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spk03: and thank you for standing by. Welcome to the Q2 2021 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 Brian Hall. Please go ahead.
spk07: Good morning, everyone, and welcome to LCI Industries' second quarter 2021 conference call. I am joined on the call today by Jason Lippert, President, CEO, and Director. We will discuss the results for the quarter in just a moment. But first, I would like to inform you that certain statements made in today's conference call regarding LCI 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 our earnings release and in our Form 10-K and other filings with the FCC. The company disclaims any obligation or 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 Licker.
spk08: Jason? Good morning, everyone, and welcome to LCI's second quarter 2021 earnings call. We delivered another incredible quarter as we continue to drive record results in 2021. Demand across the recreational space remains at an all-time high with no end in sight to the waves of new consumers entering the outdoor lifestyle. This quarter was historic for not just our company but for the RV industry as a whole as it hit a record of 153,100 RV unit shipments. At an annualized rate, the industry is set to shift near 600,000 units in 2021, even blowing past levels last seen in 2017. And we expect this trend to continue well into 2022, as inventories will likely remain at all-time lows. Despite supply chain-related headwinds continuing to impact our business, our teams have proven their operational expertise in mitigating the impact of production-related challenges, including rising input costs to enable us to meet our customer demands. During the quarter, we achieved $1.1 billion in sales, up 108% year-over-year, or 74%, compared to second quarter of 2019, providing us with double- and triple-digit growth throughout each of our respective business markets. This growth has been supported by our focus on executing our diversification strategy as we work to integrate our newest acquisitions, including Challenger, Viata, Ranch Hand, Shout, and Trascorps. Additionally, we continue to drive market share expansion and achieve strong content for vehicle growth as we further solidify our position as a global leader in the recreation space. Turning to our performance by segment, beginning with our VOEM, sales increased 151% year-over-year, or 56% compared to the second quarter of 2019, to $595 million for the second quarter, driven by elevated retail demand throughout both North America and the international markets we serve. Preliminary results for July indicate no slowdown in this trend, despite supply chain and labor constraints, which continue to impact the rate of increase for the entire RV industry. Our RV chassis capacity has been significantly improved by the recent acquisition of Wolfpack, allowing us to continue to meet the increased need for chassis as the OEMs keep gearing up production to meet retail demand. We are also leveraging our existing customer relationships and significantly increasing our revenues at one of our most recent acquisitions, Travscore. In addition, we continue to experience significant efficiency improvement through several recent automation projects and continuous improvement in lean initiatives around the business. As demand remains at an all-time high, we are focused on pushing our teams to roll out more continuous improvement projects to further increase capacity and improve quality, efficiency, and profitability. Our RV margins were under pressure during the second quarter for a few key reasons. First, our commodities indexes lag by a quarter, and these indexes dictate when customers get increases, specifically around steel-related products. Steel has risen to over twice its historical highs in a very short period of time, and it will simply take a few quarters to see these increases layer back in. That said, the indexes will also lag on the backside and keep our prices higher and allow us to recover when steel prices start to move back down. Not only has labor been problematic for the industry with respect to a significant shortage where most of our facilities are located in northern Indiana, but labor wage increases and overtime premiums are also at the highest level we've seen in the last couple of decades. Freight costs and logistics have also been pretty unpredictable. All that said, our teams have done an amazing job keeping up with wholesale demand without shorting our customers. And most importantly, the margin performance has been fantastic considering the amount of pressure we've seen around material, labor, and freight against this record demand. Content per unit has also continued to trend favorably, despite an ongoing wholesale mix shift towards smaller entry-level products. Content per towable RV increased 7% year-over-year to $3,621, while content per motorhome RV increased 15% year-over-year to $2,644 year-over-year. Over the course of the last year, we have gained significant market share in a few core product areas in the business. We expect to continue driving content increases throughout 2021 as we further expand our market share and keep bringing innovative advancements to our customers. Turning to our aftermarket segment, total revenue grew $229 million in the second quarter, up 45% year-over-year, driven in part by the performance of our RV aftermarket group and the CURT group as the team continues to work through