LCI Industries

Hello, everyone, and welcome to today's conference, LCI Industries Q4 and Full Year 2022 Earnings Call. My name is Bruno, and I will be operating your call today. During the presentation, you can register to ask a question by pressing star 1 on your telephone keypad. I will now hand over to your host, CFO, Mr. Brian Hall. Please go ahead.

Good morning, everyone, and welcome to the LCI Industries fourth quarter and full year 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 promises 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?

Thanks, Brian. Good morning, everyone, and welcome to LCI's fourth quarter and full year 2022 earnings call. Our fiscal year 2022 marked another record year for LCI as we reached all-time high revenues while continuing to deliver strong margins. As we got to the back half of the year, our diversification strategy proved pivotal to our performance, helping to partially offset the impact of RVOEM production shutdowns enacted during the fourth quarter to normalize inventory levels across the country. Thanks to the agility and operational strength of our veteran leadership teams, we were able to make necessary changes quickly in order to adapt to the volatile operating environment. These results are a testament to our cultural strength and long-tenured leadership teams, which we believe have been and will continue to be the cornerstone of our long-term success. We closed 2022 with a record $5.2 billion in revenues, up 16% year-over-year. This growth was supported by solid performance in our RV and adjacent industries, driven by overall growth in the outdoor lifestyle and aggressive content expansion and innovation. We completed four acquisitions throughout the year, adding two very strong industry brands to our portfolio, including Way Interglobal and Girard Products. Net sales from acquisitions completed in 2021 and 2022 contributed approximately $219 million in 2022. These acquisitions bolstered our innovative portfolio, which we have leveraged to continue our trajectory of record content growth. Looking at North American RV OEM sales increased 17% during the year compared to 2021, reaching $2.8 billion despite lower production levels in the back half of 2022. Industry wholesale RV shipments for the year totaled roughly 490,000 units, and we expect some further softening in 2023 as demand continues to normalize and come off all-time highs. January and December were right-sizing months for the industry, as industry OEMs took the majority of these two months off to allow inventories at the dealers to rebalance. In the interim, we are working closely with the OEMs to keep our capacity aligned with the changing production levels. Despite lower RV OEM production, we have quickly and diligently worked to adjust costs and capacity, leveraging operational improvements implemented in the past years, as well as making some cuts. Overall, we've cut $370 million of costs out of our structure since RV industry volume started to decline during the second quarter of 2022. Thanks to the agility of our teams and focus on our diversification into other markets, we have been able to shift some of our manufacturing costs to these other areas of our business that are running pretty strong in order to achieve maximum leverage. I do want to emphasize that retail demand has slowed but is stabilizing to levels that are still historically strong. Data like retail traffic and purchases from recent RV shows have proven to be a bright spot in an otherwise challenging macro environment, giving us confidence in the industry moving forward. Importantly, secular trends such as younger buyers as well as the growth and popularity and availability of peer-to-peer RV rentals continue to bring new consumers into our lifestyle. Outdoorsy and RVShare, two of the largest peer-to-peer rental companies, have recently said that U.S. campers have rented RVs for over 3 million collected nights on their platforms. Additionally, RVIA data revealed that 67 million North Americans are planning a trip in an RV this year, up from 58 million in 2022, with 50% of those surveyed RVers planning to buy a new RV, underscoring the long-term popularity of RVs in the outdoor lifestyle. Throughout the quarter, we saw heightened input costs, most notably through freighted materials. While it will take us some time to work through the raw material that carries these higher costs, we believe our customers are committed to help us work through these costs. In addition to several continuous improvement projects we have in the pipeline, we remain focused on driving costs out of our business through automation, as we have 10 new projects slated for implementation, largely in the back half of 2023. Our team also achieved record content growth in both towable units and motorhomes. Content per towable RV for the full year 2022 increased 45% from the prior year to $6,090, while content per motorhome RV in the full year 2022 increased 43% from the prior year to $4,099, all supported by our long-term focus on innovation and continued investment in R&D capabilities, as well as our acquisition strategy. Given the current RV production environment, our diversification strategy is paying dividends and is proving to be critical to driving sustainable growth across our business. In prior down cycles, such as 2008 and 2001, our performance was substantially impacted due to a majority of our revenues coming from RV. Today, our aftermarket, adjacent markets, international businesses make up 46% of our total net sales. In December and