Q1 2020 Earnings Call
Ladies and gentlemen, you for standing by and welfare into the Q1 plenty out I ended free.
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Good morning, everyone and welcome to L.P.I. Industries first quarter 2020 conference call I'm joined on the call team, including Jason Lippert, President, Brian Hall, Executive Vice President and CFO management will be discussing their results and just for me that certain statements made in today's conference call regarding L.C. I.
Industries and its operation minutes under the Securities laws.
And involve a number of risk company caution do that there are number of factors many of which are being.
Oh, the actual results and events could differ materially from those described in the forward looking statements.
These factors are discussed in the company's earnings release, and then its form 10-Q and its other filings with the FCC.
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 Lippert Jason.
Good morning, everyone and welcome to help you guys first quarter 2020 earnings call and what rapidly evolved into most the most challenging operating environment in our company history, we delivered solid performance during the first quarter. Our first quarter was off to a strong start until the first week of March. So we're very encouraged about our trajectory I'm incredibly proud of the agility of our team.
In response to the escalated cobot 19 pandemic late in the quarter.
Thanks to the team's efforts, we were able to make necessary steps to protect the health and safety of our team members, while effectively managed costs to mitigate downside risk to our business.
During the quarter, we reported revenues of 660 million up 11% compared to last year. This topline growth was largely driven by the successful execution of our diversification strategy and the efficient integration of the nine acquisitions, we completed over a 12 month span. In addition to outperforming in the RV OEM space.
Before I discuss our results in more detail, let me quickly touch on the impact we have seen as a result of cobot 90 as was the steps we're taking to confront challenges brought on by the pandemic.
The prioritize the well being of our team members maintain compliance with federal and state mandates and better align our production what current demand levels on March 25th we announced a temporary suspension of our production at select manufacturing facilities across the us in Europe.
During the shutdown 15 of our sites remained active in operational continuing produce items deemed essential.
At these sites, we've operated with a heightened focus on safety utilizing reduced staff as appropriate adhering to social distancing guidelines and implementing increase cleaning and standardization processes.
Our team members have always been the most valuable part of our organization and over the past six weeks. Our efforts are focused on providing support to them and the communities where over nine facilities operate as we work to do our part to help combat. This virus for team members facing the most extreme difficulties due to the cobot 19 health crisis, we've established a temporary emergency fund.
To be utilized for immediate aid and we will continue to encourage and support team member initiated volunteer efforts.
In addition, we have donated personal protective equipment and other supplies throughout our local communities. We're also manufacturing 60000 medical base yields for doctors and nurses in Italy to help those on the front lines in the fight against Cobot 19th.
As government mandates have begun to lift nationwide our customers have largely come back online during levels of production and accordingly, we began restarting most of our.
Production continues to start back up we will be following the guidance of the World Health organization as well as state.
Pete in federal governments, implementing our cold or new protocols health creative.
This post cobot environments.
During this challenging time, we've continued cultivating our dealer distributor and ecommerce relationships encouragingly during the last couple of weeks, we've seen positive signs from RV in both dealers selling significantly more inventory than expected as the weather is turning and customers are preparing to get out and behave more normally again that said our teams have proper.
Really adjusted the business cost to prepare for what we expect to be the new volume in the coming months. In addition, as with 911 in the 2008 2009 recession, we expect there to be business to pick up as a result of suppliers that have difficulty coming back from us.
We have had to make a lot of difficult decisions in order to adjust the business to operate efficiently in light of the cobot 19 pandemic, but we're well positioned to move forward and emerge from this is a stronger company our ability to react very very quickly to withstand a prolonged downturn scenario has been a proven strength of our business over the last two large economic disruptions.
Our financial position remains strong supported by ample liquidity and cash on hand, however, as market demand continues to shift we have implemented critical cost saving measures to enhance our flexibility ensuring that we will be able to further managed through this challenging environment for the foreseeable future.
Two of our senior Vps, and I have reduced our base salaries, 25%, while other members of the executive leadership team general managers and executives across the business are participating and meaningful temporary adjustments to their risk.
Active base salaries as well.
Our board of Directors has also reduced each directors quarterly retainer by 25% we have not yet established the duration of these temporary compensation adjustments, but we'll continue to carefully review of Ags other salary personnel costs as we get back to a more normalized environment.
We have taken the unfortunate but necessary steps to adjust our workforce by reducing staff freezing travel enacting temporary hiring freezes and all locations and implement furloughs, where necessary and many other measures to match the new demand of the business capital expenses are being delayed where practical and we are also reducing.
The non critical business expenses, and lastly, we will be engaging and ongoing discussions with customers and vendors to determine pricing and input costs adjustments, where possible closely monitoring inventories and implementing aggressive strategies around working capital management in order to preserve our cash flow generation.
Ill Cobot 19 presents a level of uncertainty many of US have never seen we believe the fundamentals of the RV in the boating industry has remained very strong now more than ever as a result of this crisis, we have an incredible opportunity to introduce more people to RV and boating, we anticipate that most will be significantly altering their summer vacation plans as air travel.
So hotel stays cruises and traveled the large metro areas are going to be largely reduced.
Rvs and both provide a wonderful alternative for people to get outside and vacation safely with their families in this new normal environment.
Whether shorter long trips rvs in both allow families to control the destination, who they are around and most importantly, the place they stay.
