LCI Industries

Good morning or good afternoon all and welcome to the LCI Industries Q2 2023 Earnings Call. My name is Adam and I'll be your operator for today. If you'd like to ask a question at the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor over to Lillian Edscorn to begin. So Lillian, please go ahead when you are ready.

Good morning everyone and welcome to the LCI Industries second quarter 2023 conference call. I am joined on the call today by Jason Lippert, President and CEO, and Kip Emmerheiser, VP of Finance and Treasurer. We will discuss the results for the quarter in just a minute. But first, I would like to inform you that certain statements made in today's content call regarding LCI Industries and its operations may be considered forward-looking statements under the security 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 of the SEC. The company displays any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Thank you, Lillian. Good morning, everyone. Welcome to LCI's second quarter 2023 earnings call. We delivered solid results in the second quarter, highlighted by continued content growth and sequential margin expansion as we navigate a challenging RV operating environment. Revenues were $1 billion, down 34% compared to the prior year, but up $41 million sequentially. Best sales from acquisitions completed in 23 and 22 contributed to approximately $17 million for the quarter. While revenues are down compared to the record highs we reached in 2022, our results are still $386 million above the second quarter of 2019. We continue to benefit from strength in our aftermarket international marine transportation and housing businesses, which made up a combined 64% of overall revenues this quarter, partially offsetting the impact from the significant year-over-year drop in RV wholesale unit shipments. With North American RV being only 36% of our revenues this quarter, our diversified revenues are greatly helping make a difference and our results during the challenging RV environment. Coupled with our steadfast commitment to driving long-term operational improvements throughout our business, while continuing to move forward with our diversification strategy, we believe we will continue our trajectory of sustained profitable growth. Pursuing and capitalizing on operational efficiencies remains a top priority. With the flexibility we've added to our manufacturing footprint, we're able to quickly adjust capacity to match changes in demand while supporting areas in our business that are running strong. Our executive and plant leadership teams have been hard at work driving new cost savings initiatives, driving new sourcing initiatives, and implementing hundreds of continuous improvement projects around the business to diversify and improve our overall cost structure. We've been successful in right-sizing our overall cost structure, reducing general and administrative expenses, while also significantly bringing down inventories to drive enhanced cash generation. We continue to rationalize margins across the business and also to invest with a few smaller business units, focusing on better margin product lines to improve our mix. These combined actions, along with the tailwinds of lower freight and commodity costs, have strengthened our financial profile, putting us in a solid position with sufficient cash, uncertain operating conditions. Needless to say, our company will be in a better position with this reduced cost structure as the industry starts to normalize in the coming quarters. Moving on to RVOAM, sales decreased 55% during the second quarter of 2023 compared to 2022, largely due to decreased wholesale shipments. We're beginning to see improvements in dealer inventory levels where we have been most challenged as the stocking rates amongst dealers decelerates as inventories reach appropriate levels. In addition, 2022 and 2023 year vehicles are being moved out of the pipeline as 24 models begin to enter the market just over a month ago. This changeover also creates a major buying opportunity as dealers cut prices on older models, helping bring in new RVers looking for great deals. August and September OEM order forecasts have improved slightly over prior months, a sign that they are likely hitting an inflection point in demand. Camping trends this summer are also up. with millions more taking trips this Memorial Day on 4th of July versus 22, against a backdrop of frustrated air travelers. Compared to air travel and other traditional modes of vacation, RVing is 35 to 50% more affordable on average, according to the recent RBI study, which makes it an attractive choice in any economic environment. During this quarter, content for total RV increased 2% from the prior year to $5,487, while content for motorhome RVs for the quarter increased 6% from the prior year to $3,760. The model changeover has also supported content growth in recent months. As we continue to launch new and innovative products for RVs, we are typically able to capture share and demand from the latest models, which normally feature additional leading-edge content with each successive year. With the annual RV open house only a month away in September, we are looking forward to showcasing some of our latest product introductions that have been driving content growth, like our new 4,000-series windows with built-in shade systems, independent suspensions and EVF suspensions, and air conditioners, and much more. Moving to the aftermarket, revenues reached a record trailing 12 months of $854 million, decreasing only 2% year-over-year for the quarter, driven by inflationary pressures that have impacted consumer demand, partially offset by improvement in automotive and markets, which weigh positively on aftermarket results. Operating profits of the aftermarket segment expanded significantly year over year in the second quarter, driven by market share gains, declining commodity costs, and targeted price increases. We believe the RV, automotive, and marine aftermarkets will continue to be a major driver for our business as we meet demand for RVers looking to make improvements and repairs to their vehicles. In addition, we feel when the hundreds of thousands of rental nights added annually through rental platforms like RVShare and Outdoorsy, Repairs and upgrades will be turbocharged as many RVs go from being used just a few weeks a year to as many as 20 to 30 weeks a year for some runners. We continue to expand our wide aftermarket product catalog by launching many new product and product programs in the RV aftermarket, helping us capitalize on nearly half a million RVs entering the repair, replacement, and upgrade cycle annually. As we become a premier source For our targeted aftermarket, we're continuing to expand our share in a nearly $5 billion addressable market while strengthening the Lippert brand through our best-in-class customer service. With the support teams in place to directly engage our beers everywhere, we're able to quickly solve problems and help people spend some more time on the road rather than in a repair shop. In the month of June alone, our customer care center took a record 180,000 calls, which was up 80% over last year, which we believe is a sign we will continue to grow as we add content and continue to make the customer experience and service a central focus of our aftermarket business. We also just announced our third annual Lipper Getaway event, which will be held in Island Park Idaho this September. Our teams are always