LCI Industries

Hello everyone and thank you for joining us today for the LCI Industries fourth quarter 2025 earnings call. My name is Lucy and I'll be coordinating your call today. Before we begin, I would like to remind you that certain statements made on 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 could cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in the company's earnings release, 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. In addition, during today's conference call, management will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in the company's earnings release and investor presentation, which have been posted on the investor relations section of the company's website and are also available on Form 8K filed this morning with the SEC. On the call from management today are Jason Lippert, President and Chief Executive Officer, Lillian Oetskamp, Chief Financial Officer, and Kip Emmenheiser, VP of Finance and Treasurer. Later in the call, we will conduct a question and answer session, at which point you can register to ask a question by pressing star 1, and you may withdraw from the question queue by pressing star 2. With that, it is my pleasure to turn the call over to Jason Lippert.

Thank you and welcome everyone to our Q4 2025 earnings call. We are pleased with the company's strong results as our team continues to execute effectively, delivering a 15% year-over-year top-line growth, along with further margin expansion in the fourth quarter. By leveraging our diverse competitive strengths, we capitalize on opportunities across our RV, aftermarket, transportation, marine, and housing end markets. At the same time, our relentless focus on our operational efficiencies drove enhanced profitability, with fourth quarter operating margin more than doubling, expanding 180 basis points compared to Q4 of the prior year. Starting with our OEM segment, net sales increased 18% to $737 million in the fourth quarter. RV OEM revenue rose 17%, driven by market share gains, increased sales of newer products, and a favorable mid-shift toward higher content units. Our other OEM and markets, transportation, marine, and housing, deliver 21% year-over-year net sales growth to $297 million, or 8% on an organic basis. This growth was primarily driven by market share gains and content growth in North American utility trailer, bus, and marine OEM customers. Bus-related content contributed $31 million of year-over-year growth in the quarter, reflecting the recent acquisitions of Friedman Seating and Transair, for which integration efforts and synergies are ahead of plan. Looking ahead, we expect to expand market share across all four of our OEM markets. As we move into 2026, we expect RV wholesale shipments to range between 335,000 and 350,000 units, while we expect the boat industry to remain flat to up low single digits. Despite a potential flatter industry backdrop, we have multiple growth strategies in place that we believe will drive OEM expansion in excess of overall end market volumes. Central to this strategy is our relentless focus on innovation. Since 2020, new products and market share gains have driven a 67% increase in total content. These innovations include new slide-out designs, chilled-cube air conditioners, advanced window designs, anti-lock braking systems, touring coil suspensions, bed lift and bed tilt mechanisms, larger and more robust fifth-wheel chassis, electric bimini, and our new ladder system for boats, among others. In many of these categories, we offer either the leading product or, in fact, the only product available, further expanding our addressable market margins and long-term growth opportunities. In the fourth quarter, our total content per unit increased 11% year-over-year, reaching $5,670 and representing our largest year-over-year content growth in the past five years. To highlight our innovation momentum, our five most recently launched products are now generating an annualized revenue run rate of approximately $225 million. For example, our air conditioner unit shipments increased from 50,000 units in 2023 to more than 200,000 units last year, largely driven by strong consumer adoption of our Chill Cube air conditioner platform. In addition, following the launch of our patented Sun Deck in 2025, We are scheduled to build over 4,500 of these patio systems this year, contributing over $4,000 in revenue per unit. These examples underscore our ability to create and scale high-value innovative content with the entire RV customer base quickly. At a high level, LCI's competitive moat, both on our scale, technology, deep industry expertise, and people, positions us to consistently outgrow the market. Our broad product portfolio, structurally efficient operating model, and strong customer relationships enable us to rapidly scale new product launches and seamlessly integrate acquired companies. Our competitive advantage is reinforced by highly differentiated, sophisticated manufacturing technologies that enable us to produce complex mission-critical components through flexible and increasingly automated processes. Equally as important, our people are the best in the industry, leading in innovation, cultivating deep customer partnerships, and sustaining the collaborative culture that is foundational to our long-term success. The same competitive