Q3 2020 LCI Industries Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020, L.C.I. Industries earnings Conference call.
Time, all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session to meet the press star one on your telephone. Please be advised that todays conference is being recorded if your car any further assistance. Please press star zero.
I like to hand, the conference over to metrics already aside rich with their my partners.
Good morning, everyone and welcome to L.T.I. Industries third quarter 2020 conference call.
I'm 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.
But well be discussing their results in just a moment.
First I would like to inform you that certain statements made in today's conference call regarding LT I industries and its operations may be considered forward looking statements under the securities laws and involve a number of risks and uncertainties.
The 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.
These factors are discussed in the company's earnings release, and form 10-Q, and other filings with the FTC. It 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 welcome to <unk> third quarter 2020 earnings call. We delivered exceptional results in the third quarter as we further captured record RV industry retail demand driven by strong trends in the outdoor recreation space as new customers and families under the lifestyle discovered the benefits of RBC.
Leveraging our strong manufacturing capabilities, which had been bolstered by ongoing operational improvement initiatives.
Able to meet this elevated level demand to deliver revenues of 828 million in the quarter up 41% year over year.
Thanks to the outstanding execution of our team coupled with our reputation for high quality innovative products. We also significantly expanded market share and grew content per vehicle outperforming other suppliers in the space and further solidifying LCR position as an industry leader.
RV OEM sales increased 32% year over year to 461 million for the third quarter, primarily driven by the significant sales increase in retail demand continuing historical momentum we saw in the second quarter.
Based on preliminary results October trends have remained very strong with sales on track to grow by 25% over the prior year period.
What is even more exciting is RV <unk>. Most recent report on 2021 demand shows 508000 to 520000 unit range for wholesale which would be a record year for the RV industry.
We also delivered further content growth in both towable units and motor homes underscoring the strength of the LPI brand. Despite the ongoing wholesale mix shift towards smaller entry level units driven by the wave of new RV buyers content per towable RV adjusted to remove hearing on sales from prior periods increased 5% year over year to 34.
$120, well content per motorhome, RV increased 3% year over year to $2400 year over year.
We expect that our market share gains will continue to drive content, even higher in the coming.
Our teams worked diligently over the quarter to meet the growing RV demand upholding our standard of operational excellence to maintain efficiencies, while keeping production rates near all time highs.
Because of the long tenure of our leaders who are leading the over 12000 team members at LCR, coupled with our unique and effective focus on culture and leadership, we were able to capitalize on this massive increase in demand while picking up pieces dropped by our supplier peers.
Our leadership is poised and prepared to continue to take on a heightened level of demand for the foreseeable future as key indicators in our industry point to a multi year record demand.
Further we expect secular trends are running outdoor recreation to continue well beyond the near term with a record number of RBS currently on the road in the U.S. and 70% of new buyers historically remaining in the lifestyle and upgrading units in subsequent years, we're very encouraged for the long term prospects of these trends serving as tailwinds.
Across our outdoors related businesses.
There is little doubt that even after the pandemic related inside he settles down many Americans will want to continue to seek safer vacation option that offer better overall experiences through more control over their environment, distancing and location well likely traveling through less airports and hotels.
Our diversification strategy remains a priority for LCR as our adjacent aftermarket and international markets grew during this quarter to make up approximately 50% of our trailing 12 month sales.
Through both acquisitions and organic growth Althea is well positioned to outperform the broader RV industry as we remain focused on further advancing our diversification strategy and developing leading positions in markets outside of RV OEM to drive incremental growth.
For the third consecutive quarter revenues in our aftermarket segment more than doubled year over year.
Total revenue in aftermarket sales grew to 186 million up 149% year over year, primarily driven by our acquisition in late 2019 of the current group.
Aftermarket has also seen significant tailwinds from the rise in RV demand, particularly within the used RV market, where we supply many of the items typically replaced first won an RFP use this purchase including furniture and mattresses.
The volume of motor homes and trailer is built in the last five years exceeds that of any similar period in the history of LCR and we are well positioned to capture new business as these RV customers seek to repair and replace products over the long term.
In addition sales on current products have skyrocketed as well and demand has exploded with her hits products for use with our bodies both by carriers, leading the way.
Building, our aftermarket segment remains a priority for our strategic vision and is a core part of our long term success of our diversification strategy.
The integration of Kurt continues to progress smoothly and their strong leadership team has helped the business exceed our pre cobot forecasts, while realizing even stronger cost synergies than originally planned.
Throughout the integration process. We have also focused on expanding market share through further development of the curve ran in the RV space. In addition, we have leveraged Kurt and LCR sales teams and building new customer and dealer relationships.
We've also invested significantly in our Lipper care center for our RV aftermarket customers to ensure they have access to technical support as needed for a wide range of outdoor products.
We have invested heavily in our facilities and our over 300 customer experience and care Center team members with a goal of providing the best RV experience in the industry.
We are confident this is continued unique customer focus can serve as yet another competitive differentiator to drive growth for the aftermarket segment and in turn strengthen the overall long term sustainability of our business.
Revenue in our adjacent markets for the third quarter increased 11% to 181 million driven by our strong performance in marine and other related markets, which continue to benefit from similar secular tailwinds driving RV.