record backlogs as well as the successful integration of our ranch hand into our aftermarket portfolio. We believe the most important thing we have going for our aftermarket business is the sheer record number of RVs entering the aftermarket population. With about 1 million RVs being brought into use every two years now, it creates an incredible opportunity for our aftermarket business for repairs, service, and upgrade opportunities with many of our products. Additionally, because of the new ownership trend, RVs are not being purchased solely for single-family use, but also for use in the new peer-to-peer rental marketplace. These rental platforms serve as an amazing opportunity to introduce consumers to the RV lifestyle while also enabling the entire RV population to monetize their vehicle for an additional stream of income while not in use. The surge of popularity in peer-to-peer rental speeds up the RV replacement cycle, brings many more prospective customers into the lifestyle, as well as creates a case for heavier use. We believe this will inevitably create the need for more repair and replacement services, which enables us to leverage our wide product offerings and repair parts services network to meet this increasing consumer demand for upgraded parts and replacement parts. Turning to our adjacent markets, revenue for the second quarter increased 107% year over year, or 60% compared to the second quarter of 2019, to $269 million, as marine and other related markets continue to benefit from similar secular tailwinds driving growth across RV and the aftermarket segments. In line with RV, our marine customers have seen soaring demand, but have also been impacted by widespread supply chain issues. Thankfully, we are beginning to see the easing of some of these constraints. Our marine business has continued to serve as one of the primary drivers of our diversification strategy, supported by the strong performance of Viata and TaylorMade Marine, enabling us to expand our market share in the space while also boosting content growth. Further, our deep industry relationships allow us a pipeline for our new marine innovation that we continue to develop and add to our marine content. We also continue to grow our excellent suspension product line revenues significantly in the trailer market, which is added nicely to our top and bottom lines. Our international businesses showed strong performance with revenues increasing 133% year over year or 226% compared to the second quarter of 2019 to 103 million. International demand for RVs remains elevated, which we've been able to successfully capitalize on through our numerous acquisitions we've made in the recent past in Europe. We believe this space will continue to grow meaningfully in the near future as it continues to see record demand. Innovation by our Europe teams as well as the development of our aftermarket products in that market and our focus on rail, marine, and caravan industries in Europe should also bolster LCI's results in the near term. The European markets in which we operate, including Germany, Italy, the Netherlands, and the U.K., are seeing continued, albeit delayed, recovery consistent with North America. International customers are embracing the RV lifestyle as they embark on their summer holiday this month. with the second quarter retail caravan registrations increasing 27.5% across Europe. Our long-term strategic initiatives revolve around innovation and product development, which play a critical role in establishing our position as an industry leader. As demand remains at record levels, we have not let up on continuing to figure out how to add improved features into existing products as well as to develop new products to further enhance the customer experience in the future. A prime example of our innovative capabilities is our continued evolution of our OneControl platform. By utilizing the OneControl platform, customers can now control an incredible range of vehicle functions, from leveling and slide-outs to lighting and HVAC systems. In addition to our OneControl products, we anticipate great success over the next 12 months in the launch of our tire pressure management systems, battery systems, axle and suspension innovations, our new ladder innovations, electric biminis and thrusters for the pontoon market, as well as our pop-top roof for the Class B van market, which is the fastest-growing segment of RVs in North America. With regards to capital allocation, we have maintained our focus on integrating our recent acquisitions and paying down debt while pursuing strategic acquisitions. At the same time, we are continuing to invest more heavily in innovation and optimizing our manufacturing footprint to ensure we have capacity to meet the heightened demand while identifying cost efficiencies where possible. In closing, we want to thank all of our team members for their dedication and hard work as we have continued to meet all-time record demand for our products while delivering quality products to our customers. Our performance continues to be driven by the operational strength and tenure of our workforce guided by an incredible leadership team that keeps us on track in executing our strategic priorities. We look forward to continuing down the path of industry outperformance as we keep delivering value for the stakeholders of our business well into the future. I will now turn to Brian Hall, our CFO, to discuss in more detail our second quarter financial results.