mode that drives our OEM business also provides significant advantages in the aftermarket, where we grew net sales 8% year-over-year in the fourth quarter to $196 million. This continued success is directly driven by the strength of our OEM sales platform, which expands content with key customers. When one of our OEM components requires repair or replacement in the field, It almost always must be replaced with our proprietary parts or fully integrated assemblies, creating natural, durable, and high-margin aftermarket revenue streams. Taking a step back, we have come a long way. Just 12 years ago, we had virtually no presence in the RV aftermarket. Over the past decade, we have organically built our RV aftermarket organization to approximately 400 team members with a singular focus on delivering the best customer experience across more than 2 million annual interactions with dealers and RV consumers, who acquire our parts and services. The primary catalyst for growth in our aftermarket engine is simple. We have embedded more than $20 billion of replaceable content into the RVs through our OEM partners over the last decade. These RVs eventually all come into the aftermarket service and repair cycle. At the moment, approximately 1.5 million RVs are entering the repair and replacement cycle in the next one to three years, each one requiring our parts and service solution. Our components reach nearly every RV consumer because our parts are literally on almost every RV on the road. Because we manufacture a broad portfolio of mission-critical products, dealers and consumers rely on us for service and replacement across virtually every major RV system, from slide-offs and leveling systems to doors and awnings, chassis and suspension systems, windows and appliances, mattresses and furniture, and much more. This breadth positions LCI as a trusted partner throughout the entire RV ownership lifecycle, supporting every customer channel, from dealers and distributors to OEMs, direct-to-consumer, and leading e-commerce platforms. We have a uniquely strong right to win in the aftermarket, something that no other supplier can credibly match. To further accelerate service-related aftermarket growth and strengthen dealer relationships, we continue to invest in our service infrastructure. In 2025, dealer service personnel completed approximately 50,000 of our technical training courses, and our online technical resources generated nearly 2 million visits, as dealers and consumers increasingly rely on our service videos to resolve issues in the field. These efforts are driving higher quality service outcomes and stronger dealer partnerships, reinforcing Whippert as the go-to partner in RV aftercare. In addition, we expanded our service footprint in 2025 with the opening of three new service facilities and the doubling of our mobile technician workforce. These investments have already resulted in a double-digit increase in service completions, improving speed, convenience, and customer satisfaction, while allowing us to schedule and complete significantly more service projects than a year ago. Our goal is to simply reach more consumers seeking a better service experience, including faster turnaround, higher quality care, and the opportunity to upgrade their RVs with our newest and most talked-about products. This year, we are partnering with dealers to launch the Lippert Upgrade Experience, a new program that enables our dealers to offer upgrades such as TCS, DBS, and other advanced systems not currently offered by dealers. Several of the largest dealers in the country have already expressed strong interest in rolling this program out later this year. Turning to our auto aftermarket business, there have been several important developments worth highlighting. As many of you are aware, First Brands, which owns our largest competitor in the hitch and towing space, has experienced significant operational challenges as a result of a complex bankruptcy process. As a result, both automotive OEMs and aftermarket customers are actively seeking new, stable long-term partners. Against that backdrop, we are already seeing meaningful opportunities emerge, and we are in the process of capturing substantial incremental business as a result. Although it is still early, we currently estimate the potential opportunity here at approximately 50 million annually. We expect to share more of these developments as things progress. We have the existing capacity to support this incremental volume without the need for new facilities or additional shifts in most cases, allowing us to efficiently absorb this anticipated growth. We are also continuing to strengthen our auto aftermarket infrastructure. We recently transitioned into a state of the art 600,000-square-foot distribution center in South Bend, Indiana, consolidating operations from a couple of smaller, less efficient distribution facilities. In addition, we are preparing to open a new manufacturing facility in Sagin, Texas, later this year, which will serve as the home for our ranch hand truck accessory business, a brand that has seen growing consumer awareness and demand, including increased visibility through popular shows like Yellowstone and Landmines. Turning to our profitability initiatives, we delivered a full-year operating margin of 6.8% and improvement of 100 basis