LCI Industries

Hello everyone and welcome to joining us today for the LCI Industries second quarter 2026 earnings call. My name is Rob and I'll be coordinating your call today. Before we begin, I would like to remind you that certain statements made on today's 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 described 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 their 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 Johnny Sirpilla, Interim Chief Executive Officer, Lillian Etzkorn, Chief Financial Officer, and Kip Emenhiser, 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 your question again by pressing star 1. With that, it is my pleasure to turn the call over to Johnny Sirpilla.

Thank you, Operator, and thank you, everyone, for joining us. This morning, Lillian and I will provide an overview of the business and share why we are energized about LTI's future. We delivered solid second quarter results with expanded profitability despite continued soft outdoor recreation industry demand. Our 2026 performance has been driven first and foremost by our self-help initiatives through discipline, operational efficiency, and strategic cost reduction actions. We've structurally improved our cost base and expanded net margins despite a challenging wholesale RV production environment and continued retail softness. Our disciplined cost management execution and increased product content per unit has fundamentally strengthened our earnings power and positioned us to generate higher returns throughout the cycle. Although I have been in the interim CEO role for only two months, I have served on LCI's board for more than seven years. My first priority when taking the CEO role was to spend time with our dedicated team members, supply chain partners, and valued customers. Those conversations have left me more impressed than ever by our team's commitment to supplying outdoor recreation, transportation, and housing markets with a broad array of highly engineered quality products and related services at affordable prices. I am energized by the opportunities ahead and by the appreciation expressed for the value LCI delivers every day across the dynamic markets we serve. It is an incredible honor to serve in my new capacity, working alongside trusted colleagues while leading such an impressive organization. Having spent nearly three decades in this industry helping build a national retail brand after leading my own family dealership business, I come to my new role as a builder, not just a caretaker. My four proven yet simple guiding principles are curiosity, alignment, accountability, and gratitude. And I intend to apply each of those as we move through this transition. Less than two months ago, my first investor call for LCI was to announce the proposed merger with Patrick Industries. As we continue to spend time with Patrick's leadership team, Our enthusiasm and confidence continues to build around the meaningful long-term value and opportunity the merger will unlock. We are excited about the compelling strategic and financial rationale for the proposed merger. Together, we expect to create a broader, more innovative product platform and cost-effectively bring more products within reach of outdoor recreation consumers. But for the time being, until the transaction closes, It remains business as usual at LCI. Ryan Smith and Jamie Schnur continue to lead our operating segments as group presidents. Our senior leadership team remains intact and execution remains sharp. Our talented, innovation-minded teams remain squarely focused on our strategic priorities, maintaining a well-balanced portfolio, expanding across adjacent OEM markets, growing our aftermarket presence, considering accretive M&A opportunities, streamlining our operations and cost structure, partnering with our customers to deliver solutions, and accelerating content gains through new product innovation. Our expanding product pipeline combined with our engineering capabilities and deep customer relationships provides a meaningful runway for continued content expansion. This collaborative, innovative spirit has driven remarkable growth over the years, with currently an estimated $270 million annual revenue run rate from our top five innovations. Backed by the strength of our balance sheet and disciplined capital allocation, our strategic focus and operational execution will propel our drive to enhance shareholder value. In aftermarket, the large installed base of Lippert content already in the field creates a durable growth platform and strengthens our connection with customers throughout the product lifestyle through our network of dealer partners, technical care teams, factory service centers, and mobile service capabilities. Our diversification strategy to add and build the aftermarket segment and other OEM markets adjacent to RV has enabled us to profitably grow our business with higher margin offerings and mitigate the cyclicality of the RV industry. As part of our commitment to helping customers navigate the impact of rising prices, our finance and procurement teams move quickly to identify, document, and file eligible claims early in the IEPA tariff refund process. Their efforts will enable us to return nearly $90 million in tariff refunds directly to our customers, providing meaningful support to their businesses and to the broader industry. We took this responsibility seriously and made the deliberate decision to manage this effort internally rather than rely on third-party recovery firms that often charge large contingency fees on the amounts recovered. While this represented a significant undertaking for our team, they executed with exceptional discipline and expertise, maximizing the value returned to our customers. I want to personally thank our finance and procurement teams for their unwavering commitment and outstanding execution. Their work reflects our culture of partnership and our dedication to serving the markets in which we operate. While these refunds have a minimal impact on our P&L, given their pass-through nature, they represent something more important. We made a commitment to our customers that we would work diligently to mitigate the impact of tariff-related price increases wherever possible, and we have honored that commitment. I want to thank all of our team members, not only for their focus, resilience, and commitment during this transition, but also for the overwhelming Warm welcome they've extended to me. Their execution and partnership is the foundation of our performance and gives me great confidence in LCI's future. I'll now hand it over to Lillian to walk us through the quarterly results and our updated outlook for the full year.

