Q4 2020 LCI Industries Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the queue for 2020, LCI Industries earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and now I'd like to hand, the conference over to Victoria Cypress.
With Investor Relations. Please go ahead.
Good morning, everyone and welcome to LCI Industries fourth quarter 2020 conference call I'm joined on the call today by members of Lci's management team, including Jason Lippert, President CEO, and director and Brian Hall, Executive Vice President and CFO management will be discussing there.
And just a moment.
First I would like to inform you that certain statements made in today's conference call regarding LCI industries and its operations may be considered forward looking statements under the securities laws and involve a number of risks and uncertainties.
As a result, the company cautions you that there are a number of factors many of which are beyond the company's control, which 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 in its form 10-K and its other filings.
I see the cash.
Company disclaims any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law with that I would like to turn the call over to Jason Lippert Jason.
Good morning, everyone and welcome to LCI fourth quarter and full year 2020 earnings call 2020 was not only an extremely challenging year, but also a pivotal on rewarding one for both LCI and the outdoor recreational industries a hole in the face of extraordinary operational challenges, we leverage the skills of our experienced leadership team and pulled together to deliver what.
We consider to be outstanding results, including the highest annual revenue on LCI history, and double digit earnings growth. Despite a six week period, where there were essentially no RV sales for.
Further we made significant progress with respect to our long term diversification strategy closing on three acquisitions and expanding our market share across our RV marine adjacent aftermarket and international businesses.
None of us would have been possible without the unwavering dedication of our incredible Lippert team members, who rose to the challenge and worked bravely and tirelessly to ensure we can meet the unprecedented and industry demand from consumer streaming into the outdoor recreational lifestyle.
Ending the year strong we exited 2020 with $2 8 billion in revenues up 18% year over year. Importantly, this growth was supported by strong performance of our aftermarket and adjacent market segments aftermarket revenues more than doubled during the year due to the addition of the Curt group, which has done very well since we announced the acquisition in late 2019.
Our performance outside the RV business underscores the success of our diversification strategy, which has been a critical driver on outperforming our industry in helping to establish LCI leadership and the many industries that now serves.
RV OEM sales increased 3% during the year compared to 2019, reaching $1 5 billion, primarily driven by the ongoing surge in retail demand as new consumers and their families to enter the RV lifestyle and recognize the benefits of our being this increase was partially offset by the industry wide production shutdowns on the first half of the year after which we saw on <unk>.
Credible recovery to ultimately deliver 29% sales growth for this segment in the fourth quarter.
Industry wholesale RV shipments for the year totaled roughly 430000 units, which was the fourth highest wholesale year on record. We expect this number to rise further in 2021 and beyond driven by heightened consumer demand and extreme popularity of our vs going forward on a post pandemic environment.
We believe that the growth in popularity and availability of peer to peer RV rentals will also help drive RV demand, creating a huge new opportunity for consumers to try are being ultimately bring them into the lifestyle over the long term outdoorsy one of the largest peer to peer rental companies grew 4500% to over $1 billion and rental revenues in 2020, while others in the space grew.
Significantly as well.
While we anticipate continued supply chain constraints heading into 2021, LCI and as customers are doing well at mitigating these challenges as I said in the past when challenges arise the industry is excellent at finding solutions quickly. We also added capacity. So that we can continue to stay ahead of the demand of our Oems. We believe six new facilities in Q3 and Q4 of 2020.
All outside Elkhart County, and the Northern Indiana area, we are quickly staffing up to increase our production output.
Additionally, we have two significant building projects already moving and are evaluating others.
We are also continuing to leverage our automated processes and our operations, enabling us to further ramp production without the need for much labor.
Finally, we are leveraging our lean teams now turbocharged our continuous improvement projects. So that we can continue to free up more manufacturing space I am proud to say that we are on pace to complete a record number of continuous improvement projects. This year.
Our team also delivered further content growth for the year on both total units and motor <unk>.
Echoing the strength of the Lippert brand. Despite the recent wholesale mix shift towards small entry level units driven by the surge of first time RV buyers.
Content per towable RV for the full year 2020, adjusted to remote Purion sales for prior periods increased 1% from the prior year to 3300 $90, while content per motor home RV for the full year 2020 increased 8% from the prior year to 2400 $79 supported by the success of our new product offerings.
Despite the obstacles, we faced and overcame during 2020, our diversification strategy remains a top priority as we successfully grew our non RV businesses, both organically and through acquisition.
We reached a significant milestone in our strategy during the year with our adjacent markets aftermarket and international business is now making up more than 50% of our total net sales up from 42% at the end of the year 2019, despite the large boom on rvs.
We believe that diversification will help further establish our presence on the broader outdoor recreation market to drive long term growth.
A large adjacent market contributors are still cargo on utility trailers components for buses boats and other commercial vehicles as well as windows and other products for manufactured housing and residential housing markets.
As I mentioned earlier, our revenues in the aftermarket segment more than doubled year over year up 125% compared to 2019.
Primarily driven by the addition of the Curt group, which remains our largest acquisition to date. We are pleased to say it's occurred teams demonstrated their strong operational skills throughout the year, realizing cost synergies and exceeded their pre COVID-19 target numbers and have entered 2021 with a backlog triple of what they started 2020 with our RV aftermarket group also not.
To cover off the ball by outperforming their pre COVID-19 targets as well on.
Aftermarket and adjacent businesses proved to be resilient through the pandemic and where the workhorse of our business. During the time that our OEM business is shut down we believe that in times on our RV and marine OEM businesses are down our aftermarket businesses will provide opportunities for growth. This is one of the reasons. We will continue to invest in this part of our strategy as we continue this year.
