Q2 2020 LCI Industries Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Q2 2020, LCR Industries earnings Conference call.
At this time all participants are in listen only mode and after the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
If your quarter any further assistance please press star zero.
I'd now like to hand, the conference over to Victoria surprise. Please go ahead.
Good morning, everyone and welcome to L.C.I. Industries second quarter 2020 conference call Im joined on the call today by members of <unk> management team, including Jason Lippert, President CEO, and director and Brian <unk> Executive Vice President and CFO.
I've spent a big discussion that results in just a moment, but first I would like to inform you that certain statements made in today's conference call regarding LPI industries and its operation maybe 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 number of factors many of which are beyond the company's control, which would cause actual results and events to 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, <unk> other filings with the FCC.
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.
Yeah, I would like to turn the call over to Jason Lippert Jason.
Good morning, everyone and welcome to L.C.I. second quarter 2020 earnings call, we delivered better than expected results in the second quarter. Despite suspended production at the majority of our facilities across the U.S. in Europe, you to covert 19 for the first five weeks of the quarter.
As we resumed production in early May retail demand recovered rapidly driven by increased demand for arby's, an outdoor recreational products as consumer side safe alternative to traditional vacations and getaways. This rebound and retail demand allowed us to deliver strong results in the second quarter, including record high revenue in the month of June and July.
As well the profitable and cash flow positive quarter.
Revenues for the quarter were down 16% to 526 million compared to the prior period driven largely by production shutdowns in the beginning of the quarter that said the strong recovery in retail demand and RV and adjacent markets in the latter half of the quarter combined with the exceptional growth in our aftermarket and international businesses helped to offset this decline.
There's little doubt that RBS and boats have become a 2020 summer go to vehicles of choice.
The long term fundamentals of the RV and Boenning industries remains strong and the need for consumers to find safe alternative outdoor activities vacation options, but also allow for social distancing as likely not going away anytime soon.
While a recent report from AAA said, 97% of American vacations will consist of a road trip. This year. Many people are hesitant to stop off at restaurants hotels, and even restaurants, while on the road with an RV. All these amenities are made available in the vehicle, providing both safety and convenience that consumers are looking for.
The addition of current travel restrictions along with favorable gasoline prices in low interest rates for consumer financing what many people to make the decision to start using arby's with a solid uptick a first time RV buyers in recent months to highlight this trend recent RV ice survey reported that 46 million Americans said they.
They will likely take an RV road trip over the next 12 months and incredible and encouraging statistic for us.
Leveraging our reputation for high quality innovative products, we're confident that we'll be able to capture a significant amount of this demand as people are increasingly drawn into the RV lifestyle in both the near term and beyond.
That's a result of the temporary production shutdowns and weaker consumer demand at the started the quarter RV OEM sales were down 38% year over year to 237 million for the quarter.
We've been more than encouraged by the recovery and retail demand with RV sales in June up 17% year over year for LCR, our run rates in June and July would place us at an all time high output rate for 2020 and in addition, these were the two biggest revenue month ever in company history with July 2020 sales over 53% higher.
In July 2019.
On the wholesale side Oems are adding capacity to keep up with increased demand and a reopening facilities had been close prior to the outbreak of krona virus.
Despite operating in a lower production environment in the beginning of the quarter content per towable RV adjusted to remove period sales from prior periods increased 4% year over year. The 3300 $71. Our sustained content increase in towable Rvs is driven by continued new product innovation and market share gains.
Content per motor home, RV and decreased 4% year over year to 2300, $8 driven by a shift in wholesale mix toward smaller entry level class a units.
Our diversification strategy continues to gain momentum as our Jason aftermarket and international markets grew altogether during the quarter on a combined basis. These markets now make up more than 48% of our trailing 12 months sales keeping us on track to reach our target of having these markets make up 60% of our total revenue by 2022.
The continued execution on the strategy through both acquisitions and organic growth positions LC I'd outperformed the broader RV industry, even in challenging market conditions like this last quarter. We remain focused on further advancing our diversification strategy and developing our leading positions in markets outside of RV OEM to drive incremental growth.
Okay.
As part of our long term diversification strategy, we work towards strengthening our business across various adjacent markets revenue in our adjacent market category for the second quarter declined 23% year over year to 131 million driven by the temporary production shutdowns and marine which resumed production in the latter half of April in early May Green.
