Good morning or good afternoon, all. Welcome to the LCI Industries' Second Quarter Earnings Call. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand the floor to Lillian Etzkorn to begin. So Lillian, please go ahead whenever you're ready.

Good morning, everyone, and welcome to the LCI Industries' second quarter 2024 conference call. I am joined on the call today with Jason Lippert, President and CEO; along with Kip Emenhiser, 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 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 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 the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Thanks, Lillian, and good morning. I'd like to welcome everyone to our second quarter 2024 earnings call. We delivered strong results in the second quarter with meaningful year-over-year margin expansion and solid performance from our aftermarket and OEM businesses. We believe these results highlight how our diversification strategy has structurally improved our business foundation. Total revenue was $1.1 billion in the quarter, an increase of 4% year-over-year with RV OEM growing approximately 20%. More importantly, our EBITDA rose nearly 40% and margins expanded by over 300 basis points. We again delivered market share gains in both RV OEM and aftermarket. We also delivered solid operating cash generation totaling $439 million of operating cash flows in the last 12 months, thanks to strong P&L performance and disciplined working capital management, including $142 million year-over-year reduction in inventories. These results would not have been possible without the pure play RV business. We believe our diversification strategy is clearly working, reducing cyclicality by lifting revenues and margins, while greatly expanding our growth opportunity across our diverse markets. Over the last decade, our diversification has expanded Lippert's reach to include attractive markets like transportation, residential building products, marine, automotive, marine and RV aftermarkets in Europe. As a result, we have over $10 billion in opportunity just in these areas where we compete today, and our opportunities should continue to expand as we innovate new products for these markets. Beyond diversification, we believe our right to win in these markets is strong because of the investments we've made to build world-class manufacturing capabilities and teams. Our specialized teams and facilities are focused on the most sophisticated products and challenges from our customers in each of these markets. Due to decades-long relationships with our customers, we believe that they trust us to develop and launch cutting-edge…

Thank you, Jason. Our consolidated net sales for the second quarter were $1.1 billion, an increase of 4% from the second quarter of 2023. OEM net sales for the second quarter of 2024 were $796 million, up 5% from the same period of 2023. RV OEM net sales for the second quarter of 2024 were $490 million, up 20% compared to the prior year period, led by volumes, which were driven by a 15% increase in North American travel trailer and fifth-wheel wholesale shipments, increased selling prices, which are indexed to select commodities and market share gains. Content per towable RV unit was $5,237, while content per motorized unit was $3,766. Both were down marginally compared to the prior year period, primarily due to index pricing pass-through and mix. Content increased $140 sequentially for towable and $110 for motorhome content. Excluding index pricing, mix and M&A, organic content increased 1%, both sequentially and year-over-year, as the market continues to respond well to our innovation, which remains a key strategic pillar of ours and an engine for growth. Adjacent Industries OEM net sales for the second quarter of 2024 were $306 million, down 12% year-over-year, primarily due to lower sales in North American marine and utilities trailer OEMs, driven by current dealer inventory levels, inflation, and rising interest rates impacting retail consumers. Resiliency in transit and building product markets have supported performance, partially offsetting the impact from North American marine. North American marine OEM net sales in the second quarter of 2024 were $64 million, down 33% year-over-year. We expect this softness to continue for the balance of this year and into 2025 as well. Aftermarket net sales for the second quarter of 2024 were $258 million, up 1% year-over-year, primarily driven by market share gains in the automotive aftermarket, partially…

[Operator Instructions] Our first question comes from Scott Stember from ROTH MKM. Scott, your line is open. Please go ahead.

Good morning, and thanks for taking my questions. Lillian, you just said that you expect overall sales, I think, for the third quarter to be down 5%, yet you're running up about 6%. Can you maybe just talk about the different buckets of how we see a deceleration from the trends that you're seeing at least through the month of July?

Sure. Good morning. So if you recall, last year, specifically with the RV business, when we came out of the July 4 holiday last year, we had some pretty extended shutdown, just given where the demand profile was in 2023. So in part, when you're comping that for July of this year where we didn't have those same extended shutdowns in the month, we have more favorable comps. As we start looking to August and September, we are expecting the customers to take some extended shutdown around the Labor Day holiday, and also some additional shutdowns in September. So I think the timing and the cadence of some of those shutdowns year-over-year are just different by month, which will result in kind of the overall slowdown for the quarter versus what you're seeing in the month of July.

So most of that's RV, the slowdown?

Yes, exactly.