Our aftermarket business towards the $1 billion Mark.
We have continued to focus our attention and resources on the customer experience in the aftermarket world. We believe helping to change the customer experience will be pivotal to our future success as we support first time buyers coming into the RV lifestyle line.
We typically do to help drive this initiative, we appointed a leader for this area in Q1 of last year, the coal salt for the seven year Lippert debt with 10 years of additional experience as an RV OEM director of customer service as director of customer experience that Lippert. She has started to build a team and has already launched several great initiatives to get closer to the consumer and gather more.
Valuable feedback.
We also hired Joy Schofield came to us with a great experience from Onstar and Guardian has a call center leader to help change the customer experience as it pertains to the over 60000 customers each month that reaches by phone or E mail to get service on our products.
We are additionally, launched two social communities that are providing excellent feedback for our products and services deliberate scouts as we've named them as a group was specifically selected RV Super users the connect daily with our customer experience teams.
Scouts numbering over 200 members will serve as our eyes on here is to provide valuable insights on our new and existing products.
We will be listening to their new ideas and engaging in conversations so that we can obtain important feedback to help solve our being issues.
We've also launched a campground project through which we are sending technically experienced team members to over 100 campgrounds nationwide to meet survey and collect candid feedback from real campers and our viewers. We are confident that our continued emphasis and passion for the customer experience can serve as yet another competitive differentiator to drive growth for our aftermarket segment in OE.
M segments and in turn strengthen our overall business.
Turning to adjacent markets 2020 revenues rose, 4% again, driven by the heightened retail demand for marine and other related markets.
Which continue to benefit from a similar secular tailwind is driving the growth across the RV and the aftermarket looking forward the additions of challenger door, leading manufacturer of branded doors for rvs and specialty trailers and Viata industries, a manufacturer of marine seating will both serve as new growth drivers for the OEM segment and we're excited.
To continue to integrate these businesses into LCI.
<unk> has a substantial relationship with Polaris on Bennington boats, the largest pontoon builder in the country and we are looking for to adding more value to that relationship as we continue to grow at Polaris on its applicable segments.
Our marine revenues for 2020 have eclipsed $205 million and are expected to increase with the ramp up of the industry in 2021.
It is noteworthy to announce that we have been working closely with tracker marine over the last 12 months.
<unk> one of the largest and most well known boldt brands on boat builders on the U S has decided to shift its marine furniture production from a vertical preference to lippert through our tailor made marine group for.
Further strengthening our presence in the marine space.
Over the long term this collaboration will add business with several lippert U S facilities, including a dedicated marine seating facility in Missouri, the tracker campuses.
We look forward to working with tracker to develop a strong relationship and drive growth for both businesses and.
In addition to marine our Windows business in our adjacent markets. Our third largest product line on the company has continued to gain share on the commercial bus manufactured housing and residential housing markets.
Our international businesses saw strong growth in 2020, as well with revenues, increasing 62% year over year supported by the for acquisitions. We closed in late 2019, the strength of these brands, coupled with our culture and innovation wide, reaching footprints and customer relationships in Europe have continued to help position lippert as an industry leader overseas.
The various European countries in which we operate including Italy, the Netherlands, and the UK seemed to be slightly behind the rapid pace of recover we saw on the U S. But still remained strong and showing opportunities for a great 2021.
Overall Europe is showing many of the same drivers or secular RV and recreational demand in European consumers have increasingly turned toward the outdoor lifestyle for travel and vacation. While some airports are shut down due to the pandemic 2020 retail caravan registrations in Europe increased almost 12% with our largest market, Germany up over 32.
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Our RV rail and marine divisions in Europe are all forecasting significant growth over their 2020 numbers based on feedback they're getting from their customers. In addition, we continue to see great progress toward LCI European components being adopted by the U S RV Oems.
This is a trend we were really proud of and it helps for the U S. Oems really see us as even more of an innovator with the ability to bring these products for the U S market on a regular basis.
We are very confident in the ability of our leadership teams to capture this demand and drive new growth across our international businesses.
Innovation is one of our strongest competitive differentiators and remains at the center of everything we do particularly as new customers increasingly seek out technologically sophisticated products as well as products that appeal to new generations of hampers. This trend has driven the success of our one control products, among others, which put our viewers and control of their vehicles.
By enabling them to manage and RV is most important functions from their smartphone.
Further one control integrates seamlessly into our larger strategy to enhance the customer service experience.
Allowing our support teams to know immediately if a problem with an RV has occurred so that we can alert the customer.
This will be especially helpful to new entrants still familiarizing themselves with their RV.
We're also seeing strong demand for our other innovative offerings that provide additional modes of support including our tire link pressure on temperature monitoring and electronic sway control systems equipping our viewers with the ability to be in tune with the safety aspects of their vehicle and help provide them with a safer journey.
We believe that safety products, which will be a significant focus for us over the next few years will likely have the same impact on making consumers feel more comfortable buying rvs like they do automobiles.
To lead our new product innovation, we recently announced the addition of our Vice President of innovation, John Rimer and industry leader in Abbott, RV or who will help us drive for our extensive catalog of industry, leading RV and marine related innovations products functions and features.
By fostering a strong cohesive culture with our business, we have been able to create dependable and dedicated teams that we're able to power liberate through the crisis brought on by the pandemic and we could not be more thankful for each and every one of our team members.
Unlike many companies we provide leadership coaching to all leaders on the business and have dedicated resources for training that ultimately creates longer tenured leaders, who understand what effective leadership looks like.