In which has benefited from the same secular trends driving demand for rvs is a focused area of growth both organically and through acquisitions as we strengthened our presence in this market. The integration of the sure shade acquisition brand of electric Marine Awnings and devotees is also progressing as planned.
As the predominant player in North America, and Europe for Marine Shade solutions. This will be a substantial growth opportunity for LCR going forward a shade solutions on all types of both continue to become more popular and standard on the majority of both types.
For the second consecutive quarter revenues in our aftermarket segment more than doubled year over year total revenue in aftermarket grew to 158 million up 109% year over year, primarily driven by our acquisition in late 2019 of the current group.
We're very pleased with the integration of hurt to date, Kurt had an all time high sales in June and July selling a record number to pitches and is continuing to gain market share with us exposure to a wide variety of products.
Its extensive dealer and distribution channels and innovative product portfolio, which includes products like better way rocker ball, an echo continue to generate new cross selling opportunities and will help support further growth in the aftermarket our RV and marine will continue to grow share and many different categories as well.
The counter cyclicality of the aftermarket business underscored by a steady growth since the outbreak of Cobot 19 has proven to be a key competitive advantage for LC eyes that mitigates the cyclical impact of our exposure to our OEM businesses.
As a result of consumers taking to the outdoors an unprecedented numbers there's been a subsequent increase in demand for aftermarket parts.
Our international business also grew substantially with sales rising for the quarter, 40% year over year to 44 million, probably plastic premier manufacturer of acrylic window products that we acquired in January of this year was one of the handful of business units that continue to operate without significant disruption to production from cobot 19.
And the normal operating environment, Holly plastic primarily manufacturers windows for the European caravan industry. However, there was an increase in demand for acrylic panels as stores worldwide needed acrylic separators registers to service protective barriers between cashiers and customers as a result, probably plastic was able to dedicate some of its acrylic production.
Specifically toward cobot related it uses.
Despite this near term impact. These operations are now growing above their pre covered levels and we remain confident and the outlook for marine rail and care of end markets in Europe, and our positioning in these spaces as we work towards further integrating our latest acquisitions, probably plastic lumara marine Labatt Femto and she Esa.
After implementing temporary suspension some production at the majority of our facilities at the end of the first quarter, our plants have been operating above pre cobot level since late may.
The health and safety of our team members has remained our top priority and we have implemented heightened cleaning and sensitization protocols across our manufacturing sites to help ensure team member safety.
Our teams have done a fantastic job executing on areas within our control. These efforts have showcase our agility as an organization as we quickly and effectively shut down than restarted production, which we then ramp to exceed pre cobot production levels to meet record demand for product.
We have continued to manage our supply chain in manufacturing extremely well delivering quality products to customers with minimal disruption or some other suppliers on the space have struggled to gain flooding, creating an opportunity for us to really gained market share.
I'm incredibly proud of our teams for the unbelievable communication dedication and execution exhibited during one of the toughest periods in our company's history to come out of this crisis like we did as an exceptional testimony to the leadership displayed by the men and women leading our teams. Our success of this very tough time further highlights LC strong culture and leadership model.
And we feel strongly that our teams were able to maintain solid communication and navigate through the pandemic due to the consistency of our values and leadership.
While many companies froze during this time, our leaders reached out weekly to our thousands of team members to keep them aware of each time, we were taking as we brought operations back on line.
The years, we have spent developing our culture values and leadership have done. The sole reason, we were able to quickly get our production up and running as effectively as we did as demand rose to record levels.
We are maintaining constant touch points with our OEM and dealer partners to ensure we can continue to react quickly to the changing environment and stay ahead of the curve. In addition continued success with operational excellence initiatives has helped us achieve profitability Barbie on our expectations for the quarter, enabling us to drive efficiencies, while we work to meet these increased demand.
And level.
We are continuing to turbocharge automation opportunities as we executed and finalize a large window project over the quarter.
Additionally, we have many continuous improvement projects going on as well as labor initiatives to help with the quality and labor challenges that come with an all time high demand environment.
Our R&D expertise and innovation is a critical piece of our long term growth strategy also serving as a key competitive differentiator for LCR.
New consumers increasingly look for innovative products to meet a variety of needs.
While we are operating in an unprecedented environment, we will continue to invest in technology and develop new industry, leading products as well as new features to existing products to drive market share in content growth I won't control technology is becoming more frequently requested and adopted among consumers and is poised for continued growth.
