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

Good morning, everyone, and welcome to the LCI Industries Second 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 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.

Thank you, Lily, and good morning, everyone. I'd like to welcome you all to LCI Industries' Second Quarter 2025 Earnings Call. We delivered strong second quarter results with $1.1 billion in sales, up 5% year-over-year, along with 2% organic toy hauler content growth despite RV mix headwinds. Our strong performance reflects dedication of our teams, the strength of our diversified markets and products and the durability and expansiveness of our competitive moat. While elevated interest rates and other macro factors continue to challenge RV retail demand, our strategic foundation effectively drives growth and resilience, keeping us firmly on track to achieve our $5 billion organic revenue target in 2027. Our 5% growth was driven by continued market share gains in our top five product categories: appliances, axles and suspension, chassis, furniture and windows as well as the continued traction of our five recent key innovations that have reached a $100 million run rate. Our recently completed acquisitions of Freedman Seating Company and Trans/Air contributed $32 million of sales in the quarter, while strengthening our position in the bus market. This market further expands our durability as it benefits from continuous and essential municipal fleet upgrades, providing $200 million in expected annualized revenues to Lippert unrelated to consumer demand. Early integration efforts have been very successful operationally and culturally engaging all 875 new team members collectively between the two new businesses within weeks of closing the acquisition. In addition, we are making good headway on synergies through consolidations of our transportation business units and teams. In addition, Freedman has just announced new product launches for heavy-duty commercial buses, an entirely new market for them. We remain focused on what we can control, reducing raw material exposure, mitigating new costs around tariffs and allocating capital with discipline across M&A, CapEx and shareholder…

Thank you, Jason. During the quarter, Lippert's industry-leading innovation, strong competitive advantages and successful M&A drove net sales growth, while our ability to mitigate tariffs and advance cost savings initiatives delivered resilient margin performance despite mix headwinds. Our consolidated net sales for the second quarter were $1.1 billion, an increase of 5% from the second quarter of 2024. OEM net sales for the second quarter of 2025 were $840 million, up 5% from the same period of 2024. RV OEM net sales for the second quarter of 2025 were $503 million, up 3% compared to the prior year period, driven by market share gains and an increased mix of higher content fifth-wheel units. These results were partially offset by the overall continued shift in unit mix towards lower content single-axle travel trailers. Single axle trailers do remain in an atypical portion of production, but we expect this trend to normalize once consumer demand recovers. Content per towable RV unit was roughly flat year-over-year at $5,234 and content per motorized unit was up 1% to $3,793. Towable RV organic content grew 1% sequentially and 2% 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 offset the impact from the continued shift to smaller single axle trailers. Adjacent Industries OEM net sales for the second quarter of 2025 were $336 million, up 10% year-over-year, primarily due to sales from acquired businesses within transportation, which represents $32 million in the quarter. This was partially offset by lower sales in North American Marine as sales were down 15% due to the impact of inflation and still high interest rates…

[Operator Instructions] The first question comes from Daniel Moore of CJS Securities.

So I guess let's see a couple of things. I wanted to start with just first, inventory levels, dealer inventories, both RV and marine from your perspective, clearly, dealers remain cautious, had some significant destock in Q2. Just trying to get a sense for where you see inventories today and what the potential impact of a restock could look like once demand starts to improve in those two end markets? And then a quick follow-up.

Yes. Thanks, Dan. I think that the inventories, like you mentioned, the dealers have been pretty cautious. I think on top of that, the OEMs have been extra cautious as well. So I think those two things are going to lead, and that momentum has been building for the last 1.5 years. So when you look at going forward, I think that cautiousness is going to continue and the discipline is going to continue. And when it does lift, I don't think we're going to come out of this quickly. So I think it's going to be a slow and gradual steady rise once we start seeing the business lift. On the marine side, probably a little bit more cautiousness there and discipline, on the OEM side as well. I think they're more in the middle innings in this destocking and just inventory rebalance versus the RV dealers. So -- but we've heard some really good -- I've talked to some of the big dealers recently, and there's been some -- Blue Compass went on RV business recently and talked about a really strong May and June. In the last 2 years, it was -- they said it was the best May and June that they've had. So that's really positive, and they said July was really strong. So Camping World reported, their numbers were fairly strong on units. So I think we're just in a position where they're going to continue to be cautious and disciplined, and that's good and healthy for the industry. And then when it does lift, it's going to be kind of a slow and steady rise.

