LCI Industries

Thank you everybody for your patience. We welcome you today to today's LCI second quarter 2022 conference call. My name is Drew and I'll be coordinating your call today. If you would like to ask a question during the call, please press star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. I'm now going to hand over to Brian Hall to begin. Please go ahead.

Good morning everyone and welcome to the LCI industry second quarter 2022 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 SEC. 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 Lippert. Jason?

Good morning, everyone, and welcome to LCI's second quarter 2022 earnings call. Continuing our momentum from the beginning of the year, we delivered another quarter of incredible performance. Thanks to the solid competitive differentiation we have built up in our aftermarket, Europe, marine, and other adjacent industries, coupled with our culture, innovation, and customer experience, we are consistently finding ways to grow our value. As we continue to drive our diversification strategy forward, we are creating strong, growing businesses which greatly helped mitigate the cyclicality of our RVOEM business, which we believe will generate great value for years to come. We ended the quarter with $1.5 billion in revenues, up 40% year over year, with strong demand across the markets we serve to support double-digit revenue growth in each of our core markets. Our recent acquisitions at Burion, Gerard, Trascor, and others added approximately $81 million in net sales for the quarter, helping expand our market share in new high-growth markets. Our successful diversification initiatives continue to show fantastic results and improve our financial performance and strengthen our balance sheet, giving us the flexibility to execute on our strategic priorities and further invest in our business. RV OEM sales increased 52% during the second quarter of 2022 compared to 2021, reaching $906 million driven by elevated wholesale shipments and market share gains. The North American RV market continues to be the foundation of our success in our OEM space. Despite the impacts from a constantly evolving macroeconomic environment, including record inflation, the outdoor recreation spaces continue to grow as travelers recognize the advantages of camping, boating, and RVing over the experience of airline travel and hotel lodging and the soaring inflation associated with those two categories. Outdoorsy, the world's largest RV rental and outdoor experience marketplace, recently shared data illustrating the seven-day family trip as an average gas cost of $275.00. That's less than one night stay in many hotels and less than the cost of a typical airline ticket. To add, the recent 40% increase in hotel prices and 25% increase in airline and rental car prices, power outpaces rising fuel costs impact on RV travel. Since 2021, the average RV trip go to buy outdoorsy has risen only $5. For families looking for an affordable, safe, and hassle-free vacation experience, an outdoor trip is clearly an attractive and an affordable option. In addition, Listing vehicles on peer-to-peer rental sites is easier than ever, expanding accessibility for potential RVers while helping out first-time owners looking to monetize their vehicles. Because the typical family only uses the RV for a few weeks a year, they now have the option to rent their RVs on these rental platforms, significantly lowering the total cost of ownership. Current rental platforms like Outdoorsy and RVShare have also recently enabled customers with the option to deliver rental RVs to campsites directly. significantly lessening the hassle involved in the rental process, as well as eliminating the fear that some people associate with towing an RV for the first time. Neither of these options are existing until before 2020, and we expect these types of advancements to continue to help support the secular shift in popularity towards RVing and the outdoor lifestyle. LCI also built very strong content growth across the board as we drove new product development to capture demand for our innovative offer. In the second quarter, content for total RV increased 49% to a record $5,382, while content for motorhome RV for the second quarter of 2022 increased 35% to $3,569. Many content gains can be attributed to new products brought on through our innovation process as well as acquisitions like Gerard and Furion. Further, because we had ample inventory over the course of the last two years, we strategically added to our market shares and various product lines, picking up business from supplier peers that struggled to meet demand during that time. Based on feedback that we've received, dealer total inventories are now very full, and the industry remains on track for another strong year from a total unit standpoint, but the next 12 months look to be challenging with respect to OEM volumes as dealers work down their inventories. Our longstanding and seasoned leadership team is prepared to adjust our business to these new levels as long as necessary. As volumes skyrocketed in 2021, and 2020, we focused on investment in second and third shifts to increase our output and our core product lines, creating a flexible cost structure that enables us to quickly and easily adapt to changes in the production environment while helping us maintain solid levels of profitability. Second and third shifts are much easier to flex than if we had added new buildings. We are also continuing investment in automation and manufacturing improvement projects throughout our business to ensure that we have flexibility to scale in line with industry demand. In 2022, we have a goal of completing 10,000 continuous improvement projects as part of our corporate-wide continuous improvement program, which involves every team member at every level. Our team of continuous improvement experts are dedicated to finding every opportunity to help improve our cost structure as many of our input costs continue to rise. Moving to aftermarket, revenues grew 13% year over year, supported by a combination of organic and inorganic growth. Our RV aftermarket was up close to 40%, while our automotive aftermarket was flat after going almost 50% in the last two years since we acquired Curry. We are also realizing content gains from our acquisition of Furion and are finding ways to incorporate as advanced supplies to deliver sophisticated new product offerings to our existing aftermarket customer base. We are particularly excited about the off-grid solar supply product, cameras, and tankless hot water heaters that will enable customers to camp more effortlessly. Margins were somewhat softer in the aftermarket during the quarter as we eased production in our court automotive business due to their customer-stabilized inventories. We do expect this impact to be largely seasonal and short-term, and we have plans to adjust operations to enable a return to historical margin levels. That said, we continue to see strength in our RV aftermarket business as hundreds