We also see more Oems adapting our push button upgrades as more consumer shift from manual to electric Jackson other manual to electric products.
We're also excited to announce the upcoming launch of our newest product a tire pressure management system called tire link this product has the potential to improve safety across the RV space due to its ability to alert the RV owner about temperature and air pressure similar to current auto technology. Since 2008 automobiles have been mandated to have.
Standardized tire pressure management system, but today there is no similar regulation in place for Rvs.
This is an important safety feature that we believe should be a requirement on all rvs and which we are working alongside our OEM partners to standardize our R&D teams are also working on further innovations for windows shades systems and awnings not to mention the many due to new developments within the current group.
After aggressively executing on acquisitions in 2019, we spent the first half of 2020 focused on integrating these new businesses and paying down debt. Since then we've been able to generate solid cash flow to enhance our already strong financial position.
Well, we are beginning to resume conversations around our current acquisition pipeline and remain open to small and strategic tuck in acquisitions, our priorities continue to center on integrating and realizing new synergies from recent acquisitions, continuing to pay down debt and preserving cash.
In closing I want to thank all of our LCR team members once again for rising to the occasion this quarter and stepping up in a way we never could have anticipated navigating what turned out to be the most challenging environment and our company's history and tackling unprecedented challenges. While also driving the business forward I will now turn to Brian Hall, our CFO to discuss in more detail, our second quarter financial risk.
Ill.
Thank you, Jason and good morning, everyone.
Our consolidated net sales for the second quarter decreased 16% to 526 million compared to the prior year. The decrease in year over year net sales was driven by the impact of temporary production shutdowns in response to the cobot 19 pandemic, partially offset by strong growth in the company's aftermarket in international markets as well as or recover.
In RV OEM retail demand.
Q2, 2020 sales to RV Oems declined 38% compared to the prior year as a result of the previously mentioned production shutdowns in April but demand for rvs quickly accelerated resulting in record sales month in June and July.
In an effort to provide additional color. During these unusual times North American RV sales declined 99% year over year in the month of April while May sales declined 32% and June concluded with an increase of 17% year over year.
Content per towable, RV unit increased 4% to $3371 and content per motorized unit decreased 4% $2308 compared to the prior year, excluding the impact of theory on in 2019.
The content increase in Towables was driven by organic growth and new product introductions, partially offset by the increased demand for entry level products, which traditionally have less content per unit.
The content decrease in motorized units was the result of the continued trend of wholesale mix shifting to smaller units.
Product innovation remains a critical part of our strategy as we look to further introduced leading edge products to add value for our customers and helped to drive content growth targeted in the range of 3% to 5% for towable Rvs.
Q2, 2020 sales to adjacent markets declined 23% to 131 million compared to the prior year, primarily due to the production shutdowns and marine and other adjacent businesses started the quarter.
Sales to North American adjacent industries, which represents 83% of our adjacent industry sales declined 30% while sales to international adjacent industries increased 67%, primarily driven through our recent acquisitions in the space.
The same trend driving demand for rvs have led to improved retail demand in marine which has helped offset the decline in the adjacent markets.
Aftermarket segment sales increased 109% to 158 million in the second quarter compared to the prior year, while international sales increased 40% 44 million.
The increases in the aftermarket and international sales were also primarily driven by revenues from recent acquisitions, which contributed 103 million towards total sales during the quarter as we continued to drive our diversification strategy forward.
As we've previously mentioned aftermarket performed very well during the entire quarter, excluding the impact of acquisitions sales only declined 44% during the month of April increased 7% during May and then concluded the quarter up 52% during the month of June.
Operating margins were 4% for the second quarter decreasing roughly 640 basis points from the second quarter of 2019, primarily driven by the impact of disruptions from shutting down production.
During the quarter, our team worked diligently to overcome a tough operating environment in April and we look to continue to advance operational excellence initiatives and identifying new opportunities to drive margin expansion in the second half of the year.
The quarter concluded with margins improving over the prior year driven by strong growth margin improvement as a result of fixed cost leverage and labor efficiencies.
Selling general and administrative expenses were 108 million during the quarter slightly higher than previous guidance as a result of additional SDMA costs from acquisitions, including Curt warehousing costs intangible asset amortization and engineering costs, partially offset by a decrease in organic EPS unit costs.