We have seen firsthand how this ultimately drives higher retention and ultimately greater momentum in the business as a result.
These initiatives have directly supported our operations for over seven years, now and give our teams the skills needed to keep leadership evolving.
It has proven to be especially effective during this most recent environment, which was one of the most toughest to manage through on our recent history. Ultimately it was our strong cultural foundation that allows us to supply our customers on the manner that we did.
During these tough times, we also worked to ensure the safety of our team members, while supporting the larger community surrounding LCI, we invested millions on personal protective equipment for our team members, while altering production environments to key people properly distance and we're able to involve select teams in a COVID-19 vaccine testing phase ran by Johnson <unk> Johnson, we offer.
Set up in dedicated and industry <unk> drive through rapid Covid testing site for our team members.
Our teams kept up our commitment to our community by providing over 67000 hours of community service. During 2020, despite an environment that made it nearly impossible to serve on groups like we have in the past.
We also led the industry with a significant gift to our local hospitals to help them higher mental health experts to provide much needed help to the hard working men and women on the front lines of our hospitals.
Those who have seen some of the worst of the pandemic I could not be more proud of our ability to get back during these times of great need.
With respect to capital allocation, we continue to remain receptive for strategic M&A opportunities. We are looking for great strategic fits with great leadership teams and solid plans for growth at the same time, we are focused on integrating our recent acquisitions and paying down debt. Additionally, we are investing in innovation and optimizing our manufacturing footprint to ensure.
We maintain the appropriate capacity to meet the soaring demand for recreational products in closing I'd like to thank all of our team members not only for their tremendous work and commitment to delivering quality products to our customers, but for also fast fostering a culture that has made liberate so successful we could not have achieved such amazing results without these incredible.
Dedications, coupled with the strength and guidance of our leadership team. We look forward to continuing this tremendous progress as we headed further into 2021 and deliver further value for our shareholders I will now turn to Brian Hall, our CFO to discuss in more detail, our fourth quarter and full year financial results. Thank you, Jason and good morning, everyone Arkansas.
Validated net sales for the fourth quarter increased 39% to $783 million compared to the prior year with acquisitions contributing 13% of the year over year growth and organic growth contributing the remaining 26% Q.
Q4, 2020 sales to RV Oems increased 29% compared to the prior year due to the continued record RV OEM retail demand.
When normalizing for the termination of our relationship with theory on RV OEM sales increased by 39% at the same time sales to adjacent industries grew 20% aftermarket segment sales increased 129% and international sales increased 60% as the popularity of outdoor leisure continues to drive strong demand.
Across many of our markets.
We continue to work towards our diversification strategy goals, and we recently announced the acquisitions of challenger door and be out of industries during the fourth quarter.
Acquired revenues contributed $73 2 million across the business during the quarter, primarily Curt and poly plastics driving strong growth in aftermarket in Europe.
As we know lapse a year on the curtains poly plastics acquisitions forward looking acquired revenues consist of challenger and viata, each representing about $80 million or $160 million in total of acquired revenues and split across RV OEM at 36% in adjacent industries at 64%.
We expanded operating margins by roughly 140 basis points from the prior year period.
Largely due to the favorable impact of leveraging organic sales growth coupled with the impact of operational efficiencies driven by increased automation and lean manufacturing initiatives and partially offset by increased labor expense to meet heightened production requirements and the increasing cost of steel aluminum and freight.
We anticipate the current headwinds from increased input cost to continue through the first half of 2021, while the pricing for many of our products is index to steel and aluminum costs. There remains the traditional lag time in effectiveness of approximately two quarters.
GAAP net income in Q4, 2020 was $48 7 million or $1 92 per diluted share compared to $28 8 million or $1 14 per diluted share in Q4 2019 per.
Primarily due to strong growth in net sales as well as a favorable impact on the effective tax rate due to discrete adjustments.
Adjusted EBITDA increased 54% to $88 1 million for the fourth quarter.
This increase was also driven by leveraging the aforementioned heightened demand and retail RV OEM and aftermarket as well as incremental revenue from recent acquisitions.
Moving on to full year 2020 results sales to RV Oems increased 3% driven by the heightened retail demand for outdoor recreational products as Jason mentioned, we expect an increase in wholesale unit shipments in 2021 compared to 2020 further current RPI forecasts for 2021.
507000 units, which would be an 18% increase compared to 2020, we remain acutely aware of the industry supply chain issues and are confident that our flexible business model will be able to adapt to any significant changes.
Content per towable RV unit for the 12 months ended December 31, 2020 increased $44 to $3390, while content per motorized unit increased $192 for 2000 and $479, excluding the impact of Purion in 2019.
For comparative purposes, excluding theory on content per towable RV for the full year of 2019 was $3346 on content per motor home was $2287.
The content increase in <unk> 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.
In addition price reductions passed to our customers during the last 12 months, primarily due to commodity index pricing have negatively impacted content growth by approximately 2% and we estimate a significant volatility in OEM inventories have negatively impacted content growth by approximately 4%.
As the second quarter was significantly impacted by the abrupt shutdown of production and subsequently shipment of product was impacted by supply chain disruption the matching of LCI sales with the wholesale shipments has been temporary diverged.
Pro forma total content growth is estimated to be approximately 7% year over year.
Sales to adjacent industries increased 4% to $688 million in 2020, and our aftermarket segment increased its total sales by 125% to $628 million, while international sales increased 62% to $237 million compared to the prior year.
Acquired revenues were approximately $375 million for the full year of 2020.
