Greetings, and welcome to the Patrick Industries conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may press star one at any time to be placed in the question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Steve O'Hara, Vice President, Investor Relations for Patrick Industries. Please go ahead, Steve.
Good morning, and thank you for joining us on the call today as we discuss Patrick Industries' acquisition of Sportech, LLC, which was announced this morning. I'm joined on the call today by Andy Nemeth, CEO, Kip Ellis, COO, and Matt Filer, Interim CFO. Andy will start by providing commentary on our strategic rationale. Kip will then discuss the acquisition and our powersports strategy in more detail, and then Matt will give the financial highlights. We will then turn the call over to the operator for questions. Before we begin, a little housekeeping. Our remarks in this presentation contain forward-looking statements, which could cause the actual results and events discussed to differ materially from those described in the forward-looking statements.
You should carefully consider the foregoing factors and the other risks and uncertainties relating to Patrick, as described in our annual report on Form 10-K for the most recently completed fiscal year and other reports and documents filed by Patrick from time to time with the SEC. In addition to our press release, which was posted at 7:00 A.M. this morning, Eastern Time, we have a slide deck on the investor relations section of our website at ir.patrickind.com. I will now turn the call over to Andy Nemeth.
Good morning, everyone, and thank you for joining us today. As highlighted in the video you just saw, we're very excited to announce and discuss our acquisition of Sportech, a leader in supplying high-value, complex component roof, cab, door, and window solutions, primarily to the powersports market and aftermarket. Sportech and its incredibly strong management team operate as a value-added design and manufacturing partner to their OEM customers and the broader off-road vehicle market. With long-standing customer relationships and a forward-looking approach, Sportech is trusted by its OEM partners to engage in a collaborative product development and the latest innovations in the industry and brings an already robust and growing powersports platform to join the Patrick family.
This acquisition helps Patrick to embed a leadership position as a supplier in the highly appealing and complementary powersports market, which we view as strategically important for a number of reasons that I would like to highlight. First, we view powersports, which includes side-by-sides, golf carts, motorcycles, snowmobiles, personal watercraft, and other off-road vehicles, as a natural extension of our outdoor enthusiast market, and we believe Sportech's strong management team represents an ideal partner for Patrick in further developing this platform. Following the acquisition, we expect revenue from our outdoor enthusiast end markets to represent more than 70% of our total revenue. Second, this is a continuation of our vision and plan to strategically diversify within the outdoor enthusiast space and profitably grow our business, adding another attractive end market and significantly expanding Patrick's total addressable market.
Third, Patrick is in a great position to support the Sportech team, given our strong balance sheet, existing OEM relationships, and synergistic product lines and manufacturing processes in tandem with our existing powersports businesses. And finally, we expect Sportech to be accretive to profit margins and EPS, boost free cash flow, and further drive shareholder value. I'll now turn the call over to Kip, who will go into greater detail on the acquisition and our growing powersports initiatives.
Thanks, Andy, and good morning, everyone. 30 years ago, Sportech began as a small team of snowmobile enthusiasts that worked together to create resilient and high-value windshields to protect and empower outdoor enthusiasts in the winter. Today, their more than 400 team members design, develop, and manufacture a comprehensive portfolio of products while maintaining their passion for providing innovative solutions to the outdoor enthusiast market. Sportech is a leading provider of premium component product solutions, such as integrated door systems, windshields, roofs, canopies, cowls, and fender flares to OEMs in the more resilient utility vehicle space, while also manufacturing premium components and accessories for personal transportation vehicles, ATVs, agriculture vehicles, motorcycles, and snowmobiles. Over the years, Sportech has developed its existing OEM relationships while consistently adding new customers to its book of business.
With 2023 estimated revenue of $255 million, resulting in a 5-year compound annual growth rate of 17%, Sportech has a strong track record of growth in alignment with the increasing demand for utility use case solutions in the side-by-side market. A long runway exists within Sportech's current product offerings, and we believe there remains significant untapped opportunity in the company's total addressable market, which we estimate at more than $2 billion. Additional upside potential exists in the adjacent markets. Sportech is a strong fit, both culturally and strategically, with the Patrick family, with low integration risk, possessing a strong leadership team, an impressive track record of organic growth, and a robust and complementary portfolio of products, while also providing us with immediate profit margin and net income per share accretion in fiscal 2024.