excited for the opportunity to shape the future of our vein by engaging the community and collecting valuable feedback about the products that keep them in the lifestyle. In July, our customer experience team attended the EAA AirVenture Air Show event in Oshkosh, Wisconsin, that attracted over 50,000 RVers. Events like these, along with other major initiatives like the Campground Project, Lippert Ambassadors, product giveaways, and Lippert Scouts have been critical to helping us build trust and lasting relationships with customers, all while helping us create a strong community that is involved with and heavily invested in the Lippert brand. Turning to North American adjacent markets, second quarter revenues were down 8% compared to prior year, primarily due to softness in marine and manufactured housing end markets. On a positive note, we continue to see stabilization and some growth in other meaningful adjacent markets like transit bus, school bus, and utility trailer markets. We're very focused on continued innovation in the marine markets on products like our anchor systems, thrusters, windshields, and seating, and moving the market to our patent electric Bimini product lineup, that is quickly becoming an industry standard since we launched it a few years ago. In June, we launched a partnership between our captains group and Oasis Marinas, the largest marina management company in the U.S., to support and donate different marine products to several events in celebration of National Marina Day. Because our brand is one of the largest product supplier brands in boats, we have our customers' attention and will continue to develop more featured products for the space. Our international markets had another quarter of solid results due to evening supply chain constraints that have hindered our OEM partners along with continued operating improvements as we integrate our acquisitions there, helping to drive a sales increase of 6%. As expected, with chassis shipments increasing, European OEMs are able to deliver higher levels of production to meet a pent-up demand, which we anticipate will be a tailwind through the remainder of the year. We continue to leverage European innovations in our North American RV markets to drive long-term content growth with products like window blinds, pop tops, and acrylic windows. These types of products have the potential to strengthen our competitive differentiation in the U.S. with easy access to our proven European product designs and production facilities. We look forward to driving further growth internationally as this business continues to contribute to our overall performance. I'll now move on to our innovation highlights. In the past months, we've announced many new exciting product launches, including our Solera off-grid awnings with an industry-first solar panel fabric, the OneControl Auto Setup app, base camp leveling systems, independent suspension axles, windows with integrated line systems, glass entry doors, ABS braking, glass feed pop-tops, and much more. Second launch this fall, the Solera off-grid series solar awnings will help us tap into a growing off-grid trend. These awnings provide the added benefit of up to 300 watts of solar power without the added expense and weight of installing conventional rigid panels on the roofs of RVs, redefining the possibilities of sustainable energy integration for off-grid enthusiasts. We believe that our suspension system enhancements pose one of the greatest opportunities for us as we introduce the ABS concept for total RVs that has been around on auto suspensions for decades. We have developed an AVS product that we think meets price point and performance expectations and quickly mounting volume that should influence many of the industry-leading brands to make a move in this direction, as many already have. Other innovations, such as the industry's first glass door and windows with integrated blinds, make for a cleaner and better-looking design inside and outside the RV, allowing all price points to consider these options. We believe that innovation is a significant reason we have grown our business profitably through adding meaningful content to most RVs over the last three decades. On top of innovation, culture remains a true differentiator for our business. As I've long stated, the strong culture starts with experienced and caring leaders at the top who work to create trust and meaningful relationships and leadership opportunities for people they have the privilege to lead. Our leadership development programs and in-house leader development staff have made Lippert a place where team members have the opportunity to grow both personally and professionally. Beyond simply creating a better work environment, our cultural focus has had measurable impact on our company, helping us achieve an annualized voluntary turnover rate of 25%, an incredible achievement given the environment putting us far ahead of our peers. With team members that are excited and energized to show up every day and here for the longer term, we believe we are able to more consistently build high-quality products at a safer, more productive workplace. Within our culture, in addition to focusing on how we can support our team members, we also focus on how we can improve the communities around us. And it's important for our stakeholders to know that we actually measure this. In the first half of 2023, Lippert team members performed 65,000 hours of community service at hundreds of charitable organizations. Over the last year, over 75% of our 15,000 team members participated in at least one serving event. Overall, we could not be more proud of these accomplishments and the efforts from our global teams that give back and serve in the areas where we operate. We look forward to bringing our teams together to make even more of a community impact through the rest of 2023. Regarding capital allocation, our priority is keeping a strong balance sheet, driving solid cash generation to pay down debt, and maintaining sufficient liquidity amidst challenging operating conditions. We remain open to strategic M&A opportunities and have an acquisition pipeline, but our primary focus is on fortifying our balance sheet and making investments in the business to support our growth. We are taking a diligent approach to CapEx, which we expect to be lower this year than last year by approximately $15 million and targeted on high return investments. In the past 18 months, we've invested over $50 million in new automation projects, including significant glass automation dedicated to the total and motor home window and windshield markets to drive efficiencies, get a new product market, and improve product quality. We believe that automation projects like these have been transformational for our business, and we are already seeing the benefit of these investments in our performance today. In closing, we want to give a very heartfelt thank you to all of our team members for their very hard work this year in what has been a very challenging operating environment. We are proud to see how our teams continue to grow personally, professionally, and contribute to the ongoing success of our business with the guidance of our driven and tenured leadership teams. Moving further into 2023, we believe we are very well positioned to keep moving forward and deliver long-term value for our stakeholders. I'm now going to turn the call over to Lillian Eskorn, our CFO, to give more detail on our financial results. Lillian?