Marine remains a primary focus and our diversification strategy as we align to our proven operations model to scale production and meet the increased retail demand driving our businesses in the space, including our new sure shade brand of electric remedies and boat awnings.
Outside of Marine are driving content growth significantly in the area of cargo and utility trailers in North America.
Which has an overall annual market of over 600000 units.
We will continue to find and penetrate new markets with existing products customers manufacturing and technologies used in our core businesses.
Our international business has maintained its momentum with sales rising 69% year over year to $59 million, we're starting to see the European markets, where we operate including Germany, and Italy returned to more normalized output inline with growth rates in U.S. markets from a few months ago German.
Germany, which is the largest market for rvs and Europe experienced a 55% increase in retail demand in August and an explosive hundred 65% increase in September.
In addition to growth returning in Europe, the products, we design and manufacture there continue to become more and more popular with U.S. RV manufacturers.
We are putting more and more European product content and us manufactured rvs every year. Thanks to the popularity in high end feel of the European products.
One of the latest of the European adapter products in the us as our new popped up for class B vans fastest growing category of RBS by percentage.
We are confident that our outstanding International leadership team will continue to drive growth as we leverage the opportunities created by our poly plastic new Marine Lovitt Femto and she asked the acquisitions made last year.
Innovation and product development, two cornerstones of our culture and our business play a critical role in our ability to grow market share and drive content growth over the long run.
LC eyes innovation teams are dedicated to continuing to figure out how to add improved features into existing products.
Whether it is enhancing the products are easier consumer use manufacture install or adding technology to the component LC eyes focused on improving all our components on a regular basis.
One of our increasingly popular products. One control has continued to rise in popularity since its launch because newer and younger consumers are seeking technologically sophisticated products in the market.
Additionally, Oems are increasingly adopting electric versus manual products, which should drive additional market share growth and content and our OEM and aftermarket segments beyond. This R&D teams continue to work on further innovations within Windows shade systems chassis is analytics as well as within a right range of products manufactured by the.
Our group.
Well, we always remain receptive to potential M&A opportunities, we remain focused on integrating eight acquisitions made in 2019 and further paying down debt.
The same time, we are investing in innovation and optimizing our manufacturing footprint to ensure we maintain the appropriate capacity to meet heightened demand for recreational products. The M&A pipeline is full of opportunities and has become more active in the recent months.
As we approach the end of an unprecedented year for global markets. We expect the consumers will continue to flock toward the outdoors and enjoy activities that allow them to more safely enjoy time with their families and friends.
Because lcs leadership team has exceptional tenure together and have worked together more than the leadership teams of most of the companies in the industry Althea is very well positioned to meet this demand and further expand our market share.
I want to thank all our LCR team members for their commitment to consistently delivering quality products to our customers throughout this year. Our 12000 team members and over 90 locations have worked around the clock to keep up with unprecedented increases in demand and we are so thankful for their successful efforts and hard work over the past several months.
Our exceptional third quarter performance is a testament to the unparalleled leadership exhibited by the men and women across our organization as well as the strength of our operational expertise and innovative capabilities.
Together, we will continue to strive to outperform and drive additional shareholder value well into the future I will now turn to Brian Hall, our CFO to discuss in more detail our third quarter financial results.
Thank you, Jason and good morning, everyone.
Our consolidated net sales for the third quarter increased 41% to $828 million compared to the prior year. The increase in year over year net sales was driven by strong RV OEM and aftermarket retail demand. In addition to the impact of incremental revenues from recently completed acquisitions.
Q3, 2020 sales to RV Oems increased 32% compared to the prior year due to continued record RV OEM retail demand when normalizing for the termination of our relationship with Fury on RV OEM sales increased organically by 40%.
Content per towable, RV unit increased 5% to $3428 in content per motorized unit increased 3% to $2399 compared to the prior year.
Excluding the impact of Fury on in 2019.
The content increase in Towables was primarily driven by organic growth, including new product introductions, partially offset by the increased demand for entry level products, which traditionally have less content per unit.
We estimate the shift to entry level products is negatively impacting our content per unit growth by approximately three percentage points.
Q3, 2020 sales to adjacent markets increased 11% to $181 million compared to the prior year, primarily driven by strong growth in our marine business, coupled with the impact of acquisitions in the market.
Sales to North American adjacent industries, which represents 84% of our adjacent industry sales increased 6% while sales to international adjacent industries increased 49% again, primarily driven through our recent acquisitions in this space.
Aftermarket segment sales increased 149% to $186 million in the third quarter compared to the prior year, while international sales increased 69% to $59 million.
The increases in the aftermarket and international sales were primarily driven by the impact of recent acquisitions, which contributed $99 million toward total sales across the business during the quarter as we continue to prioritize our diversification strategy.
When normalizing for acquisitions and the termination of our relationship with Fury on aftermarket and international sales increased organically, 63% and 20% respectively.
Operating margins were 11.4% for the third quarter, increasing roughly 300 basis points from the third quarter of 2019, largely due to strong top and bottom line performance in the aftermarket segment as well as the impact of operational efficiencies realized during the quarter driven by increased automation and.