spk07: Thank you, Jason. Our consolidated net sales for the second quarter increased 108% to $1.1 billion compared to the prior year, driven by strong market performance coupled with solid company execution. Acquisitions contributed $54 million to our quarterly results, with organic growth contributing the balance of the improvement. As Jason mentioned, July sales remained strong, increasing 25%, and when adjusted for the difference in OEM shutdowns year over year, it would imply a growth rate of approximately 35%, indicative of current Q3 growth expectations. Q2 2021 sales to RVOEM increased 151% compared to the prior year due to the sustained record RVOEM retail demand. Sales to adjacent industries grew 107%, aftermarket segment sales increased 45%, and international sales increased 133% as consumers continue to turn towards outdoor leisure activities, driving strong demand in our markets across the board. As Jason mentioned, demand in our core RV and marine markets is at record level, which, coupled with the significant inventory replenishment cycle, is resulting in record production volumes. Current North American RV industry production rates would imply 2021 wholesale shipments of approximately 570,000 to 590,000 units, an all-time record for the industry. We drove further content growth in both towables and motorhomes. Content per towable RV increased 7% to $3,621, and content per motorized unit increased 15% to $2,644 compared to the prior year. The content increase in towables was a result of organic growth in addition to $29 million in acquired revenues. Growth rates in the marine market also remain high as the industry continues to work to support consumer demand. North American marine sales increased over 200%, supported by modest acceleration in production rates, as well as the addition of $18 million in acquired revenue. We have made strong progress towards our diversification strategy. At the end of the first quarter, we announced the closing of Ranch Hand, our first bolt-on acquisition for the Kirk Group. as well as Schau, which creates a strategic presence for us in Germany. In June, we also announced our acquisition of Trascor, a specialized metal fabricator that utilizes innovative technology to supply custom aluminum sidewalls and panels to the recreation and transportation OEM market. Growth margins were 23.6% compared to 24.5% in the prior year's second quarter. The decline was primarily due to the steep climb in material and freight costs, partially offset by strong overhead leverage. The cost of steel has increased over 250% since September of 2020, while aluminum has increased over 60% during the same period. We anticipate the current headwinds from higher input costs to continue through next quarter. As I have mentioned on prior calls, while the pricing for many of our products is indexed to steel and aluminum costs, there remains the traditional lag time and effectiveness of approximately two quarters. SG&A costs as a percentage of sales decreased from the second quarter of 2020 due primarily to the leverage of fixed costs on higher sales. SG&A costs as a percentage of sales are up slightly when compared to the first quarter of 2021, due primarily to the aforementioned increase in freight costs, which is also negatively impacting outgoing shipment costs. Transaction costs were also significantly higher during the second quarter. We expanded operating margins by over 460 basis points from the prior year period, primarily due to the favorable impact of continued organic sales growth coupled with operational efficiencies driven by increased automation and lean manufacturing initiatives. These benefits were partially offset by increased labor expense to meet heightened production requirements and the increasing cost of steel, aluminum, and freight. GAAP net income in Q2 2021 was $67.9 million, or $2.67 per diluted share, compared to $13.2 million, or $0.52 per diluted share, in Q2 2020, primarily due to strong growth in sales across all our business segments. Adjusted EBITDA increased 68% to $121.3 million for the second quarter. Non-cash depreciation and amortization was $51.3 million for the six months ended June 30, 2021, while non-cash stock-based compensation expense was $13.9 million in the same period. We continue to anticipate depreciation and amortization in the range of $100 to $110 million during the full year of 2021, primarily due to increases in capital investments for capacity and efficiencies. For the six months into June 30, 2021, cash generated from operating activities was $24 million, while $104 million was used for business acquisitions, $42 million for capital expenditures, and $42 million was returned to our shareholders in the form of dividends. Total capital expenditures for the second quarter included 65% dedicated to maintenance, 6% in automation investments, and 29% to new market share. While demand in our core markets remain at record levels, the industry continues to face challenges with supply chain constraints and rising material costs. To address these challenges, we are focused on strategic management of working capital, including intentionally building up levels of certain inventory items to avoid future shortages. This has allowed us to further cement our relationships with OEMs and grab market share from other suppliers that have experienced supply chain issues. At the end of the second quarter, we had an outstanding net debt position of $910 million, 1.8 times pro forma EBITDA, adjusted to include LTM EBITDA of acquired businesses. During the quarter, we also priced $460 million in aggregate principal amount of 1.125% convertible senior notes due in 2026. The net proceeds from this offering were approximately $448 million, which we, in part, used to repay outstanding borrowings under our revolving credit facility, with the remainder to be used to fund current and future growth opportunities. We continue to prioritize maintaining a strong balance sheet and targeting long-term leverage of one to one and a half times net debt to EBITDA. As we work to integrate recently completed acquisitions, which we believe will contribute strong operating cash flows, capital expenditures are anticipated in the range 130 to 150 million for the full year 2021 unchanged from previous expectations as we focus on various smaller scale continuous improvement and automation projects that support growth and continue to build capacity to support heightened production rates with these strong results we remain confident in our ability to drive growth for lci and deliver shareholder value over the long term as we continue to execute on our proven growth strategy That is the end of our prepared remarks. Operator, we're ready to take questions. Thank you.