Additionally, we believe numerous synergies exist between Sportech and Patrick that we can begin to unlock within the next 12-18 months. These include, but are not limited to, complementary manufacturing and forming capabilities, our plastics and metal fabrication capabilities and tube bending specialties, and over $100 million in similar sourced materials, including fabricated metals, plastics, polycarbonates, among others.... Sportech helps to solidify our platform for future organic and strategic growth within the powersports market, and in tandem with our industry-leading platforms in the RV and marine markets, enable us to accelerate our momentum in the attractive outdoor enthusiast space. Our acquisition strategy remains centered around finding entrepreneurial businesses with strong leadership teams, compelling innovative product solutions, and a history of solid financial performance.
We've worked hard in the past several years to continue to build a premium lineup of premier brands and organically cultivate a pipeline of strong acquisition targets. We will continue to drive this premium product position as we innovate and grow our share through highly engineered products and solutions. We continue to see the appeal of growing our aftermarket exposure and accessory building capabilities in our portfolio, as we provide consumers with improved utility while strengthening our OEM product solutions at the same time. Sportech bolsters our aftermarket exposure, with over 45% of its revenue being aftermarket, sold through the OEM dealer channel. We expect to continue to invest in the powersports market, along with our other strategic outdoor enthusiast end markets.
We also see promising potential in a broader side-by-side market, given our existing businesses like the Progressive Group, Rockford Fosgate, and Wet Sounds, and look to continue to expand in the space when advantageous from a financial, cultural, and strategic standpoint. The utility vehicle segment of the side-by-side market has seen solid, steady growth and continues to be Sportech's largest end market. Utility vehicles overall have continued to increase their penetration over the years through OEM innovation, supported by Sportech's engineering and its ability to expand the array of product solutions it provides. Through Sportech's value-added and highly engineered products, utility vehicles have increased their functionality and attachment to numerous industries, including agriculture, snow removal, and law enforcement, just to name a few. I'll now turn the call over to Matt to discuss the financial details.
Thanks, Kip, and good morning, everyone. As announced, we have agreed to acquire Sportech for $315 million in cash, which we expect to fund through our strong liquidity position, including a combination of borrowings under our existing credit facility and cash on hand. Sportech's estimated 2023 revenue is $255 million, and adjusted EBITDA is estimated at approximately $41 million. We expect to realize annualized synergies, as Kip mentioned, of more than $5 million within the next 12-18 months. Based on these figures, we estimate an acquisition multiple of 6.8x, not including any potential tax benefits. Consistent with our brand-forward strategy, Sportech's management team will continue to operate the business as a subsidiary of Patrick and its existing facilities.
We will support the Sportech team as they do what they do best, innovate and provide a growing portfolio of great products, services, and solutions to their valued customers. We expect the deal to close on or before January 24th, subject to regulatory approval. Post-transaction, we will be highly focused on deleveraging and maintaining a strategic leverage position. As a reminder, our capital structure is solid and strong, with an estimated liquidity of $400 million-plus post-transaction closing and no major debt maturities until 2027. We expect the deal to be immediately accretive to profit margins and earnings per share for fiscal 2024. Given our strong financial position, liquidity and capital structure, flexible operating model, and prudent working capital management, we will continue to proactively evaluate potential acquisition targets.
When appropriate and advantageous, we will deploy capital as we continue to focus on driving shareholder value while maintaining a strong balance sheet and generating solid free cash flow. That concludes our remarks. We would now like to turn the call back to the operator for questions.
Thank you. We'll now be conducting a question-and-answer session. If you'd like to be placed into the question queue, please press star one on your telephone keypad. You may press star two if you'd like to remove your question from the queue. Once again, that's star one to be placed into question queue. Our first question is coming from Craig Kennison from Baird. Your line is now live.
