LCI Industries

Good morning all, good afternoon all, and welcome to the LCI Third Quarter Earnings Call. My name is Adam, and I'll be your operator for today. If you'd like to ask a question during 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 to Lillian Edscorn to begin. So Lillian, please go ahead when you're ready.

Good morning, everyone, and welcome to the LCI Industries Third Quarter 2024 Conference Call. I am joined on the call today with Jason Lippert, President and CEO along with Kip Emenheiser, VP of Finance and Treasurer. 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 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 statement. These factors are discussed in our earnings release and in our Form 10-K and in 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 of the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Good morning, everyone, and thank you and welcome to our third quarter 2024 earnings call. We continue to execute well during the third quarter, improving margin and increasing share as we navigate some continued headwinds in the RV and marine sectors. Over the past six decades, Lippert has been established as a leading global supplier of highly engineered components for the outdoor recreation, transportation, and building products industries. We feel that our diversified product portfolio, combined with the results of our continued focus on innovation, customer satisfaction, and strategic acquisitions, continue to help us win with our OEM and aftermarket customers. With these advantages, particularly our innovative, high-quality content, we've been able to gain RV OEM market share year-to-date in our top five product categories, appliances, awnings, chassis, furniture, and windows. These products made up roughly 71% of our total RV OEM business so far in 2024. Despite continued industry softness in RV and marine, net sales declined only 5% during the quarter to $915 million. The quarter also benefited from increased automotive aftermarket sales, underscoring the success of our growth strategy as we track organically toward $5 billion in revenue for 2027. We also delivered meaningful profit growth this quarter. Operating margin increased 100 basis points and operating income dollars grew 18%, driven primarily by operational improvement and cost management initiatives. Supply chain improvements help lower material costs, while product quality and technical training initiatives reduce warranty costs $10 million during the quarter. Furthermore, we continue to consolidate facilities and reduce our overall cost structure and footprint while maintaining scalable capacity. We believe there is further opportunity to execute on these types of cost savings initiatives and business unit consolidations to support enhanced profitability in the coming quarters. Lillian will talk about this in more detail shortly. I will now move on to our results by business. RV OEM net sales were 419 million, down roughly 2%, versus prior year as the impact of lower motorhome shipments and mixed shifts towards smaller towable units offset the market share gains we delivered across our top product categories. Based on industry reports, RV production is now closely aligned with wholesale shipments, and dealers are reporting low inventory levels, which should position us well when the industry begins its rebound. Content for towable RV was $5,131, down slightly versus prior year, while content per motorhome RV was $3,739, up slightly versus prior year. For totals, organic content was up 1%, driven primarily by gains in our top five product RV OEM categories. This growth was more than offset by the mixed shift to single axle trailers, which were up 38% over the same period in 2023. Based on feedback from certain dealers, there should be a return to higher content trailers in early 2025. Furthermore, as new LCI components are added to 2025 model builds, we should see an acceleration in organic content growth, which we believe should begin in the fourth quarter. We supply the top RV brands with what we believe to be premium innovative content. These new product introductions should remain a key driver behind content expansion and help accelerate long-term content growth as retail demand and industry production recover. We have already seen a strong response from customers to the products we showcased at the RV open house in September. These innovative products include our Touring Coil Suspension, or TCS, our anti-lock brakes, larger windows, new glass doors, and our new Chill Cube air conditioners, all of which are resulting in new business wins for 2025. Our new Touring Coil Suspension, or TCS, the first total suspension of its kind cuts road vibration on total units by about 50%, which should extend the life of the RV and drive share gains by lowering maintenance costs and increasing customer satisfaction. As consumers add more sophisticated content like this to their vehicles, TCS should fuel even greater demand. We've demonstrated TCS's effectiveness to several major OEM and dealers by having them experience the vibration that comes with a normal suspension as compared to our TCS. The dealers and OEMs simply couldn't believe the difference that TCS made. The significant investment we made here last year looks to be paying off, and we believe that the addressable market for this unique product is over $150 million in revenue opportunities. Our anti-lock brakes, or ABS, is a key example of our commitment to innovation and meeting customer needs. Before our launch, ABS for RVs was virtually nonexistent and extremely cost-prohibitive. Now, over 10 leading total RV brands have adopted it, including Cougar and Reflection, two of the top three fifth-wheel brands, with more expected in fiscal year 25. We expect over time that it will be an interesting standard, largely because consumers seem to understand that purchasing an RV with anti-lock brakes means that the RV can stop in even shorter distances while improving emergency braking. Today, orders have been strong, which should position us to capture a significant share of this $150 to $200 million addressable market. We are also starting to market this product to our utility trailer customers. We believe that utility trailer OEMs that manufacture trailers that carry expensive cargo are going to gravitate towards this product. We're excited about this opportunity as there are approximately 600,000 utility and cargo trailers manufactured every year. Our larger windows and new glass entry doors being purchased for use in many of the 2025 models should enable us to increase content on both towable and motorhome units, as we believe that consumers will happily pay a premium for more natural light and the functionality of the products like our 4K window series with integrated shades. For example, Brinkley launched their brand two years ago with our new square-bonded windows as part of their trademark new look. Lastly, worth noting is our Chill Cube air conditioners. which was designed by our talented HVAC team based out of Arizona to be the quietest AC in the North American market with the industry's highest capacity at 18,000 BTUs. Upon launch, we have seen immediate interest from many OEMs and this innovation will build on the market share we've been taking in this category over the last two years. Many people talk about innovation only to have their ideas end up as concepts in a showroom or a press release. We believe that real innovation, like the newly launched products I just mentioned, requires that the new products make it into the vehicles, creating