of thousands of RVs on the road enter the repair, replacement, and upgrade cycles. We are focused on both supporting and maintaining this growth through developing an unmatched service and customer experience. To follow up the resounding success of our Lippert Getaway Rally last year, we are holding our second rally in August in Pine Mountain, Georgia, where we will leverage our amazing LCI service teams to directly engage, serve, and collect real feedback from hundreds of RVers that are coming to the event. Finding ways to creatively engage the RV consumer has led to a great return on investment for our business. helping us build real trust and real relationships with RVers who keep coming back to the Lippert brand. Turning to our second quarter adjacent market, revenues rose 37%, again driven by heightened demand in our marine business, along with strong content growth. The marine market currently has a solid near-term growth runway compared to the RV OEMs, which should help stabilize our revenue streams over the course of the remainder of 2022 and 2023. Looking forward, Boat inventories remain low all over the country, giving marine a great growth trajectory as we drive to expand market share through industry-leading brands and supply key products like windshields, furniture, shade products, and many other key marine components. Like in RV, innovation of new products like our electric biminis continue to bolster our marine sales in the OEM and aftermarkets into the future. Similarly to RV, we are working to expand our marine customer experience programs for boaters everywhere, Our Captain's Customer Experience Group now boasts over 1,000 members and are giving us immense feedback. We will continue to encourage these brand ambassadors to offer ideas for services and products to help ensure we stay on the leading edge of the industry. In addition to marine, manufactured housing has seen significant increases lately as well. And not only manufactured housing, but residential housing as well. Our window products for both markets are gaining a lot of ground. For manufactured housing, it's important to remember that with our chassis and window products, every 10,000 units that the industry grows equals about another 20 million in sales with relatively low incremental costs for the LCI business. We have many manufactured housing customers that are adding facilities due to meaningful growth in their businesses today. Our international businesses grew 5% for the second quarter of 2022 compared to the same quarter in 2021. Caravan registrations increased decreased 27% with registrations in Germany, the largest market, down 11% during the quarter. Uncertainty surrounding chip shortages for their motorhome chassis, economic slowdown in inflation will continue to challenge our European business into early next year, but will likely extend the demand tail over the longer term. Further, our direct exposure to these headwinds have been fairly limited as the international market represents just 7% of our total revenue. As the chip shortages get resolved, it is very likely that there will be a whiplash effect in industry production as the OEMs in Europe will rush to fill demand at dealer lots, much like the U.S. did over the last two years. Moving to our innovation highlights, our customers are increasingly coming to LCI for technologically advanced products, and we have been very successful in leveraging this demand to drive margin expansion and content growth throughout our business. In July, we introduced CURT's RV Industry First independent suspension in our axle lineup. which reduces the vibration found in the traditional axle RV platforms. With more RVs going off-road and off-grid, this innovation should prove extremely valuable for our customers. We are rolling out Furion's new power cord set into many of the industry's leading brands, increasing functionality for consumers while immediately helping us add content across the board. Every RV needs a power cord, and our new cord is another industry first, reducing cord weight by 30%. We launched ABS brake technology this year with one of our largest OEMs and already have several other OEMs lined up for launch early next year. We believe ABS systems are a much-needed technology on today's recreational vehicles and will eventually be the norm. Also worth mentioning is the Furion tankless hot water heater. We're working to make the old tank heater technology obsolete and give customers what they want, hot water and seconds. Our innovation teams have been operating at a high gear to drive new product development, including solutions that will help complement the electrification of automobiles and much more. In addition to innovation, our continued passion and emphasis on culture has set us apart from our competitors. Our culture initiatives, including philanthropy programs and leadership and coaching programs, have successfully made Lippert a place where people come to us to grow and develop as human beings, not just as professionals. Due to these initiatives, retention rates remain elevated, and we've seen that higher retention means improved safety, efficiency, quality, and innovation, which are the true cornerstones of our business. We continue to invest in improving our team member resources to help ensure that we can consistently elevate our output while providing a workplace that fosters personal and professional growth. Regarding capital allocation, our focus remains on paying down debt and the integration of our recent acquisitions, or returning capital to our shareholders at a rate above our industry peers. Investment towards innovation and operational enhancements remains a focus point for our teams in order to drive efficiency, quality, and profitability throughout the business. In the second quarter of 2022, we allocated $15 million to growth and automation capbacks and expect to spend an additional $35 million in the remainder of the year. We are working to maintain a solid financial position and balance sheet in order to achieve these goals as we continue to propel our business forward. No matter how challenged the industry may get, history has proven two things to us. First, the downturn is never as long as many fear, and second, we have one of the best and most seasoned management teams that have guided the business through these types of times in great shape. In closing, we want to thank all of our team members for their dedication and hard work as we continue to meet demand for all our segments, while striving to deliver quality products and the best experience to each and every customer. Our performance continues to be supported by our strong foundation and leadership and culture, as well as our operational strength and expertise of our workforce, guided by an incredible and experienced leadership team. As we look forward, we will strive to deliver continued outperformance while generating value for our stakeholders as the year progresses. I will now turn to Brian Hall, our CFO, to give more detail on our financial results.