Thank you, Jason. Our consolidated net sales for the quarter decreased 34% to $1 billion compared to the prior year period, primarily impacted by the reduction in North American RV production and decreased selling prices, which are indexed to select commodities, partially offset by acquisitions. For the month of July, sales were down 20%, $295 million versus July of 22, primarily due to the decline in wholesale RV shipments. As Jason noted, we are continuing to see the benefit from operational improvements that we have made to our business, while also capturing continuing tailwinds from our long-term diversification strategy. While sales in North America and RV OEMs declined 57%, sales in our adjacent markets, aftermarket, and international businesses only declined 4%. This significantly reduced the impact of the year-over-year decline in the RV industry production. The decline in Q2 2023 sales to North American RV OEMs was again driven by a decrease in wholesale shipments, partially offset by content expansion in towables and motorhomes. Content per towable RV unit increased 2% to $5,487, while content per motorized unit increased 6% to $3,750 compared to the prior year period. Total content growth can be attributed to organic market share gains of 7%, while acquired revenues contributed 5% of the year-over-year growth, partially offset by the sales price reductions contractually tied to commodity prices. Sales to the adjacent industries declined 6% versus the prior year. Sales were positively impacted by acquisitions and pricing adjustments to our transportation products, and were offset by lower sales in North American marine OEM and manufactured housing. Marine content per powerboat decreased 17% to $1,457, primarily due to price decreases associated with year-over-year declining input costs and changes in product mix. Q2 2023 sales to the aftermarket decreased 2% compared to the prior year period, driven by inflationary pressures impacting consumer demands. International sales increased 6% year-over-year, including an estimated 2% positive impact of exchange rates in the quarter. Supply chain constraints have been easing, which has enabled European OEMs to meet pent-up demands. Growth margins were 21.5% compared to 26.6% in the prior year period. primarily due to the impact of fixed production costs on lower sales volume and the timing of sales price reductions contractually tied to commodity prices. Operating margins decreased compared to the prior year period, in line with expectations as we continued to absorb fixed costs on the lower sales base and also decreased prices indexed to select commodities. As a bright spot, we had a year-over-year increase in aftermarket margins, driven by decreased material commodity costs, helping to partially offset the impact from lower overall sales. Gap net income in Q2 of 23 was $33.4 million, or $1.31 per diluted share, compared to $154.5 million, or $6.06 per diluted share in Q2 of 22. EBITDA decreased 65% to $88.2 million for the second quarter compared to the prior year period. Non-cash depreciation and amortization was $65.5 million for the six months ended June 30th of 23, while non-cash stock-based compensation expense was $9.1 million for the same period. depreciation, and amortization in the range of $130 to $140 million during the full year of 23. For the six months ended June 30th of 23, cash generated from operating activities was $274 million, with $34 million used for capital expenditures, $26 million used for business acquisitions, and $53 million returned to the shareholders in the form of dividends. Operating cash flows were negatively impacted by lower sales and partially offset by the positive changes in working capital. The improvements in working capital were led by the initiatives we put in place to decrease inventory, which has resulted in a decrease of $200 million year-to-date. As inventories continue to normalize, we expect further improvements to working capital and positive impact to cash flow. We have made net debt repayments on our long-term debt of $179 million year-to-date through June 30th. At the end of the second quarter, we had an outstanding net debt position of $921 million, 3.1 times pro forma EBITDA, adjusted to include LTM EBITDA of acquired businesses and the impact of other non-cash items. As we look forward, We are focused on continuing to maintain a strong balance sheet and targeting a long-term leverage of 1.5 times net debt to EBITDA. In the near term, we are working to integrate recently completed acquisitions, which we expect to positively impact our operating cash flows in the coming quarters. For the full year of 2023, capital expenditures are anticipated in the range of $60 to $80 million. We continue to expect that RV production levels will remain volatile in the short term. We estimate our July consolidated sales of down roughly 20% to be indicative of third quarter of 23 results, as RV OEM production remains suppressed as dealers continue destocking to get inventories to more appropriate levels. We anticipate Q3 of 23 RV shipments will be between 65 and 75,000 units. with a full year estimated range of 290 to 310,000 units. We believe third quarter financial results will be very similar to the second quarter. Looking ahead, we are confident in our ability to keep up our solid performance and are very well positioned to continue managing through operational challenges to create long-term shareholder value. With that, this is the end of our prepared remarks, and we're ready to take questions.

