LCI Industries

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.

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.

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.