Lean manufacturing initiatives, coupled with fixed cost absorption on record level sales volumes.
These gains were partially offset by increases in labor and freight costs.
Selling general and administrative expenses were $127 million during the quarter slightly higher than previous guidance, primarily due to increased performance based compensation increases in transportation costs and the expiration of certain government assistance in Europe.
Adjusted EBITDA increased almost 76% to $119.4 million for the third quarter.
This increase was driven by the heightened retail RV, OEM and aftermarket demand and incremental revenue from recent acquisitions.
Noncash depreciation and amortization was $24.6 million for the third quarter, while noncash stock based compensation expense was 6.2 million.
GAAP net income in Q3, 2020 was $68.3 million or $2.70 per diluted share compared to $35.8 million or $1.42 per share in Q3, 2019, primarily due to the strong growth in net sales.
For the nine months ended September Thirtyth 2020.
Cash generated from operating activities was $212 million $95 million was used for business acquisitions $29 million for capital expenditures and $52 million was returned to shareholders in the form of dividends, which included a 10 cents per share increase in the third quarter. Following the swift rebound in our.
Core businesses and signaling our confidence in the next 12 months.
We are operating with a strong balance sheet as we continue to pay down debt and generate strong cash flow maintaining available borrowing capacity of 461 million under our current credit facility.
At the end of the third quarter cash and cash equivalents totaled $68 million up from $35 million at the end of 2019.
Our liquidity position has been enhanced by the strategic cost management actions, we put into place to mitigate the impact to COVID-19 as well as the increase in retail demand.
For the full year 2020, we are targeting capital expenditures between $50 million to $60 million.
At the end of the third quarter, we had an outstanding net debt position of $568 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 1.7 times and we will continue to prioritize paying down debt as we work towards meeting our target long term leverage of one to one and half times net debt to EBITDA.
Our financial and liquidity positions remain quite strong providing ample liquidity and flexibility as we continue to execute on our strategic initiatives and deliver further shareholder value.
At the end of our prepared remarks, operator, we're ready to take questions. Thank you.
I'd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if youd like to withdraw your question press the pound.
First question comes from Scott Stember with CL King.
Good morning guidance and thanks for taking my questions Scott.
Maybe talk about in October it looks like you're at 24%, 25% increase in sales when you flush that out if you were to back out acquisitions, just to give a sense of where we are organically and it sounds like RV and marine are probably the two biggest pieces there.
Well I mean.
For the most part and looking at the fourth quarter and what would lapse I mean predominantly most of your acquired sales would be an aftermarket.
You know as we move through Q3 chip Saye loom our.
Those of all labs, so sure Schadan Schwinn Tech would be a couple that a lapse here at the beginning of the quarter and then really the big ones curve, which was December.
19th I believe was that acquisition date on the OEM side, it looks like mostly organic them yes.
Okay.
And Jason you did allude to the arm James.
New forecast for next year can you talk about your thoughts about that.
And retail.
On the RV side, and what you expect sure.
On the on the whole.
I'll sell side.
It feels like five away Super attainable. The Big question is just you know the the two major issues that we're having right now with supply chain and and labor and you could throw cove it in there but.
You know the the Oems have the orders obviously the.
Because it's just being able to get all the suppliers and all the Oems on the same page. So that we can build all of the industry has orders for so.
So we feel really strongly about the five away number.
On the retail side.
We were just talking about that before the call them, you know whether the numbers for 50 or 475 or even even higher it's hard to say, but it certainly feels like the demands there and all the you know.
Although the variables pushing demand higher.
Our aren't going away anytime soon so we feel really comfortable with the retail side. The wholesale side has a little bit of work to do but we are certainly a lot better today than we were three months ago and supply chain issue started popping up.
Okay, and just last question before I jump back in the queue on the margin side, obviously, even with new supply constraints in labour years.
Sort of some phenomenal margins, you've already looks like you're getting pretty close to the cooks in Europe.
Past peak operating margin of 12%.
If you talk about where do you think that can go up maybe in the in the fourth quarter and just as we look out for the next 12 to 18 months.
Now to look at the.
You know where that could potentially go.
Yes, Scott This is Bryan you know the.
First and foremost you guys talk about the top line.
Obviously Q3 was a tremendous volume quarter.
So we're covering up a lot of fixed overheads there.
So when you look to the near term obviously, we know we have a little bit of seasonality to work through so.
Its started but I wouldnt expect our margins to continue to work upwards, when we get into Q4, but certainly when we get back.
Full throttle in Q1 Q2 and next year.
Im not seeing much that's different from where we are today. So as you start to break that down you look at our material costs in our material costs have improved some and.
In the last 12 months, but weve given over $30 million almost $30 million worth the price reductions to our customers through the indexing arrangements that we have on steel and aluminum. So I would look at materials is not.
Not a significant driver to our margin improvement.
Certainly on the labor side, we came out of Q2 positioned really really well lots of efficiencies weve consolidated a number of plants.
Labor was started out really solid but now as you know as everybody is aware certainly within Elkhart County labor somewhat of a challenge.
So we're working a lot overtime. There are a lot of things that are I think I'd call them headwinds in the near term until we can identify ways to address the some of the labor shortages.