We anticipate seeing a cost in the third quarter to be between 115 and 120 million.
Adjusted EBITDA decreased 46% to 45.6 million for the quarter. This decline was driven by the weaker demand environment at the start of the quarter and temporary production shutdowns related to covert 19.
Noncash depreciation and amortization was 24.2 million for the second quarter, while noncash stock based compensation was 7.4 million.
GAAP net income in Q2, 2020 was 13.2 million or 52 cents per share compared to 47.5 million or $1.89 per share in Q2 2019, partially due to the year over year decline in sales.
Adjusted net income for Q2, 2020 was 13.7 million or 54 cents per diluted share.
For the six months ended June Thirtyth 2020 cash generated from operating activities was $102 million.
$95 million was used for business acquisitions, and $15 million for capital expenditures and $33 million was returned to shareholders in the form of dividends.
We are operating with a strong balance sheet as we continue to pay down debt and generates strong cash flow maintaining available borrowings of $251 million under our current credit facility at the end of the second quarter cash and cash equivalents totaled $62 million up from 35 million at the beginning of the year as of July 31.
2020, we maintain a total liquidity position of 272 million enhanced by the strategic cost management actions, we put into place during the quarter to mitigate the impact of Copel 19.
For the full year 2020, we are targeting capital expenditures between 40 and $50 million as we continued to delay non essential expenditures in the wake of uncertainty around covert 19.
At the end of the second quarter, we had outstanding net debt position of $640 million and remain in compliance with our debt covenants. As a reminder, we have no significant debt maturities until 2022 currently our leverage position relative to pro forma EBITDA, which includes the EBITDA of acquisitions stands at just under 2.3 times.
And we will continue to prioritize paying down debt as we work towards meeting our long term leverage target of one to one and half times net debt to EBITDA.
Our financial position remains strong with ample liquidity and flexibility to manage through a variety of environment and continue executing on our strategic initiatives.
That is the end of our prepared remarks, operator, we're ready to take questions. Thank you.
At this time I'd like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad and we'll pause for a moment, while we compile the Q and a roster.
Our first question comes from the line of Craig Kennison with Baird Go ahead. Please your line is open.
Hey, Thanks for taking my question, Brian starting with you really impressive execution in a very dynamic quarter.
From a margin standpoint.
Curious how should we think through Q3 EBIT margin in the balance of this year, given what you're seeing on the demand side and how you've chosen to manage costs.
Hey, Craig.
A couple of things I think first of all start with SGN a.
Provided pretty good color around that within the within my prepared remarks. So I think the one thing to look at than would be gross margins and so gross margins.
So all things considered for Q1, that's a pretty good gross margin for us.
Certainly is on is much higher than that for June.
I'm expecting that if you look at it year over year.
We still have we've got a lot of labor efficiencies first and foremost.
Those are.
Somewhere call it around an additional percentage point.
In gross margin and then you have.
Operating leverage on our fixed costs at these kind of volume so between the couple of those you at least.
Or we've talked in the past about a 25, 26% type gross margin I.
I think were there and you know that's probably the the low end of the range.
For Q3.
That's great. Thank you and then.
Jason maybe just.
Comment on your view of the RV market in particular, whether you're seeing some of this incremental demand has come in since the pandemic.
Creates some sustainable growth or maybe some challenges next years trying to comp all of it.
Well in terms of the record demand worth sitting in a spot where you know we're limited with respect to total capacity in the industry. We can go out unbilled facilities quick enough, obviously dealer inventories are extremely low.
The Oems are responding as quick as they can to too as well as a suppliers to to meet the demand that we're seeing right now so.
I mean, given the post pandemic lifestyle and limited travel and vacation options out there.
Put us in a position for the foreseeable future anyway people are going to make different decisions on.
And just feels like it's got a.
A pretty long runway. So we're we're planting our feet right now and trying to figure out how we have second shift how we increased capacity, where we can we don't want to go out by a bunch of buildings and add capacity from a capex standpoint, we want to.
Ill look at some of the options that we've got right now.
And then the big biggest challenges are going to be quality customer experience and sustain those things with all the flood of new buyers both on the marine and the RV side.
Great. Thank you.
Thanks, Craig.
Our next question comes from the line of Kathryn Thompson with Thompson Research Group go ahead. Please your line is open.
