LCI Industries

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 LCI Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Victoria Syvers with Investor Relations. Please go ahead.

Good morning, everyone, and welcome to LCI Industries' fourth quarter 2020 conference call. I am joined on the call today by members of LCI's management team, including Jason Lippert, President, CEO, and Director, and Brian Hall, Executive Vice President and CFO. Management will be discussing their results in just a moment. But first, I would like to inform you that certain statements made in today's conference call regarding LCI's industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which would cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in the company's earnings release and in its Form 10-K and its other filings with the SEC. The company disclaims any obligation they're undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason Lippert. Jason?

Jason Lippert Good morning, everyone, and welcome to LCI's fourth quarter and full-year 2020 earnings call. 2020 was not only an extremely challenging year, but also a pivotal and rewarding one for both LCI and the outdoor recreational industry as a whole. In the face of extraordinary operational challenges, we leveraged the skills of our experienced leadership team and pulled together to deliver what we consider to be outstanding results, including the highest annual revenue in LCI's history and double-digit earnings growth despite a six-week period where there were essentially no RV sales. Further, we made significant progress with respect to our long-term diversification strategy, closing on three acquisitions and expanding our market share across our RV, marine, adjacent aftermarket, and international businesses. None of this would have been possible without the unwavering dedication of our incredible LIFR team members who rose to the challenge and worked bravely and tirelessly to ensure we could meet the unprecedented industry demand from consumer streaming into the outdoor recreational lifestyle. Ending the year strong, we exited 2020 with $2.8 billion in revenues up 18% year over year. Importantly, this growth was supported by strong performance of our aftermarket and adjacent market segments. Aftermarket revenues more than doubled during the year due to the addition of the CURT Group, which has done very well since we announced the acquisition in late 2019. Our performance outside the RV business underscores the success of our diversification strategy, which has been a critical driver in outperforming our industry and helping to establish LCI leadership in the many industries it now serves. RV OEM sales increased 3% during the year compared to 2019, reaching $1.5 billion, primarily driven by the ongoing surge in retail demand as new consumers and their families enter the RV lifestyle and recognize the benefits of RVing. This increase was partially offset by the industry-wide production shutdowns in the first half of the year, after which we saw incredible recovery to ultimately deliver 29% sales growth for this segment in the fourth quarter. Industry wholesale RV shipments for the year totaled roughly 430,000 units which was the fourth highest wholesale year on record. We expect this number to rise further in 2021 and beyond, driven by heightened consumer demand and extreme popularity of RVs going forward in a post-pandemic environment. We believe that the growth in popularity and availability of peer-to-peer RV rentals will also help drive RV demand, creating a huge new opportunity for consumers to try RVing, ultimately bringing them into the lifestyle over the long term. Outdoorsy, one of the largest peer-to-peer rental companies, grew 4,500% to over $1 billion in rental revenues in 2020, while others in the space grew significantly as well. While we anticipate continued supply chain constraints heading into 2021, LCI and its customers are doing well at mitigating these challenges. As I've said in the past, when challenges arise, the industry is excellent at finding solutions quickly. We also add a capacity so that we can continue to stay ahead of the demand of ROEMs. We've leased six new facilities in Q3 and Q4 of 2020. All outside Elkhart County in the northern Indiana area, we are quickly staffing up to increase our production output. Additionally, we have two significant building projects already moving and are evaluating others. We are also continuing to leverage our automated processes in our operations, enabling us to further ramp production without the need for much labor. Finally, we are leveraging our lean teams and have turbocharged our continuous improvement projects, so that we can continue to free up more manufacturing space. I am proud to say that we are on pace to complete a record number of continuous improvement projects this year. Our team also delivered further content growth for the year in both towable units and motorhomes, echoing the strength of the Lippert brand despite the recent wholesale mix shift towards small entry-level units driven by the surge of first-time RV buyers. Content per towable RV for the full year 2020 adjusted to remove Furion sales from prior periods increased 1%, from the prior year to $3,390, while content per motorhome RV for the full year 2020 increased 8% from the prior year to $2,479, supported by the success of our new product offerings. Despite the obstacles we faced and overcame during 2020, our diversification strategy remained a top priority as we successfully grew our non-RV businesses, both organically and through acquisitions. We reached a significant milestone in our strategy during the year, with our adjacent markets, aftermarket, and international businesses now making up more than 50% of our total net sales, up from 42% at the end