Very helpful. And Jason, you talked about the model year '25 conversion and that you would expect to get benefit in the back half of the year. What are you seeing so far this year? And maybe just also, as a follow-up, just talk about retail, what you're seeing right now and what's your expectations for the full year for RV?

Yes. So during the model year changes, we're definitely loading up on content. I think the tough part is we're just -- we're seeing less volume in the back half. So while we're loading up some good fifth-wheel and trailer content and some new products, and OEMs are pretty excited about it. There's just going to be less volume in the back half, which is driving some of [technical difficulty] so that's the good thing, dealer inventories are low. And we're just being very cautious right now [technical difficulty] as retail, probably one-to-one at this point in time and doing some destocking until the interest rate situation changes. There is retail out there. Dealers aren't super negative. They're just kind of waiting for some of this pent-up demand to release once interest rates change and we get past the election. So we look forward to mid-single digits in '25. I mean we really feel that, that's likely depending on how much interest rates change, could be bigger. But dealers are not negative. They're just trying to fight through and grind through the environment that we're in with interest rates right now.

And then Lillian, talking about margins for the third quarter. Could you -- this 8.2% that you did or 8.6% in the second quarter. Do you expect that to continue in the back half of the year? Or should we expect that to probably moderate back down to the mid-single digits, just given Jason's comments about production?

Yes. No, I think the expectation would be for if the volume is fluctuating, obviously, there's a nice benefit that we've experienced in the second quarter from fixed cost absorption as you have the higher revenue. So as we cadence and sequentially, that revenue does come down in Q3, I would expect the margins to revert back to more -- close to what we saw in the first quarter, where it's at mid-single digits just because of the volume and the pass-through of the decremental margin coming through.

Got it. That's all I have.

Offset by some of the things like that -

Okay. Got you. Thank you.

Offset a little bit there, yes.

The next question comes from Fred Wightman from Wolfe Research. Fred, your line is open. Please go ahead.

Hi, guys. Good morning. Could you just touch on the organic content per unit that you're seeing in towables? I think you said that was up a little over 1% last quarter. I think it was up 1% again this quarter. And in the past, you've talked about something in the 3% to 5% range. So can you just sort of help us bridge that and maybe why it's a little bit softer year-to-date?

Yes. So you're correct. So about 1% organic growth is what we've seen in these past two quarters. Really, I think, generally speaking, the overall expectation would be about 3% to 5% in a given year. I think as you see us progress through the year and with the strength of the product and the content, and the growth in market share as we think about the '25 model year changeover, you'll start to see the increase in that organic content based on some of the products that Jason was referring to, some of the more innovative products that have been very well received such as the ABS, some of the window products, et cetera. So we'll continue to see that organic growth number grow as we move through this year.

The only tough thing here is just the mix. There's a lot of small trailers being built right now, and there's just less content there. The good news is that the inventories -- the dealer inventories on the mid to high-end products continue to deplete. So as they have to restock those here in the coming quarters, that's going to be really good news for content because we've loaded those up.

Makes sense. And then just in terms of dealer inventories, Jason, I think you said that they were in pretty good shape. Are you still seeing any lingering signs of non-current inventories across the channel? Or do you feel like that's in pretty good shape and dealers have sort of taken the pain to clear through the non-current?

I think there's still a little bit out there, but I was with a couple of dealers, big dealers last week, and they worked through a lot of the '22s and '23s now, obviously. And then there wasn't many '24s built. So I think we're in the best shape we've been in the last couple of years. I'm really comfortable with where we're at. And like I said, some of the high-end inventory on the towables and the midline inventory in the towables is low end in, once the interest rate situation corrects itself and people get out and some of that past demand releases, we'll see some of the dealers stock up some of this product. Again, that's got some of the content that we talked about on the call with the things that Lillian just mentioned, some of those are on more of the mid to high-level high-end vehicles.

Makes sense. Thank you.

The next question comes from Daniel Moore from CJS Securities. Daniel, your line is open. Please go ahead.

Thank you. Good morning, Jason. Good morning, Lillian. Just following up on the inventories. I guess, number one, from your perspective, how much lower can we go in terms of weeks on hand? And second, crystal ball question, but when retail demand bottoms and does start to recover, how much restock would you expect either in weeks on hand or in terms of total units?

Yes. I think from the inventory perspective, there's still room for us to move. We've taken care of some of the low-hanging fruit over the last handful of quarters. So like anything, we need to develop some momentum on things like inventory reductions, we've still got opportunities across our 140 locations, and we'll keep working on that. With respect to the other question, what was the other question again, Dan?