Noncash depreciation and amortization increased by over $22 6 million for 2020, while noncash stock based compensation expense increased just over $2 4 million for the full year.
We are anticipating depreciation and amortization expense to increase to $110 million to $120 million in 2021, primarily due to increases in capital investments for capacity inefficiencies in 2021.
Our effective tax rate for the full year was 24, 4% remaining relatively flat year over year GAAP net income for the full year 2020 was $158 4 million or diluted earnings per share of $6 27.
Compared to $146 5 million per diluted earnings per share of $5 84 in 2019.
During 2020, we generated $231 million from operating activities, while using $182 million for business acquisitions 57 million for capital expenditures and returning $70 million for our shareholders in the form of dividends over the year.
Capital expenditures for 2020 included normal replacement Capex, along with $5 million on automation investments and over $21 million on growth initiatives as part of the operational improvements we have discussed.
We ended the year with a net debt position of $686 million at December 31, 2020, roughly two times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses.
Leverage remained comparable to 2019, while enduring COVID-19 shutdowns and two acquisitions late in 2020, we remain focused on maintaining a healthy balance sheet and continue to target long term leverage of one to one five times net debt to EBITDA as we work to integrate recently completed acquisitions, which we believe will contribute strong operating.
Cash flow.
We expect capital expenditures between $130 million to $150 million in 2021, as we focus further on various smaller scale continuous improvement and automation projects that support growth and continue to build capacity to support heightened production rates as we continue to execute our acquisition strategy by integrating our latest acquisition.
<unk> into our business. We are confident that we are well positioned for strategic growth heading into 2021.
That is the end of our prepared remarks, operator, we're ready to take questions. Thank you.
If you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if he would like to withdraw your question press accounts.
Our first question comes from Scott timber with CL King.
Good morning, guys and thanks for taking my questions Scott.
Jason on the release.
I think your last comment.
Related to the Oems seemingly taking less downtime and give some suppliers for that incrementally.
Or maybe could you maybe just talk about that.
Some improvement.
What are you you would think that would be by the middle of the year on 'twenty one.
Yeah.
It's just all I can say, it's really noticeable I mean October November December I mean, we were riddled with.
Brands all over the industry being down one day to the next.
Seemed like every every day with somebody else that couldn't work because of COVID-19 or are they couldnt.
<unk> shut down because of supply chain related issues.
And in January we just didn't hear about any of that so.
I mean, I haven't confirmed it but I'm pretty sure that nobody took down days and in January so its just a stark contrast from what we're seeing in Covid related cases were up significantly in October and November So that was a big piece big piece of it in January it's been very quiet around the county here, So I can't tell.
Or put it in numbers specifically it was just a significant change and then the big challenge will be.
The 20 or so on facilities that the Oems are putting on line new between now and the end of the year, which will add significant capacity, it's just getting those up and making sure. Those you know those are able to run.
Cleanly.
Scott I'd add to that I think back in October we were talking about a lot of these random shutdowns and just disruptions because of the supply chain et cetera, but.
To give you an idea our chassis shipments just the numbers of them from October to January have increased 12%. So I think things are running much more efficiently.
We've talked about it growing 10% or so by the time, we got to January and it's certainly on the industry has done a nice job of getting caught up and we were able to see that pull through.
Got it.
Brian maybe on the gross margin I know, there's some seasonality in the fourth quarter on the comparison with the third quarter, but just maybe talk about how we should look at gross margins going forward.
It seems like input costs are something that we have to keep an eye on but I'm just trying to get a sense of.
The last quarter and a third party for pushing double you actually over.
11% operating margins, so I'm, just trying to get a sense of.
Where we should look for margins to be.
During 2021, yes.
Yep.
Think that.
We started talking a little bit early fourth quarter or late third quarter about some of our input costs rising primarily steel and aluminum.
Certainly labor has been challenging as well.
Once you got into those late fall months.
As COVID-19 kind of spiked here locally.
You certainly had we had to deal with that from an operations perspective as well. So you did see some margin deterioration from third quarter to fourth quarter. Some of it like you said due to the seasonality but.
The rest of it due to some of these pressures on our input costs I would expect that to continue to increase I think our overall margin that we turned in in Q4 I think we will.
Going to be a bit spotty.
Throughout the course of the year, because I think that is.
As you know we have a lot of our steel and aluminum products tied to the pricing to our customers tied to some indexes.
There's a little bit of lag there. So we've had some price reductions that were flowing through during 2020 and now in 2021, I think we're going to start to see things go the other way, but with a little bit of a lag there.
We're also addressing some some specific price increases to help out on some more.
Unusual items things like freight.
That's skyrocketed here in the past few months as well so all in all I think we did a little over 8% in the fourth quarter I think we'll see that grow a little bit, but then likely level out in.
And maybe maybe decline some and then pull back up in the later months of the year. So.
So I think we'll show some some are typical incremental margin, but then offset by.
Some of these.
Costs, such as steel aluminum and freight primarily.
Maybe you know I want to say if you took your incremental margin.
That we typically have somewhere around 20% maybe.
Maybe 1.5% at times, you could see as a headwind at least what we're that's what we're seeing today and I would add to that Scott just real quick that additive to margins going forward.
We had.
Weeks during the last quarter Q4, where.
We had 10% to 20% of our workforce missing because of Covid. It trying to get just out the regular on a required volume in <unk>.
Going forward it feels it feels a lot better certainly things can happen, but January was certainly a month or we didn't have anywhere near close to that.
Havent had that this month either so.
As long as Covid doesn't recap on our operations, we can get.