Then when you look at EPS DNA in our EPS DNA was a little bit higher.
In Q3 than what I had originally anticipated I mean, some of that a lot of performance based metrics you know as we came out of Q2 and now have better visibility.
After getting through Q3, certainly on the performance based compensation side of things, whether it's equity bonuses et cetera.
We had a little bit of some additional expense there.
And then transportation transportation, certainly been hit and that's pretty hard both inbound and outbound just because of.
So a lot of the expedited freight costs that we have and just the demand. That's there. So those are certainly some of the things that I look at as the the moving parts and pieces when we go forward.
I am not expecting significant changes here in the fourth quarter other than volumes I do think the seasonality you got to take that into account, but I think you know other than that we will continue to address some of the labor challenges in some of the freight issues that we're seeing.
You know to to help offset some of that and I'd only add there Ross.
Robustness of the aftermarket obviously were putting up big numbers there that's driving our margins from if you look at historical when we didn't have a whole lot of aftermarket versus future. We should have a significant amount of aftermarket those are pushing margins higher and we're frankly entering probably the biggest replacement cycles on the art.
Beside we've ever seen with 2016 2017.
Units wholesale units retailed units coming into the replacement cycle and then obviously you can count last year and this year.
And probably next year as adding to the replacement cycle. So the aftermarket future looks really really solid which will help margins.
So just to clarify Brian when you were saying margins shouldn't be more.
Moving up I guess in the gross margin you were talking sequentially I imagine right Im just trying to get a sense of year over year.
What kind of expansion, we can look for in the fourth quarter, yes.
Yeah, I mean, certainly expansion year over year, you are correct I was talking sequentially.
So year over year I do think that we've we've had a lot of the stuff in play.
You know for the last nine to 12 months. So we were probably seeing a lot of the benefits early on and then especially during Q3 when when volumes came back so.
I don't anticipate Q4 being proportionately higher similar to Q3, I think will back off of that a little bit just because of some of the the cost pressures that we're seeing on labor and freight if that helps you.
Yes, thank you very much.
Next question comes from Kathryn Thompson with Thompson Research.
Hi, Thank you for taking my questions today.
Just first focusing on the demand outlook in the field we.
Really with our.
Quarterly RV dealer surveys.
The conclusion early this year probably lead the early 21, when you could successfully we stopped the field, but that date seems to be pushed out to later 21 wanted to get your thoughts in terms of the inventory levels, which are quite low and the ability to restack RV dealer inventories. Thank you.
Hi, Catherine its Brian Yes, certainly the picture has changed significantly in the last three months I think as everyone was a little uncertain on these retail sold units and what that was really going to mean and how long those would play out.
At least from our dealer touch points conversations that we've had there's still a lot of those pre sold units move and so everything that we're shipping it doesnt seem that we're getting the jump on inventory rebuild like.
Like we normally would by this time of the year so.
So probably puts us a little bit further behind.
I think it becomes a story of retail demand next year.
Like threw out a little bit ago. If it's if it's a 450000 unit type year that certainly gives us more ability to address the inventories shortage.
A little bit easier than if it continues to be affordable 90 type year. As an example that just making up the I would suspect will be 80, 80 90000 units short I think I think theres a real good case for that by the time you get to the end of this year, so making up that kind of volume in the springtime as.
Probably not likely you can probably make up.
Half of it or so or maybe a little more.
But it just really depends on what retail demand looks like.
And I would just I would just add to that Kathryn.
The the Oems for the most part you know most of them will tell you today that they could stop pick and retail orders and have enough.
Have enough production to last them until the fall and next year.
Which tells you where the inventory position as with a lot of a lot of the dealers.
We just feel that the potential pandemic related push is going to continue to.
Extend into the into next year and there's a lot of there's a lot of great marketing and has a lot to agree.
Stories out there where people are just now hearing about.
Advantages of travel and vacationing with Rvs as you know so we expect it to extend well into next year.
That's helpful. And then when you look at that time off for production around Thanksgiving and Christmas that can vary pretty widely from year to year. What are you looking at for this year relative to last year that also handicap potential obviously.
That's very different types of operations this year.
For instance last year.
Yes, so I'd say that we're definitely take the industry definitely plans on taking less time off this year at both holidays.
Thats, a given I think the big unknown as supply.
Supply chain.
Theres been a lot of that has been a lot of starts and stops over the last few months with Oems.
So it isn't it doesn't look like it are necessarily feel like it but there's been a significant amount of days taken by Oems over the last three months because they just don't have although they haven't had all the products they need to run. So we don't know how because its pencil spotty, it's hard to tell how thats kind of compare to this upcoming.
Quarter, but.
But you could you could kind of conceivably look at the last quarter is there was several days taken off that wouldn't have been taken enough otherwise because of the fact that.
Some of the Oems to NAV or many of the Oems and have parts to run complete days.
Okay, and a final point on supply chain and that has been a great deal of focus on this but do.
Do you feel like it's incrementally better worse or unchanged relative to.
Six to eight weeks again I'd.
I'd say I'd say incrementally incrementally better I mean August and September and even into October were very tough months for the industry, but it's the one thing that I keep telling people is the industry. So resilient to from the OEM side I mean winners problems.