January, 64% of our sales came from our diversified markets. We have simply never been this diversified while in a down cycle. We believe our ongoing focus on diversification will further cement our leading position into the broader outdoor recreation markets to support consistent, profitable growth in the long term. Revenues in the North American aftermarket grew year over year, up 7% compared to 2021, largely impacted by a drop in revenues in the automotive aftermarket business. Coming off a strong year in 2022, we are thrilled to see a record number of RVs on the road. As more enthusiasts take to their RVs, we believe we will see more repair and replacement business, which should continue to drive our aftermarket revenues. To accent that point, aftermarket parts revenues were up 65% in January. As we've said in many prior calls, There have been 2 million RVs added to the system in the past four years, so there will be a need for parts and services that we supply, as many of these RVs are now coming into the repair and replacement cycle. As the purchasing of RVs decreased for this season, we are already seeing an increase in service at dealerships. In 2022, we had 1.2 million calls to our contact center for service and repair-related activity. This trend should be nothing short of fantastic for the aftermarket products and services businesses that assist RV consumers with repair, replacement, and upgrades. With that being said, we will continue to invest in this part of our strategy as we steer our aftermarket business toward the billion-dollar mark. While our aftermarket RV continues to grow, we are maintaining our emphasis on creating a best-in-class customer experience, as engaging and listening to our customers is central to our building long-term relationships and strengthening the Lippert brand with dealers and consumers alike. The Lippert Scouts program, which has grown substantially in membership in the past year, serves to provide valuable insights on our products and services, how customers use them, and most importantly, how we can drive improvements in products and services. Further, we held our second annual event for RVers across the U.S. called the Lipper Getaway during the last week of October in Pine Mountain, Georgia. It was a resounding success and consisted of five full days of learning, repairing, and improving their RVs, as well as listening and fellowship amongst nearly 400 people. We will continue to stay focused on developing relationships with the end consumer to help drive our business to more successful results. Turning to the North American adjacent markets, 2022 revenues rose 26%, driven by demand in the marine, along with solid content growth throughout the other adjacent businesses like bus, specialty vehicles, and power sports vehicles. Our adjacent offerings benefit from the same secular tailwinds driving growth across the RV market. Unlike RV OEMs, marine production has been relatively stable. reducing pressure as RV demand softens. In marine, we experienced substantially fewer challenges related to macro conditions, as the overall market didn't ramp up as hard and as fast, and thus did not create as much excess inventory as the RV business did. Like RV, we are continuing our focus on consumer groups and aftermarket related activity. We also saw the launch of our seeding division for Tracker Marine earlier this year in Missouri. We believe our developing relationship here will provide additional opportunity now that we are located near and supplying the largest pontoon and boat builder in the country. Our marine revenues for 2022 have increased to $493 million, and we are anticipating a flatter year on demand, which we believe we will improve through organic growth and market share gains. Our marine production facilities have never been operating at the peak levels they are today, and we expect their solid performance to continue as we continue to supply the high demand and offer many new products in the space. As a part of our diversification strategy, we have also been gaining traction in manufactured housing. With the rising housing prices impacting people across the country, manufactured housing continues to be an alternative for some that might be priced out of traditional residential homes. Also, during the past few years, as residential window suppliers were plagued by demand and in turn created long delays for builders, our team took advantage and started offering entry-level vinyl windows at short lead times to residential builders. We are now starting to build a nice residential window lineup in a market that has over 3 billion annually in addressable market. One other positive note around diversification is that we announced a key partnership last week with ATW, which is now owned by Bain Capital and is the largest utility trailer builder in the country. We launched a collaborative partnership to start supplying the Maxels to all of their trailers starting this month. We are extremely excited and our team will strive to bring new products as well as incredible dealer and OEM services that they've never seen before. We believe our adjacent market and expansion is key to our diversification efforts, and our team continues to gain more and more momentum, finding new products for the customers in these markets. Looking globally, our international businesses also experienced growth in 2022, with revenues increasing 6% year over year, proving to be a stabilizing force in our diversification strategy. Growth in our international businesses was driven by the ongoing