meaningful revenues and ultimately help improve the customer's experience. As we capture more content opportunities and as the wholesale shipments and mix normalize, we expect organic content growth to return to 3% to 5% on an annualized basis. The RVIA is projecting roughly 345,000 wholesale shipments in 2025 at the midpoint of its range, which should translate to over 100 million additional sales for our business at current content numbers. Moving to aftermarket, our aftermarket net sales were $231 million. Flat versus prior year, a strength in the automotive aftermarket was offset by some softness in the RV and marine aftermarkets. Operating profit for our aftermarket division was an outstanding 13.9% for the quarter. Our current family of products, which includes hitches, towing products, and truck accessories, continued to outperform, delivering a 7% increase in sales during the quarter and equaling 54% of our total aftermarket revenues, highlighting the impact of our diversification efforts. We are also driving aftermarket growth with our Camping World Partnership, through which we have upfitted over 10 Camping World RV parts retail stores since we acquired its furniture business and expanded our collaboration with its retail team this past May. Sales of Lippert products through the Camping World stores increased 47% in the quarter, and we expect our revenues here to grow as we work together to increase the selection of Lippert products not only in those stores, but also online and in additional Camping World locations. In addition, our Furion suite of appliances, including ovens, hot water heaters, refrigerators, microwaves, furnaces, and air conditioners, continues to support aftermarket content growth through the upgrade, repair, and replacement cycle, contributing $47 million in just aftermarket revenues year-to-date, up 18% from a year ago. For example, Furion's air conditioners, which have a high replacement rate, are one of the top-selling products in the RV aftermarket. Our OEM sales of air conditioners and other products should set us up for direct replacement in the aftermarket once the repair cycle begins for an RV owner. As our OEM content increases on each product, the likelihood we get the aftermarket sale on those components should also increase. For example, in the first nine months of 2024, as compared to 2023, our air conditioner business is up 80%. which not only shows our ability to gain share on new OEM content, but we believe bodes very well for period replacement air conditions and the coming replacement and repair cycles. Turning to adjacent markets, net sales decreased 11% to $266 million versus the prior year, almost entirely due to weak demand in marine where dealers continue to right-size inventory levels. International sales were down 9% due to high inventory and some extended OEM shutdowns. We are focused on aggressively expanding market share in the RV, marine, and rail markets internationally using the same products and playbook that have made us a leader in North America. We are also working to launch appliances in the European caravan market in 2025, which would be a substantial category for us in Europe. Also in the adjacent markets, we are gaining market share in transportation and building product markets by introducing new products and offering what we believe to be superior service, product quality, and on-time delivery. For example, we've leveraged our core competency in axle manufacturing to expand into the utility trailer market, supplying top brands like ATW's Big Tex trailers and many others. Over the last couple of years, we have made meaningful headway as there are approximately 600,000 utility and cargo trailers built annually. We see significant growth potential for our axles here. And as we gain more share here, we plan to offer upgrades such as ABS and TCS that I mentioned earlier to these utility trailer suspensions. As I mentioned on prior calls, our window and glass products are also driving meaningful revenue in off-road vehicles as well as school and transit buses. We are also gaining more ground on a meaningful opportunity for residential windows, which are a different category than our legacy manufactured housing windows. We have grown this business by 20 million in just the last few years and are finding that more and more residential distributors and builders are having a great experience with our new entry-level vinyl window products. Moving on to capital allocation, our operating performance and inventory management have driven meaningful operating cash generation of $402 million over the past 12 months, and we have reduced our leverage to two times. We continue to evaluate M&A opportunities as they arise and our balance sheet positions as well on those opportunities in the RV, aftermarket, marine, and transportation markets that we believe are right for us. We have had success in creating value by acquiring companies with experienced leadership teams, great products, and significant growth opportunities and plan to continue to prioritize acquisitions with these criteria. As we do this, we believe that enhancing our product portfolio continues to allow us to widen our competitive moat. In addition to M&A, we plan to continue to use our balance sheet to fund innovation and operational improvements to the business in order to maximize the return of capital to our shareholders. Before I close, I'll touch base on a couple of cultural achievements for this quarter. At Lippert, we're committed to using business as a force for good, and this is reflected in how we engage with our coworkers, customers, and communities. In August, we received the 2024 Community Impact Award from Culture of Good, recognizing our dedication to a healthy culture and solid corporate citizenship. We also earned the five-star Achieve Well Award from the Wellness Council of Indiana, highlighting our focus on workplace wellness as a driver of engagement and performance. Lastly, we are proud to announce in October we crossed the one millionth hour of community service our teams have given back to the communities where we live and work, since we started our 100,000 hours a year of community service program in 2017. This year, 78% of our team members served in at least one community service project, most of which were organized for our company's community impact team. We're proud of these milestones and remain committed to ensuring our team members have plenty of opportunities to serve with their fellow Lipper team members regularly in our communities. In closing, I'd like to thank our fantastic team members for their hard work this quarter. Guided by our experienced leadership team, we believe Lippert is poised for long-term success. Our expansive competitive moat is made up of our experienced group of leaders, our large product breadth, and our ability to be flexible with so many products across hundreds of thousands of SKUs, not to mention our decades-long, deep, meaningful relationships with our customers and the solid understanding of our industries. The operational improvements and market share gains that we've made in a difficult environment should position us well for when retail demand rebounds, and we remain confident that our continued focus on innovation, customer satisfaction, and strategic acquisition should help us capture a meaningful share of the industry growth going forward. We look forward to continuing our progress and delivering value to all of our stakeholders as we close out 2024. I will now turn to Lillian to give more color on our financial results.