That's really helpful. Just trying to triangulate the commentary from the margin perspective. So EBIT margins, I think, Lillian, you said flattish for Q3 year-over-year. And then you also sort of gave the updated tariff impact of 290 basis points before mitigating -- before any mitigation efforts. So just trying to understand, is the tariff impact maybe greater than what we thought previously? And if you have any thoughts in terms of what kind of an overall net margin target might look like for fiscal '25, given kind of one quarter left to go would be super helpful.

Yes. Sure, Dan. So maybe some color around both the tariff impact and also just margins in general. When we're thinking about the tariffs, there's going to be margin compression from the perspective that we are not mitigating margin. We're mitigating the cost of the tariff with the actions that we're taking. So that does put pressure just mathematically on the margins as we go forward. The other thing I would call just in terms of some things driving some of the margin activity as we look to Q3 and it will be improving as we get to Q4 is we did just acquire some pretty meaty acquisitions with Freedman and Trans/Air. So there is some cost associated with integrating and onboarding these organizations and streamlining to get the synergies. So that's also going to be a little bit of an overhead on the margin as we look to Q3 and a little bit, obviously, to Q4 as well. But we're continuing to work on the cost mitigation actions that Jason spoke of in his remarks, so targeting that 85 basis point overall improvement for 2025, but we do have some of those other factors overhanging on the margins.

Yes, you can add the mix headwinds as well, along with -- the tariffs have created rising steel prices and aluminum prices domestically. So as those -- as you know, how we're indexed with a lot of our component pricing to our customers, we chase that price going up until it stabilizes. And then we get hold once it stabilizes and starts either retreating or once it stays at the peak. So we got a bunch of things that we're working against there, but all those things will rightsize in time.

Very helpful. I guess, did I hear correct that Q3 should be flattish on a year-over-year basis from an operating margin perspective? So I just want to clarify that.

Yes.

Correct.

The next question comes from Joseph Altobello of Raymond James.

Since we're talking about tariffs, I guess I'll start there. It looks like the impact went from about 180 basis points last quarter to now 290. So I guess, first, what was the biggest driver of that increase? And what's a good annualized number to use from a tariff standpoint?

Yes. So Joe, the biggest change, if you recall, our last earnings call was second week in April. So it was right after the initial liberation day. We had assumed at that time that China tariffs would be at 20%. We've since settled or I should say the government has since settled at 30%. So that's going to be the biggest driver of change from the last time that we talked. And I think just kind of taking these and annualizing it is a fair representation from the tariffs on a go-forward basis. But again, we believe that through the mitigation efforts that we have, both from the resourcing, onshoring some of the product, resourcing to other nations and then pricing pass-throughs as appropriate, we do feel confident that we have mitigation plans in place so that we will not have an overall impact to the business on a go-forward basis.

And just to shift over to sales, it looks like up 5% in the quarter, a little bit better than I think you had guided. Is there any impact either to Q2 or Q3 or both from the earlier RV model year changeover this year?

I don't think so. Can you be a little bit more specific there?

Yes. It sounds like the changeover happened in June this year versus, let's say, July last year.

Yes. I mean the model change start-up is usually slow to start. But I would say, no, there's no -- there was no impact. We'll see that happen over the course of the next 12 months. That will be where the impact is.

The next question comes from Craig Kennison of Baird.

Lillian, you mentioned the trend towards single axle towable RVs maybe close to a bottom. I'm just wondering if you can give us a sense for what mix normally is of single axle and where it is today and then confirm whether it's maybe based on your orders, whether that trend is back in a good direction.