As a reminder, if you'd like to ask a question today, please press star followed by 1 on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure your headset's fully plugged in and unmuted locally. Our first question today comes from Catherine Thompson from Thompson Research Group. Catherine, your line is open. Please go ahead.

Hi. Thanks for taking my question today. This is just really more about the balance of going into the Elkhart open house and where inventory is in the field right now. Have you seen, you know, we sort of seen this earlier this year, but are you seeing dealers scratch out orders to a degree before the open house and are maybe running a little bit leaner in hopes of waiting, placing orders for new units? Or do you feel that inventory right now really reflects current demand? and just really kind of understanding how you think about inventories going into that show.

Thanks, Catherine. I think that it's more the latter of what you just said. I think that, you know, obviously dealers can, they get to a point where their inventories are so low where they need to order and need to stay stocked up. You know, dealer inventories have obviously, you know, decelerated the stocking, but they're still destocked. I mean, the way we've looked at it is, You know, from Q1 2020 when we felt inventories were fairly normalized, you know, we're about 85,000 units, almost 100,000 units less today in this quarter than what we were back then. So, you know, it feels, and again, I'm just giving you our feeling, yards are empty here. The shipyards at the OEMs are pretty empty. You know, you go back just 12 months ago, they were chock full. Um, but there, the orders have ticked up, you know, it feels like 10% or so for August of September, like they need units because the last, you know, the last handful of months have obviously been, we've been pretty starved for orders. So it feels like they need some of those units to get through open house. And then we're anticipating, you know, uh, we're anticipating, you know, continue to stock up as camping world seven there. their recent release that they were going to continue to stack through the next six months and gain inventory. So that's what it feels like.

Okay. And that ties into cash generation. You know, you previously said that inventory, you know, obviously inventory and cash go hand in hand, especially if you have inventory build up. But with lower inventory and the debt reduction, are our key bogeys that you're focused on. From here, what is your outlook on inventory to cash conversion and uses?

Hey, good morning, Catherine. It's Lily. And so, as you noted, we've done some significant reductions in our inventory year to date. We've reduced it by about 200 million. We are going to look to continue to reduce inventory through the second half of the year. Probably not at that type of pace, but we are going to still continue to right-size our inventories as we move forward. We've had very strong cash generation in the first half of the year. I expect that we're going to continue to be generating cash as we move into this next half. So the company's been positioned very solidly and very focused on cash generation, and that's going to be something that we will continue to be working towards for the balance of the year.