spk03: As a reminder, if you'd like to ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. Your first question comes from the line of Catherine Thompson with Thompson Research.
spk02: Hi, thank you for taking my questions today. Just for the quarter, if you could You gave a lot of great detail about the various impacts. But if you could balance price increases, volumes, some planned downtimes because there were differences year by year, and seasonality for the rest of the year as we think just about the stair-step for revenues and margins. Thank you.
spk07: Okay. Hi, Catherine. It's Brian. So starting with growth margins, I would tell you that you know, from materials and pricing certainly had the most significant impact on gross margins. And the way I've kind of looked at it is it's almost approximately 300 basis points worth of negative impact, just the difference in materials and pricing that we saw in the second quarter. Now, a lot of that's starting to catch up in the third quarter, and as our input costs such as steel, aluminum, and freight have continued to climb, I'm expecting that to stretch a little bit more into the um quarters beyond that um might even be a chance that it makes its way into the first quarter of next year just given the the fact that aluminum and steel are still climbing at the today um most of that is offset by a lot of great overhead leverage so by the time you're said and done your gross margin was down by you know 60 basis points i think as i said um and that's that's mainly offset by all overhead leverage when you get into sgna SDNA, the transportation costs are pretty significant in there, and those increased almost 60 basis points even from the first quarter of this year. So we've continued to see inbound and outbound freight climb at a pretty significant rate. And to give you an idea, I think from first quarter to second quarter, that's almost $11 million of additional costs from additional outgoing transportation that's within our SG&A cost. The remainder, you've got a couple million here and there. I think amortization was up a little bit, almost a couple million dollars. And then the Transaction costs, as I mentioned in my prepared remarks, were up some as well. So certainly had those. As I would say, those are the, as I've went every line in the financial statements, those are the key movers for the quarter.
spk02: Okay. And is it, if you were to give kind of the top three in terms of headwinds, from an inflationary standpoint to mention steel, aluminum and transportation, which of those three has the greatest impact and which of the three has the greatest amount and the least amount of visibility?
spk07: Yeah, steel and aluminum combined are almost 50% of our material spend. So it's a pretty significant mover. And when you're talking steel up 250% from September of last year, that's been pretty significant for us to adjust for and work with our customers to try to accommodate all the issues that they're dealing with from a supply chain perspective. and trying to meet record demand. So we've been pretty strategic as we've worked through that, and there's still some to come there. A lot of the steel, though, is tied to some indexing contracts. So that's where you do get a lot of the two-quarter lag from. You know, aluminum, you know, within that 50% call, aluminum maybe 10 to 15 percentage points, and the rest is steel. So obviously steel is number one for us. But, you know, for aluminum, I think aluminum is the one that we still – see climbing here in the short term. It seems like steel's gotten up into the mid-90 cents a pound, and aluminum still, it's kind of at least slowed its climb some. Aluminum still continues to go up. So I think aluminum is the one that's going to continue to hurt for the coming quarters. And freight is, I think, going to be a problem for a long time. We don't really see that happening. you know, correcting itself in the near term. So that's, those are things that are probably going to, we're going to be dealing with well into 2022. Yeah.
spk08: I just add real quick, Catherine, that, you know, you take steel, for example, you know, our largest raw material cost, it went up three times what it was prior to COVID over the course of 12 months. And it's, It's not stabilized, but it's not an accelerated climb like it was over the last 12 months. So, you know, the hope is that it's at least manageable at this point. Same with freight. Freight's up 10x, you know, from Asia from what it was prior to COVID, and that's stabilizing. So, you know, we might have a little bit more increase there, but more likely downside opportunity over the next 12 months than a lot of upside or a lot of more cost.
spk02: That's helpful. And then just on acquisitions, always been very active in terms of the acquisition front, typically buying assets at a smaller market share or being proactive with technology and then expanding it so you dominate. Did make a little bit different acquisition that was more on the commodity side, and maybe help us understand some of the logic behind that and how you see your growth path going forward just in general for liquor. Thanks again.