So historically, the single axles were probably in the mid- to upper teens in terms of overall mix. We've been seeing over the last, call it, 18 months, a gradual increase into the mid-20%. I think we were at 24% last quarter. In the second quarter, we've seen a little bit of an improvement there, where we're down to about 20%, 20.5% in second quarter. So it was nice to see that slight improvement. Hopefully, that trend does continue. I think as we've talked before, I think overall expectations from the industry is that we will revert back to the larger multi-axle units just because they're so much more practical for the end consumer to be able to utilize the RV in the best way possible. It is -- when we look at a trailing 12-month basis from a content perspective, having that elevated overall mix for the past 12 months does still pressure the content, but it was nice to see in the second quarter that there was a little bit of an improvement to get back to the multi-axle.

And Craig, we track that every week. So just last week, it was under 20 -- it averaged under 20% for the week, which is a good sign to see. But we've been tracking this for a long time. If you go back 10 years, it was just under 10%. So it's been gradually growing over time. And like Lillian said, the last 18 to 24 months, it's been creeping over 20% up to 25% is a high, and we're starting to see some retreating there. So that's what we want to see. We'd rather see, honestly, less wholesale units and obviously, bigger units and less single axles from a margin perspective.

And then -- that makes a lot of sense, but trying to reconcile that with the Camping World report where they're clearly doing really well at the most affordable -- or with most affordable units, I presume those are also single axle. Is it just a change in what manufacturers are building in anticipation of a change? Or can you give us the sense that this is a consumer-driven trend change and improvement?

I think there's some of that, certainly. But I don't know how well you can do it at $89.99 price point or $12.99 -- $12,999 price point in terms of margin. So I think that's the real thing. But a lot of these -- I would say the majority of these single-axle trailers are getting purchased by first-time buyers. And the real hope here is that the longer-term trend is that they trade up and buy something bigger, that they stay in the lifestyle and buy a bigger trailer with more content. So we put a -- I think Camping World especially has put a lot of energy and resources into that strategy. And now it's time to -- over the next couple of years, we see some of those first-time buyers that have bought over the last few years, these small units to trade up.

I guess, Jason, to that end, just looking at your Aftermarket business, I know you've got this view that pandemic era orders ultimately will lead to some reorders. How much data do you have that you can track aftermarket purchase activity among people who bought during that era because it does feel like you could get an echo effect benefit from all the activity at that time.

Yes. I think there's probably less -- I think when you look at single-axle trailers specifically, I think that there's less aftermarket opportunity there because you're not -- there's nothing really to fix up on those trailers. They're so bare when it comes to retail parts and accessorizing and upgrading and things like that. So like, for example, they don't have recliners in those, and we put recliners in every single unit out there. So you can't even bid a recliner in there. There's no furniture to speak of. It's just a dinette, which is a wood-based seat with some cushions on it. So you might get a mattress here or there, but the real content adders in aftermarket come with some of the bigger units. And we don't have data that tracks specifically all those buyers. But our aftermarket continues to grow, and we're continuing to do more store sets with Camping World. And we've got a pretty significant total addressable market in the aftermarket, especially with RV and automotive. So we're going to focus on continuing to sell dealers more products.

And I guess just a follow-up. Are you seeing any aftermarket activity from people who purchased, let's say, 2020 or 2021? Is that consumer showing up to upgrade RVs through your Aftermarket products?

It's really hard to tell. I would say that they have to be. They have to be repairing and replacing. I mean that is a big part of our Aftermarket business. So when parts and components don't work, they're going to need to come and get it fixed to a dealership likely and some do it yourself in some cases. But I'd say most of the time, when our components break, and we've certainly put -- I think we keep saying we put 50% more content into OEM vehicles since 2021. The more of those components that need repair and replacement in the aftermarket, the more are going to be likely be ours. That's our aftermarket to get because they'll replace like-for-like.

The next question comes from Patrick Buckley of Jefferies.

Within the 5% growth quarter-to-date in July, how much of that was from acquisitions? And how much of that was driven by price?

I'd say a good portion of it was from the acquisitions, probably 3% to 4% of that was acquisition related.

Got it. That's helpful. And then you touched a bit on this already, but as we try to think about tariff impact moving forward, are there any specific product categories where you see opportunity to move more of the sourcing domestic? Or I guess on the flip side, any categories that are structurally more weighted towards import?