And it feels like if volume stays up as we kind of see the trend for August to September, what we have immediate visibility for, obviously we can reduce inventory to quicker clip than what we have the last couple of months. But July was obviously a little slow. Again, if August, September, rest of the year pick up, we can move inventory out and generate more cash. Okay.

Okay. And the final question, can you touch on any of your updated automation efforts just where you are? Yeah. And given low production rates, is this an opportunity to speed up some of those initiatives?

Yeah, we've obviously squeezed CapEx this year for obvious reasons, but we had quite a few projects flowing into the year that were carryovers from 2022. Probably most notable is our our glass automation that we're doing for windshields, which will be a new product line for us for towable and motorized RVs. Especially in the towables, the windshields have really ticked up over the last few years. You know, you see probably about 30% of the towables now with windshields on the fronts where they didn't have anything in prior years. So, you know, we've got automation for those two lines. I'd say we've probably got 40 or so million of automation in one building for glass now. Half of that is online. The other half is coming online over the next six to eight months. And we've got other projects that we've got in the back burner warming up for 24 as soon as cash improves.

Okay, perfect. Excellent. Thanks very much.

Yeah, thanks, Kathryn.

The next question comes from Fred Reitman from Wolf Research. Fred, your line is open. Please go ahead.

Hey, guys. Good morning. I just wanted to follow up on the comment about 3Q being similar to 2Q. I wasn't sure if that was a comment in terms of total dollar performance, so sales, EBITDA, earnings. Was that a comment on year-over-year performance? What exactly did you mean by that?

Hey, good morning, Fred. I'm Lillian. Yes, what I was referencing with that really is comparability to the second quarter of this year's performance, both from the top line perspective and the overall earnings for the business.

Okay, perfect. And then did you guys, I apologize if I missed it, did you give an updated retail number for 23?

I don't know if we did or not, but we feel the retail for this year is going to be somewhere in the 375 range, and we feel 375 to 400 for 24. That's kind of what we're throwing out. I think that's in line with some of the other public companies that have stated their forecast.

Okay, great. And then just lastly, I think last quarter you said from an inventory mix perspective, model year 22 was like 35%. Do you have an updated number for that, sort of where it stands today?

Can you repeat that again, Fred?

Just the mix of model year 22s, I think last quarter you said it was around 35%. Yeah.

So it feels in doing all the dealer touches and talking to all the OEMs that it's nearing the 10% mark. Some dealers have 15% that we've touched and others are in the 3% to 5% range. So it's definitely declining pretty good. And with respect to the You know, the performance, I just want to be clear that, you know, while we're challenged in the times recently with lower volumes, you know, we feel very confident. As we've stated in past years, that this is a double-digit OI business, and we will get back there, but there's some choppiness and just volume and, you know, getting through some of our inventory challenges and things like that over the next couple quarters. Just wanted to be clear about that.

Okay, great. Thank you.

The next question comes from Mike Swartz from Truist Securities. Mike, your line is open. Please go ahead.

Yeah, hey, good morning, everyone. Just maybe for Lillian, a question. I think previously you had said you anticipated, you know, mid to high single digit operating margins for the full year. I think you're implying kind of mid single digit again for the third quarter. So do you have an update there? It seems like it'd be probably at the lower end of the range, but I don't want to put words in your mouth.

Yeah, no, I think that's probably fair. So as we're seeing how the cadence for volume coming through and as we're seeing the RV business cadencing and what have you through the balance of the year, it probably is more at that mid single digit for this year. And as Jason just commented just immediately previously, we do still see this business on a longer term basis being a double digit OI business. It's just taking a little bit of time as we get into more normalized operating patterns for the industry to get there.

Gotcha. Okay. And then just a point of clarification. I think you said your kind of visibility into August and September RV production looks better than past months. I'm guessing you're talking about maybe June and July. Was that only the year-over-year basis, or was that absolute production levels? I just want to clarify that.

Well, I think one of the things that we want a lot of the investors to understand specifically is the ramp down that we've seen over the last, you know, you go back to you know, April of 2022, just over a year ago, you know, we were on a run rate of 725,000 units as an industry. That was what, if you annualize the monthly production in April, that's what we were kind of shooting toward. And if you look to, you know, one year later in April 23, we're, you know, running at a 260,000 run rate. So, you know, the deceleration of the business is a lot greater than what it might've looked at from the outside saying, hey, we finished, you know, 22 at a 500,000 unit wholesale and 23 looking at a 300,000 plus unit wholesale. So the difference is a lot greater. But yeah, I think that what we have visibility on today, August and September being up, we should get into better comps, obviously, significantly better comps as we get closer to first quarter. But right now, all we have visibility on is August and September, and it feels like 10% over what we saw in May, June, and July, which had several weeks of downtime in all three of those months, more than normal for those months. So I hope that answered your question. If not, you can keep trying.

