LCI Industries

Hello everyone and thank you for joining the LCI Industries second quarter 2025 conference call. My name is Lucy and I'll be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. It is now my pleasure to hand over to your host, Lillian Edskon of LCI Industries to begin. Please go ahead.

Good morning everyone and welcome to the LCI Industries second quarter 2025 conference call. I am joined on the call today with Jason Lippert, president and CEO, along with Kip Emmehiser, 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 could 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 10K and in other filings with the FCC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Thank you, Lillian, and good morning, everyone. I'd like to welcome you all to LCI Industries second quarter 2025 earnings call. We delivered strong second quarter results with 1.1 billion in sales of 5% year over year, along with 2% organic total content growth despite RV mix headwinds. A strong performance reflects dedication of our teams, the strength of our diversified markets and products, and the durability and expansiveness of our competitive mode. While elevated interest rates and other macro factors continue to challenge RV retail demand, our strategic foundation effectively drives growth and resilience, keeping us firmly on track to achieve our 5 billion organic revenue target in 2027. Our 5% growth was driven by continued market share gains in our top five product categories, appliances, axles and suspension, chassis, furniture and windows, as well as the continued traction of our five recent key innovations that have reached a $100 million run rate. Our recently completed acquisitions at Freedman Seating Company and Transair contributed 32 million of sales in the quarter while strengthening our position in the bus market. This market further expands our durability as it benefits from continuous and essential municipal fleet upgrades, providing 200 million in expected annualized revenues to Lipper unrelated to consumer demand. Early integration efforts have been very successful operationally and culturally engaging all 875 new team members collectively between the two new businesses within weeks of closing the acquisition. In addition, we are making good headway on synergies through consolidations of our transportation business units and teams. In addition, Freedman has just announced new product launches for heavy duty commercial buses and entirely new markets for them. We remain focused on what we can control, reducing raw material exposure, mitigating new costs around tariffs and allocating capital with discipline across M&A, capbacks and shareholder returns. We are happy to announce that our tariff mitigation strategy of diversifying our supply chain with help from our vendors and other sourcing strategies enabled us to minimize the impact of pricing to our customers as well as the quarter bottom line in the quarter in line with what we stated last quarter when tariffs were first announced. We're also making strong progress toward our goal of reducing China exposure to 10% by the end of 2025, down from 24% in 2024. We are achieving this by further diversifying our supply chain into more strategically favorable regions, including bringing some products back to the US for manufacturing, renegotiating supplier agreements and leveraging existing inventory to further mitigate cost pressures. We also continue to drive facility consolidation, taking decisive action across multiple facilities to optimize our footprint. These actions, along with a lower indirect spend and reduced salary labor, goes sequential adjusted EBITDA margin expansion of 40 basis points to now 11% in the quarter. To support ongoing cost reduction, we intend to continue to optimize our facility footprint and calendar year 2026 by targeting underutilized space for reduction. All our additional actions are helping continue our momentum toward the targeted 85 basis point overhead and GNA reduction for 2025. I'll now move on to the results by business. RVOE unmet sales totaled 503 million in the second quarter with North American RV sales at 5% and overall RV sales at 3% year over year, driven by market share gains across our top five product categories. This growth was partially offset by a decline in North American RV wholesale shipments as dealers remain cautious with inventory levels after the previous quarters restocking. Nonetheless, long-term trends supporting the outdoor lifestyle remain strong. According to KOA's 2025 camping and outdoor hospitality report, over 11 million new households have entered the camping market since 2019 and 72 million Americans are expected to take an RV trip this year, reinforcing a solid foundation for future demand and favorable demographics. The successful adoption by OEMs of our recent innovations like our ChillCube 18K air conditioner and ILOCK braking systems, 4K window series, Sun Deck and TCS suspension system continue to drive share gains during the quarter. Recently, we engaged in a collaboration with Keystone Cougar, the best-selling fifth wheel RV, where we highlighted the capabilities of our new ChillCube. In this collaborative effort, Keystone and Lipperts and our marketing teams to Death Valley, California, where we showcased the ChillCube's cooling power, energy efficiency and quiet operation in one of the most extreme environments in the US. The marketing and social media campaigns were released early last month. The ChillCube and other market leading innovations that are so critical to customers continue to drive adoption among OEMs, reinforcing our value proposition across all price points. While received innovations, the continued market share gains, increased organic content for travel trailer and fifth wheel by 2% year over year, continuing our trend of organic content expansion despite stiff mix headwinds. Our ability to continuously grow content, even amid this ongoing shift towards smaller single axle trailers, underscores the strength and relevance of our portfolio. Many of our components such as axles, chassis, suspension systems and appliances are critical to the unit, not to mention critical to safety, reliability and convenience for the consumer, making our products difficult to remove in any decontaining environment. Combined with our large scale procurement of the raw materials required for these products, low cost manufacturing and strong OEM relationships, our offerings remain a solid choice for partners taking reliable high value solutions and continued innovation in the space. Looking ahead, we're confident we can capture additional content opportunities and anticipate that organic content growth should return to 3% to 5% annually in a normalized wholesale environment. Turning to the aftermarket, net sales were $258 million for the second quarter, up 4% year over year, primarily driven by product innovations and the expanding camping load relationship in the RV aftermarket. We continue to see strong demand for period appliances, particularly in air conditioning, where the Chill Cube and the rest of our AC lineup continues to gain share in the aftermarket. We've already sold three times more ACs in the aftermarket through six months of 2025 than we did of all 2024. This is a testament to our incredible aftermarket sales teams and technical teams that assist dealerships with a service and winning sales programs. As our aftermarket products continue to see increased adoption in part through more and more OEM placement over the years, it helps fuel our long-term growth strategy in the segment. As OEM content grows and more RVs exit their warranty periods, demand rises in parallel. Further supporting this is the growing US RV ownership base, ultimately creating a larger and self-base, which generates recurring product and service opportunities for our business. Our partnership with Camping World also remains a key aftermarket growth driver, with sales in their stores up over 7 million year to date, indicating strong retail momentum and customer demand as a result of our in-store collaboration with the Camping World team. This continued strength highlights the impact of strategic alignment and collaborative execution as we increasingly strengthen our retail presence with the largest RV dealer in the world, both in stores and online. In addition, we're also working on similar projects with many other dealerships across the country to apply our Lippert parts in-store concept. We also continue to invest heavily in the long-term growth of our aftermarket by building on our service and training functions. Our dealer tech training programs are an important piece of our aftermarket growth strategy, as they help to ensure that our products are supported correctly after the sale to retail, strengthening our pull through with dealer service centers. Last year, we completed service on over 1,500 mobile service repairs, which adds to aftermarket revenues. We are set to exceed that this year, and later on this year, we are adding