Yes. I think that's always one of the first things we're trying to figure out with resourcing. If we're going to move a product, if we can move it back to the U.S., it's where we have the plants and capacity to do that. It's just a matter of do the dollars and cents make work and can we stay competitive. But I can't tell you how many resources we've put toward the resourcing initiatives with people. And on the quality side, specifically, incoming inspection because we've got a lot of new suppliers in the mix going to find new suppliers. And once we find them, we've got to validate them. And then there's a whole process when it comes to getting those first articles in and proving them at our place. So there's just a lot of activity there. It's a lot easier when we can do that internally in the U.S. But unfortunately, there's still cost incentives outside of the U.S. to reshore and resource to other countries outside of China.

Got it. And then one last quick one from us. Looking ahead to the $5 billion in revenues in 2027, is there a wholesale shipment volume number assumed for that or maybe a range there?

Yes. Our assessment there is that we just return to a normalized wholesale range. And if you look over the last 10 years, it's averaged between 400,000 and 415,000. So I think that's the assumption there. And we do feel we'll get back there over the course of the next 2 to 3 years.

The next question comes from Tristan Thomas-Martin of BMO Capital Markets.

I just want to circle back to kind of the full year operating margin. I think last quarter, you kind of implied you'd see 85 basis points over 2024 is 5.8%. How are you thinking about that currently?

I think we're still very confident in that from the perspective that we're tracking nicely for those cost saves, that 85 basis points, a lot of that's driven from footprint consolidation. We've already executed a good portion of that consolidation. There's still a little bit more to come as we continue to progress through the year. We're also continuing to focus, I think we talked on the last call, some pretty targeted efforts in terms of indirect spend and RFPs that we've been executing throughout the year. So I feel really confident that we are on track to deliver that for the year.

We've just -- Tristan, we've -- I don't know how specifically we've talked about it, but we've executed closing California, Chesaning, Michigan and Westville, Indiana. So those are three that we've undergone. And obviously, there's costs and things to close those, and we've got a few more on track this year. And then a few more lined up for next year for second quarter. So we've got a plan there.

So I mean to kind of ask it slightly differently, is the 85 basis points of improvement slightly offset by a higher expected tariff impact or it implies maybe slightly lower than the -- whatever the 6 point whatever or no?

Yes. So as I mentioned earlier in the call, so the tariff, because we're focusing on the dollar mitigation, there is some margin compression from that just naturally, right? We're not going to put margin on top of the tariff costs and try to hold that. So there is some margin deterioration because -- on a percentage because we're focused on mitigating the dollars.

Got it. And then just a 2-part industry question. First, kind of what -- how are you thinking about retail demand this year? And then also, if we kind of take your 320,000 to 350,000 wholesale range and I put up -- I kind of factor in your RV OEM sales plus 4% to 5% comment, which I'm assuming does assume some kind of price and content share. Does that just imply a very weak 4Q production volume?

So on the retail, it's obviously -- we had some negative comps year-over-year last year and then coming into this year. So it looks like it's stabilizing. And our plan is -- our thoughts are that wholesale and retail will be pretty similar this year. So kind of that's where we're at on our retail thoughts.

And then kind of like 4Q kind of implied wholesale production?

Say that again?

4Q implied wholesale production, right, the 320 to 350 range you gave kind of adjusting for the RV OEM up, I think, 4 to 5 in 3Q. My math implies a fairly soft 4Q for the industry. Is that right?

Typically, that's pretty normal from a seasonality perspective. So we're not expecting anything unusual in that regard.

A lot of it is going to depend on these macro factors we keep talking about. If the environment starts to improve towards the end of the year, we could see some heavier restock by the dealers coming into the next selling season. We're hopeful for that. We're not banking on it, but we've been in this front for 2 years since the falloff in late '22. So we keep getting closer to the end of this, and the lift is coming in the next 2 to 3 quarters likely.

We currently have no further questions. So I'd like to hand back to Jason for any final remarks.

Yes. I just want to say I'm really proud of the teams. I just had mentioned that we spent the last couple of years really rightsizing the business and working hard to recover from the dip that we had in the industry. So I'm thankful to our teams, and it's good to see our ROIC and EBITDA in double digits now. We're going to keep working to improve that. So thanks all for coming to the call.

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