You know as you know people around here don't.
Waste time and take action so whether it's.
Getting some of the great suppliers to ramp up capacity, so that they can do more or whether it's.
Enabling and finding other other new suppliers and vendors to come into the mix both.
Both inside domestically and from a foreign standpoint, theres been a lot of suppliers added over the last few months that are getting ramped up so that we we are better prepared to handle the becoming demand. So it's again one thing I'd I put my money on as the Oems finding finding ways creative ways around the supply chain problems facing at fixing and fast.
Okay, great. Thank you very much.
Next question comes from Daniel Moore with CJS Securities.
Jason Bryan good morning, Thanks for taking the questions.
Couple of follow ups.
Maybe talk to the sustainability of market share gains do you see the opportunity to pick up more share as other suppliers struggled to ramp production capacity in 2021, and any particular products or areas.
Absolutely.
There's a there's always one crisis hits Theres always the weakness shows up for those who aren't aren't ready or prepared and I think that where we've been most preparedness just around culture and team team building that we've done over the last couple of decades.
A lot of the same people at the business today that have been here. The last couple of decades on where we are ready for this but I'd say that you know between.
Windows and awnings and chassis is we've been able to we've been able to pick up some share just because of the.
When when your competitor or supplier peers don't have the capacity. They can just pop up a building where we've got 90 490 facilities worldwide prepare to take on a little bit more capacity and.
When you got great teams and a good culture, I think it's easier to to run extra days and extra shifts.
So that's helping us out a ton to be able to pick that up we try to do a very.
Very carefully and not not take everything that's come at us because we got to take care of our existing customers that have stayed loyal to us first but we've definitely picked up share in those areas.
Very helpful and maybe just contrast, the inventory situation.
Marine with that of RV and what that implies.
For marine shipments in 21 from your perspective.
Yes, I think that as we've talked historically, it's still rings true. They are different industries. I mean, they are certainly going through the same experience where the lifestyle.
Is very popular people or it's their alternative to fly into Europe or wherever they were going before and people are doing that on boats theyre doing that.
Rvs, so same demand profile same types of.
Stories when it comes to talk him to the retail dealerships and the fact that they have little to no inventory.
I think that the one thing that is different though is the production capacity that's there.
Little bit more challenging throughout the supply chain as well when you just think about engines and all the components that have to go into a boat a little bit different than some of these parts and pieces that were able to put together for an RV. So.
So that those capacity.
Ask that in the supply chain, both totally different than that totally but very different within the marine space.
Okay.
Okay and lastly, the.
The guide implies a ramp in capex in Q4, presumably increasing capacity.
Maybe pulling forward some projects just maybe talk about some of the key projects you're working on and.
Similar levels, so thats $50 million to $60 million range for next year seem reasonable or do you see that maybe moving higher given the really strong demand outlook. Thank you.
Yeah, certainly we've revised upwards, our capex expectation for the year a couple of times now as things have changed so quickly on us post April so.
We revised up slightly to $50 million to $60 million for this year. There are some projects that we were looking at for 2021 that we pulled forward given our current balance sheet and debt position how.
How positive they look so things like adding additional capacity, having a little bit of redundancy.
It's one thing that probably doesn't get recognized as much as it should is the fact that we do make products the same product in multiple facilities and when Jason says, we're able to react its because we can shift production around when others that are focus maybe on a single site. They don't necessarily have that ability. So we have products that were not exactly where we need to be.
And we're putting some of that redundancy in place.
So thats pretty significant for us on a on a go forward basis.
For 2021, I would expect it to be a little bit higher we have.
Quite a few opportunities to expand capacity and with some very nice return on investment profile. So.
So we're looking to lay all those those out now probably don't have a ton to say at about about it at this point, but I would anticipate us to get back into a more normal normal range as a percentage of sales, which would probably tell you 80 million plus.
Yes, as a starting point.
And I'd add to that Dan real quick back backend don't revenue of 2017 or 18, but we had 120 million in Capex one of those two years and we've we've changed the process quite a bit since then and we were probably.
Three quarters of billion lessened revenues when we have that so.
I tell you that our capex processes is as efficient as it's ever been.
Perfect very helpful. Thank you both and good luck on Q4.
Thanks, Dan Thanks.
Next question comes from Fred Wightman with Wolfe Research.
Hey, guys. Good morning, I just wanted to circle back on the the October sales trends is that really just the supply chain disruptions showing up on the RV side of the business and if it is is that really just a deferral and timing issue or is it something else.
I think part of it is if you look at September over September.
So youd see probably a bigger increase because of the.
We haven't typically of the shows and model change you see you know the Oems and the dealers really slow up on new product trying to drain the previous model year. So I'd say, that's why the septembers problems the comp is probably a little bit bigger there.
But in terms of October I think part of its just.
That coupled with the fact that there is.
The situation with.
Lose my train of thought here, but the Oh, the all the all the days down that we had with different product line. So we had several customers in October take multiple.
Multiple days down almost like days off because they didnt have supply of products. So had I think the short answer is had the industry been able to ship, 100% of what they had orders for in October the number would have been significantly higher but.