Hi, Good morning, this actually Brian on for Katherine Thanks for taking my questions.
Asked about I guess July trends I think you said sales company wide up over 50% and the RMB segment was up 17 I think percent.
Yes, obviously impacted by the Oems working through the holiday season. As you guys mentioned you have any sense of what those numbers might be on kind of like for like basis, excluding that holiday bump.
You know I would look at a couple of different things Brian you.
No, we're clearly talking about double digit percentage type growth.
From July forward.
I do think that and Jason probably add more color but.
They have by the end of July their run rates have continued to expand slightly into August and September and we expect that the hold through.
Through the through the third quarter. So I think I think to try to put it in terms of of.
No that you can use maybe look at it in terms of daily wholesale shipments.
It seems like these are levels comparable to back in 2017, the back half of that year.
Those were.
Some of the highest that our industries have returned in and those seem to be pretty comparable to look to what we're experiencing today.
Alright, Thank you very helpful.
Maybe just any the aftermarket segment can you guys talk about maybe specific trends in July in that segment and how to think about margins for that segment in Q3.
Yes, I think so for aftermarket I mean, as we've said we've been talked about a little at the end of the first quarter. They at that point in time, we knew how they were they performed during the month April.
Gave pretty good color on that from at least on organic growth perspective during all of Q2.
Pretty fantastic results when you think about 52% organically during the month of June I.
That would.
The typical year, you would start to see that slow from this from that point forward I think what we're certainly seeing within the Curt business and our existing aftermarket business is that it's going to run a little bit longer as the season has extended.
But it should start to taper off.
Definitely when you get into the.
Later months of the of the year, but we're still.
From an organic perspective, I'd say July is up over 40 plus percent.
Yes organically.
So it's still performing and performing expected to continue with that that pace during the during at least the third quarter. So.
From a margin perspective, and we talked about curve, which is a significant addition to to our aftermarket segment.
We originally we talked about that margin being more comparable to our.
Our overall consolidated margins, but as you've heard me say a few times, we certainly made tremendous progress on synergies.
Certainly looking at 2% to 3% of sales as opportunities and I would tell you we're close to 2% already landed.
So we've progressed nicely working through the synergies and still have a little bit more to go but.
Hopefully that gives you a little bit of.
Color on on margins there.
Thank you.
Your next question comes from the line of Scott Stember with CL King go ahead. Please your line is open.
Good morning, guys very nice quarter and thanks for taking my questions.
Maybe just touching base again.
Kind of hitting the some of the growth rates in the industry to back in 2017, obviously, there's been some.
A lot capacity that's been added but could you maybe just talk about as we.
Approach those levels go through it what your expectations are from the.
The industry being able to handle this kind of volume and plus on the labor side, what you're seeing now what you would expect to see as growth.
Alright.
Yeah sure Scott I think that.
You've got more capacity.
To access right now it in the industry as a whole.
Supply chain and labor the bottlenecks right now so I think it's going to take a little bit time for supply chains to get up to speed. If you recall back in April we were telling our supply chains to completely almost shutdown.
And then say or coming back and 50, 60% on them, we turn around and needed more than 100% of pre cobot levels.
For the end of May.
So supply change a little stress right now and obviously you know Elkhart County, one on this industry gets heated up.
Actually to the record levels. We're at today, we get to a position real quick where we're out of labor. So you got those two things working against us, but this industry you know.
And always finds a way.
With all of this being so close together and so tightly net.
We will find ways to get through some of these challenges, but I'd say you know over the next couple of months the supply chains will heal uplift labor will get a little bit better, we'll I'll get a little bit more source full.
Set in our prepared remarks, we're adding automation on a continuous basis on our end and each one of those projects. We do our continuous improvement projects. We do frees up team members that we can allocate toward other other areas.
So we're trying to get creative on our end and whole job fairs, and do some things where we're trying to bring people from the outside outside of the area into this this business because there are a lot of areas.
In surrounding counties that.
Kevin This reason are performing as well so that'd be the quick run down there.
Got it ends.
You quickly talked about automation and gives an update on the chassis automation.
Project, whether it's up and running and when that will start to get through distributor.
Yes so.
We we started running production there.
Little bit earlier, this year and and because it's such a big project, we're just working through.
The program be bugging now it is producing upwards of a couple of hundred beams a day for us so we need to get it.
