Hello, everyone, and thank you for joining the LCI Industries First Quarter 2025 Conference Call. My name is Lucy, and I will be coordinating your call today. [Operator Instructions]. I will now hand over to your host, Lillian Etzkorn, CFO of LCI to begin. Please go ahead.

Good morning, everyone, and welcome to the LCI Industries first quarter 2025 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 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 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. With that, I would like to turn the call over to Jason.

Thanks, Lillian, and good morning, everyone. I'd like to welcome you all to LCI Industries' first quarter 2025 earnings call. We started the year strong delivering over $1 billion in sales during the quarter, up 8% year-over-year, our highest quarterly growth since June of 2022. These strong results are due in part to the resilience of our strong leadership teams, diverse markets and products and the power of the competitive moat we've built over the years. We plan to continue to leverage our deep presence across these markets with our customer first mentality and relentless focus on growth and innovation to drive our performance and remain on track to deliver $5 billion in revenue in 2027. Our disciplined manufacturing execution also helped enable us to increase operating margin by nearly 200 basis points this past quarter. Our scalable production supported dealer inventory rebuilding along with aggressive cost actions drove structural improvement as the wholesale environment expanded almost 14% over last year's first quarter. We continue to consolidate facilities having taken decisive action in our Rialto, California and Chesaning Michigan facilities, which combined will drive a 230,000 square foot reduction to our footprint. Additionally, we executed on supply chain efficiencies, lower indirect spend and reduced salary labor as we made strong operational headway toward our 85 basis point overhead and G&A reduction target for calendar year 2025. We also resumed our time tested M&A strategy with the acquisitions of Freedman Seating and Trans/Air, which have helped strengthen our position in the bus market, which we have found to be largely insulated from general economic and consumer demand cycles. We completed these acquisitions while strengthening our financial positioning with a series of financing activities that help derisk our balance sheet, all while continuing to return meaningful cash to our shareholders. I'll now…

Thank you, Jason. During the quarter, Lippert's industry leading innovations and strong competitive advantages drove strong net sales growth, while our ability to scale operations effectively along with sustainable cost improvements continue to support margin expansion. Our consolidated net sales for the first quarter were $1 billion, an increase of 8% from the first quarter of 2024. OEM net sales for the first quarter of 2025 were $824 million, up 9% from the same period of '24. RV OEM net sales for the first quarter of 2025 were $531 million, up 15% compared to the prior year period driven by an 18% increase in North American travel trailer and fifth wheel wholesale shipments as well as overall market share gains. These results were partially offset by an 11% decrease in motor home wholesale shipments and the continued shift in unit mix towards lower content single axle travel trailers. Single axle trailers do remain an atypical portion of production, but we expect this trend to normalize once consumer demand recovers. Content per towable RV unit was $5,164 up 1% compared to the prior year period, while content for motorized unit was up 3% to $3,750. Towable RV organic content grew 1% sequentially and 3% year-over-year, supported by the share gains we delivered in the top product categories we supply to RV OEMs. Appliances, axles and suspension, chassis, furniture and windows as well as the continued adoption of recent innovations like our ABS, TCS, and best-in-class appliances. This growth significantly offset the impact from the continued shift to smaller single axle trailers. Adjacent industries OEM net sales for the first quarter of 2025 were $293 million, down 2% year-over-year primarily due to lower sales to North America Marine and Powersports OEMs, partially offset by higher sales to utility trailer OEMs. Marine sales…

Thank you. [Operator Instructions] Our first question comes from Daniel Moore of CJS Securities. Daniel, your line is now open. Please go ahead.

Great. Good morning Jason, Lillian. Thank you for taking the questions. I'd love to start and just maybe dig into the two most recent acquisitions. First, Trans/Air, what's your sort of pro forma annualized revenue in climate control systems? And how do we think about the TAM and opportunity to increase penetration going forward in those markets? And kind of a similar question for Freedman Seating as it relates to the bus transit seating?

Can you take the financial piece first?

Sure. So good morning, Dan. So for the both combined entities is how I would characterize it. We're looking at probably about $200 million of annualized revenue opportunity. Very and Jason will talk more about the acquisitions themselves, but very strong businesses, very pleased to have them as part of our portfolio on a go forward basis, and they'll be accretive to the results for the company as we move through these subsequent quarters.