I would probably be the best that's way, but it sure Thats Thats Super helpful and just to follow up on that last point about the days closed I mean was that largely concentrated in the beginning part of the month as it sort of abated, a little bit or is it still sort of something you guys are contending with here in the latter part of October as well too.
I'd say, a Pete I'd say it peaked in the middle part of the month.
The back part of the month felt a little bit better and it feels better going in November so I don't expect as many issues, but you.
Well I can't speak for all the the supply base out there that are having the issues it seems like.
Three issues get taken care of in a month and then on a new one pops up and one one component. Unfortunately can can stop and OEM from shipping product and that's kind of what we're what we're seeing there.
Perfect. Thanks, a lot guys.
Yeah.
Next question comes from Bret Jordan with Jefferies.
Good morning, This is mark Jordan on for Brett.
Thanks, most of my questions have been asked here, but I guess thinking about M&A.
I understand that companies are more focused on diversification maybe outside of the RV industry in recent years, but how do you see opportunities right now I guess within the industry.
How do you view conditions, and then also I guess outside of the industry.
Well outside outside the core RV business I mean, obviously, when we talk about marine it's just a solid as our rvs there they tend to move a little bit slower, but they've got just as much demand there and we've got a big shot of taking market share in those areas on the adjacent side.
We talk about cargo trailers being on energy and utility trailers and commercial trailer is being up 600000 unit market and we're we're constantly looking at content in those areas axles and suspensions are a big big opportunity for us there because we still only have.
I'll, probably 35 or so percent of the market.
So there's a big chunk of it left for us to go after and we've been we've been going after that market share after the over the last five six years pretty pretty heavy.
And we're focused on that replacement cycle for the aftermarket as we continue to talk about the the number of units and that replacement cycle from 2016 forward. It's just a huge number.
So there's there's all sorts of.
Aftermarket component opportunities and then we continue to develop new products, specifically for the aftermarket which is relatively new in the last couple of years. So we're developing products and components, specifically for our aftermarket customers and partners there that prior to a couple of years ago, we were only looking at developing existing OEM.
Components into the aftermarket.
And your EPS going to continue to grow so those are the those are the the constant buckets that we've got we're just looking for more content in those buckets and I think that theres a lot of upside in the non RV space.
And I guess I would add mark from a liquidity perspective were in a great position.
Certainly when the pandemic hit our leverage went the wrong way, but now with the.
Results, what we've seen in the past six months or so its weve made a huge impact on the to reduce our leverage position you know as I said in my prepared remarks.
We're at about 1.7 times on a pro forma basis that includes all 12 months of the acquisitions that we have.
So liquidities.
Great position.
Ready to capitalize on on any opportunity that presents itself I think that the one thing Thats, maybe you know as we went into this pandemic I think there might have been an expectation that it could be similar to 2.0809, where there are lot of opportunities that present themselves I think there are.
Opportunities presenting themselves, but it's quite a bit different given our industries are at record highs and the multiples that I think everyone would be anticipating as opposed to some of the the really nice bargains that you might find when you look back at you know maybe a deeper deeper recession like or you don't.
Nine.
Okay, great. Thank you very much.
Next question comes from Alex Mcleish with Baird.
Yes, good morning, gentlemen, hoping you can just touch on Kerr a bit more kind of on a year of owning that what did you learn from the acquisition sounds like it's gone very well and then what do you see as the biggest opportunities for Kurt from here.
Yes. So it has it has been great I mean, we didnt, obviously anticipate the the the cobot situation, but their their products fall perfectly into that outdoor segment. Once outdoors became really popular as a result of all the.
Pandemic related sales, we've seen push in that area. They haven't been able to keep up their largest their largest categories such as in towing. So all the people that went out and purchase bikes and other things that they wanted to carry with them on their car to take on a little road trip or vacation and I think 97% of Americans took their views.
A car in their vacations. This year. So you know they haven't been able to keep up on hedges and the demand is still still there I think there are october they exceeded forecast significantly so.
In terms of product lines, I mean, they've got a real robust innovation department based out of Wixom, Michigan with a great engineering team and they've got you know several several things that they are getting ready to launch this next year.
And when you look at.
There are competitors there just isn't a lot of things going on in that realm side give us a better chance of Kurt a better chance of a really exceeding expectations and the innovation and new products category than than anybody else in their area.
So that would be kind of.
I would answer that yes.
Yes, Thanks, and then I think you noted that growth in Europe, and kind of caught up to the EPS in the quarter at Premier remaining depressed for a little bit longer, but we've seen additional headlined lockdowns in Europe, you expect any impact on your production and in Europe as a result.
Yes, I think we're kind of it's kind of a wait and see right now we know that the you know like the you like to us that there there are cases or are ramping up a little bit in there, they're trying to figure out by country how to deal with those.
My guess would be that they are going to take a different approach than they did back in.
In late March April.
As opposed to shutting everything down like the U.S. say look we've learned a lot we feel a lot more comfortable and how to deal with any.
Any kind of ramp up in cases.
And Thats kind of what we expect is that though they might worst case get two essential businesses status and let the businesses run and people people work and not completely.