So much higher level and what is today, but it's just one of those things where it's not a million dollars project obviously.
Some of those.
Smaller projects, we can implement and have have.
Product cranking do a smaller extend pretty quickly but on the larger projects. They just take little bit longer, but we're pleased with how is progressing on.
Timely because it's going to help us add capacity in our chassis divisions in a short period of time.
Got it that's all I have now thanks.
Scott.
Our next question comes from the line of Fred Whiteman with Wolfe Research go ahead. Please your line is open.
Hey, guys. Good morning, Jason you just mentioned the supply chain laid for two of the bigger bottlenecks, but some other Oems have talked about delivery in transportation challenges. So.
Just wondering if that is still an issue and what you think that means for reported shipments.
The industry over the next few months.
Yes, I think that's a good comment I mean, certainly not one of.
Our problems as a supplier, but as an industry anytime the industry Ratchets up like Thats again, it's going to take a couple months for them to.
Allocate the resources that they need to deal with this record demand. So it'll just take of.
It'll take a couple of months, but.
They'll eventually uncover.
The resources needed to be able to shipping units to dealers on dealers are certainly motivated incentivize because most of these are sold to help help find opportunities where they can.
Get creative and find new ways to get these units delivered to the customers quicker.
Okay, Great and then you guys mentioned some market share opportunities just given.
Capacity challenges are ramping issues that your competitors what segments. Specifically do you think you can see the biggest benefit.
Well I want to give color of the segments, but theres a few big opportunities right now.
Away some of our key components aren't what we call our core components, where suppliers of just fallen down and we've been able to pick up some pretty good market share in a short period of time. So normally when things are busy like this we don't we don't rely on market share gains and typically we're gaining a little bit of market share here and there, but we've had some pretty significant sizable pickups over the last few months.
Supply chains for competition, even supplier peers and products, we haven't Benton, especially on the aftermarket side, though they'll call us up and say long as long as you can procure this component where buyers so both aftermarket and OEM, we've seen some pretty good movement there.
And I would add I would add to that you just think about our towable content per unit, we've been guiding the 3% to 5% growth for awhile and certainly during this this pandemic.
We've seen a strong shift towards entry level product and we're still turn in 4% year over year growth on a trailing 12 month basis. So.
I think theres, an opportunity for that to continue to run here in future quarters.
Great. Thanks, guys.
Our next question comes from the line of Bret Jordan with Jefferies. Go ahead. Please your line is open.
Good morning, This is mark Jordan non for Brett.
Just thinking about the adjacent Oems.
It looks like the RV Oems season, really strong demand, but I'm wondering if you can talk when the current trends among the different Jason Oems.
Sure ill start with the rain.
On the marine side of the.
The the business that we're seeing just as.
Strong in all time record demand.
Checked a lot of our touch points, there with dealers and Oems recently in there there are stretching capacity and experiencing supply chain and labor issues much like the.
Much like the RV industry is so.
We are ramping up capacity and second shifts in the marine area.
And then Europe's a little bit slower right now to come back late in the consumers Didnt get all the financial health that the the Americans with Americans received from the government so little bit slower to come back there, but things the demographics still at the same for RV Marine.
We talked a little bit about the aftermarket.
The channels there are super strong.
The the curve business that we occur group business that we picked up earlier in the year.
I mean, you look at record outdoor demand for outdoor products.
They supply a lot of hitches and.
Paid attention to bicycle the bicycle industry and everything else outdoors lot of that stuff. If we're going to carried around it means a hedge. So you got a lot of first time buyer of pitches for cars and as you've used trucks.
And then you look at some of the commercial businesses we're in.
You look at buses the housing industry.
They're not flat, but theyre, they're not nearly as much as what some of the other outdoor leisure.
Segments are for Us and then.
If you look at cargo trailers, which is a significant part of our business.
Thats significantly up.
Whether its landscape trailers are cargo trailers clustering trailers things like that we're seeing those businesses up in the components that we supply to that.
At industry is doing really well for us right now so that kind of covers most of these agencies there.
Still there Greg.
Sorry, and Im just thinking real quick about the current group I know this strong demand telling products from one of the things inherited.
Our discretionary products such as the truck accessories are pretty well right now that you see strength across both the tolling products and the truck sensors business.
Yes truck accessory business is doing fine.
Again, it's not up as much as some of our outdoor leisure areas, but.