So yes, Dan, on the businesses -- both strong businesses. I think what attracted us most to these were one geography. Excuse me -- the largest customers are right in our backyard here in Elkhart County. We obviously supply a lot of these bus manufacturers with window product already. So both the Climate Control Systems and the Seating businesses that we acquired strengthen our bus portfolio. And I feel like we said in our opening comments that they're a little bit immune to some of the consumer sentiment and competence issues that might pop up here and there because it's mostly selling to -- into municipalities through a dealer network. But Freedman, as we mentioned is a 100-year old business, very, very strong leadership team. We're going to just take both of these businesses and try to make one plus one equal 100. There's significant material synergies and purchasing synergies there, significant manufacturing opportunities and then some footprint optimization opportunities as well. So we'll be divulging all that in the quarters to come as we work through the integration.

Very helpful. Switching gears, just obviously, RV dealers are pulling back following period of restock here, and marine dealers remain cautious. What's been kind of the measurable impact in real time in terms of tariffs on retail demand across both end markets that we've been able to glean or measure over the last, say, four, six, eight weeks?

Yes. I don't think much, Dan. I mean, if you look at the price of boats and RVs on dealer lots, there's not been much movement yet. That will all change this summer with model year change pricing and some of the tariff impact they will and depending on what the amounts end up being will translate to the retail prices this summer. But right now, if you go on a dealer lot, you're likely going to see similar prices today on some of those products that you did two or three months ago. But that will start changing come model change in June and July.

Makes sense. And lastly, just confirming, Lillian, if I heard correctly, for Q2, looking at kind of flattish revenue year-over-year and operating margins consistent with Q1, I assume on an adjusted basis. Am I hearing that correctly?

Q1 of 2025, correct. Correct, Dan.

Right. Sequentially, essentially, flattish in terms of operating margins is what we're looking at, at least at the moment.

Yes.

Okay. I'll jump back. Let me follow-ups. Thank you.

Thanks Dan.

Our next question is from Joe Altobello of Raymond James. Joe, your line is now open. Please go ahead.

Thanks. Hey, guys. Good morning. Wanted to talk about tariffs a little bit. It looks like you're estimating about 180 basis points potential margin impact for this year. I guess my first question there, is that effectively a half year number? So is it safe to assume a full-year impact would be north of 300 basis points?

Yes. So a couple of things match. So the 180 basis points is potential tariff. And just to be clear, assuming that we're not able to mitigate any of those impacts, which is, as we discussed, we are very focused on mitigating it and are working towards that. Yes, it is a partial year. So as we would look to 2026, if it were to continue in the same situation, it would be higher for 2026 because you have a full-year impact. But again, we're working to mitigate the impact back from that.

And I would say on the -- what we know on the 180 basis points, Joe, that through the comments we made in the opening remarks, how we're mitigating, we've got most of that taken care of. So it's the impact that will come with higher tariffs that would be what we have to work on next and what we're continuing to work on. So just know that the 180 bps is we feel we have pretty well taken care of with the mitigation efforts we've taken so far.

Got it. And just to follow-up on that, I mean, it sounds like pricing is going to be part of those mitigation efforts. I mean, any sense for what sort of price increases you guys are pushing through to offset that?

Well, I think if you look at what some of the other disclosures have been so far from some of the RV -- public RV businesses in that 3% to 9% range to the consumer is probably reasonable at this point in time. It just depends on the make and model and the content in the unit, things like that. So -- and we're -- one of the other things we're doing with the OEMs on our end is making sure that we're working through some excess and obsolete inventory to help them maybe make some substitutions in the near term that will help their cost structures, avoid some of the tariffs. These OEMs will continue to maybe look at some de-contending opportunities to mitigate that 3% to 9%. So who knows what it will end up being in June, July once some of this model change pricing takes effect. But at the end of the day, there's several levers that the suppliers, the OEMs and the dealers can pull including just taking some peeling back on some margin to the consumer to mitigate some of those price increases as well. Is that helpful?