spk08: Sure, sure. So with the most recent acquisition of Triascore, you know, in any acquisition, the things we're looking at is, you know, can we innovate products? Do they have a, you know, a large growth runway? And how does the competition field look? And, you know, all three of those boxes are checked there. We feel we can innovate the product significantly. We feel that, you know, there's really only one other player in the game there. And we had our customers, you know, knocking on our door over the last, eight or so months asking us to get in the game because we're already doing a lot of, you know, a lot of metal work, as Brian alluded to earlier, our largest, you know, 50% of our raw costs are steel and aluminum. So, you know, we look at the side metal on the RV products out there. It's a significant product content opportunity. It's right in our wheelhouse and we feel we can innovate and grow. On top of that, you know, the RV influx of the The RVs category that are growing the fastest are the small entry-level units that require the metal siding, so there's a greater need for that product anyway right now. So it's a perfect fit, and we feel we can grow it pretty significantly over the next 24 months.
spk03: Okay, great. Thank you. Your next question comes from the line of Scott Stember with CL King.
spk04: Good morning, guys, and thanks for taking my questions as well. Thanks, Scott. Scott? Brian, you give a lot of great detail about what's impacting the operating margin, but if we look out into the back half of the year, could you just give a little granularity of where we can look for the operating margin? Are we looking for it to remain in this level, notably in the third quarter? Or it sounds like there's a little bit of improvement going on, but just try to give us a little bit, if you could.
spk07: Yeah, I think that certainly if you rewound to earlier in the year, we were talking about price increases catching us up and that we would be able to recoup a lot of that when we got into the second quarter and third quarter. As I mentioned, the fact that steel and aluminum and freight have continued to climb and you then have the – quarter to two-quarter lag on many of our product pricing adjustments. I think that it's going to drag out into multiple quarters, as I mentioned earlier, maybe even a little bit in the Q1 of next year, just given the fact that we're still seeing those input costs climb. So we're working very closely with our customers. to push through some price adjustments where we can. But a lot of those index arrangements are going to cause us to drag out. So from a margin perspective, I certainly think that there's some upside potential given the volumes that we're running and the strong leverage that we've seen. But I think that lag in price adjustments price adjustments along with the continued climb and input cost is going to cause some temporary level setting of that margin. So I'm not expecting it to change greatly from at least in the next quarter or so.
spk08: And certainly with a significant part of our pricing increases coming by way of indexes, Scott, that lag happens over the next few quarters. And then, you know, it's Pricing will certainly subside at some point in time. Our prices remain elevated over the longer term while we catch up with the price decrease going the other way when that happens, whenever that happens.
spk04: So we'll benefit. And just to be clear, the indexing, it's the same delay or the same time period on the way up as on the way down, correct? That's correct. Okay. And as far as we're seeing through the RV side, you know, this $50,000 a month range, and demand just appears to continue to be, you know, incrementally growing to new levels. But how do you see production over the next couple of quarters? Is this probably the most that the industry can eat at right now? Do you see any relief on the horizon from that?
spk08: Yeah, I think all, you know, suppliers and OEMs alike are trying to increase capacity any way they can. The most refreshing thing I've seen over the last handful of months is several OEMs and suppliers, including us, are looking at production capacity outside of Elkhart County. You know, one of the biggest constraints going forward is going to be labor. You know, Elkhart County's only got so much labor. And, you know, we're all working on some creative strategies. to bring more labor to this area and increase our ability to produce. But like I said, the most refreshing thing I've seen is OEMs and some suppliers going outside in the New York counties to tap some of the labor outside of this area that's pretty stressed. So, you know, a lot of people are getting their second shifts up and getting capacity running that way. Some of the OEM capacity comes online third and fourth quarter, the new capacity. So, yeah, You know, I think right now, to answer your question, 50,000, you know, it'll grow very slowly, but it certainly feels like, you know, we're heading toward a 55,000 number in the near term.
spk04: And then just lastly, July, very nice growth at 25%. I haven't gone through all the math yet, but if you, I guess, adjust for the time you have won acquisitions, fully take hold, it sounds like the lion's share, obviously, of growth is still organic, correct?
spk07: Oh, yeah. Yeah, for the most part. The acquisitions have, you know, accounted for quickly almost 10% in the quarter, so about 10% of the growth in the quarter, and I'm expecting it to decline from there as we're seeing strong organic growth in all categories.
spk08: We've seen some nice organic growth out of our acquisitions we've made this year already. Got it. All right. Thanks again, guys. Thanks, guys.
spk03: Our next question comes from Brett Jordan of Jefferies.