Hey, good morning. Thanks for taking my questions. And Steve, thanks for the multimedia presentation. Well done. So I guess my first question, I'm sure you guys did a ton of diligence around this. One concern we have about the powersports channel in 2024 is simply, you know, we're at the end of what we think is a restocking cycle, so it may be more challenging to find growth in 2024 because you don't have that restocking tailwind. Is that something you contemplated, you know, when you made your forecast for 2024 and buying this company?
Good morning, Craig. This is Kip. Appreciate the question and certainly understand the basis for it. We've in through the diligence process, we've really worked to get our arms around the side-by-side market and the mix that plays into this and where dealers sit from an inventory position. One of the things that we recognize is, from a retail standpoint, with lending rates and that perhaps being a little bit of a hindrance on where things are headed for this marketplace, Sportech does work in the mid- to- premium lines of these products, with a high mix of cash buyers and continued really strong backlog from an order book standpoint. They've got views that go 20 weeks and beyond with customers.
So we certainly feel they're in a position to start the year strong in 2024. But we've taken a balanced perspective from an end-market standpoint. But one of the things we're excited about from a tailwind standpoint is just the continued attachment rates that we're seeing, as more and more cab enclosures are being created in this space. There's a trickle-down effect that's occurring throughout the kind of the laddering of these products in the marketplace. And so as we think about the market on a total units basis, they're not in that lower end; there's not a predominance of their products in the lower end space, which we know that there's been some inventory fulfillment that has taken place there.
We feel good through the combination, the attachment rates they're seeing and the mix of that mid- to- premium product space that they play in.
Yeah, thank you. And then I'm wondering if you could just help us from a modeling standpoint with maybe the gross margin profile, the EBIT margin profile, and then the cost of debt or interest expense associated with this transaction, just from a modeling standpoint.
Yeah. So Craig, this is Matt Filer. So on, as far as the debt standpoint, so we're funding the acquisition through use of our existing credit facility, our revolver. If you look at the interest rate profile on that, we'll call it a little over 7%. If we talk about the margin profile, I think you can see the $41 million in EBITDA, adjusted EBITDA over the $255 million in revenue, so that'll get you a decent percentage calculation for that.
Okay, great. I'll get back in the queue. Thanks.
Thank you.
Thank you. Next question is coming from Mike Swartz, from Truist Securities. Your line is now live.
Hey, good morning, guys. Just maybe, maybe a question on the growth profile of this company. I think if we, if we go back 5 years, I think you said the CAGR for this business is about 17% or so. I want to say over the same time, you know, the unit volume CAGR of this industry is probably, you know, low to mid single digit type growth. So, you know, can you help us foot, you know, w- how have they outpaced the industry so quickly? And maybe within that 17% growth CAGR, is there any way to look at how much of that is, is volume versus maybe pricing or mix?
Good morning, this is Kip again. Appreciate the question, and that is one we're continuing to work through getting our arms around the data for the mix of products. This is a young, growing space, and so the data in terms of the mix and as these are registered by the consumers, sometimes there's a little bit of kind of gray area there as to what type of a side-by-side it might be. But the data we've been able to collect and the excitement we've got with regards to the attachment rates, the concepts of HVAC being something that's employed in these platforms now.
So you've got heating and air conditioning in a unit on a utility basis that has the opportunity to bridge both the sporting and recreation usage mindset, as well as utility in an array of different markets that we've touched on in the script and some of what we have presented here. So we think from an attachment rate standpoint, we've seen data showing the attachment rate, the continued expectations of the consumer in terms of creature comforts. In a lot of cases, these units are replacing Jeeps and pickup trucks in that off-road space, that recreational space, and so consumers are pushing for, you know, the assortment of products would come with that. And so Sportech's done a great job.
You know, just there's inherently in doing a cabin closure of developing roofs and windshields and doors and cowls, which they've worked very closely with the OEMs in getting completed to provide that enclosure. But they've also taken the opportunity to expand the product offering in doing that, into thinking about wiper systems, mirrors, lights, and the like, as they work to think about a complete offering for this customer. So that's one of the things we're excited about as well. We expect to see continued content growth from them, independent of what the market may do. We're starting to see adoption rates at a broader array of OEMs beyond the players that have initially brought the HVAC systems to the table.