Great. Yes, very much so. Thank you.

Our next question is from Mike Swartz of Truist. Mike, your line is now open. Please go ahead.

Hey, guys. Good morning. Maybe just following up on tariffs. A couple of questions there. Just I think you've kind of handicapped the numbers around 20% Chinese tariffs, 10% rest of the world. Is there any way to think about what that would be given or based on the rates that are currently out there? Do they meaning the 145 in China? Any sense of what that would look like?

Well, I think you can just extrapolate the number forward based on the 20% we've already given you. But I would say that most businesses, including us are sitting here saying it's not going to be 145. It's kind of almost silly to think about what 145 would look like if you extrapolate that over a year, because if that's the case, most of us are just going to get out of China 100%. And we're working towards that and we've provided some visuals in our materials to be able to show you kind of how we're moving either back to the U.S. or rest of world on our supply chain diversification. But nobody is expecting that 145 and the President was out this week saying that it's got to come down, because nobody would buy from China if it stayed at 145. So I think everybody is waiting patiently to see how that ends up. But at the end of the day, I don't think doing a model for 145 makes sense for a lot of different reasons. Is that helpful?

Okay. Yes, that's great. And then just the -- I know part of the mitigation strategy is just moving some stuff out of China, but the 180 basis points, I just want to understand, is that based on the 2024 China exposure? Does that assume that you have the lower exposure for the full-year in '25 or kind of a partial year benefit of moving some stuff around? I'm just trying to understand the moving pieces there?

Yes. So with that, Mike, it's kind of the ongoing rolling impact as we're moving the product out of China. We showed the benchmark of where we expect to be by the end of this year, which is significantly lower than last year. We ended 2024 with about 24% of our imports from China and expect that to be down to 10% this year, and we'll continue to reduce that as we move into 2026. So as you're stating, it's a gradual exit from China. We're mitigating it as we're moving through the year, while also taking mitigation actions to ensure that it's not as impactful on overall profit performance for the company.

Yes. So the 180 gets reduced simply as we continue to make all these mitigation efforts, whether it's pricing pass throughs, pass throughs whether it's moving product out of China to the rest of the world, all the other things we discussed.

Okay. That's helpful. Thanks, guys.

Yep. Thanks.

Our next question is from Scott Stember of ROTH Capital. Scott, your line is now open. Please go ahead.

Hey, guys. Good morning. This is Jack on for Scott. I just kind of want to dive deeper into, specifically how you're diversifying your supply chain out of China. What sort of categories can you move out of China? Which ones can't be moved? I guess another way to ask it is, like, what sort of categories are impacted the most and which ones aren't really impacted at all? Thank you.

Yes. Good question. So if you look at the categories impacted the most, it's appliances and furniture and axles and suspension products. So you look at windows and chassis, which would be other two of our top five categories, most of that's in the U.S. and not impacted. But those would be the three categories that are impacted, but really, there's nothing we can't move out. I mean, when the tariffs started really rolling in 2017, we started initiatives to move product out of China and diversify our supply chain pretty significantly. 2020, we were forced to do the same thing obviously as supply chain just got constricted. I mean, obviously, we're in a lot of different places now that we weren't five, six years ago, including Malaysia, Turkey, India, Cambodia, Vietnam's big. So we've diversified our supply chain significantly since 2020 and set up all these suppliers to duplicate production for some of the manufacturing we've got in China. And we're just going to start moving more to those manufacturers that are already building that we started building products five years ago. So it's not like we're having to really set up a lot of new vendors. It's moving more of our China product to existing vendors in the rest of the world. Does that help?

Yes, that was great. Thank you. And just a follow-up, are you seeing any pull forward effect from the OEMs to kind of stay ahead of tariffs there? And how much of a one half or first half benefit kind of would that have?

Yes. So I'm not hearing that. I'm sure a little bit of that happening. I mean, I've talked to several of the dealers. It doesn't feel like, it would feel like if they're going to -- if that decision is going to be made, it would be made by the dealers. And I don't hear from a lot of dealers that's what they're trying to do. It seems like they're kind of spring loading up of inventories is pretty normal for the inventories that they have and it's not overloading. So I would say that's not what I'm hearing right now.

