Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Drew Industries Incorporated Earnings Conference Call. My name is Lisa, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Renee Ketels with Lambert Edwards. Please proceed, ma'am.

Good morning, everyone. And welcome to the Drew Industries 2013 Third Quarter Conference Call. I'm Renee Ketels at Lambert Edwards, Drew's Investor Relations firm. And I am joined on the call today by members of Drew's management team, including Leigh Abrams, Chairman of the Board of Drew; Jason Lippert, CEO and Director of Drew; Scott Mereness, President of Drew; and Joe Giordano, CFO and Treasurer of Drew. We want to take a few minutes to discuss our third quarter results. However, before we do so, it is my responsibility to inform you that certain statements made in today's conference call regarding Drew Industries and its operations may be considered forward-looking statements under the securities laws. As a result, I must caution 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 identified in our press releases, in our Form 10-K for the year ended 2012 and in our other filings with the SEC. With that, I would like to turn the call over to Jason Lippert. Jason?

Thank you, Renee. And thank you, all, for joining us on the call today. I want to start out by thanking our outstanding employees who are all critical to our success. It is because of the effort they have put forth everyday that for the 12 months ended October 2013, our net sales reached the $1 billion mark. This is ever a significant milestone and, I think, impressive increase from our net sales of $350 million just 10 years ago. During the past decade, many changes have occurred within our industry and at Drew. Our significant growth during this period has resulted from several factors: industry-wide growth, new products, market share gains and acquisitions. We continue to expect these will be the long-term factors which fuel our growth into the future. When asked to describe the RV industry over the past few years, we have often used the word healthy. Based on the positive feedback from the RV open house in Elkhart during September, coupled with the retail sales data for the year-to-date 2013, which is up significantly, it now seems appropriate to say the RV industry is strong. Many of the RV OEMs are introducing new product lines, as well as increasing production capacity by hiring additional workers and adding new plants. If the economy continues to maintain its current position without significant disruption, the RV industry appears well-positioned for at least the next couple of years. Accordingly, we continue to be proactive in evaluating our own product lines and capacity needs for the future. It is not an exact science to determine proper staffing and capacity needs, especially while undergoing significant increases in sales. Thus far, in 2013, we believe we have executed a very well-designed plan. In anticipation of future growth, we bolstered both operating and administrative…

Thank you, Jason. Having our consolidated net sales exceed $1 billion for the 12 months ended October 2013 is quite an accomplishment. And as I have said before, this is not the time for us to relax. Rather, this milestone provides even more motivation for everyone in the company to continue putting forth a great effort to reach further goals. As Jason stated, remembering what our core values are and what has brought us to this point will be even more important as we continue to grow. And it's incumbent upon our management team to not only encourage our people to work hard, but we must make sure they are working smarter and safer and that we are providing our people the tools to be successful. In addition to improved training and human resource initiatives, we have focused on capital expenditures, automation initiatives and efficiency improvements over the past several years to do just that. Due in large part to the efficiency improvements we implemented, our gross margin in the third quarter of 2013 was 22.4%. During the third quarter of 2013, the impact of many of the production improvement initiatives we implemented were nearly fully-realized, including lowering our outsourcing costs as a result of the installation of our second glass tempering facility. However, I am certain that there will be new initiatives as time goes by. During the third quarter of 2013, we also significantly reduced the start-up costs at our recently-opened thermoforming operation in Indiana, which makes bath and kitchen products, such as showers and sinks, among other products. SG&A as a percent of sales increased from 12.2% in the 2013 second quarter to 13.3% in the third quarter of 2013. This increase was due to the spreading of fixed costs over a seasonally-smaller sales base and an…

I have a couple of comments before we get into questions. First of all, we're sitting in our new conference room in Elkhart, Indiana, and we're trying this room out for the first time. So if you can't hear the response, don't be afraid to ask us to repeat the response. And then secondly, I know many of you come with a few questions at a time. If you wouldn't mind just asking the questions one at a time so we can accurately get you the best answer for each question, that would be very helpful. So with that, we're ready for questions.

[Operator Instructions] Your first question comes from the line of Kathryn Thompson with Thompson Research Group.

This is Wenjun sitting in for Kathryn. You have talked about operational efficiency being improved for several quarters. Can you please provide a little more color on how far along are you in the process to reach your current target? Would it be close to 70% to 80% accomplished, or more like 30% to 40%?

