind of the overriding theme, you know, behind the discussions. And so that’s what I can tell you at this moment. But Customer first has been. Has been the priority and headline for us throughout the entire process. So we’ve been very thoughtful about that. Thanks, Andy.
OPERATOR
As a reminder to Star one on your telephone keypad, if you would like to ask a question, our next question is from Daniel Moore with CJS Securities. Please proceed.
Daniel Moore (Analyst)
Good morning. Thanks for the color and taking the questions. Operating just in terms of kind of the cadence, operating margin, Q1 essentially flat year over year. How should we think about the cadence of the 30 to 50 basis point improvement that you expect? Is Q2 kind of similar to Q1 with most of the improvement in the back half, or do you. Would you start to expect to start to see some of that improvement coming through this quarter in a dynamic environment? I think. Sorry, this is Matt, and I think we’re definitely looking at the second half being a little bit stronger than the first half. You know, as we saw in the first quarter, the markets were softer than what we were hoping for coming into the year. But we’re going to control what we can. And we still expect to see that 30 to 50 basis points improvement over a prior year. Typical Q2 Q3 seasonality, Dan? We would expect to see enough tick in margins. Okay. Free cash flow guidance, you know, essentially very little change despite the kind of lower ebitda. Just are you seeing incremental opportunities in terms of working capital and, you know, what’s the offset there?
Matt Fieler (Chief Financial Officer)
Yeah, that’s correct. So there’s definitely some working capital benefit baked into that.
Daniel Moore (Analyst)
Okay. And then just housekeeping in terms of if given where the stock’s trading here, I know it was $0.10 dilution in Q2 Q1. You know, what would that kind of quarterly dilution from the convert look like.
Matt Fieler (Chief Financial Officer)
At this point, Dan? I mean, it’s, it’s Pretty dynamic. I, I can’t really give specific guidance here. We would expect what we’ve, we’ve seen what $0.05 ish, kind of quarterly dilution is what I would continue to expect. Okay. While we kind of move through this.
Andy Nemeth (CEO)
Sneak one more in. Thanks, Andy. Aftermarket, you know, just kind of, you touched on this in some of the other questions, but where are you seeing the biggest opportunity in terms of cross selling? Just kind of remind us what your margins are and is that something. Would you consider breaking out aftermarket as a separate segment at some point?
Daniel Moore (Analyst)
At some point we certainly will. And we’ve got a strategy as it relates to our aftermarket program, which includes M and A. And so as we continue to deepen our presence in the aftermarket, it’s going to become more and more material as part of our vision and where we want to take that for the future. And so we will start to break that out and potentially break it out even further going forward. But the overall margin profile is accretive to Patrick’s consolidated profile today. And as we look at the aftermarket, there’s still tremendous opportunity organically with our existing product categories to get that onto our DTC sites and Rec Pro in particular and that presence to become kind of our overall outdoor enthusiast, direct to consumer site. So as we think about it, we’re, we’re still early in the game on aftermarket, but it’s absolutely a strategy. And we see not only, like I said, potential for organic growth, but M and A potential out there too today that we’re focused on. All right, thanks again for the color. Appreciate it.
OPERATOR
Thank you.
Tristan Thomas Martin
Our final question is from Tristan Thomas Martin with BMO Capital. Martin, please proceed.
Andy Nemeth (CEO)
Hey, good morning, Andy. You mentioned a couple times kind of advanced integrated solution based offerings as a benefit to the oem, both from kind of like a quality of life standpoint and also just improved affordability. Could you maybe give us a couple examples of what those are?
Tristan Thomas Martin
Yes, I mean, we talked about it in our release, but you know, we’ve got a low cost tower audio solution that we’re working on today. We’re working on helm solutions in the marine space that integrate our products and can help our customers bring their overall, their overall build cost down because of those solutions and our ability to procure and bring these solutions together. I think on the RV side, our roofing solution is very exciting to us, but as well some flooring solution opportunities that are upcoming as we look forward into the future. And so we’re really trying to. And our brands have really opened up again the collaborative process with each other to start to really think about how, you know, we can get, you know, solution oriented products to customers. And so there’s just a wide variety of things that we can do based on the depth and breadth of our portfolio that we’re very focused on. But those are some simple examples that I can give you that are really compelling today. And Tristan, one other thing I would add to that is, you know, our teams are really focused on, you know, the discussion of ASPs out there. We’re working very diligently with customers with our good, better, best offering to figure out how we can kind of mix and match, mix and match solutions to be able to drive some of those prices down and be, you know, be a better partner as they look to try to drive down those asps both on the RV and marine side. Okay, that’s good to segue into my next question. Where do you think ASPs for a model year 27 shakeout both in terms of whether it’s either your kind of incremental content gains and then also kind of what the industry is trying to do on a like, for like basis. Thank you.
Andy Nemeth (CEO)
Yeah, I’ll tell you, I mean we’re making a lot of strides on the composite side. So, you know, we’ll see some, we’ll see some gains on market share on the, on the model chain. So we feel really good about that. On the RV side, the marine and
Tristan Thomas Martin
power sports side, we’ve seen quite a bit of our capex that we’ve used so far this year go towards tooling on projects that we’ve been working on with customers leading into this upcoming model change. So we’re really excited about what we’re going to see on our model change in marine and power sports as well. As far as ASPs, really, you know, what we’re seeing is we’re seeing some higher prices on commodities that we’re being forced to pass along. Some of those are driven by the higher fuel prices, higher resins and some of the things that we’ve seen on the commodity side there, how that’s going to equate in the ASPs, I really couldn’t give you that answer right today, but it’ll have an impact. That’s why, like I said, our teams are kind of focused on that. So we’re trying to figure out in our good, better, best offering where we can take money out, where we see we have to add money back in with the commodities doing what they’re doing. So, so it’s a challenge, but our teams are really, like I said, laser focused on that for the customer and ultimately for the end customer. Got it.
Andy Nemeth (CEO)
Thank you, ladies and gentlemen. Thank you. I will now turn the conference back over to Andy Nemeth for closing remarks. Yeah. I want to just once again thank our team for just incredible dedication and commitment to continuously serving our customers better in this environment, which is extremely dynamic. And I’m really confident in where the company’s positioned today. We’re sitting on a position of strength, especially as it relates to our balance sheet, our team, the strength of our bench, to continue to really be aggressive in controlling what we can control and continuing to drive our business forward in alignment with our strategic plan. And so I feel really good about where we’re at, especially in this dynamic environment, to be able to flex both up and down as well deliver exceptional customer service. So I want to thank everybody for joining the call, and we look forward
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