Awesome. Thank you.

So I would feel the impact. It's probably pretty minimal there.

Thank you. Our next question comes from Bret Jordan of Jefferies. Bret, your line is now open. Please go ahead.

Hey, good morning guys. Just on the last topic, I think you were talking about rest of the world and you said Vietnam is big. And I guess how does the rest of the world, that 23% at year-end sort of mix out because obviously they were talking about a big reciprocal in Vietnam as well, but who knows. Where are the big buckets you've gone to outside of China?

Yes, I think I named them. I mean, it's Cambodia, Vietnam, India has been pretty significant for us. Turkey has been pretty significant. Those would be some of the bigger, Malaysia. Those would be some of the bigger buckets. We don't break out by country. We might get -- it might get to the point down the road where we start doing that. But as of now, we're not breaking that out.

Okay. And then on your the wholesale volume expectations for the year, I think you're still in that 320, 350. Is there anything I guess to read into, I guess it seems like Thor was doing some layoffs recently sort of early season production. Is that just sort of moving production around to make their business more efficient on a smaller scale? Or is that indicating that maybe we're looking at the lower end of that wholesale shipment range for '25 just given the consumer uncertainty?

Yes. I think they're obviously trying to get efficient and optimize their footprint as well. I mean, it's no secret that this industry in general has a lot of brands and there's probably a lot of good moves, a lot of OEMs could make there. But there's brands that are winning everywhere. Well, there's brands that are some brands that are losing, but Brinkley and Alliance are doing really well for us right now, Forest Service is doing well. Certainly the Jayco and Keystone brands that Thor are doing very well. So there's always winning and losing brands. But at the end of the day, the good thing about LCI is a top supplier as we sell everybody a lot of different products.

Okay. And then just one, I guess question about the $5 billion organic. Does that include the Trans/Air and Freedman? Or are those incremental, I guess, how are we defining organic?

No, the $5 billion, if you're talking about the $5 billion for 2027 target that we put out, that does not include acquisition.

Okay, great. Thank you.

Our next question comes from Craig Kennison of Baird. Craig, your line is now open. Please go ahead.

Hey, good morning. Thanks for taking my questions. Mostly just follow-ups, starting with Slide 13. Can you share the dollar cost of raw materials and components? We're just trying to run that math, and I don't want to make a mistake based on the basis points that you've provided?

Yes. Craig, we don't break out the material cost. So I think you can probably extrapolate them back into it from the various data points that we've put out there, but we don't actually break out material costs.

Yes. No problem. We'll back into it. I just think there's more room for error when that's going to happen. And then on Slide 14, can you just remind us of what the 2024 base year operating margin that you're using as the base for this 85 basis points of margin expansion? I just want to make sure we get that correct.

Yes. So it's coming off of the operating income percent for 2024. I'm trying to the full-year. I have lots of quarterly data.

I mean, 5.8 is the number. I just want to make sure we do it right.

Yes. So it's off of that, and it's incremental, that we're working towards. What I would caveat with that is to the extent that there are tariffs that we're not able to mitigate. That obviously would be a headwind. We're confident that we're going to be able to mitigate it. But the 85 basis point is incremental to the 5.8% OI from last year. And just in terms of how we're progressing with that, we feel very good in terms of the progress that we're making towards that cost reduction. Areas that we've been successful already this year in cost reduction achievements include health care. We've continued to optimize the footprint, and we've closed down a few of our facilities. Jason mentioned a couple in his prepared remarks. We've also nothing I wouldn't say significant in terms of big numbers, but in terms of, I'd say, continuing to right size the business from an FTE perspective, we've continued to make improvements there and enhancements. And I would say just general efficiencies in our indirect spend, we've been putting out pretty focused RFPs in the system. So overall, feel very good that there's tangible progress on improving our cost structure.

Thanks. And then I don't know if this applies to you, but I know the RV industry pushed for a de minimis loophole to be closed, which was kind of sourcing components from China that were under $800 in shipping. I don't know, does that impact your aftermarket business at all? And is that something that you see as a win for your company?