I'll just start out by saying that we've been talking about efficiency improvements over the last couple earnings calls and quarterly earnings. And we've developed a lot of momentum there and that's seen in the results, and I think we've been on par with what we said we are going to do, but I'll let Joe get into the specifics of the question you had with respect to the percentages and how close we are there.

I mean, the way I look at it, I would say, in relation to the initiatives that we've started, I'd put it in baseball terms. We may be in the sixth to seventh inning in relation to a lot of those initiatives. However, I don't think we ever get to the ninth because I think the game continues to reset itself and we continue to identify new areas. And I'll give a great example, we started up our awning operation about 2 years ago. And the way -- that operation continues to grow, we have about 20% or so plus market share today. And as that continues to grow, I believe there will be new initiatives and new efficiency gains continually in that operation for years to come. So again, I think we're far along in the stuff we started a year ago, but I think there's new ones that -- I know there's new ones that are coming into play every day.

Okay, that's helpful. Could you also provide more granularities on the current sales trends in manufactured housing? In the past, content per manufactured housing was impacted by reduction in average home sizes and customer mix. Are there some general changes in customer preference or other factors that we need to take into account?

No, I'd say that the industry stayed pretty consistent there with respect to the needs and material costs and things like that. So, I hate to give you a short answer to that, but it's a small part of our business. And we hope that it's going to continue to see minor growth over the coming years, but there hasn't been many changes there.

So in the low single-digit would be fair?

In terms of industry growth?

Yes.

Yes. I mean, we really can't give a projection there. The Industry Association does not come out with any type of a formal projection. I mean, I think we're optimistic there for the industry to have some potential for growth. I think the factors we look at are interest rates and availability of foreclosed homes. But maybe the most important factor is just the site-built housing starts, single-family site-built housing starts, and I think there are some optimism there for next year that we could see some significant growth in the marketplace. And I think manufactured housing is a portion of that market and should share in some of that potential upside.

Your next question comes from the line of Greg with Citi.

I missed the very early part of the call, but I'm wondering, how should we think about retail sales versus shipment -- shipments in terms of year-over-year for the towable segment?

In what way, when you ask how should we think about that?

Yes, I mean -- so like that relationship over the next few quarters, retail inventories seem like they're, and we've seen it, in pretty good shape. So is it going to be a one-to-one relationship, and then how does the -- if you have 10% sales growth in towables at retail, what is that result in, in terms of shipment growth?

Yes. I think that we have established that over the last few years, that the dealers have taken quite a bit inventory -- units out of the inventories and are working on a more just-in-time type basis with the manufacturers. So we base our -- we base what see in the industry and what we've got to plan for based on what the immediate need is, because the OEMs are generally selling retail orders from the dealers as they come in. But, Joe, if you've got more specific data on that or percentages, then that might be helpful.

Yes. I would agree with Jason, 100%. I think we're looking generally at a one-to-one relationship here going forward. I believe dealer inventories appear to be in great shape from everything I'm hearing. And I think one-to-one, maybe a touch over one as retail goes up, I think may need to be some increase in inventory to help keep the turnover appropriate, but I think one-to-one is a very fair perspective for the future.

Some of the chatter we've heard recently, Greg, is that the -- obviously the motorhome retail segment is booming. I mean, that's north of 30% the last quarter or so. And we're hearing chatter that the motorhome floor planning is taking away from some of the towable stuff out there. We've heard a little bit about that. But at the end of the day, that's all good. I mean, the motorhomes, towables, they're in demand. So it's good, especially after a few years of not seeing a lot of -- or the kind of increase in motorhome demand that we saw in towables. That's nice to see that these last couple of quarters.

Right, yes, absolutely. And -- so then, would you say over the last month or 2 for the towable segment, based on what you're hearing in the supply channel more at the dealer and manufacturer level, that's been pretty consistent with what we saw with the stat surveys in the few months that we have on record -- the latest few months that we have on record for them?

Yes, I'd say that's pretty accurate. It's staying pretty strong.

Your next question comes from the line of Scott Stember with Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: Could you, maybe, talk about as we head into 2014, without chipping your hand too much heading into Louisville, just give us a flavor for what your expectations are for the new products coming out for next year and how that could turn into additional content growth, particularly on the towable side?