points year-over-year, driven by cost improvements, market share gains, and enhanced operating efficiencies. Given the challenging environment, but persistent in 2025, we are pleased with the results we delivered and are excited about the goals for 2026 that position us well for continued progress. We believe these strategies can drive an additional 70 to 120 basis points of operating margin improvement over the last year, while also providing a clear and disciplined path toward our objective of achieving double-digit operating margins. These gains will be supported by continued market share growth and improving product mix, and further reductions in overhead and GNA, where we made meaningful progress in 2025. To build on last year's progress in 2026, We plan to complete eight to ten facility consolidations on top of the five we executed last year. We also continue to evaluate the divestiture of select lower margin businesses while accelerating automation, operational efficiency, and fixed cost reductions throughout the year. I'll wrap up my remarks with an update on our balance sheet and capital allocation strategy. Despite a challenging operating environment last year, we have made significant progress in strengthening our financial profile. Since 2023, we've increased ROIC from 5.3% to 13.5% as of December 2025, reflecting improved returns and disciplined capital deployment. We ended 2025 with a net debt to adjusted EBITDA ratio of 1.8 times, supported by strong cash generation. Earlier in the year, we also completed a successful refinancing that both extended and staggered our debt maturities, further enhancing our financial flexibility. Equity remains robust. with over $200 million in cash and equivalents, along with full availability under a revolving credit facility of $595 million. As we enter 2026, we will remain disciplined in our capital allocation, with a continued focus on investing in the business to support innovation and ongoing product development. Our M&A pipeline remains active, and smaller token acquisitions continue to be a core competency for LCI industry. completing 77 strategic acquisitions since 2001. We will continue to evaluate opportunities within our existing markets and expect to remain active on the M&A front, building on the success we have achieved in 2025 with successful acquisitions like Friedman and TransAir. Returning capital to shareholders also remains a priority as we continue to pay an attractive dividend currently yielding about 3%. During 2025, we returned $243 million to shareholders, including $114 million in dividends and $129 million through share repurchases. In closing, our entire team is energized by the opportunities ahead, and we are confident in our strategy to leverage many strengths to drive continued growth, margin expansion, and shareholder value creation. I've had the privilege of leading this company for more than 25 years and have never been more excited about the opportunities in front of us than I am today. We have a tested, focused, and highly capable team ready to execute on the plan. and I'm incredibly proud of the accomplishments of our more than 12,000 men and women at LCI whose perseverance and commitment continue to be the driving force behind our success. Because of their efforts, we entered 2026 in one of the most competitive positions in our company's 70-year history. With that, I'll turn it over to Lillian, who will walk you through our financial results in more detail.

Thank you, Jason. We ended the year on a strong note with the fourth quarter results that included double-digit top-line growth and meaningful margin expansion. These results cap a year of progress in which the hardworking men and women of LCI executed our strategic initiatives demonstrating the potential of the LCI platform, and we entered 2026 well-positioned to generate even stronger results in the new year. For the fourth quarter, consolidated net sales were 933 million, up 16% year-over-year. OEM net sales grew an even stronger 18%, which included 17% growth for RVs, primarily driven by sales price increases due to higher material costs, a favorable mix shift towards higher content fifth wheel units, and LCI's ongoing market share gains. We also generated 21% top line growth across our other OEMs and markets, with transportation and marine expanding year over year, partially offset by a modest decline in housing. Primary drivers included sales from acquired businesses and higher sales to North American utility trailer OEMs. Our content per towable RV unit increased 11% over the prior year to $5,670, and content per motorized unit was up 7% to $3,993. Towable RV organic content grew significantly. up 3% year over year, driven by the continued success of our recent product launches. Content levels also benefited from the continued strength of higher content at fifth wheel units. We also expanded motorhome RV content per unit by 7% to nearly $4,000. Turning to aftermarket, our net sales expanded 8% versus the prior year quarter to 196 million. primarily driven by product innovations and increased demand for our upgrade and service parts as more units enter the upgrade and repair cycle to which Jason referred. Our consolidated operating profit during the fourth quarter was $35 million, reflecting 180 basis point margin expansion to 3.8%. Our margin