Just in terms of dealer inventories, to get back to normal, how much of a restock is likely once retail does bottom and start to recover a bit from your perspective?

I mean, we think it will be slower to restock and not going to go crazy. I think the industry, will just like to get back to one-to-one at some point and the destocking to cease. So again, we're kind of predicting mid-single digits next year. We think it will be a slow comeback. But like we keep talking about, every 50,000 units in the industry goes up, that's another $250 million in top line for us just on RV, maybe a little bit more than that with really good incremental margins of around mid-20s. So that's really healthy. And whether we get 25 next year or 50 or 18, it's still a win.

Very helpful. And then switching gears. Obviously, I appreciate the updated view on marine, kind of similar question where inventory levels for pontoon boats, how much destock -- continued destock does that outlook anticipate? And then it sounds like it's going to continue into '25, you see things starting to turn around by midyear next year? Or is this maybe take a little bit longer to -- from where you're seeing in the market?

Thank you. Yes. That's good. We -- all the big boat shows are this month. There's a few going on right now. So we expect to have some really good information in the coming weeks, but I think our gut feel is that there there's obviously some more destocking to happen on the boat side of things. There's still a little bit more pain to take there on the dealer side. So the OEMs will regulate production and reel that back for the time being, I think it could last until the first quarter. But we expect that to normalize, hopefully, by spring selling season next year.

All right. Last for me, the balance sheet in good shape and getting better by the quarter given the working capital release. Just talk about the pipeline, where you're seeing the most opportunity in terms of M&A and how you rank ordering things like buying back your own stock versus potential M&A opportunities here?

Yes. We've -- you know, M&A and acquisitions are a key part of our growth strategy. We've got a couple that we're looking at, at the moment. We'll give more detail on the future on those. But we've got a pipe -- we've got a full pipeline. I mean, there's generally seven or eight companies that we're looking at or talking to, but we're getting serious with a couple. So more to come in the future quarter.

I think also building on that, Dan, as we look at the balance sheet and really the health of the business, this is a business that is a very strong generator of cash. We were through the down cycle. We continue to generate very strong operating cash. That's something that we'll expect to continue to do. So that does afford the flexibility to look at the various options. Obviously, we want to continue to maintain that really solid balance sheet, working towards net debt of about 1.5x is also important to us as we continue to support the growth and innovation, and look at organic and inorganic opportunities. So I feel really good that we're very well positioned to continue to generate really positive shareholder returns and support the growth that we need going forward.

And I think to add on to that, Dan, just real quick. We're going to -- we're not done with cost saves and some plan consolidations and some of the restructuring we're still working on. So while it's been a long two-year drop in in wholesale volumes, we're still working on the business and not only working on efficiencies, working on some structure-related things, and some consolidations with some of our facilities and getting more efficient from a cost standpoint, keep working on that.

All right. Very helpful. I look forward to an update out of the open house in month or so.

Thanks.

The next question comes from Michael Swartz from Truist Securities. Mike, your line is open. Please go ahead.

Hi, good morning, guys. Maybe to start, Lillian, just on the towable content or I think you had said that organically was up about 1%. So I believe that would imply pricing was down kind of 5% to 6%. What -- I guess, of that pricing, how much of that is pure pricing? How much of that is mix? I'm just trying to understand the kind of the moving pieces there.

Good morning. Thanks for the question. So we are definitely still seeing some of that index pricing pass-through. In the past quarters, we've had it as high as 15%, 16%. It's been gradually mitigating. We're down to probably closer to 4.5-ish percent in terms of the commodity pricing pass-through mix. And Jason talked about it a little bit in terms of the smaller units becoming more prominent. We have been seeing that increasing over the past several quarters. And as we look at the headwinds in the year-over-year trailing 12-month content, we're probably sitting at a little over 3% of the year-over-year decline of being that mix number. So that's something that we've been closely launching and is something that we'll continue to launch just in terms of industry and customer preferences. But that metric has grown in terms of the prominence of the weight on the content number.

It's always hard to give some of that color on the mix. So I'd point to Camping World's, the number one seller of 17-foot travel trailer. So it's got not a lot of content on it. They're selling a lot of them. The good news is we're getting a lot of first time -- it's the first-time owner unit. So we're getting a lot of first-time buyers into the market, but it's coming at a cost of content there. So that's -- it's hard to quantify, but it's hopefully some good color.