Yes, there's a few different moving parts there, but I'll start with the fact -- as I mentioned in our -- in my speech, the -- we've been spending a lot of extra time and energy and resources on our R&D facility. Over the years, our R&D facility's become increasingly important to continue to develop the ideas that our customers have. I mean, they're the think tank for us. They're the ones that come up with all the great ideas, and it's our job to figure out how to turn that into a value proposition for them where the cost is right and the product is right. So we're doing that all throughout the year and coming out with products that are smaller-type sales volumes. It will take a while lot for the -- to catch on to the rest of the industry and then some bigger hits, like leveling, like we've seen in the last 3 years. But if you look at the product specific, I'd say the introduction of the awning, we're still on the roll off phase there. That was a -- that's a relatively new product for us. I think the numbers are somewhat close to what -- we did maybe $3 million last year, and we're looking to be over $12 million this year and we're going to continue to move forward with gaining market share in that product, as well as in the aftermarket. Motorhomes are another big segment. We've talked in our recent quarters about continuing to improve our motorhome products and content. And while they're similar to towables, we consider them different in a lot of respects, because they need tweaks and have differences to what we supply to towables. Got a lot of new furniture products and seen a tremendous growth in the furniture world that we supply to the OEMs. But -- and leveling is another big one. Leveling has become a huge segment for us, and we're continuing to find ways now that we've got the high-end of the market figured out how to get that product and convenience to the retail customer at the mid price point levels and the lower price point levels. So -- and then we've got probably 3 or 4 other key products that we're planning on releasing next year that we think have lots of momentum opportunity. But I'd say that's the 80/20 of product development and R&D there, new products. Scott L. Stember - Sidoti & Company, LLC: Great. So it sounds like you've just as bullish as you've ever been going forward on that end?

Yes, sir. Scott L. Stember - Sidoti & Company, LLC: All right. And just going on to the aftermarket side. We had a full year of being in a lot of the online guys and dealers, the catalog, the wholesalers. As you head into year 2 and with the awning coming online, can you maybe just talk about what your expectations are, generally speaking, for aftermarket for '14?

Yes, I think that our strategy continues to develop there. We're spending a lot more time with the dealers. And more importantly, some of the big dealer conglomerates that are out there, the Camping Worlds and some of the other big dealer-buying groups. So that's been a huge focus. And really, we've found a couple other good things that have come out of that. We're able to hit large groups of dealers and sell to the dealers direct. And at the same time, while we're there talking to them about aftermarket products and replacement part products, which is huge, the more products we get into and supply to the industry, the longer they're on the market, the bigger need for replacement products from Lippert and Drew there is. So -- but while we're there at the dealerships talking about aftermarket products, we're also tying in, hey, we're putting a service arm of our company right alongside our aftermarket people and saying, hey look, where can we help you at your dealership, where can we help our key customers with respect to challenges and opportunities and problems they might be having with some of our components. So we're at the dealerships working on aftermarket sales and digging in deep there. But at the same time, we're there helping the dealers and helping our customers help the dealers, so that there's less issues down the road. So I would say that the majority of our focus right now is at the dealer level. The wholesale guys have been set up and they'll buy as they need to, and they'll buy the products that suit them best, but we're going in to the dealerships with a full out plan on all of our products and trying to dig our feet in the ground so that 2, 3, 5, 7 years from now, it's a continually bigger and bigger business for us. And the margins there are significantly better than our OE products, so -- as you know. Scott L. Stember - Sidoti & Company, LLC: Last question. Joe, just going back to the gross margin recovery and the baseball analogy, it sounds like you said 6th or 7th inning with regards to actually getting a lot of these operations where you want them. Could you talk about where we are with respect to actually seeing the benefit within the financials?

That's such a great question, Scott. I mean, I really don't want to give a lot of projections. I want to try to -- I don't want to try to guess here, especially heading into the seasonally slower season of the year makes it even more difficult. I do believe that the operating guys are going to continue to look for these opportunities, look for areas that we can either just improve the labor flat-out or work with some -- maybe, some additional capital expenditures where we can drive a great return on those capital expenditures and improve efficiencies here. Yes, I don't know that I'm ready to get into any kind of margin expectations. As you know, the third quarter was the highest since we've seen back in 2011. And that was in the second quarter of 2011, which is the typically seasonally highest quarter. So I think we've got some more legs -- some more room here, but I'm not going to make any specific projection.