growth benefited from our continued focus on driving operating efficiencies and cost reductions along with the increased North American RV sales volume related to an increased sales mix of higher contents to fuel units and market share gains. Partially offsetting this progress was 3.9 million of restructuring costs related to the closure of our glass operations in Ireland. Breaking down further our margin performance, our fourth quarter OEM related operating profit margin was up significantly to 3.7% versus 0.3% in the same period the prior year. This operating profit expansion was driven by the increased selling prices for targeted products, primarily related to increased material costs, as well as reduced costs from our material sourcing strategies and better fixed cost absorption. For aftermarket, our operating profit margin was 4.3% in the fourth quarter, as compared to 7.9% a year earlier. This operating profit margin change was primarily driven by higher material costs related to tariffs and higher steel, aluminum, and freight costs, increases in sales mix towards lower margin products, and investments in capacity, distribution, and logistics technology to support the growth of the aftermarket segment. The margin was positively impacted by increases in selling prices for targeted products, primarily related to increased material costs and reduced costs for material sourcing strategies. Turning to adjusted EBITDA, we generated robust annual growth of approximately 53% to $70 million, reflecting a 7.5% margin or 180 basis points above the 5.7% margin in the fourth quarter of 2024. Our gap net income came in at 19 million or 77 cents per diluted share more than doubling over the prior year quarter's 37 cents. On an adjusted basis, excluding restructuring costs, net of tax effect, net income of 22 million equated to 89 cents per diluted share, which also more than doubled. Turning to the balance sheet, we continue to operate from a position of strength, ending the year with cash and cash equivalents of 223 million, which was up from 166 million to start the year. The increase benefited from cash provided by operating activities of 331 million and also reflects 147 million of investment-related cash outlay, which included 53 million in capital expenditures and 113 million worth of acquisitions during the year. As of December 31st, we had outstanding net debt of 723 million, reflecting a net debt to EBITDA ratio of 1.8 times. which is within our targeted range. In terms of our balanced approach to capital allocation, in addition to strategic investment in the business and the pursuit of select accretive acquisition opportunities, we continue to execute on the 300 million share repurchase program announced last year. During the fourth quarter, we returned 28 million to shareholders through our quarterly dividend of $1.15 per share. For the full year, we repurchased 129 million worth of shares and paid 114 million in dividends, as the return of capital to shareholders remains a key component of our commitment to creating long-term shareholder value. Turning to our outlook, as Jason mentioned, we expect to see industry RV wholesale shipments of 335,000 to 350,000 in 2026, and we look for the marine industry to be flat to up low single digits. For the transportation market, we expect the market to be flat, but we will have the benefit of increased sales from acquisitions of Friedman Seating and TransAir, which we completed in 2025. We also expect that the housing industry growth will be in the low single digit, aided by our growth of residential window products. For the aftermarket, we are estimating mid-single digit growth supported by the significant numbers of RVs entering the repair and replacement cycle in the next few years. Lippert should also see lift in automotive aftermarket sales as the result of a key competitor's bankruptcy. I would also like to note that we have started the year strong with January net sales of approximately 343 million, up 4% from prior year. With this backdrop, we expect consolidated 2026 revenue of 4.2 to 4.3 billion. An operating margin in the range of 7.5% to 8%. An adjusted diluted EPS of $8.25 to $9.25. Helping to drive the bottom line results, we plan to consolidate eight to 10 facilities during the year on top of the five that we completed in 2025, while also continuing to focus on additional efficiency initiatives. In addition, We expect our continued penetration of newer end markets to support margin expansion, and we will also continue to seek divestiture opportunities related to lower margin non-core products. For capital allocation in the new year, we expect $60 to $80 million of capital expenditures, mainly for business investment and innovation. We also look to return additional capital to shareholders through both our dividend and opportunistic share repurchases. while maintaining our target leverage ratio of one and a half to two times net debt to EBITDA. In summary, while we ended 2025 on a strong note, we're even more excited about the opportunities ahead for LCI and are determined to create additional long-term shareholder values through adherence to our strategic initiatives with a focus on diversified growth opportunities and discipline cost management. And now, operator, If you could please open the lines, we'd be happy to take questions.