95% plus of our workforce engaged in building product and not have 10% to 20% missing sometimes that adds huge deficiencies zone.
Okay, Great and just last question, Jason you touched on you mentioned the opportunity with track on it sounds like a very nice opportunity could you.
Maybe size up work or just frame out the size of the opportunity ultimately there.
Yes, not too dissimilar from some of the other verticals we have taken over.
Done chassis verticals, we've done furniture verticals for for people over the years for our customers.
I think tracker sees that they've been up here a lot they see the opportunities in all product lines.
As youre, well aware, although although marine all the RV.
Businesses are looking for more capacity right now so if you can sub on a vertical that's really not adding value and that it helps create an immediate labor pool.
To build more boats are more rvs on you've got a company like us is willing to lease.
Lease space in.
Put our teams around.
Building building out a vertical like this so that they can use that capacity for building there for finished products.
Good for bolt so.
On thereof, there are big boat manufacturer there, though you know one of the largest in the country. So we're excited.
Start doing a lot of things for them not just furniture.
Got it that's all.
All I have thanks.
Thanks.
Next question comes from Kathryn Thompson with Thompson Research group.
Hey, Good morning. This is actually Brian on for Catherine. Thank you for taking my questions I guess I wanted to start with some of the prepared remarks kind of alluded to seeing this supply chain issues kind of continuing into 2020, sorry 2021 and.
Could you maybe touch on what those issues are that are out there or could possibly out there. If that's COVID-19 disruptions that still might be causing plants to shut down or if it's something just more fun.
Fundamental at the industry I guess was that kind of referenced deliberate specifically or is that kind of just across the general supplier base.
And then any kind of updated expectations on when it all could be back to normal.
I think the last part of your question a little bit more challenging the answer but I think all the all of the supply chain on the OEM side I mean, we're we've all got certain struggles I mean freight certainly the largest issue that's kind of hitting a lot of businesses. So.
We're all having to beg borrow and steal to try to figure out how to get product here for overseas.
It's not really free domestic it's just for eight overseas, it's really the larger larger problem for the OEM suppliers steel is obviously challenging right now you hear a lot about a lot of.
A lot of.
Businesses that are buying steel challenge to get it.
If you can find out you are paying a lot more than than what market is so.
Our business in our industry is relatively small so the.
The steel users.
Some of the other raw materials that are being challenged right now I mean, the one thing I love about our industry is.
For a pretty resilient, we're pretty resourceful and when there's problems and issues, we find a way to substitute Oems are generally generally pretty lenient on substitution. So the industry makes substitution is pretty regularly.
So that we can continue to stay running so I don't anticipate.
Much of any disruption in production some supply chain related issues.
It's just probably going to be one of those things. It just is.
Poking at us for the next several quarters and hopefully things start to.
Start to even out so.
Hope that answers your question.
It does yes. Thank you for the color I guess second question I guess, maybe could you guys talk about high level, how to think about kind of some of the comps throughout 2021 and there'll be some interesting looking numbers at least for Q2, and then you get into the back half there'll be maybe some tough comps, but you're also expecting counts on retail growth for 'twenty 'twenty, one as well.
Well.
So maybe just some insights on how you guys are thinking about the quarterly comps throughout 2021, it would be helpful.
Yeah I think.
I'll start with first quarter I do think that our January reported results are pretty indicative of what we're expecting for the quarter other than March.
We're up 38%.
For January and I think that February is likely to be similar.
As Jason mentioned as more production comes on line with the Oems that certainly going to have an impact, but we're not expecting that here on the recent months, but March then there was a shutdown I think that last week or so on March. So that's where I think we will see our growth rates start to pick up obviously when you get into Q2.
Those are going to be some pretty significant growth numbers.
In the back half I do think as I mentioned earlier, if our chat chassis shipments are up right now 12% from October to January.
I think that tells you in the back half of the year at least for Q3 and Q4, what we would kind of expect.
On the industries work to replenish inventories crossed rvs and marine I would expect those rates to continue to.
To push into the back half of the year plus whatever content growth, we have on top of that.
Sure.
Thank you.
Okay.
Next question comes from Fred Wightman with Wolfe Research.
Hey, guys. Good morning, Thanks for thanks for taking the call here could.
Could you just maybe touch on your expectations for the cadence of reported RV AIA shipments over the next few months I mean, you guys have alluded to this 12% increase in chassis is a few different times I think in the past you'd sort of talked about getting closer to that 50000 unit number.
In the started the year I mean is that still realistic or do you think that the supply chain disruptions have sort of pushed for that type of delivery number farther into it.
For the year.
I mean, I think it's absolutely realistic again part of that is just because supply chain and COVID-19, having at least as of late on the last month and a half for so haven't haven't rigged as much havoc as is what we saw on the earlier on the prior quarter. So.
They are also like I said in the beginning on my remarks, they're putting you on the Oems are putting on just the RV side are putting up close to 20, new facilities online to build RV product RV finished products.
Over the course for the next four quarters. So some of those are going online right now others will go online in Q2 and Q3 on a few left that will struggle on Q4.
But that's a lot of facilities are going to add a lot more volume opportunity for me the big challenge is going to be labor.
US along with some of the other Oems out there, putting putting facilities outside of Elkhart County, right now to help just make sure that we're distributing labor evenly and we're not creating bigger labor issues here that.
That are that are bigger than the ones that already exist. So I think the Oems.
The suppliers are doing a great job to mitigate supply chain issues on.
I feel that those numbers are totally realistic.
They'll get there.