No. It's a minimal impact, Craig. I think the biggest opportunities for us is just continuing to diversify our supply chain and working with our customers to whether it's use some of this substitute and use some of these other materials that we have that are sitting here that could push any tariff impact out a ways, but also continuing to work with our customers on our good, better, best strategies on all the different products we have, going from a better to a good or a best to a better gives our OEMs the opportunity to impact their BOMs favorably to mitigate some of this. I think that's one of the biggest areas or opportunities our industry has on top of maybe some de-contenting or some things like that, which we've always talked about doesn't impact us significantly because our products are all pretty supercritical. They need slide outs and axles and chassis and things like that. They're not going to take those off and substitute them.

Yes. And then maybe one more, if I could, Lillian. That's put you on the spot here for Q2, but I think you basically said revenue is flat. I'm not sure what the contribution was from acquisitions, but it doesn't imply that you're seeing like organic declines in revenue in the second quarter as maybe the RV industry or marine industry adjusts production?

Not necessarily. At least from an RV perspective, for the second quarter, we'd expect that to continue to be up year-over-year about 5%. Some of the adjacent markets, such as marine, continues to be soft. But from the RV OEM perspective, I would expect that would continue to be up modestly year-over-year.

And that's organic?

That's organic, yes.

Got it. Thank you.

Thanks, Craig.

Thanks.

Our last question comes from Tristan Thomas-Martin of BMO Capital. Tristan, your line is now open. Please go ahead.

Good morning.

Good morning.

Can I just follow-up on a question? RV OEM sales modestly up in 2Q, but is overall organic revenue flat or is that down a little bit adjusting for those acquisitions?

So only breaking out the RV at this point. So RV is up 5%. Probably in total, net-net organic is probably pretty flattish when I consider some of the other adjacent markets that we're in.

And I'd just say with the caveat, Tristan, that if tariff news doesn't improve, then rates could deteriorate and that could impact things negatively, but we just don't know.

Okay. And then appreciate kind of the initial kind of guidance on tariffs of 10% to 20%, but rates are much higher than that. Is there kind of a rule of thumb you can give us on, let's say, there's an incremental 34% on China? How much of that do you think you can offset? And then what would the net kind of impact, call it, for every 10% of incremental tariffs be?

Yes. I think again, it's a difficult question to answer because we're just guessing. But if it does if it got to 30% or 35%, I think that the industry is pretty creative. We're pretty resilient. There's lots of levers to pull for both OEMs, all OEMs, dealers and suppliers. And we've talked pretty thoroughly through the levers that we would pull, but certainly there'd be some level of pass through to mitigate this. So I think between the pass through and the good, better, best strategies, using really pushing the OEMs to utilize some of the excess inventory that we've got sitting around that can help push some of these tariffs off, de-contenting and re-contenting units by the OEMs, margin sacrificed by the dealers and OEMs. There's several levers to pull where I think we can mitigate a lot of this, but certainly the higher you get up on the tariff number. And again, some of that depends on how much we get out of China. We probably will decide to continue to move things out if things remain elevated above 30%. We just would have to. But as soon as you tell me where the China tariffs are going to be, I can tell you -- I can tell you how mitigation and pricing will look to the consumer.

That would be pretty cool if I could tell you that. One more question. The China 10% exiting 2025, how much of that is the result of permanent kind of production shifts or are there some maybe some paused production kind of embedded in the 2025 estimate?

Well, I'd say there's some pretty permanent production shifts baked into those numbers. So again, we're not going to fully pull out until we know what the situation is. I think that they're going to come up with something that would allow us to, China needs us. We need China, I think in a lot of respects. So I think that they're going to come up with a solution that's good for both sides or best opportunity for both sides. So I don't see us completely exiting. But if we have to, we've got a line of sight to vendors in the rest of the world that can produce the products that we need, including some of our own factories.

Okay. Thank you.

Thank you.

We currently have no further questions. So I'll hand back to Jason Lippert, CEO for closing remarks.

Thank you everybody for tuning into the call. It's certainly been an interesting couple of last months, but we hope to have a lot more clarity on tariffs over the next couple of months and look forward to the next quarter update for you all. Thank you.

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