of the year 2019, despite the large boom in RVs. We believe that diversification will help further establish our presence in the broader outdoor recreation market to drive long-term growth. Our large adjacent market contributors are still cargo and utility trailers, components for buses, boats, and other commercial vehicles, as well as windows and other products for manufactured housing and residential housing markets. As I mentioned earlier, our revenues in the aftermarket segment more than doubled year over year, up 125% compared to 2019, primarily driven by the addition of the CURT Group, which remains our largest acquisition to date. We are pleased to say that the CURT teams demonstrated their strong operational skills throughout the year, realizing cost synergies and exceeded their pre-COVID target numbers, and have entered 2021 with a backlog triple of what they started 2020 with. Our RV aftermarket group also knocked the cover off the ball by outperforming their pre-COVID targets as well. Our aftermarket and adjacent businesses proved to be resilient through the pandemic and were the workhorse of our business during the time that our OEM businesses shut down. We believe that in times when our RV and marine OEM businesses are down, our aftermarket businesses will provide opportunities for growth. This is one of the reasons we will continue to invest in this part of our strategy as we continue to steer our aftermarket business toward the billion-dollar mark. We have continued to focus our attention and resources on the customer experience in the aftermarket world. We believe helping to change the customer experience will be pivotal to our future success as we support first-timers coming into the RV lifestyle. Like we typically do, to help drive this initiative, we appointed a leader for this area in Q1 of last year. Nicole Salt is a seven-year Lippert vet with 10 years of additional experience as an RV OEM Director of Customer Service. As Director of Customer Experience at Lippert, She has started to build a team and has already launched several great initiatives to get closer to the consumer and gather more valuable feedback. We also hired Joyce Schofield, who came to us with a great experience from OnStar and Guardian as a call center leader to help change the customer experiences that pertain to the over 60,000 customers each month that reach us by phone or email to get service on our products. We've additionally launched two social communities that are providing excellent feedback for our products and services. The Lippert Scouts, as we have named them, is a group of specifically selected RV super users that connect daily with our customer experience teams. The Scouts, numbering over 1,200 members, will serve as our eyes and ears to provide valuable insights on our new and existing products. We will be listening to their new ideas and engaging in conversations so that we can obtain important feedback to help solve RVing issues. We've also launched a campground project. through which we are sending technically experienced team members to over 100 campgrounds nationwide to meet, survey, and collect candid feedback from real campers and RVers. We are confident that our continued emphasis and passion for the customer experience can serve as yet another competitive differentiator to drive growth for our aftermarket segment and OEM segments, and in turn strengthen our overall business. Turning to adjacent markets, 2020 revenues rose 4%, again driven by the heightened retail demand for marine and other related markets. which continue to benefit from the similar secular tailwinds driving the growth across the RV and the aftermarket. Looking forward, the additions of Challenger Door, leading manufacturer of branded doors for RVs and specialty trailers, and Viata Industries, a manufacturer of marine seating, will both serve as new growth drivers for the OEM segment. And we are excited to continue to integrate these businesses into LCI. Viata has a substantial relationship with Polaris-owned Bennington Boats, the largest pontoon builder in the country. And we are looking forward to adding more value to that relationship as we continue to grow with Polaris and its applicable segments. Our marine revenues for 2020 have eclipsed $205 million and are expected to increase with a ramp-up of the industry in 2021. It is noteworthy to announce that we have been working closely with Tracker Marine over the last 12 months. Tracker, one of the largest and most well-known boat brands and boat builders in the U.S., has decided to shift its marine furniture production from a vertical preference to Lippert through our tailor-made marine group. further strengthening our presence in the marine space. Over the long term, this collaboration will add business to several Lippert U.S. facilities, including a dedicated marine seating facility in Missouri near the Tracker campuses. We look forward to working with Tracker to develop a strong relationship and drive growth for both businesses. In addition to marine, our windows business in our adjacent markets, our third largest product line in the company, has continued to gain share in the commercial, bus, manufactured housing, and residential housing market. Our international businesses saw strong growth in 2020 as well, with revenues increasing 62% year-over-year, supported by the four acquisitions we closed in late 2019. The strength of these brands, coupled with their culture and innovation, wide-reaching footprints, and customer relationships in Europe have continued to help position Lippert as an industry leader overseas. The various European countries in which we operate, including Italy, the Netherlands, and the U.K., seem to be slightly behind the rapid pace of recovery we saw in the U.S., but still remain strong and showing opportunities for a great 2021. Overall, Europe is showing many of the same drivers of secular RV and recreational demand, and European consumers have increasingly turned toward the outdoor lifestyle for travel and vacation, while some airports have shut down due to the pandemic. 