Great and then could you just give maybe an update on the state of those semi finished goods that you guys have talked about in the past is it sort of steady to where we were exiting the third quarter have you seen some improvement to where production is probably closer to actual shipments or is there still going to be some variability there because of that supply chain impact.
Yeah, I think I mean per.
Personally all the lots that I drive by I'm on my way on to work every day have have.
There aren't as many units sitting out there at all so I think that that's indicative of what Jay.
Jason was saying earlier that supply chain has done a great job of catching back up they've been able to get a lot more units out the door I think if you look at what wholesale shipments did November December.
You certainly saw that kind of at least in my opinion that glut of inventory that stacked up here for a couple of months go out the door.
Because I think wholesale shipments were outpacing what production levels were at that point in time.
Unfortunately.
You can look at it it's Fortunately and unfortunately, I don't think we've built back inventories at the dealer level because it seems as though we're still seeing.
Heightened retail demand and as every unit that is getting shipped out right now is being retail sold so theres still a lot of work to be done there to replenish inventory. So these next couple of months I would anticipate there to be quite a few units get get shipped they will produce and ship as many as I can.
Great. Thanks, guys.
Next question comes from Daniel Moore with CJS Securities.
Thank you good morning, Jason Brian just wanted to drill down a little bit into some of your commentary around.
Inflationary input costs in relationship to maybe gross margin more specifically so.
25% gross margin pretty strong by historical standards can we sustain that in an H one given the.
Inflation in steel aluminum freight.
Or do you expect a little bit of pressure and then is there upside to that as we think about the full year.
Yeah, I think like I mentioned earlier, I think first and foremost our operating leverage has been really solid.
Both within the gross margin line, the leveraging of those overheads as well as our SG&A.
I expect that to continue now what is the headwind are these input cost and like I said I think.
And at least the next couple of quarters.
What we would expect based on what we're seeing is that we'll continue to grab that incremental margin on the volume, but it's likely to be.
150 basis points of headwinds.
On steel aluminum freight being the main drivers of that like I mentioned, we've got we've got some price adjustments, but some of them lag a little bit. So I think it'll be a bit spotty, but I would expect to see that maybe 150 basis points or so I hate to be too specific like that so maybe one to two per.
Percent.
So somewhere in that range.
And then certainly what steel and aluminum does in the back half of the year I think Thats you know the forwards are pointing to calm down a little bit but.
That's a big unknown, so back half probably not as clear as here on the front half.
Like I said I think we would expect a little bit of headwind in Q1.
And then maybe some of that reverse in Q2 as some of our price adjustments catch up and then Theres a theres already been a significant amount of pricing.
Pricing going back for the Oems to the dealers you know just because of all of this volatility over the last couple of quarters. So.
On the.
On the Great thing like I said about the the Oems and the businesses are greater re contents and de contenting around some of those so the inflationary impact doesn't hit the consumer too heavily.
Although there is some there has been some inflation on the product.
Probably not as great as what you what you might think so.
I mean, you know when we've taken a lot of market share on top of that so.
Just with the growth in the business. We've we probably took more market share I know, we took more market share in the last couple of quarters than we have in any other prior quarters in a while so we've got a lot of good tailwind heading on our direction on the big unknown I will just be on what's next what shortages or are going to pop up on the next couple of quarters and we just don't.
Have that kind of visibility but.
We'll deal with them as they come like we have the last couple of quarters.
Got it that's super helpful and so if I'm hearing it right and you kind of think about your typical incremental margin, but then.
Hunter for 200 basis point impact to <unk>.
EBIT margin from what that would be in the in the short term hearing.
Hearing that right, Brian I'm, sorry to be clear, Okay Yep Yep.
And then aftermarket revenue I mean, it remains off the charts and Curt obviously, knocking the cover off the ball.
Just talk about your expectations for aftermarket growth maybe organically on overall for this year, yes.
Yes, so I'd say that you know aftermarket is clearly one of those areas. We're continuing to turbocharge, we've been growing the teams there with expanding coverage.
Into a lot of the marine.
On the marine space right now, whether it's the dealers or wholesale distributors on that in that world. That's not something we had focused on.
Tun on prior to last quarter.
We made a lot of changes are on aftermarket and just be able to turbocharge. Our content on you know it's still early innings for us on the aftermarket relatively relative to our OEM business. So.
We've got we feel like we've got a lot of ground to make up there on.
Like the OEM business, the aftermarket customers are asking us to supply anything and everything.
Because we saw so much overseas and we can get some of these buy sell products and add on.
Probably a much better price because of the 100 millions hundreds of millions we spend overseas.
We're able to comment on compete pretty easily with a small mom and pop.
Traditional players on the aftermarket so we're expanding our product offerings on our content there.
Continuing to have more direct to consumer and dealer stores.
So.
It's pretty Brian Brian can expand on some of the.
On the topline and bottom line.
Questions that you asked.
Yes, I think the only thing I would add is that we felt amazing growth in 2020.
I think moving on to 2021 to give you an idea I think you know preliminarily.
Preliminarily January's aftermarket growth is a little over 30% as well. So it has continued into 2021.
I know that from a curve perspective, our backlogs have been.
Significant for the last eight to 10 months.
And really haven't seen much of a slowdown there so.
Those couple of areas are things I would point to that we're expecting them to be continue to be strong throughout 2021, and again remember that you know we've got to the to the tune of a few million rvs entering the aftermarket cycle because of the significant production over the last handful of years.
That's what really catapult, our revenues and bottom line on the aftermarket is all the repair and replacement and upgrades that are going to happen.
As used units change hands.