Okay. No, that's helpful. Thanks, Jason.

Okay. The next question is from Brett Jordan from Jefferies. Brett, your line is open. Please go ahead.

Yeah. topic, I guess. You'd said Q3 is similar to Q2, but it sounds like most of Q3 is going to be running better than Q2, or is that just better year over year? I'm trying to reconcile the August and September being up versus the second quarter.

Yeah, I think we've got some Yeah, I think we've got some puts and takes with our diversified businesses that might be where some of the clarity needs to be. But you look at August in Europe, they take the entire month down where you look at Q2, we had a pretty robust quarter for Europe. So you got to look at all the different industries and segments independently. But for the RV segment, I think is what we're speaking to, is we see orders at least for August and September, not knowing what October is going to be yet and And still, we can't be certain that they don't come back after open house or even in the next few weeks and say, hey, we need to take a week down in September. So just telling you what we see today.

Brett, just to expand a little bit on that from a sequential perspective as we look at some of the other industries, I think it is important to note that You know, Europe, generally speaking, is lighter from a seasonality perspective for Q3 because of the shutdowns that we have in the various countries. The other area that we're seeing softness as expected is in the marine side of the business. But that was down a little bit sequentially in the second quarter. And as we progress through into the third quarter, that's also going to be down again sequentially. So again, to the point that everything kind of puts and takes, We are seeing strength in certain areas. Clearly, some of these adjacent markets are being puts and takes with the RRB.

Okay. And what's the second half impact on commodities? I mean, what you can see in price deals that you have now?

Yeah, we've got, I mean, again, lots of positives and negatives there. We have some commodity pricing going down. We have some that are going up. We have commodity indexes where some of our pricing to customers is going up. Some of it's going down. So again, overall, you know, I think that it's a pretty net neutral result. We'll know more about Q4 next quarter, but that's kind of where we're at.

Okay. And then one last question. The outlook on sort of content as the OEs, the manufacturers are rolling out the 24s, is there a bias to sort of try to get consumer prices lower by on average moving content down? Or is it, you know, sort of trying to make them more appealing by moving content up? Is there any shift there?

Yeah, I mean, definitely the shift is to, as you've heard maybe from some of the other public calls, there's a real push to get pricing down as pricing crept up over the last couple of years. And some of that's coming through decontenting, some of that's coming through just pure discounting. You know, when I look at our products, and I've said this in the past, but I think it's helpful to repeat it, that When a unit's taking a slide out or axles or a chassis, there's not really much that changes from a content standpoint on that because they need those products, windows, awnings. You can't really build units without those. They're decontenting largely on a lot of products that we don't sell. So when I think about our products and decontenting, the only time we get a little pinched is when the market tends to go from high-end units to entry-level units or, you know, bigger travel trailers to smaller travel trailers. And the market shifts that way, which, you know, we're seeing a little bit of, especially, you know, when you look at, you know, big Class A motorhomes and diesel motorhomes, those are certainly taking the biggest hit. But again, it's a small overall part of the entire market. So I hope that's helpful.

Yeah, great. Thank you.

Yep. The next question comes from Scott Stember from Roth MKM. Scott, your line is open. Please go ahead.

Good morning, guys, and thanks for taking my questions. Good morning. Can we go back to the content conversation? It sounds like you won't be as impacted by decontenting looking out to 2024. You know, factoring everything in, where do you see organic content growing? I know you've been in a 3 to 5% range as a goal, right? But do we still stay there?