spk09: Good morning. This is Mark Jordan. I'm for Brett. Just switching gears to the aftermarket a bit, can you kind of talk about some of the trends you're seeing right now? Are you still seeing strong demand for replacement and repair parts? And, you know, kind of maybe what are you seeing for more of the upgrade with parts and furniture, particularly in RVs?
spk08: Yeah, so all of our aftermarket categories from repair, replacement, service, and upgrades, they're all very strong right now. We're seeing increases in all those categories. I think one of the trends we've seen here recently is our aftermarket partners are all asking for more products, so we're adding more products to our aftermarket categories. As I mentioned in my opening comments, The peer-to-peer rental market is creating a case for heavier use of ERVs because there's more... You know, RVs are run in the peer-to-peer marketplaces that have really evolved over the last 12 to 18 months. It's creating a whole new avenue for repair and replacement, which is because RVs are getting used more. Prior to COVID, you could have made the case that the average use of an RV is, you know, 14 to 21 days, and that's certainly increasing with all this peer-to-peer marketplace rental demand. So that's really good for our business on top of the fact that we've got, you know, half a million RVs coming into use every single year. You know, that's going to be great for our aftermarket business.
spk09: Okay, great. And then I guess thinking about the Kirk Group, you know, demand for RVs and marine have been pretty strong lately. So I have to imagine that's been pretty solid for the Kirk Group's hitch products. Is there anything to note there?
spk08: You know, I'd say just, you know, the amount of, you know, whether it's RVs or bike racks or anything that people are going to do in the outdoors, you need a hitch. And we're the largest hitch supplier in the country, you know. So it's really good for that business. We don't see that slowing down, like I said. earlier. We've got, you know, we're on a 590,000 unit run rate right now for the industry this year. We're running at a rate, if you take July's rate, 625,000 if you're to blow that out another 11 months. So, I mean, that's just going to create a case for, you know, for more hedges and more curb products. And we're continuing to innovate and develop and launch new products there for the outdoors. So,
spk09: Great. And then do you have any early reads from the ranch hand acquisition?
spk08: Not yet. It's early, but, I mean, their orders and backlogs are robust, just as robust as our Kirk Group business is. So that's what I can tell you there.
spk09: Okay, great. Thank you very much for taking the questions. Thanks.
spk03: Our next question comes from the line of Fred Whiteman with Wolf Research.
spk06: Hey guys, good morning. I wanted to just circle back onto the production rate numbers that you gave, that 570 to 590, I think is consistent with what you had quoted last quarter, but you guys outlined some capacity investments that you're making, and then there's also some OEM capacity coming online in 3Q and 4Q. Any sense for how much capacity that could add to the market? Is it just that incremental 5,000 units that you sort of touched on? Any sort of color on where you think wholesale production could go over the next few quarters would be helpful.
spk08: Well, certainly the industry could build or could sell a lot more than what we're building today. But there's just, you know, there's too many material and labor constraints. You know, you can add capacity really, really fast on the OEM side and the supply side, but at the end of the day, the entire OEM output and sell-through to wholesale is strictly uh relying on the weakest supply chain leagues and there's some weak ones out there um every week something's popping up but what i can tell you is is that you know we've seen this increase gradual increase from where we ended up last year to the 590 uh 575 to 590 rate looks like we're going to hit this year based on current current numbers and we just feel like we're going to continually, gradually increase as the entire supply chain gets through some of these material constraint problems, gets through some of these labor constraint problems, adds capacity. It just feels like you can kind of count on the industry continuing to inch up volume as you've seen over the last 12 months in that type of fashion, and not any slower, not any faster.
spk06: Okay, makes sense. So sort of slow and steady. I guess to shift a little bit, the color that you gave on the peer-to-peer rental impact for the refresh cycle, could you put some more numbers around that? I mean, is that a big enough chunk of business to where you could see an acceleration versus that three- to five-year trade-in, trade-up cycle that you've touched on in the past. How impactful could that really be, either from a wholesale, sort of new RV side, or the aftermarket business, just with more wear and tear on those units?