And I think one of the important comments Joe made earlier was that every time we get after and put our sights on efficiency improvements we want to make, we continue to find more and more opportunities down the road even. So that game is never over, it just a continuous improvement with our efficiency processes and new technology and things of that nature.

Your next question comes from the line of Daniel Moore with CJS Securities.

Maybe just talk -- and I think you've touched on this, but maybe a little bit more detail on capacity utilization. Given the expansions, how much additional volume growth can you handle in 2014 before you'd need to add physical space and/or another round of -- a meaningful round of hiring?

A couple of comments I wanted to make there. First off, it's a pretty easy question for us to answer because we've got 30-plus facilities and we run very little second shift. So I think most important thing to make sure everybody is aware of is that we've got that second shift capacity open to us. And whilst it may be a little bit harder to start up and maintain that second shift capacity, certainly, it's something we've had experience with and can activate any time we need to. We do have some other open capacity within our company with respect to buildings. And I think 2013 was a good example of how well we executed moving into new capacity as some of our business units were absolutely on fire, and we had some pretty significant growth this year. So I'd say from a capacity standpoint, those are the big ones. We're getting better and better every year at implementing the plans we have to utilize more capacity as we see industry growth, but those would be the big answers. And then as we continue to get more efficient, we free up capacity that way. And Scott and his teams are laser-focused on that as well as our COO, Todd Driver. I mean, those are initiatives that are taking place all the time that end up freeing up more space for us long-term.

Very helpful, and one more. Just turning to the balance sheet, cash continues to build once again. Absent significant acquisitions, are you likely to entertain the special dividend as you have in the past sometime down the road here?

Yes. I mean, in terms of a dividend, that's again a decision that the board will look at, as they do periodically. So I really can't comment on what they would -- what their thoughts are here for the balance of the year. In terms of our priorities for cash, I mean, they remain the same. We continue to look at acquisitions as we have. Even though we haven't completed anything significant in a couple of years, we continue to look at that. We want to make sure that we continue to -- if we do an acquisition, that it is a -- one that will provide an attractive return here to shareholders. We're definitely not going to let the cash burn a hole in our pocket as we sit here today, and we'll continue to be diligent with it. And if -- whatever the board decides with the dividend is what they'll decide. But we clearly have the cash and the borrowing capability here today.

[Operator Instructions] Your next question comes from the line of Barry Kaplan with Maple Tree Capital.

In so far as some of your large customers are reporting quite good numbers, both in terms of volume and margins and the fact that over the last several years, you've had to absorb some fairly significant increases in raw material cost, I was wondering -- and I know it's a touchy subject, but I was wondering how you think about pricing going forward and your ability to get pricing. And then I have another question for Joe [indiscernible] that.

I'll let Scott comment on the raw material piece. It's remained relatively stable over the last 6 months or so. But at the end of the day, we review pricing for customers like we do year in and year out, and it's a pretty standard process. And we feel we need to go and adjust pricing one way or the other, then it's a pretty standardized process for us and our customers. Scott can provide some -- little additional material information on materials, but...

Yes. Raw materials haven't really moved a whole lot this year, and we constantly look at raw materials versus our selling prices and adjust those prices accordingly.

Okay. The other question really for Joe is, do you have, now -- I can't remember -- or would you contemplate having a policy to repurchase shares in order to offset the dilution from the equity award or at least just keep the shares outstanding from creeping up over time? I'm not asking about a broader share repurchase policy, but just one that will relate to the equity awards.

Yes, that's a good question. I mean, again, that's a board decision. And the board will look at the best use of that cash, whether it's returning to shareholders, possibly through a dividend as they've chosen in the past, repurchasing shares, which is in effect returning cash netback to shareholders. So I mean, that's something, I think, that they will continue to look at year-to-year. They had done some share buyback, but it was now 4, 5 years ago. But it is something -- as we've increased the use of equity, it's something that they may take a look at.

We have no additional questions. At this time, I would like to turn the presentation back over to management.

Great, well, I appreciate everybody for being on the call today and giving us your questions. So we're excited about the quarter and the coming quarters. And I look forward to talking to you again on the year end earnings call. Thank you, everybody.

This concludes the presentation. You may now disconnect. And have a great day.