And then from a synergy standpoint, we see excellent opportunity within our organization for the legacy businesses that we have, that have a products that fit within that same mindset about driving greater creature comforts in a vehicle like this to emulate, in some form, kind of the expectations of what customers have, you know, if they're bouncing around a Jeep or a pickup or what have you. And so super excited about where this can go. And then it's not just side-by-sides, as was touched on earlier. The personal transportation vehicle space, the golf carts, is something that they're pushing into. They've got a good, solid foothold with the key manufacturers within that space, and the product portfolio is growing there quickly, so we see lots of good runway there, too.
So, a good balance, independent of really what the market does on a total units produced basis. We see the content growth being something that absolutely will continue, but the shift from this utility platform standpoint, something that we view is highly attractive to us and one that we'll look to bolster with our products.
Okay, that's great. Thanks, Kip. And then maybe just a question, just given the relative size, I guess, of the aftermarket business here. I think you quoted about 45%. Is there any way of digging even within that number and kind of contextualizing how much of that is maybe repair, replace versus, you know, upgrade, enhance?
So to this point, they've not explicitly provided a lot of detail. It goes through the OEMs parts and accessories groups. And so the visibility of what that is for Sportech at their level is somewhat, you know, not something that they've got a lot of transparency on. But we do know that the attachment rates for the vehicles from an upfit standpoint is something that they're seeing more and more demand. And it's a bit anecdotal, but we know through the proliferation of this that's occurring on the OE side, there's more and more push for that. And so a lot of these components as well are products that are still relatively young in the space. So from a repair standpoint, replace standpoint, we wouldn't anticipate, you know, that's mature just yet.
So we see, we see good pipeline and a tailwind with that as well. But certainly accessorization drive the gaps in the absolute right product being in inventory at a dealer. And so what can be done by the dealer to support the upfitting that a consumer may want has been something that we would have anticipated to fuel this as well. But we'll get, we'll get greater data on that as we continue to move forward. But we think there's tailwinds, both from an upfit standpoint as well as a maintenance, repair, replacement basis.
Great. Thanks, Kip.
Thank you. Next question today is coming from Daniel Moore, from CJS Securities. Your line is now live.
Thank you. Appreciate the color and taking questions. Maybe just the revenue, if this was clear and I missed it, forgive me. 17% CAGR, is that all organic, or how was that partially via M&A as well?
The CAGR has been organic.
Yep. Okay. And maybe just talk to any customer concentration. You know, I can sort of guess who the largest customers would be, but you know, anything of note there?
Yeah, Daniel, it's Kip again. So it's what you would expect. They've got a terrific presence with the leaders in the market, as you would expect, as you look at the mix of the manufacturers within this space. Those that have been earlier to adopt the cabin closure systems are those that they've got the appropriate presence, and then some are growing quite quickly. But they've got a long tail as well. So that's one of the things we were really pleased to see the entrenchment from a connection standpoint with these customers and working with them. They get visibility of these platforms a couple, 3 years ahead of when they come to market.
So they've got a good understanding of how they can work and partner with these providers or these manufacturers to accessorize these units. So, from the side-by-side platform standpoint, you know, really any player that you can think of, they've got a relationship with in some form. And then, you know, the personal transportation vehicle space as well, the players that you would expect to see on a mixed basis are aligned with Sportech as well.
Perfect. Appreciate it, Kip. Just, we're just speaking to that. Obviously, you've got the long-term, long-standing customer relationships, but, you know, the other sort of core competitive advantages, is it core processes, thermoforming? You know, why do they win?
Yeah, good question. I appreciate that. So, one, you know, they're based in Minnesota. It's kind of the origins of this space from a sporting standpoint, so they've lived and breathed this. The team is active in this space. Product innovation development is something that is an absolute strength, and so customers look to them to be thinking about, okay, what is next? This is something that it's a growing market. It's a bigger pie that's being created, and so what is possible? And so as they look to partner with customers, and customers look to partner for them. So that inherent engineering capability and expertise, I think, is something that's sticky and works well with them. With that, they develop intellectual property for the products they produce, and so provide additional security and support.