These new units that were new a year or two years ago come into the replacement on RV aftermarket cycle on the next you know.
Year to two years, so I mean, it's it's a big volume coming on the aftermarket.
And in the near future. So that's that's what we've been.
Readying ourselves for.
Perfect.
And one more if I could just in terms of your capex looks like to be a strong investment year.
We know about obviously the chassis automation product project debt.
There are others discrete automation prod projects that you can kind of describe in terms of opportunities to.
Create labor efficiencies et cetera.
I would tell you that we've got.
Three or for smaller projects going on right now.
That had you know areas like windows on.
Our window business, our chassis business, our RV products and accessories businesses. So.
You know we buy we're always evaluating those and if we can you know take US all of 20 to 30, which is a typical automation type project size and get it down to three or four in.
I think we still have 350 open positions on the business. So those really help us when we're trying to you know.
Disperse our great team members to other parts of the business as we automate.
Some of the reputation that we've got all over the business. So.
I would tell you we always have three or four in the works.
We will continue to do a few a year on the smaller scale.
Got it very helpful.
Brian.
I would just add to that that yes, you are seeing the <unk>.
Significant increase in Capex.
Last couple of years have been somewhat lower.
After a few years of pretty aggressive capex, so and a lot of it is capacity related.
On trying to free up some free up some space add new lines, we've got as Jason just mentioned some of the opportunities that we're getting in and.
New product lines or other product lines were.
Maybe others have struggled we've looked to expand on a lot of those areas too. So it's probably a bulk of it is capacity related for 2021.
Alright, well hopefully we can actually get out there. Some time later this year and check out some of the projects. Thank you for the color.
Next question comes from Greg <unk> with Baird.
Yes. Thanks. Good morning. Thanks for taking my question you had mentioned project with Bennington, and obviously that strong relationship.
<unk> there is Polaris are you seeing.
Signaling at all that you have got some opportunities more broadly with Polaris beyond what you do with Bennington.
Yes, I think that there's.
Certainly opportunities there on the.
The power sports World I mean, we already supply through tailor made.
Windshields on some of their some of their side by sides on.
Power sport vehicles.
Windshields in glass is becoming a more popular option. There. So we're doing more on that world, but certainly with all the.
Manufacturing capabilities, we have as a relationship growth stronger with Polaris, there's more more opportunities for us inside inside their broader organization. So.
You know when we.
Make an acquisition like this with like we did would be out on Thats got significant sales into Bennington and ultimately pulling around so it just gives us more ability.
To work with their teams to partner up on a bigger way.
Is it is it too much to say that you are opening a new vertical in power sports and you've got <unk> and expanding in marine.
Is it too early to say hey, that's a new vertical where you could do some more aggressive consolidation I mean, we feel like we're in the power sports World.
On the <unk> on the Atvs at least with on windshields inside glass. So we've been doing that for quite a while it's in our wheelhouse. It's just a matter of expanding our product offering beyond glass.
And that in that area.
I think that we will it's just it's just going to be a slow process on.
We certainly got the people the leadership and the manufacturing capabilities and locations geographically to do that we just need to.
Get with people like Polaris and make those commitments on a on a per.
On a partnership type basis.
Thanks, and then you mentioned the safety as a as a category maybe just if you could explain.
With a few examples where you could be headed in terms of safety.
Yes.
I'm I'm failing to understand what you're getting out there sorry.
I'm, sorry, Jason I thought you indicated that safety.
Our priorities for your organization and you thought that was a big opportunity Oh Im sorry, yeah, Okay, Yeah, So safety products right yeah on.
If you look at some of our new actual systems that will provide safer axle solutions for Rvs were just launched tire pressure management systems.
Tektronix.
Pressure and.
Heat sensor that goes on and all the the tires and wheels of Rvs, So that doesn't exist today outside of the aftermarket we're going to take.
Take a model to the Oems so that they can perhaps their units for <unk> and then just do a plug and play in the aftermarket with our <unk> system. So.
Autos have had pbms standard since 2008, and it's time that our vs get there and we've been working on the system for a couple of years on electronic sway control as part of our safety suite of products. So you know to be able to control sway electronically.
So that the driver doesn't have to do it manually is a big deal on one of the biggest fears about people buying <unk> is just.
That's the way and towing the vehicle.
If we can help control that through electronics sway control. That's a that's a big deal. So we've got four or five products.
We are launching and will be launched through the course of this year and then we're just going to beat the safety drama in.
Out there on helped the dealers sell rvs based on the safety products that might be included or might be included in the aftermarket for the consumer to buy.
Like the just like people do when they go shop for a car. So we think we're going to lead in that area.
Thanks for clarifying that.
Yes, no. Thank you Jason.
Next question comes from Bret Jordan with Jefferies.
Hey, good morning, guys.
You were mentioning sort of the growth in peer to peer rental and I would imagine that drives aftermarket growth given rental units on a rental units is there anything you can do I guess sort of more structurally to embed yourself for those rental organizations to be the aftermarket parts for minor glad you asked the question, we're working on that right now.
We think that there is.
Incredible opportunity there again, you go back to.
Just.
Owners know that instead of owning an RV for owning an RV and only using it for 10 to 20 days a year and now they can run at three or 410 times if they want.
What other things would you want your RV that it didn't come equipped with maybe cameras, maybe some of the safety products.
Some of our cleaning products and things like that that we've got.
It just gives us a whole new market I mean, you talk about hundreds of thousands of owners that might be looking at well.
If we market to them and tell.
So on the things that they might consider adding to their RV or buying.
To give there.
Renders a better experience than.