2020 retail caravan registrations in Europe increased almost 12%, with the largest market, Germany, up over 32%. Our RV, rail, and marine divisions in Europe are all forecasting significant growth over their 2020 numbers based on feedback they are getting from their customers. In addition, we continue to see great progress toward LCI European components being adopted by the U.S. RV OEMs. This is a trend we are really proud of and it helps that the U.S. OEMs really see us as even more of an innovator with the ability to bring these products to the U.S. market on a regular basis. We are very confident in the ability of our leadership teams to capture this demand and drive new growth across our international businesses. Innovation is one of our strongest competitive differentiators and remains at the center of everything we do, particularly as new customers increasingly seek out technologically sophisticated products, as well as products that appeal to new generations of campers. This trend has driven the success of our OneControl products, among others, which put RVers in control of their vehicle by enabling them to manage an RV's most important functions from their smartphone. Further, OneControl integrates seamlessly into our largest strategy to enhance the customer service experience, allowing our support teams to know immediately if a problem with an RV has occurred so that we can alert the customer. This will be especially helpful to new entrants still familiarizing themselves with their RV. We're also seeing strong demand for other innovative offerings that provide additional modes of support. including our tire link pressure and temperature monitoring and electronic sway control systems, equipping RVers with the ability to be in tune with these safety aspects of their vehicle and help provide them with a safer journey. We believe that safety products, which will be a significant focus for us over the next few years, will likely have the same impact in making consumers feel more comfortable buying RVs like they do automobiles. To lead our new product innovation, we recently announced the addition of our Vice President of Innovation, John Reimer. An industry leader and avid RVer who will help us drive forward our extensive catalog of industry-leading RV and marine-related innovations, products, functions, and features. By fostering a strong, cohesive culture with our business, we have been able to create dependable and dedicated teams that were able to power Lippert through the crisis brought on by the pandemic, and we could not be more thankful for each and every one of our team members. Unlike many companies, we provide leadership coaching to all leaders in the business and have dedicated resources for training that ultimately creates longer tenured leaders who understand what effective leadership looks like. We have seen firsthand how this ultimately drives higher retention and ultimately greater momentum in the business as a result. These initiatives have directly supported our operations for over seven years now and give our teams the skills needed to keep leadership evolving. It has proven to be especially effective during its most recent environment, which was one of the most toughest to manage through in our recent history. Ultimately, it was our strong cultural foundation that allowed us to supply our customers in the manner that we did. During these tough times, we also worked to ensure the safety of our team members while supporting the larger community surrounding LCI. We invested millions in personal protective equipment for our team members while altering production environments to keep people properly distanced. and were able to involve select teams in a COVID-19 vaccine testing phase ran by Johnson & Johnson. We also set up and dedicated an industry-first drive-through rapid COVID testing site for our team members. Our teams kept up our commitment to our community by providing over 67,000 hours of community service during 2020, despite an environment nearly impossible to serve in groups like we have in the past. We also led the industry with a significant gift to our local hospitals to help them hire mental health experts to provide much-needed help to the hardworking men and women on the front lines of our hospitals, those who have seen some of the worst of the pandemic. I could not be more proud of our ability to give back during these times of great need. With respect to capital allocation, we continue to remain receptive to strategic M&A opportunities. We are looking for great strategic fits with great leadership teams and solid plans for growth. At the same time, we are focused on integrating our recent acquisitions and paying down debt. Additionally, we are investing in innovation and optimizing our manufacturing footprint to ensure we maintain the appropriate capacity to meet the soaring demand for recreational products. In closing, I'd like to thank all of our team members, not only for their tremendous work and commitment to delivering quality products to our customers, but for also fostering a culture that has made Lippert so successful. We could not have achieved such amazing results without these incredible dedications, coupled with the strength and guidance of our leadership team. We look forward to continuing this tremendous progress as we headed further into 2021 and deliver further value for our shareholders. I will now turn to Brian Hall, our CFO, to discuss in more detail our fourth quarter and full year financial results.