Yes. Super helpful. And maybe just looking out, I think, Jason, you made some pretty positive commentary around content for model year '25. And in the past, I think, you've given us some quantification maybe in terms of the overall business. I think you've said $200 million plus in content wins over the past quarter or 2. Do you have any update on maybe what that looks like with model year '25 content performing a bit now as we sit here in August?

Yes, the team has done a really nice job of working with the customers and had some really nice incremental net new business wins for the business. I'd say as we start looking to the potential going forward, there's another $150 million that the team has been successful in acquiring. And again, that kind of builds on the confidence that we have of that organic number trending more to the 3% to 5% on an annual basis. Generally speaking, is just being able to deliver those types of wins, and really the customers, frankly, having the confidence in us and our products and the innovation and the service that we're able to provide on an ongoing basis that they put forward the trust to keep delivering the business to us.

Yes. And that $150 million she just mentioned was, you know, it's on the industry volume or wholesale volume of 315 to 325 kind of where we're at today. So it's a relatively low bar. So again, if you factor that we get back to 400,000 in the next year or 2, or however long it takes, it's a significant increase to our organic content growth. And ABS, for example, on top of what we've already gained from the OEMs, there's another $150 million of runway just on that product alone. So with the products we mentioned in the beginning comments, it's about $400 million of runway just on those new products. So it takes years to get to those, but it just proves that we can innovate our way into really attractive organic growth opportunities.

Thanks a lot.

The next question comes from Bret Jordan of Jefferies. Bret, your line is open. Please go ahead.

Hi, good morning, guys. On the same topic, I think, I guess, you were sort of talking about expectations of some rate adjustments or reductions going into '25 would be constructive. I guess what level of rate cuts do you think is needed to really shift the consumer sentiment in the RV space now?

Everybody ask that question. I don't have the magic answer, but I think that the consumer is just looking for some momentum going the other way. And I think that, that changes the game a little bit and release some of that pent-up demand. But it's anybody's guess, I mean, election could have some impact on that as well. So I think if we just start to see the Fed go the other way, I think it changes things for us. Again, you know that our business is founded on a $25,000 average price. It's not a -- we don't need people to go out and spend $200,000 on an RV or a vehicle over here. So the options here for us are pretty good once that tide changes and goes the other direction. RV is still very affordable and prices have come down, and the lifestyle is really attractive still. So we just need to see that momentum go the other way, I think.

And I guess your outlook for Open House, obviously, last year was not a lot of purchasing activity, more booking. Are you expecting this year to be a big uptick as far as year-over-year actual dealer transaction?

Yes, I think -- I don't think there's going to be a big uptick. I think that the -- like we've kind of stated earlier, the dealers don't start restocking until they see a little bit more retail. There's not going to be a little bit more retail until the rates adjust and see some change. So I think they come here and they spend a lot of time building relationships more than anything with the suppliers and the OEMs. And then on top of that, they get to see all the new products that we're looking at. They're going to get to see ABS. They're going to get to ride-along, a ride in vehicles that are towing units with ABS, and we're going to have our innovation on display and the OEMs will have all their new products and floor plans on display. And they'll get to see kind of, hello, when it comes time to really restock, in a meaningful way, they're going to know what kind of products are available to them that will help move to the market and attract new customers, so.

And then quick final question, I guess, on the aftermarket business with Camping World, is that margin profile different than aftermarket average or pretty much in line?

It's in line with our RV aftermarket margins.

Okay, great. Thank you.

The next question comes from Alice Wycklendt from Baird. Alice, your line is open. Please go ahead.

Good morning. Thanks for taking my questions. Most have been answered. So maybe just a couple of housekeeping ones. I think you took your CapEx guidance down about $15 million. What drove that change? Is there just a shift in priorities? Or is it a timing issue?

We're just being more diligent. In this kind of environment where it's -- still things are a little uncertain, we're just trying to play it safe, and take advantage of the projects that have really, really good ROIs, quick paybacks, but not doing too much. We obviously have a lot of projects we'd like to do. And when the business starts to come back a little bit, you'll see us go back to more normalized levels. But we think we can get in the range of $40 million to $55 million this year, which is still significantly lower than last year and last year was significantly lower than the year before.

Great. And then apologies if I missed it. I did have some connection issues. But did you have any contribution -- revenue contribution from acquisitions in the quarter?

About $5 million, I mean, pretty nominal.

That's helpful. That's it for me. Thank you.

Thanks, Alice.

You're welcome, Lillian.

The next question comes from Tristan Thomas-Martin from BMO Capital Markets. Tristan, your line is open. Please go ahead.