spk08: Yeah, there's a lot to that question. But I tell you, without a doubt, I know in talking to some of the peer-to-peer rental companies, they're looking to put their own fleets in because they don't have enough RV owners in their marketplace to support all the demand that's out there. I think the number is like 75% of all people end up getting into an RV by starting out with a rental search. So the fact that there's just these vast marketplaces out there right now for people to get into an RV and try them, they say that after the second try, after the second rental, they're highly likely to buy. So the fact that there's just a marketplace where this can happen, that wasn't always available. You know, Outdoorsy specifically has some really good data around their owner base. So you can get on their website and look at some of that. But their owner base, they've got, you know, owners that have multiple RVs that never own multiple RVs just because of the fact that they have a they have an ability to create some side income on running their RVs. And again, all this creates a case for heavier use of the RVs, which ultimately wears and tears the components that need to be replaced, and a lot of those are ours. Makes sense. Thanks, guys.
spk03: Your next question comes from the line of Mike Swartz with Tourist Securities.
spk00: Hey, guys. Good morning. Just wanted to touch on RV content loads in the quarter. Obviously some pretty strong growth there, and I think Jason O'Brien, you said that a lot of that's coming organically. Maybe give us a little more context about what's driving that. Are you starting to see some trade-up or mix towards higher contented units, or what exactly is behind that during the quarter?
spk07: I would say for the most part, we've been talking for the last, probably three quarters now where we've talked about other suppliers that were maybe a little challenged and getting product to the OEMs. And we were pretty strategic about layering that business in. So over the last three quarters, you've seen new business get layered into that content per unit number. So We've expected that to continue to accelerate. I would say the obvious thing is how much is price driving that, but I would tell you price in the trailing 12-month period is not yet driving it in a meaningful way. It's less than a couple percentage points. because we were still given price decreases as steel and aluminum were declining during 2020. So net-net, I would expect that to maybe even start to accelerate a little bit more as some of the price adjustments come in, but we're still layering in new business as well. And really from an acquisition perspective, You know, on the RV side, it's been Transcor would be the one that had a small impact, a challenger a little bit. So some smaller deals. So it's not having a meaningful impact on the content.
spk08: And I'd say that the increase in the content, the meaningful increase in content, speaks largely to the market share we have taken because we just keep seeing the The amount of entry-level units that are getting shipped out there, it's a pretty significant number. I'd say they're trending away from fifth wheels right now, but there's a high focus. If you talk to any dealer out there, they're looking to get their hands on as many trailers, smaller trailers as they can get. That's certainly driving the opportunity for content down. You look in the face of that, we've increased content. That's pretty fantastic.
spk00: Okay, great. And then, Brian, just on the SG&A side, understanding I think a lot of the sequential increase in SG&A dollars was transport costs, maybe help us think about from an absolute dollar standpoint what the SG&A line should look like in the next quarter or two. I know there's sometimes seasonality there and there's some acquisitions coming in, but I guess is there a way we should think about that going forward?
spk07: I mean, I although I've said this before and then it goes the opposite direction, but I would anticipate it to stay relatively consistent. I think that the big movers that I mentioned, you know, transportation costs, that's not going away anytime soon. So I do think that those, you know, as I mentioned sequentially from Q1 to Q2, it was up $11 million in, you know, aggregate dollars within the SG&A line alone. I'm not expecting that to change much in the coming quarter. So the other things that I mentioned, you know, we're a couple million here, a couple million there. Some of those, you know, do ebb and flow. So you might see some movement, you know, plus or minus five million or so for things like that. But for the most part, I would expect it to remain relatively consistent.
spk00: Okay, great. Thank you.
spk03: Our next question comes from the line of Dan Moore with CJS.
spk05: Good morning. This is Brendan on for Dan. I just want to ask real quick, looking at aftermarket, from a margin perspective, how much opportunity is there to expand margin in that business as it continues to gain scale and you have these catalysts?
spk08: Certainly, our price increases are lagging in that market, like our OEM business. We'll continue to catch up margins and get where we need to be based on all the scattered cost increases that we've seen across the business. That's one piece. Like I said earlier, the customers in all channels in that space are looking to get product however they can. Unlike a lot of small suppliers out there, we've beefed up our inventories. We've been able to get inventory so that we can get products out there and supply channels we haven't in the past. The dealers, the warehouse distributors, the consumers on e-comm out there, they're all looking for products, whether it's repair and replacement or upgrade parts or service parts. Our aftermarket team has done a stellar job of getting out there and getting in front of all those channels and making sure that they're plugged with product. Margin opportunities, great. We'll continue to launch new innovations in that space over the coming months. We have substantial prep programs going on with all of our OEMs right now, so we We put prep hardware on the RVs at the OEM side so that it's easier to plug and play aftermarket items into the OEM items. And it creates a situation where the OEM doesn't have to put on a high-cost component. They can leave that to the aftermarket, and we've gotten really good at that over the last handful of years.