So they think about over the long haul with these customers. These are long-term partnerships, and, you know, thinking about just continuing to push the innovation front. And so, they've got R&D cells within the facility to bring customers in and show them the potential from a prototype standpoint of what can be possible. And, so it's, it's a great method by which, you know, from the relationship standpoint, the connectivity they've got there, as well as with the expertise from a product development standpoint to show that provides, you know, really, I think, you know, solid runway and security for the relationships they've got with these customers.
Perfect. Maybe one more, or maybe one A, one B, but just talk a little bit more about potential revenue synergies and kind of give us the size of the opportunity to deploy additional capital in terms of M&A in this space. You know, I guess a better way to ask the first part is, pro forma, what's your content per vehicle in these markets, and what's the size of the opportunity? And then, you know, kind of what's your market share and ability to deploy more capital, you know, organically and inorganically? Thanks.
Sure. It's absolutely something that was exciting for us as we looked at this deal from a synergy standpoint. On the revenue side, so you, you think about our presence today, we have, Rockford Fosgate, which is the leading audio provider, audio systems provider to the powersports space, with long relationships with the key leaders in that market, such as Polaris and BRP, Harley-Davidson. Wet Sounds, another one of our audio divisions, has got a, a really solid presence in that space as well. And then we've got a, a division called the Progressive Group that works from a rep and, and distribution standpoint to have products positioned appropriately around the country to serve dealers' needs. And so we feel really good about that. There's particular synergies that we're excited about with the roof systems that, that Sportech provides.
The audio systems that are provided by our audio companies, inherently on an aftermarket basis in particular, are ones that those pieces mate together, so that's a module. We've talked about the systems approach that we're taking as an organization, providing solutions to customers and dealers and consumers. So there's a natural connection there with that. Our electrical capabilities from a wiring standpoint and from a harness standpoint cross over well from our other businesses. Then from an entrenchment standpoint, we see terrific complementary alignment with what we have in the way of polycarbonate plastics forming, drape forming, vacuum forming, roto-molding capabilities, tube bending, which are components and elements of this that play right into the same space. So there's terrific synergies on the sourcing side. So excited about that.
The revenue side, I think the relationships that Sportech they've got a broader expanse of relationships. And then, you know, with them being focused on the utility side, it opens up some opportunities for us to think about for the players that we do have in the powersports space, exposing those products on a broader basis. And so terrific opportunity there to look at stepping into that and thinking about that module concept again. And then from an M&A standpoint, much like what we looked at with, you know, RV, the RV space years ago and what we've done more recently in the marine space, it's a fragmented supply base, and it's one that we looked at to Sportech as a foundational platform for us within this.
As we consolidate and look at Sportech, combined with our other entities that operate in this space, we're approaching about $500 million in top-line revenue that's expected in 2024 in powersports. So we feel like we've got the heft and the presence in the market, and then the synergies from the revenue side, from relationships and with products. And to combine that then with what's potential from a sourcing standpoint, which I may be getting ahead of you a little bit, but a lot of crossover in terms of manufacturing technologies and capabilities that fit really well with the existing businesses on our portfolio.
Dan, this is Andy. I just want to follow up on your M&A question and organic and what we see for the future and our liquidity. As Matt mentioned, you know, even post-closing, we've got more than $400 million of liquidity. Our capital structure is extremely strong, as we've talked about. We're going to be intently focused on deleveraging. With the strength of our cash flows, though, we feel really strong about our ability to do so. We're in a great position from a working capital perspective. Our team's done a fabulous job of managing inventories. So we sit here today, you know, with strong liquidity, a strong balance sheet, an ability to flex this business model very quickly, and incredible cash flows. So as we look at this, you know, our acquisition pipeline is extremely full.
And so, you know, I would tell you, while we're intently focused on, you know, deleveraging, we're also going to be open to opportunities that exist while staying controlled and disciplined related to our leverage profile. So, you know, we're continuing to cultivate opportunities, and I think we're very excited with the tremendous performance that our team has delivered. You know, we're in a position to be on offense right now as we look at the future and where things sit. So while the markets are calibrating, we're in an opportunity position to be able to take advantage of great deals like this and great companies like this. So super excited about where we sit. Going to stay very focused on, you know, maintaining discipline within the business.