It's it's up.
So there's a lot a lot of products in that area that are that are doing well and you look at biothrax Doom incurred supplies a lot of by crack some.
Bicycles and.
And record demand, we've got situation, where we can keep stores full of the by cracks that we make so.
Okay, great. Thank you very much taking my question. Thanks, Mike.
Again as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad. Our next question comes on the line of Shawn Collins with Citigroup go ahead. Please your line is open.
Hey, great Dave. Thank you good morning, Jason and Brian.
Good morning.
I wanted to circle back.
Ask about labor again.
You, obviously talked about the constraints there in second shifts and whatnot.
I wasn't covering the sector in 17 18, but could you compare this period of constraints.
And how you're dealing with it compared to the late 2017 2018 period. Please thank you.
Yes, I wouldn't I don't think we're at that point, yet we're certainly hearing.
A little bit of wage pressure out there we've we've put on to three now job fairs ourselves.
Which we've been pretty successful on obtaining.
Team members. So we've had a lot of success and adding team members I don't think we've seen the inflation that we were seen back and during that time period yet.
There's still time still time for that to occur and I think we're watching that closely but at this point, we haven't we haven't experienced the.
The same level of issue that we had back then.
Okay great.
That's helpful. Thank you Brian.
And just slightly second question, if I could ask about the M&A environment, you guys, you're obviously very experienced.
Acquirers.
This is obviously a very unique different environment. So im just wondering.
What you're seeing in terms of M&A in terms of.
Communication or are you seeing less frequent dialogue because of this unique environment or are you, possibly seeing greater dialogue in greater opportunities because of the uncertain future.
People are.
Now dealing with in the future. So any commentary on that would be helpful. Thank you, yes sure. So we had a record 575 million and acquisitions last year. So we we plan on you know even pre Cove and we plan on spending a large majority of this year digesting the acquisition.
And that we made last year.
That said.
April and May, we're obviously pretty pretty quiet with respect to pipeline activity and acquisition conversations, but if you if you over the 65 or so we've done since I've been here.
I'd tell you that we do you know, mostly how we acquire businesses as we go approach businesses that are of real interest and strategic interest. So you know.
We don't wait for.
Brokers to bring this deals we look for strategic fits and try to go have those conversations and we're working to it we started to continue to do that in.
June after kind of began.
Quiet for a couple of months prior but there's lot of good conversations right now in before we were just looking.
Purely strategic you know lot of businesses outside our core RV business, but today, we got to consider capacity constraints.
There is going to be.
Product lines out there components that.
Our customers badly need that they're not getting from suppliers that are doing very good job. So we'll be looking to companies from that aspect both on the marine in the RV sites. So what we've been quiet on RV. The last couple of years, you can see that activity pick up but certainly we're we're staying active outside of RV and continuing our diversification strategy, what we're trying to get.
60% of our sales outside of RV by 2022.
Okay, Great. That's helpful commentary I appreciate it.
Our next question comes from the line of branded enroll with Northcoast Research go ahead. Please your line is open.
Good morning, Thank you for taking my questions oriented.
First could you comment on the used inventory environment or.
Capacity there within the RV Bode industries, and then as a follow up I was also hoping you could comment on the potential impact of retail shows a closing down or help minimal impact it would be for both the RV MBOED industries I saw the Hershey RV show was already cancelled and.
Maybe if theres any implications for open houses as well thank you.
Yes, I think there's a.
A handful of things going on with respect to the comments you just maybe start with retail shows we don't expect.
Much of that to happen, but again the dealers the dealers have more sales and they know what to do with right now they just need to.
Work on getting units.
Given MPD and getting to the customers and really ensuring that the customers, especially with a lot of the record new buyers. So we're off to a good start with respect to their experience in the RV.
So retail shelves, we don't expect much out of size. The open house goes same thing.
Thats likely it's largely not going to happen, but we have heard that some of the bigger dealers are coming to town and having some private showings with some of the product lines that the Oems, but what I would say is that and this is good for the industry in terms of keeping us going into it at a fast clip right now we don't.
See a lot of the typical model year changes in product changes that we would typically see and that slows us down a lot because we almost have to stop for a month. That's why August is traditionally slow we're doing a lot of model change changeover activity prototyping and things like that getting ready for the.
The new product showing in September so with a large part of that not happening we're able to run August at a pretty.