After an extended duration self quarantining family community and the outdoors to become increasingly more important people, which is what the RV and boating lifestyle and bodies in the first place.
We believe that there will be a new vacation normal and feel that RV in both earn a prime position to check all the boxes that families will be looking to check including that of affordability.
Lastly people are getting outdoors and significant numbers and experiences are what people are craving at this moment.
Our industries have a great answer for families considering new ways to vacation and it certainly doesn't seem like there has been a better time to consider a boat barn RV. In addition, the same fundamental and secular drivers for our business that have historically moved our company forward are still relevant today and we believe they will drive further growth long after the payment.
Because path.
Turning to the segment results for the quarter, we started the year off strong with RV OEM retail sales training positively and largely outperforming industry expectations in January and February.
While RV dealer spent the majority of the last year working to rightsize, our inventories the industry was certainly well position headed into 2020 as inventory levels were largely normalized global RV OEM sales were 345 million for the quarter down 5% versus the prior year period.
This decrease was largely due to the impact of co bid in the final two weeks of March.
Despite the slower demand and production environment content per towable RV adjusted to remove Fury on sales from prior periods increased 3% year over year to 3300, $54 driven by new product innovation market share gains in the reversal of the de contenting trend we've seen over prior quarters.
We saw slight decline in content from motor home, RV, which decreased 5% year over year to 2300, $27 driven by a shift in wholesale mix toward smaller class a units.
Diversification strategy is proven critical and navigating through this challenging operating environment positioning us for the long term growth and an extended downturn scenario adjacent markets aftermarket international markets now make up more than 46% of our total net sales for LCR, a significant increase compared to 39% of total sales at this time last year.
Given the progress we are making each quarter, we remain on track to reach our target of having these markets make up 60% of our total revenues by 2022.
We have successfully doubled quarterly revenues in our aftermarket and international segments to 127 million and 61 million, respectively, which mitigated what would've been a larger impact from coal with 19 on our overall performance ultimately our diversification program allowed us to outperform the larger core markets. Our long term strategy remains.
Solidly intact, and we will remain focus and diligent on expanding our presence outside of the North American RV business grew both continued organic growth and acquisitions.
Revenue in our adjacent market category for the first quarter increased 10% with solid growth at the start of the year, partially offset by the temporary production shutdowns throughout marine and other adjacent businesses as a reminder, marinas our largest channel in the adjacent market segment and has been a continued area of growth for us despite the disruption to production.
In Marine we remain focused on growing our product portfolio integrating our latest acquisitions into the business and strengthening our presence in this market after introducing new cutting edge technology and innovative sunshade awning systems through the acquisitions of power on brand of electric limiting ensure shade electric awnings for larger both in 2019, we're now the.
Predominant player in North America in Europe for Marine Shade solutions being the predominant player will help position us nicely for more innovation in the marine segment in the years to come.
Further customers and manufactured housing and specialty vehicles were less impacted by recent disruptions and were contributors to growth in the adjacent market segments.
As we look forward, we continue to seek new opportunities to build market share across all our adjacent markets and add content in a wide range of industries.
Our aftermarket segment experienced tremendous growth more than doubling revenues on a year over year basis, largely the result of our acquisition of occur group in late 2019.
As anticipated the aftermarket has continued to offset weakness experienced in our core OEM markets, which will continue to be a competitive advantage for LCR.
In recent weeks, we only saw 35% reduction in revenues in the aftermarket business as many of our aftermarket products are considered essential items.
Although showrooms were close many RV dealers continue to navigate leads online and get created with the consumers for the sale and service of RBC.
The integration of Kurt is progressing as planned we continue to take advantage of new cost synergies and have already benefited from some of the cross selling synergies, including new distribution channels expanded dealer and customer networks and broaden product offerings. In addition, Curt has an incredibly strong reputation for product innovation engineering and brand excellent.
We are continuing the launch in sell through to new customers their latest products like better way, an echo and are excited about the innovation in R&D capabilities of the overall business and strategy.
As we continue to grow the business integrate our recent acquisitions and innovate new products for the aftermarket. We're confident we will be able to drive market share growth and use our size product breadth and customer relationships to strengthen our leadership position here.
Our international business also doubled during the first quarter compared to the prior year due to the series of acquisitions. We recently completed in January of this year, we closed on the acquisition of the Netherlands based poly plastic group, a leading manufacturer of acrylic window products and a strong supplier and innovator for the European care of and industry.
The health and safety of our team members and comply with federal and local minutes. Despite any near term had ones. We may space. We are confident in the long term outlook for these markets in Europe and believe in our growing presence product breath leadership and influence in Europe will deliver promising results in the future.
Innovation is and will continue to be the lifeblood of L.C.I.. That's what we are known for in our core markets. While we have taken aggressive steps to optimize our costs structure. We continue to invest strategically in r. and d. to ensure that we are delivering on the needs of our customers are teams are into the expertise and ability to introduce sophisticated industry leading products in technology.
Across all our business and Marcus is a competitive advantage for us.
How many companies in a difficult environment will pull back investments across the board. We believe our innovation strategy will ensure that we will emerge stronger competitor.
I have several new product launches coming this year that we will have excited to talk about coming corners.
Our capital allocation strategy remains unchanged.