Deployment of capital is something that we focus on as it relates to capital allocation, and M&A is a part of what we're going to call our DNA, and so we're going to continue to cultivate the acquisition pipeline.
Terrific. Appreciate the color.
Thank you. Our next question is coming from Scott Stember from Roth MKM. Your line is now live.
Good morning, guys, thanks for taking my questions. Could you maybe just talk about some of the cadence of, of that 17% growth over the last, five- years? Obviously, the last year was, seems like was a down year for many of your customers, but just trying to get a sense of when you look at the multiple that you paid, and it seems like you're, you're paying on depressed, EBITDA, so it looks like a pretty sweet deal, at least from our perspective.
Yeah. So as we look at kind of where this is at, one of the things as we've talked about is the continued upfit in the markets. And so Sportech and its focus on premiumization of the units, you know, and really playing in that higher-end space, has really kind of delivered, you know, above and beyond kind of what we're going to consider shipment growth in the space as just as it relates to base units. So they've been very focused on staying ahead, forward-looking and working with customers to be in that position. So as we look at it, you know, tremendous organic growth that we've seen with that CAGR, and then as we look at the M&A pipeline that exists out beyond that in the space, there's tremendous opportunity there.
But overall, when you look at kind of the multiple and the cash flows and the strength of the company, you know, as we looked at this, heading into 2024, again, in balance, and we've done a ton of diligence on this, and we love this management team. They fit right with our culture. They're strong operators. They understand the business, they understand their customers, and they know how to innovate. And that makes them extremely strong as it relates to, again, a wonderful player in our family of incredible portfolio brands. And so, you know, looking out, I think that we're excited about the deal potential that's there. We love, you know, the opportunity that we have here.
As I said before, you know, when we talk about kind of our capital position and structure today, we're in a position to take advantage of great opportunities like this with great companies. We don't buy broken businesses, and so this is a fabulous business that's done very well, and, you know, we couldn't be more happy to have Sportech as part of the family.
All right. And last, just on the cash flow that you talked about and the liquidity. Just the near term, could you just talk about just working capital? Obviously, you know, some of your core businesses right now are a little depressed, but just how should we look at cash flow over the next couple of quarters?
... Yeah, I mean, where we sit today, like I said, our teams have done a fabulous job of managing inventories, and we're in a strong inventory position. We are, in fact, as we look at our markets and the potential with where we sit today and the potential tailwinds that could be building out there, we're actually in a position where we're saying, "Okay, we may have to increase inventories a little bit." So as we look at working capital, we're certainly very, very comfortable with our liquidity position today and how this flexes. We would expect a little bit of working capital increase in the first quarter, as we always have. So that's not unusual from a seasonal perspective. But our team's discipline on managing inventories has been incredibly. They've just performed incredibly well.
So as we look at this, we're very comfortable with our liquidity position and where that sits, working capital. We're going to flex up working capital a little bit in Q1, a little bit in Q2, but stay very, very thoughtful. We are a high variable cost business, throwing off tremendous cash flow, and we have the ability to manage this business, you know, and stay disciplined and thoughtful while being there to support our customers and their growth needs. So we're in a great position to scale, and like I said, our teams have done a fabulous job of managing inventory.
And if I could just throw one last one, just dovetailing on that last comment about variable costs. How does the cost structure at Sportech compare to the core Patrick business?
The cost structure is going to be a little bit similar to more of our... in the businesses in our marine space, a higher engineered product category. You know, highly, highly innovative, higher engineering, so a larger fixed cost structure versus variable costs. But again, the margin profile on this supports that model. And again, as we look at kind of the stability of the cash flows, we look at the backlog that the company has, the continued trend towards premiumization, we feel like we're, you know, that we're going to continue to be able to leverage this. So we've taken a very, very thoughtful approach to this business, but from a cost structure perspective, it's a higher engineered product category with higher margins.
Got it. Thanks again, guys.
Thank you. Next question today is coming from Brandon Rolle from D.A. Davidson. Your line is now live.