Yeah, I think if you peel out inflation and those pressures, you know, certainly, you know, our goal is to continue to add bells and whistles and features to existing products and then continue to come out with new product lineups. We've been doing that for the better part of 20 years and been pretty successful. I'd also add that we haven't lost market share during this time. So that's another strength we've got as we tend to continue to keep our market share pretty level or grow it over time. So given all that, I think that that's still a fairly safe assumption. Again, netting out any kind of inflationary issues and things like that. right and then looking at the marine side um getting a little bit softer than the previous quarters but could you maybe just flush that out uh pontoon versus more expensive types of boats yeah i think that you know obviously punt you know we sell a lot of a lot into the pontoons but we sell you know we sell a lot of windshields to all the all the bigger boats as well so we have some decent content there but i think because Over the last couple of years, as you all know, the marine business hasn't ramped up as high and as fast to the levels that RV did compared to where they were. We feel that this cycle is going to be relatively short-lived. Most of the OEM customers we talk to are talking first quarter to get some of the inventory flushed out, but I don't feel that the dealers have the same type of problem or the size of the problem with marine inventory that the RV dealers had with the RV inventory, especially on the towable side.

All right. And then last question on the aftermarket. You talked about your customer call centers having tremendous increases of inbound calls. Can you maybe talk about where is that coming from? Is that related to repair work, break-fix? And what are you hearing from dealers as far as, you know, warranty and things like that?

Yeah, yeah, sure. That's a great question. Yeah, 180,000 calls and communications in each of the last two months. So, you know, if you look over the last, you know, 10 or so years that we've really had our call center running and running full tilt and we, you know, we really rarely had a quarter you know, they had less service impact and calls than the prior quarter. So, you know, we put more RVs out there, we're going to get more calls. We put more content out there, we're going to get more calls. I think the other thing that leads to more calls and opportunities is the fact that, you know, I think we're servicing better than anybody else in the industry. So we tend to get calls when, you know, maybe other people's lines are busy. We're monitoring every single call, how quickly we answer how much we're putting toward, you know, sales on each of those calls. There's sales efforts, obviously, in each of those calls, even if it comes in for repair. But to answer your question on repairs, it's, you know, my guess would be, you know, 65, 70% of the calls come in for service repairs, warranty, things like that. The rest are, hey, I'm thinking about getting this or that product for my RV. You know, where do I get it? How do I get it? How do I get it installed? And then we've got service to handle to handle all of those things. So, you know, in our best estimation, the calls into our service center are going to continue to grow over time, especially as we put more RVs and more content out there, which is good for our aftermarket and one of the reasons why it's growing like it has.

Got it. That's all I have. Thank you.

Thanks, Scott.

As a reminder, if you'd like to ask a question, that's star followed by one on your telephone keypad. The next question is from Daniel Moore from CJS Securities. Daniel, your line is open. Please go ahead.

Thank you. Good morning, Jason. Good morning, Lillian. Covered a lot of ground already, but maybe just one or two quick ones. The decontenting discussion, maybe if we take that over to marine content was down, I think I heard 17%. What was the split between price and mix, and do you anticipate mix being maybe a little bit more of a headwind, at least near term, you know, if customers are looking for kind of lower price point, lower amenity models?

Well, they're looking for some of those exact numbers. I'll say a couple things. One is, you know, we just started measuring marine content, you know, within the last year, so some of those numbers might just be fuzzy because we're just starting to measure it. Certainly some of that's inflationary because we have given some decreases. But I would tell you that just when we look at the pontoon market and Forest River had their dealer show just the other day, I mean, the pontoon boats feel like they're as expensive as they've ever been in terms of what dealers are looking to buy. You don't see very many of the entry-level $30,000 pontoons anymore like you used to. I mean, there's a lot of pontoons that are in the $70,000 to $100,000 range. Um, you know, lots of bells and whistles and feature, and you look at electric bimini as you look at, uh, some of the power arches, obviously they're putting more windshields on pontoons today, which they didn't do in the past. And, uh, seating packages that we do a lot of are getting more expensive. So, um, so I I'd say that that's probably the best, uh, the best color we can give you there. And maybe the color will become more clear and future quarters as we get more time under our belt reporting the content.

They are now funded. That's how they're maybe, you know, 1A and 1B on capital allocation. CapEx, as you mentioned, you know, tightening the belt a little bit. Are there projects that you deem as less necessary or maybe just sort of pushing things out to fiscal 24 when things get a little bit clearer?

Yeah, I'd say that we're just pushing them out. I mean, all the projects that we've got on the block right now we feel are important. You know, we wouldn't put them on. We'd deprioritize them. You know, some of those projects are automation projects, so those usually take priority because, you know, we're improving our labor and quality and safety all while, you know, putting these CapEx in place. So, you know, when we look at last year at 130-ish million in CapEx and this year at 65, we're just trying to put the most important projects, 65-ish million in CapEx this year. is what we look to be at. We're just trying to prioritize the most important ones we can do in that range.