introduction of innovative products into EU markets and we are encouraged by the backlog in these businesses as we head further into 2023. Issues stemming from global chip shortages are easing slightly, which we feel will lead to more growth in the European RV business in 2023. We expect some of this demand to start breaking loose in the second quarter, as many OEMs are starting to see chassis shipments increase so they can build more motor caravans. In addition, we continue to see great progress toward Lippert European components, such as Pop Top, and acrylic windows that are already popular in Europe being adopted by the US RV OEMs. These opportunities could provide big competitive barriers for our competition because of the ability to utilize European designs, proven products, and production facilities. While the last couple of years have been challenging for the European divisions, we are optimistic about 2023 being a year in which they are contributing to the overall company in a much more meaningful way. Turning our focus to innovation, Throughout 2022, we had one of our largest product launch years in company history, and this should help bolster a challenging 2020 in the air. With about 150 people dedicated to innovation and product development in our business, we are committed to making innovation a huge competitive advantage as few peers and competitors will invest this kind of money into innovation. Our ABS brakes for our suspension systems, tire link, tire pressure management systems, Continued development of one control and new window, awning, appliance, and door designs have all gained tremendous traction with OEMs, helping to solidify our reputation as a company that continues to refine and innovate our core products. As mentioned earlier, we are thrilled about the acquisition of Girard and Weiner Global. Both add substantial products to our offering that connect our appetite for cutting-edge products with our desire to bring increased utility and aesthetics to each RV. These two acquisitions also make us the largest and most diverse appliance and awning maker in the entire RV industry. One of the other things we are proud of around innovation is that we made several of our new products the new standard. The standout in that category was our instant hot water heater design, taking the place of the older, larger tank water heaters that have been around and standard for decades. With respect to capital allocation, we continue to do our part in maintaining a balanced deployment strategy. We remain receptive to strategic M&A opportunities when they appear, but are also focused on maintaining ample liquidity and a strong balance sheet with modest leverage. We have also continued to make strategic internal investments, specifically in automation, to add further flexibility to our cost structure. In 2022, we allocated over $70 million to growth in automation CapEx, and we anticipate allocating even more dollars to these important projects in 2023. I'll now move on to our cultural highlights for the year. Here at Lipper, a well-rounded culture is our core focus, fostering an environment that values all team members and enables each team member to grow. We believe a strong culture starts with experienced leaders at the top, but also creates opportunities for all team members to become leaders in their own role. To this end, we have a group of leadership coaches that is tasked with creating and executing programs focused on developing and training leaders throughout the front lines of our manufacturing business. This group of 30 individuals are focused on coaching team members across the business and personal and professional leadership development, giving all team members the power to make LCI a better place and impact team members around them more positively. In the end, we believe our great culture and focus of real resources on leadership development is the key to retaining people. We also believe that when people are retained over the long term, there is no question that quality, safety, efficiency, and innovation, the key fundamentals of the business, all improve. Our culture focuses not only on how we can support our team members, but also how we impact the communities around us. Over 2022, Lippert team members performed over 150,000 hours of community service through serving in various charitable organizations and mission work around the country. Over the last six years, our team members have collectively served over 700,000 hours of community service. We could not be prouder of this accomplishment and our team's effort to give back to those in need. and look forward to our culture initiatives having even more of an impact in 2023. In closing, as always, I'd like to thank all of our team members for their hardworking commitment in driving our business forward while upholding our company values and leading strong. We could not have achieved such amazing results without this incredible dedication coupled with the strength and guidance of our leadership team. We look forward to continuing our progress in 2023, and while we may not be setting volume records, we are dedicated to setting many other records, such as safety, efficiency, continuous improvement, and community impact records. We believe that we are in a great position, even in the face of RV volume challenges, to come out strong and are resolved and excited to continue our efforts in delivering long-term value for our customers and shareholders. I will now turn to Brian Hall, our CFO, to discuss in more detail our four-year financial results.