The shut the country's down.
You mean that would be the likely scenario, so, but we're still waiting to kind of juries on that right now okay.
And then I think Brian I think you noted that entry level kind of the shift toward entry level units impression of your content growth by three percentage points could you confirm that number and then that's correct. How long you expect that to persist here.
Yes, I think we.
I've been saying for years now probably at least five years that this strong push towards entry level products is certainly negatively impacting our content per unit.
Hi, just never really put a number to it so you're correct. That's what I said, it's almost three three.
Three percentage points.
That is a headwind to us within that content per unit, which gives you an idea of the type of wins that we're seeing.
Puts us more in that eight 8% to 9% type range.
Which is phenomenal given given all the issues that our teams are currently dealing with.
Well. Thanks Thats all from me Oh go ahead, sorry, I was just the revenue is going to say one other thing on the other question you asked that and come to mind is just you know the synergies we've got between the RV business on the LC Isight incurred I mean, Kurt did not sell into the RV dealer space that much and were having tremendous success there.
Growing the Curt Hitchen towing brands and.
And other related brands occurred has in the RV dealerships, where we've got the strongest relationships in the industry. So that will continue to grow as well our healthcare growth.
Great. Thanks, gentlemen, thanks.
Next question comes from Shawn Collins with Citigroup.
Great. Thank you good morning, Jason.
Wanted to speak with you.
Hey.
My question is.
Cost and specifically around the freight issue that you referenced I just wanted to ask if you could compare and contrast, this to kind of the same issue that we saw to go in 2018, when when freight costs rose somewhat unexpectedly thinking just compare and contrast kind of scale in it.
Also.
If you're seeing any markedly different.
Issues with freight in October given that we're obviously in the midst of holiday season, and we're also in the midst of a.
I have a couple of it's going to ramp and some people stocking or pre stock will things like that any commentary would be helpful. Thank you.
I don't think its I don't think Theres a significant comparison 2018 or are you talking about over the road freight.
Yes, and yes. So most of the freight you know what's the rate increase we are seeing is just on on overseas freight.
That's that's what one of the big areas, that's ramped up its just the container cost because there is just a limited supply of a freight and then Colin slowed things down you know.
From foreign countries, and even our country to get into the country. So over.
Over the road freights up but I.
I don't I don't know that's our bigger one is just overseas freight as probably the big.
And you have anything to add there I mean.
As Jason said, we're seeing it everywhere. It is more concentrated in the in the overseas freight, but I would characterize a lot of it is you know theres.
I don't want to this might not be the best term to use but it's a bit chaotic you've got the huge ramp up in the industry from zero to a 100 mile an hour.
And so orders are changing coming in.
At a pretty rapid pace and so there's a lot of expedited freight cost us make sure that hey, I mean, we've been pretty committed we don't want to be a supplier that causes an issue. So we are spending.
Expedited freight costs to get product here on time.
I think the challenges that you'll start to see now are things around Chinese new year new year.
You know everybody not just our industry, but every industry will start to to increase their orders to bring in product to be able to endure the that holiday.
So you'll start to see that play out here in the <unk> during the fourth quarter.
As companies try to prepare for that so I'm sure that we'll continue to drive increase increased costs as the demand is far outpacing some of the supplies on containers and just shipments ships and.
Efficiencies at the docks, both outbound and inbound I mean, there's there's a lot of issues within that that space. It feels like that the caddick period somewhat stabilized I mean, if it was really hectic from may to October timeframe and it feels like things are that's when we saw the big ramp up we don't expect to see other another made.
To ramp up their efrain.
Okay.
Thats, great Thats very helpful.
Great. That's all for me. Thank you for the kind get insight.
Thanks. Thanks.
Next question comes from Steve O'hara, with Sidoti and company.
Hi, good morning, Thanks for taking the question this is Steve.
Hi.
Just quickly I don't know if you mentioned it but maybe I missed it on the within motorized.
OEM sales it looks like I think it was up 20% wholesale was kind of.
5% I think in the period.
What is that Europe was there an acquisition in there or something else or what else is driving that maybe.
No no.
No acquisitions impacting those if.
Our sales within the motor home category because.
Keep it in context, it's only about 20% of the industry shipments here so.
They can change up their production schedules pretty significantly that has an impact on at least our content per unit.
So you can see some some.
A little bit of volatility in our sales within that category and I think thats driving some of our content gains right now.
You know as Jason and I were talking through this earlier you know a lot more products with slide outs, you'll hear me talk a lot about.
Shift to class fees, but then I'll always talk about the shift towards entry level classes that don't have a whole lot of content on them. I think we've started to see some of that shift a little bit back the other direction, where you've got some some larger class sees that at least went through in more recent production thats, helping to drive some of our content gains.
And feels like them, Okay motor home Oems were a little bit behind some of the trailer ramp up so.
It definitely feels like right now today, the motor home manufacturers are moving a little bit a little bit faster than what they were a few months ago terms.
In terms of building more product.
Okay. All right no. That's helpful and then maybe just within aftermarket.
But it looks like margins improve.
Pretty nicely year over year.
And I'm, just wondering was Kurt I.
I think Kurt we came in Canada with margins kind of below.