Hi, good morning.

Hi, good morning.

Can you talk to maybe what the industry production versus industry shipment dynamic in the quarter? It kind of seems like production outpaced shipment in the quarter. Can you maybe talk to that?

I can't say that it did or it didn't. It didn't feel -- I don't know, it didn't feel any different to us, I don't think.

Yes. No, it's definitely not what we had seen last year, Tristan, in terms of that mismatch of the production versus shipments. There can always be a little bit of timing, especially as you cross the quarter and -- but it definitely did not seem like it was anything of any significance this year.

Yes. It could be some of the reporting to, as you know, some of that reporting comes in later they misstate and things like that. So there might be some catch-up to come, but -- but we think that the OEMs are being really diligent on production. We see that in their production schedules. So that's good.

I'm just trying to square kind of your travel trailer fifth-wheel revenue up 26% versus industry shipment is up 13%. Could you maybe kind of talk to what that delta was?

Say it again, Tristan.

Yes, can you repeat it, please?

Your RV revenue in the quarter, right, up 26% year-over-year, but industry shipment's only 13%. I mean, what drove that outperformance?

Yes. So a couple of different things. So obviously, it is aligned to the production and the OEM production. There's also the element of pricing within that, that is going to benefit. There is organic content as well. We always -- we tend to focus more on the trailing 12-month metric for content. But when you look at just the pure quarter, there's favorable content there. So there's some other elements that are helping the top line results.

And then just one final question for me. You talked a lot about kind of the incremental content on the model year '25. How has the kind of competitive bidding environment been, let's call it, kind of the like-for-like content on '25 versus '24?

The what environment?

So like the incremental -- so, right, we understand the incremental content on '25 and those opportunities. But what has been the kind of competitive bidding environment on products that you had on the '24s that you want to keep on the '25?

Yes. I think in line. I think our -- we expect our content to continue to grow and our market share continue to grow. The content growth is generally an indicator that we're keeping or growing our market share. So we haven't seen any changes to the negative, if anything, we've seen some positive changes in the core products that we supply to the market.

Core products. That's what I was talking about. Thank you.

Our final question today comes from Brandon Rolle from D.A. Davidson. Brandon, your line is open. Please go ahead.

Thank you. Good morning. Following up on Tristan's question. Just on your market share in key categories, maybe this year versus last year. Would you be able to comment on that like chassis and maybe some of the other main businesses within RV OEM, especially given the -- it seems like you just said the competitive environment hasn't really increased, but just wondering how that's played out? And if you were able to maintain your share, did that come at the expense of any margin? Thank you.

No, I would say from the perspective of market share on core products, Brandon, chassis, axles, windows, furniture, we're at or above where we were last year in all those key categories, and then some categories like appliances were up. I can tell you, axles, for example, one of our top three categories, we're going to do more in sales this year in axles than we did in 2022, and then [technical difficulty] 600,000. So I'm really pleased with our ability [technical difficulty] and like I said in past calls, we compete -- we've competed for the last 30 years for every little business, a bit of business we've taken. And I think our teams are competing as well as they ever have right now in maintaining or improving market shares in core products.

Okay, great. And then just a follow-up on another Tristan's question. You had mentioned that 26% growth versus 13% wholesale shipment growth. How much of the 26% was volume versus price versus mix?

Thank you. Yes. So on that, I don't have the specific breakout or I'm not going to share the specific breakout of the differences of the various categories. But I think it's fair to say that the -- they're meaningful, right, in terms of the pricing that we've been able to yield to the market share growth, et cetera. So I really can't get into the details of that, Brandon.

And some of it comes in like -- we just give you a couple of examples that are just minor, but all these things add up because we have so many different product lines. But if you take chassis, for example, I mean, a lot of the OEMs since last year beat chassis up, that increases chassis prices and content there. We've increased our market share on ACs significantly over the last 12 months. So we get bumps in certain categories like that. So the puts and takes are there, but obviously, there's a lot of puts or we won't be up.

And Brandon, just to clarify on the metric itself, the RV business for us, aftermarket OEM was up 20%, not 26%. So if I had misspoken during the remarks, I apologize for that, but we are up 20%.

Okay. Thank you so much for the additional comment.

Thanks Brandon.

I'll now hand the call back to Jason for some concluding remarks.

Everybody, we appreciate your time and your questions. Thanks for tuning into the call. We thank all of our team members around the business for the incredible effort they put forward this last quarter and for the year. So we'll talk to you in Q3. Thanks, everybody. Bye-bye.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.