Thank you, Johnny, and thanks everyone for being with us. We continue to execute well across the business in the second quarter, delivering improved profitability despite persistent softness in outdoor recreation demand. This performance reflects the strength of the platform we have built, the hard work of our talented team, and disciplined execution against our self-help initiatives, including operational efficiencies, strategic cost reductions, and increased product content per unit. Together, these actions have structurally improved our cost base, expanded margins, and strengthened our earnings power across the cycle. As Johnny noted, it remains business as usual and our team is squarely focused on advancing these priorities and driving shareholder value. With that, I'll walk through the key financial results and operating metrics for the quarter. For the second quarter of 2026, and speaking on an adjusted basis, Our consolidated net sales were down 4% to $1.1 billion. OEM net sales declined 10%, while aftermarket net sales grew 11%. In the context of towable RV wholesale units being down 20% in the quarter, we are pleased with the resilience in our sales. Starting on the OEM side, our revenue performance reflects a decrease in North American travel trailer and fifth wheel shipments, as well as an increase in RV sales mix towards lower content single axle trailers. Favorably offsetting factors include targeted commercial actions to address higher input costs and adjustments tied to select commodity indices and content gains from recent product innovations. Top line adjustments relate to tariff refunds passed through to customers. And in the earnings slide deck, in an effort to further enhance transparency, We've included a full income statement reconciliation for this quarter's adjustments. Innovation remains a key driver of LCI's growth and customer value proposition. Despite the reduced mix of fifth wheel units, we saw an 11% year-over-year increase to $5,831 of content per unit. This was supported by strong adoption of recent product launches that are now generating more than $270 million in normalized annual revenues. Content promoterized unit increased 2% to $3,852. We expect approximately $140 million of additional annualized revenue from new product placements during the 2027 model change. Combined with our advanced manufacturing capabilities, and expertise in mission critical components, the innovation pipeline continues to deepen customer relationships and expand LCI's content across leading brands. Turning to our aftermarket business, the 11% year over year growth in adjusted net sales was driven by targeted commercial actions to address higher input costs and adjustments tied to select commodity indices, sales from acquired businesses, and new customer volumes in the automotive aftermarket. This increase also reflects the resilience of our installed base and continued execution across the business. More than 15 billion of replaceable LCI content has entered the RV market over the past decade, supporting a growing service opportunity as approximately 1.5 million units move into repair cycles over the next several years. We are expanding our reach through a 400-plus member care and technical organization, new dealer-based retail concepts, factory and mobile service offerings, and added distribution capacity. We continue to see repair and replacement demand as RV ownership and used unit acquisitions have increased over recent quarters, and this should serve as a tailwind moving forward. From a profitability standpoint, We saw significant improvements during the quarter and the team is continuing to drive our self-help initiatives. Our consolidated operating profit of $99 million on an adjusted basis was up 8% over the prior year and reflects a 9.3% adjusted operating profit margin, which is up 110 basis points. On the OEM side, our adjusted margin expanded a full percentage point to 7.5%, reflecting disciplined execution across cost improvement initiatives, including material sourcing strategies, along with targeted commercial actions to address higher input costs and adjustments tied to select commodity indices. These gains were partially offset by tariff-related material costs, higher steel, aluminum, and fuel costs, and Lower Six Cost Absorption. Aftermarket adjusted operating profit margin was a very solid 14%, up another 30 basis points over the past year, reflecting disciplined cost management and continued execution of material sourcing strategies, supported by targeted commercial actions to address higher input costs. These gains were partially offset by tariff-related material costs and higher commodity, fuel, and capacity-related costs. Our adjusted EBITDA grew 7% year-over-year, coming in at $129 million and reflecting a margin of 12.2% up from 11% a year earlier. GAAP net income increased 16% to $67 million. with diluted gap EPS of $2.75, up significant from the prior year period of $2.29. On an adjusted basis, diluted EPS of $2.70 was up from $2.39, which is a 13% year-over-year increase. Turning to our balance sheet. We continue to operate from a position of strength with cash and cash equivalents of $217 million as of June 30th, plus $595 million of availability under revolver, bringing total liquidity to $812 million. Following the payoff of our 2026 convertible notes in May, our outstanding net debt balance was $636 million at the end of the quarter, and our net debt to adjusted EBITDA ratio stood at just 1.5 times, significantly improved from 1.8 times at the start of the year and at the conservative end of our targeted range of one and a half to two times. We remain both balanced and disciplined in terms of capital allocation. During the second quarter, our capital expenditures were 19 million. We also paid 28 million in dividends during the second quarter, Maintaining our payout of $1.15 per share, which represented a yield of 4.3% as of the end of the quarter. I'll close with our updated outlook, starting with July adjusted net sales of approximately $315 million. For the full year, we now look for RV industry wholesale shipments to be in the range of 280 to 300,000 units. relative to our prior range of 315 to 330,000 units. We expect full year adjusted revenue of 3.9 to 4.1 billion. And given the success of our self-help initiatives, we still anticipate an adjusted operating profit margin in the range of 7.5% to 8%. We are pleased that even in this challenging industry environment, We are able to maintain the original guided margin range. The resulting outlook range for adjusted EPS is now $8.25 to $8.75. We also continue to expect full year CapEx in the range of 55 to 65 million. In closing, our priorities are clear. Help our customers win through differentiated innovation, exceptional quality and service, while executing with discipline across the business. Our content growth, diversified portfolio, and expanding high margin aftermarket platform along with continued cost optimization are strengthening profitability and positioning LCI to outperform across market cycles. With the commitment of our team and the trust of our customers, we are confident in our strategy and focus on delivering sustainable, long-term shareholder value. Before we kick off the Q&A portion of the call, I wanted to briefly address our previously announced merger agreement with Patrick Industries. As you would expect, we are limited to what we can say beyond the information that has already been publicly disclosed. We will remain focused on continuing to execute against our strategic priorities while we are supporting the customary regulatory review and undertaking appropriate integration planning subject to the applicable legal safeguards. And with that, we would be happy to take questions.