Pretty good at a pretty good rate with high volumes.
So.
The the bad news is open houses and happening the good news as others.
Plenty of orders out there.
And we're going to use that you know ability to not have to stop and run prototypes everyday at all of our facilities to just run more volume for the Oems that.
End of last year's product designs.
And brand in the first part of your question on used.
From our touch points there isn't much in the way of use product out there so you're not.
There has been such a tremendous shift towards first time buyer, so you're not getting trade ins and and that's basically nonexistent.
I think the end of the day, there's a lot of things, we're not going to be able to two to figure out from some of the numbers and feedback coming through but I think we're we think that the retail numbers going to be.
Over 475, we think that.
The registrations are going to be very clouded clouded for the rest of the year. Some states closed NVS and people aren't getting the registrations at all.
Timely I'm talking months behind when they when they actually by the unit so.
I caution you to kind of pay attention to how low the inventories out there on what the industry is running at versus what we're actually hearing back from you know.
Real.
Retail registration numbers that are coming through the.
Okay.
Okay great.
Our next question comes from the line of Steve O'hara with Sidoti Company Go ahead. Please your line is open.
Hi, good morning, Thanks for taking my question.
Hi, just I guess, I mean, you kind of touched on it.
The last question, but.
Based on your expectations around retail wholesale.
Can you talk about what that implies dealer inventories and the year rat.
And then do you see that being more comfortable holding more inventory you know kind of going into the winter than last year.
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And.
I mean, obviously dealers are pretty.
Sure pretty bullish right now, but maybe as things start to slow down in the fall and winter.
Maybe they get a little.
More concerned with the economy looks like.
Yes, Steve I think that.
What we're expecting based on the retail number that that Jason throughout and kind of what we've talked about from wholesale perspective.
I would expect us to in this year still down from an inventory perspective.
Oems all.
Remained ramped up to try to bridge that gap that's there.
So during the late fall and winter win win retail slows down there will be some chance to build that back up but.
Based on capacity constraints et cetera I.
I think you into year it could be 35 40000 units.
Additionally, in the whole from where we started the year so.
So I would see I would expect that to continue to carry into the the first quarter as they try to ramp up and build inventories for next year selling season.
Okay. That's helpful. And then just on may be.
Backlogs right now you can you talk about how far.
Oh, yes backlogs are how far they go out right now.
Not sure how much how clear how much clarity you have on that but thanks, well. It's all anecdotal at this point in time, just using our OEM touch points and what they're telling us but I mean, you can you know we've got some brands that are out easily a few months and some that are out seven.
So if you think about going into a dealership right now and ordering in RV and they tell you that it's going to be March.
I mean, it tells you how how sizable the the demand level as I mean.
So.
And we'll work through that and get some of those backlogs down as we all ramp up capacity, but.
All the suppliers either get up to speed and.
Get some second shifts running at their supply chains up get labor, where it needs to be as do the Oems and.
That's a really good position for us to be in obviously.
Okay, and then maybe just lastly on labor.
I think in 2017, 2018 labor really started to hit the industry hard.
In terms of inflation I mean would it be different this time just because of.
Job losses kind of across the board.
Other industries and.
Should be a bigger pool available to you guys.
The industry.
In the region to your end or maybe the economies in those areas were hit as hard as New York City.
So to speak yeah. So certainly this areas hard hit because you know 40% of the economy as marine and RV production. So.
We're we're pulling all the labor, we possibly can that's available in this area.
For these specific skilled industry jobs as a component suppliers, a little bit easier for us to work outside of the Alkar County arrangement, obviously, we've got.
40, or so facilities have to yourself facilities outside of L. Alkar County.
So we can utilize some of the some of those areas and some of those areas there on.
And labor markets that have been impacted the opposite way Elkhart County has so we're looking at all those options and that's that's it's going to be helpful to us in the long run as we continue to design a capacity strategy to deal with the record demand here.
Okay. Thank you very much.
Yep.
And there are no further questions at this time I'd like to turn the call back over to Jason for some closing remarks.
Well everybody. We appreciate everybody tuning in on this conference call, obviously, it's exciting times for us and.
Especially the next couple of quarters look look great, but at setting us up for a fantastic 2021. We're excited to report next quarter's earnings. So you in a quarter. Thank you.
Ladies and gentlemen, this concludes todays conference call you may now disconnect.
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