Your.
Average in that segment and there was talk of moving that towards the corporate average.
Can you just talk about where you are in that process and maybe how much opportunity there is for.
Upside from from continuing on that process.
I think the you know the biggest opportunity for Curtis just the competitive landscape I mean, they really they really do very well in their market segment and all the key areas that they that they plan significantly around hedging timing products.
So a lot of that depends on all this added market share Thats come you know, obviously, there's a little bit more flexibility with prices we've taken on some new customers.
Some of that's E com some of that direct to consumer some of that's.
The installers and some of the commercial fleet people so.
Because they are such a strong and evident choice in those markets I think it gives them a little bit more flexibility with prices not something where we just take on an acquisition and star opened prices to get things closer to our average when the opportunities there will certainly take it but you know they build a lot of complex products on their innovating a lot. So the more we can help them innovate and.
Create products that are different than what's in the market and maybe have added features and values that are different than the market Thats, where you can really bolster the the margin momentum so thats, what were or pushing them pushing them towards and they're doing a really good job there and Steve I would add is.
Still rings true, what we've been saying for a while now we've identified 2% to 3% of sales of cost synergy opportunities for them. We've.
We've probably landed its approaching 2% at this point, we're somewhere in between 1.5% to 2% of improvement.
Locking in those those synergies on a forward basis, so we've definitely seen tremendous improvement within their margins.
Tough problem to have so as our legacy aftermarket business, our legacy aftermarket business has improved their profit margins significantly as well. So so the current business still does kind of hold back that margin. Some but we've made tremendous progress progress in both categories to to contribute to that margin improvement.
Okay.
Okay, and then maybe just on the.
Kind of commentary on sales I think you said October was up 25%.
And I'm just kind of wondering.
Seemed like the aftermarket growth should be.
Significant with Kurt I think that was acquired so I think you said December 17th or 19th.
So it just seems like there's a bit of a deceleration I guess in growth on the RV side and I assume most of that is kind of.
Kind of seasonality.
And things like that is that fair to say I mean, it seems like obviously.
Dealer inventories are low things like that and obviously people are kind of concerned about supplier issues and things like that but is it mostly seasonality. That's the driver yeah, I would characterize that as seasonality and then us us being conservative to acknowledging the issues that that many of our industries are facing right now I would say.
Europe, we would.
We think theres a lot of uncertainty there so our growth rates that were at least projecting at this point are a little bit of a deceleration you certainly as we discussed with.
In RV and Marine you have the holidays that we didn't have in Q3, so thats certainly going to impact.
Some of the growth rates there.
And so I think that.
One category, it's not the most significant for us, but if you look at some of the other product categories things like.
Manufactured housing or commercial vehicles some of those markets are actually down right now I.
Now manufactured housing is on the uptick I think for the full year, it'll probably end up pretty close to flat but.
But it is on a year over year growth pace right now and we're expecting that to continue into 2021.
But some of those other product categories have decelerated pressure main mainly things like commercial vehicles school.
School buses things like that their production rates have slowed post pandemic.
Okay, all right. Thanks for taking the questions I appreciate it.
Our next question comes from Brandon Ross with Northcoast research.
Good morning, Congrats on strong results.
Thanks Brandon.
I was just an EPS you could you comment on used inventory levels, you're seeing within the dealer channel right now for our B and then also as a second question kind of looking into the beginning of 2021.
The potential for maybe not not all retail shows happening do you think that would have an impact on the industry or it seems like dealers have been able to overcome the absence of retail shows throughout this fall.
Yes, without the without some of the data around used it I mean, just taken anecdotal conversations from a lot of the dealer partners that we talk to feels like those inventories are are are low right alongside the the the new inventories. So you know they're selling just about everything.
So that they can get their hands on.
I don't know that that'll that'll change much.
But you know it's.
It's a it's a good problem for our industry to have again, it's I think it's one of the reasons or aftermarket business is doing well is because a lot of used units are getting sold out there and when people buy used unit. They are typically replacing.
Furniture mattresses things like that which we sell a lot of into the into the aftermarket business.
Thanks.
Okay, great and on the retail shows the start the year yes.
Yes, sorry on the retail shows I don't think that that's going to impact.
Things, one way or the other I mean, the demand is as heavy.
You know and in some of the some of the dealers are getting creative and doing their own their own shows so instead of going to.
A show that's that's being done for a region. The dealers are having their own their own shows and inviting people and find ways to get the word out but.
But there.
You know given the fact that there's a lot of word and and.
Chatter around how rvs are a real safe choice or a safe way to control your your vacation or your trip.
That that that word has gotten out through RV marketing through just social media and other things and and I think I think dealers have a really easy time selling units right now because the the the phones are ringing and you know.
I don't think it's going to stop in the near future. So I don't think that retail shows.
If they all don't happen is going to be.
A huge issue for us.
Thank you.
And at this time I will turn the call over to Mr. Lippert for closing remarks.
Yes, we're really excited about the record retail and wholesale demand that we've seen this year, we're super excited to present, our fourth quarter earnings call.
Few months, so take care and we'll see you next time bye.
This concludes today's conference call you may now disconnect.
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Oh.
Okay.