Makes sense. And lastly, appreciate the color, Lillian. You mentioned your leverage target one and a half times again. Would you want to get back down 90% to 100% of the way there or all the way there before you kind of start looking at M&A again or If you made meaningful progress, would you start to consider smaller tuck-ins along the way? Thank you.

Yeah, no, I think what I would want to see is that we're making meaningful progress. We're always going to be looking for opportunities from an M&A perspective to the extent that it makes sense for the business and it's strategically aligned with our objectives. So if the right opportunity came forward and we were making meaningful progress, then I'd be comfortable doing that. you know, I'd say for right now, as we've stated, you know, really focused on making sure that the balance sheet is very strong and it supports us basically, but always willing to entertain opportunities as long as we're making that progress.

Makes sense. Thank you again.

Thank you. The next question comes from Craig Kennison from Baird. Craig, your line is open. Please go ahead.

Hey, good morning. Thanks for taking my question as well. It's been a good call. I think I have a decent handle on stocking trends in the RV channel and then in the marine channel. I'm wondering if there's any color you can shed or any light you can shed on any stocking trends in your aftermarket channel.

Yeah, it's real difficult, Craig, to answer that question in a way that's going to provide you any kind of better color than maybe what you already have. But I would say that the trends typically follow the retail unit trend. So when the dealers are challenged a little bit, they're typically holding back on those inventories. But there's also the factor that you have with when retail slows down and And people are moving more used product. They're tending to use a little bit more of aftermarket parts to upgrade and things like that. And obviously we sell a lot of those. So, you know, all I can tell you is that our, you know, you look at our quarter, you know, we're 2% down, which, you know, is a lot better than obviously what the market's doing. But I think a lot of that as we continue to just put more content into the channels, the aftermarket channels, you know, our automotive side is a factor to that. That's That's been bumping up a little bit recently. It was a little bit challenged in past quarters. And then you've got the marine channel as well. So you've kind of got three channels in aftermarket when you look at that number versus just our RBOEM, which is strictly RV. Is that helpful?

It is. Thank you, Jason. And then just an unrelated question. I have time a little late, but did you offer any commentary on your appetite for acquisitions in this environment?

Yeah, I think, you know, we're obviously staying super diligent on the capital expenditure side, and we're just, you know, we're looking at companies. We've got a pipeline. You know, we're pushing some of those out right now for obvious reasons, but... You know, I don't anticipate when we get back to 2024. I mean, M&A is still an important part of our growth strategy, and we're still going to continue to look at acquisitions as actively as we have in the past. It might look a little bit different as we look more to marine and aftermarket and a little bit less in RV, but it just depends on what presents itself. But we're going to stay active. Great. Thank you. More tuck-ins likely that are smaller, like we've announced this year. We announced two smaller deals. So if those types of things come along, obviously those would be easier to consider.

That's helpful. Thank you, Jason.

Yep. See you, Craig. The next question is from Brandon Rollay from DA Davidson. Brandon, your line is open. Please go ahead.

Good morning. Thank you for taking my question. I just had a quick one on the labor situation in Elkhart. Could you comment on availability and maybe competition for labor as the industry starts to ramp up production?

Yeah, sure. And I'll start by saying it's a little bit of a mystery to me. We are having, obviously, one of the biggest downturns in RV the industry has ever seen. This community is, you know, pretty heavily relying on that industry. And different than 08-09, I mean, and I've talked to a lot of people recently, I haven't heard you know, I haven't heard a lot of people screaming and complaining that they can't find work. So, you know, there's a lot of people obviously that have, you know, done really well, the RV workforce probably that, you know, are comfortable staying for a period at this kind of four-day workweek level. But, you know, unlike the last, you know, big dip we had, we're just not hearing about a lot of people having trouble finding jobs. I think the other industries in the area are finally getting some of the labor that they need, and a lot of those businesses are doing okay. As you know, this industry or the economy in general is still growing a little bit. The RV industry is struggling right now and has for the last 12 months, but it's good to know that people seem to be sticking around. So long answer to the question, but hopefully that's helpful.

Yep, thank you.

We have no further questions, so I'll turn the call back to Jason for concluding remarks.

Yeah, I just want to thank everybody for joining the call. Obviously, it's been a year of dealing with some of the RV challenges, but it feels like we're starting to see some of the light at the end of the tunnel. And we look forward to updating you on that over the next couple quarters. So thanks for joining the call.

This concludes today's call. Thank you very much for your attendance. You may now disconnect.