Good morning. Thank you for taking my questions. First, just on the competitive dynamics and the different component solutions they offer, could you walk through, I guess, for some of their, the main components, what their market share is and maybe how many competitors or main competitors there are in those markets?
Hey, good morning, Brandon. This is Kip. Touch on that. So they do have an array of products we've talked about that are part of the cab enclosures. The door systems are kind of the foundation that a lot of this, this cab enclosure system is built upon. The windshields are on a polycarbonate basis, something that's been out there. They're doing more and more with glass now, and so we see terrific opportunity for growth in, in this, in this side-by-side space, but also in the other markets we've alluded to, in addition to, expansion into some of the other markets in which we serve. So I'll tell you that from a, from a competitive landscape standpoint, these are, these are complex products. There's more than 200 and some odd components could be in a door system.
So it's something that it isn't easily emulated. Because they're focused so heavily in innovation, that we're excited to see that really they're ahead of the curve, working with our customers on things 2-3 years out. So from an OEM standpoint, we don't see a deep competitive marketplace by any means. There's some aftermarket players that play in there, but they're not. These products need to be designed to fit. You know, you've got tubular frames. There's an inherent engineering kind of comprehensive look that needs to be taken at these to get this to fit up properly. So we feel really strong about where they sit. They're absolutely the number one provider of these products to the market.
We believe they're likely the largest provider of components to the powersports space, and so we're excited about that foundational piece. But, from a competitive standpoint, we just see that they're in a terrific advantage position given kind of where they sit, the relationships they've got, and an unrivaled product offering.
Great. Just one last question. I think you gave out about a 16% EBITDA margin this year. Could you talk about the progression of margins over the past five- years and maybe where you think you know the upside is for margins for this business? Thank you.
Yeah, Brandon, I think that what we expect out of Sportech is continued leverageability of the fixed cost structure. You know, in alignment with where we're at, we don't expect to have to add a lot of overhead to support capacity and growth. And so Sportech sits very well to continue to drive incremental margins, as we continue to feel some tailwinds, you know, in the space, and especially, again, as we have alluded to on the premiumization of the units. You know, we expect to continue to leverage this on a go-forward basis to drive incremental margins for the future. So, you know, we don't think we're stopping here at these margin levels.
Great. Thank you.
Thank you. Next question today is coming from Tristan Thomas- Martin from BMO Capital Markets. Your line is now live.
Good morning. Just one question for me. Is there any concern that the ORV OEMs will need to address affordability by either decontenting or mix shifting lower? Thank you.
Yeah. Good morning, Tristan. This is Kip again. That's something that through our diligence, we've explored and wanting to understand customers' acceptance of these components in the favor. And so from a product pricing standpoint, we see continued runway without question. There's certainly been content ads that have occurred that have driven, you know, the MSRPs up on these units, but this is an affluent buying group. We're talking about that mid- to- premium segment of the marketplace, and so as they're starting to think about comparative purchases on this, and they think about, you know, is it a pickup truck that I'm looking at, or a Bronco or a Jeep, we see a lot of runway that remains from a content offering standpoint to take products into this.
And so we've got inroads through our other divisions, and we've talked about audio, but, you know, security systems and cameras and lights, and, you know, wireless charging capabilities, the electronics capabilities we've got on a broader basis. There's a lot of runway for integration potential, and consumers are continuing to push that envelope, and that's one of the things that we're excited about, is that we are consumers. We play in this space. You get out to events, and you see how these units are used, and you see what's going on in the aftermarket from an upfit standpoint, and they're just continuing to push the envelope from a product upfit standpoint.
These OEMs do a nice job of keeping an eye on that and working with partners like Sportech in particular, on thinking about how they can integrate that and offer it at the OEM level as a factory-orienting good. We've vetted that. You'll always have that entry-level segment of the market that will be available for consumers, but this continues to see runway, and the HVAC systems in particular, kind of providing them that alternative to what could be a, you know, a much higher ticket vehicle that they would have, that they would use, in the way of a truck. So from an ORV standpoint, we see great continued runway for content add.
Okay. Got it. Thank you.
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