spk05: Okay, great. Thank you.
spk03: Your next question comes on the line of Sean Collins with Citigroup.
spk01: Hey, great. Thanks. Good morning, Jason and Brian. My question is on operations. North America is clearly experiencing a recent COVID reappearance with the Delta variant. I just wanted to ask if this has impacted your recent manufacturing and operations, both on a labor availability standpoint and processes, and maybe how you think about this long term. Is this now a permanent reality in operations, I presume? Thanks.
spk08: Yeah, so, you know, it hasn't impacted our operations. I think over the last four weeks, we've seen a couple cases a week, which, you know, back in, you know, October, November of last year, we were seeing 50 to 100 cases a day. So it's... You know, we're tracking to the extent we can the vaccinations and things like that. We're making it easier for our team members to get vaccinated, but it hasn't impacted our production over the last couple months. And if anything, from the market standpoint, it's just going to prolong some of the COVID-related demand we've seen in the marketplace as a result of some of the recent happenings with the Delta variant and things like that.
spk01: Got you. That's helpful, Jason. Thank you. Maybe just a quick follow-up. You've made three acquisitions in 2021, not unprecedented, as you've done a lot of acquisitions, but you're in an unprecedented business cycle. You're also experiencing rising input costs, so a lot going on. Can you just talk about how the integration is going on those three acquisitions? I think one is in Texas, one is in Germany, and the most recent one is in Indiana. Thanks.
spk08: Yeah, so I tell you that, you know, we're getting better and better with our, you know, after the 75 acquisitions me and our team have done over the last 20 years. You know, we've kind of strayed away from a lot of the, I don't want to say tuck-in, but tuck-in acquisitions that, They get folded into an existing operation that don't have quite the leadership team. We're buying more today a lot of businesses and companies that have very grounded, capable leadership teams. It just allows us to be more acquisitive than what we've been in the past and be more effective at the integration. I tell you that, you know, from, you know, the ranch hand acquisition, Rock, our CEO of the Kirk Group, they, you know, they folded that in. They're doing a terrific job getting that one integrated. Our seating and our door acquisitions from the recent months are going great. Management team's still intact. You know, we're seeing synergies, and then we've had some pretty significant organic growth in those operations already. Shell's been great from, you know, the European perspective because it gives us kind of an electronics perspective. And we've got some new products there that we're looking at bringing back to the U.S. like we have other European acquisitions we've made. So it's all in all, by all marks, it's been really healthy and good this year from an integration standpoint.
spk07: And I think I would add, I mean, just how – much more mature we are in that integration process. I mean, we do look to make sure that we integrate them into our system. We've got teams that are well-versed in doing so. And then also our culture, so taking our culture leadership programs and putting them into these organizations. to help give them more of the tools they need to be successful. And I think, to Jason's point, those are maybe a bit of a change in strategy from 20 years ago. We're looking for a great, innovative product, great leadership teams. And I think there's a lot of great companies out there that fit that mold. And we went out and we raised money. Some additional capital here during the second quarter, the pipeline's full. I think that there's great options for us out there to be strategic and fold in the right technology, the right aftermarket business, the right innovative product, the right teams, as we mentioned, that can create a lot of long-term value for shareholders.
spk08: With Viata and Challenger, it was $160 million in revenues roughly we acquired there. Those are right here in town. So I think when you look at acquisition and integration, we can always integrate the ones that are close to our home office and where the brunt of our team members and leadership staff is. We can integrate those faster and more effectively than we can – businesses that are, you know, that are a day trip away, for example. But, you know, we integrated a project management office in the last 12 months for our bigger acquisitions just to make integration more meaningful. So hopefully that answers your question.
spk01: No, that's great. That's very helpful. Thanks, Jason. Thanks, Brian. Thank you.
spk03: At this time, there are no further questions. I'll turn it back to Jason for closing comments.
spk08: Hey, everybody, thanks for joining us on the call. We've got a lot of great things going on around the business with, you know, customer experience and leadership and innovation and demand. So we're looking forward to update you on our results next quarter. Thanks for tuning in. Thanks.
spk03: Thank you, ladies and gentlemen. That quiz-based conference call you may now disconnect.
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