But I think that's better for us so.
Safety products I think are really important in that area. If I've got somebody using my RV I don't know if they've really driven one are told one before I'd want to have some of those safety products on the on the RV to ensure a great experience, but also ensure that the that the unit makes it back like like it left so.
I think there's incredible opportunity there and we're working on.
We're working on some things with the rental companies right now I'm trying to make it easy to just give them on.
Owners of.
You know a sheet or a menu to choose from to say Hey look these are things that things you might want to consider if you're if you're running your RFP.
Great. Thank you and I guess, you commented that a lot of the RV shipments are being sold directly through given the strong retail demand do you have any anecdotal color as to what you think retail inventory levels might be right now I mean relative to year over year, our percentage of lots available for units.
Yes.
<unk> you asked because there was actually a video that went out on the RV business yesterday that Jason and I were watching this morning.
I think a good example of.
Nice single site dealership typically has 400 to 500 units on their lot at this time of year and they have 70, so I think that you know.
It's pretty significantly depleted I'm sure there are some markets where.
It's.
Some of the larger consolidated dealerships have been able to build back inventories a little bit, but a lot of the kind of medium sized locations. We're hearing from our touch points, there, they're significantly depleted and essentially saying that every unit that they get from the Oems. It immediately retails or if it is a stock unit, it's maybe a week or two.
Later on at retail so.
So the demand is certainly there.
Okay, Great and then one quick final I guess just to bucket the tracker opportunity could you give us maybe a feeling for units and maybe in content per unit just.
So we can get an idea of how big this marine growth is on one contract yes.
Monster builder of pontoons, and bass boats, and fishing boats and things like that so.
They're well over 20000, both for the year, which is significant so.
You know, what we're going to start on buildings for furniture for pontoons on.
<unk> continued to add to that product offering and we know that we can anytime a company has ever come to us and asked us to take their vertical they just the verticals is under loved it.
There's no innovation there's no.
No. It's just it's just serving and distributing parts to other parts of that division. We have innovation departments, we have R&D departments, we have.
Sophisticated quality and engineering Department, So we feel we build better products on.
On the Oems that are that have those verticals can do themselves. So I think we will see the value right off the bat, we're just getting started on.
We will provide more color as we as we go along in the future quarters, but we're excited about this relationship they see the value on a lot of things where we're presenting the.
The electric Bimini, which is a brand new product of ours, that's been a manual bimini shave cover for years for pontoons, and we have that technology, we're producing more and more of those and eventually.
For our pontoon as expensive product people don't want to I don't want to push a button to get their shade up and down.
On just those types of manual operations with components are going on are going to go away and we've got you know patented solutions for a lot on this stuff. So whether it's been on these are seeding or some of the other components on the boats will continue to make our case to.
You know provide those customers with.
Products that add value to their proposition for consumers.
Great. Thank you.
Next question comes from Shawn Collins with Citigroup.
Yes, great.
<unk>, Brian nice to speak with you good morning.
Hey, Jason I wanted to ask about one of your new initiatives around about around inbound calls I know you mentioned that you made a new hire around the large volume of calls you get I think you referenced 60000 calls can you just talk more about the nature of the calls that you received this new higher than new.
Initiative, and what the improved customer and the customer experience might look like thanks, Yeah. So that's a great question and we are we made that change last year. We just wanted somebody from outside the industry that had great call Center leadership experience from some honestly some more sophisticated.
Call Center type experience in other industries. So we brought Joyce on and we immediately changed the name of the care Center in for the call Center everybody calls there their service center on our call Center. So we want the customer and all of that when they call and we care about them.
Continued.
No. We we started the call center in 2013.
We had a decentralized call centers for all of our product divisions. We consolidated the one in 2013 and then we've been growing that ever since we peaked at 75000 communications between mail and phone you know over the prior prior months. So 60, thousands about on average, but that's going to continue to grow this.
This year.
Half of those calls over half of those calls are our dealer personnel consumers, calling in because they've got.
<unk> components that need to be serviced I mean, the one great thing about our aftermarket as we build a lot of products and they just you know overtime, whether it's an awning or an axle or a chassis.
Furniture.
The stuff wears on tiers, and the dealers and consumers ultimately call in and ask how they can get service. So.
So we've got we've got over 300 people on our aftermarket division, probably 75 and our in our care Center right now and.
We handle typically those types of calls we do get.
Other calls, but most of them are made up of our our retail and dealer partners that are calling to.
Get some kind of repair or service or replacement done on our components that wear and tear on the field.
Great.
Thats helpful that that's an exciting development. Thanks for the color I appreciate it.
The last question comes from Steve O'hara with Sidoti <unk> Company.
Hi, Good morning, Thanks for squeezing me in here.
Hi, I'm just curious.
Have you guys talked about it directly maybe I missed it but in terms of the.
Wholesale.
Production.
You are expecting for 2021.
Does that roughly in line with the RV IAA or how do you guys feel about that.
Yeah, I would say I mean first of all retail as you know is the big question Mark.
That's going to impact our ability to build inventories back up it's going to impact our ability to meet the demand.
We finished strong as an industry with over 500000 units this last year.
<unk>.
To me Steve.
Usually approach it pretty conservatively I think they expect that to go up.
That'd be great I think there is a possibility for that but let's assume it stays flat.
From a retail perspective.
But from a wholesale perspective, yes, I think that you know.
Today, what the RV is at 507000 units I think that there is certainly opportunity to be north of that as Jason mentioned, the 20 or so facilities that are expected to come on line Thats, certainly going to help us to get north of that.
You remember we did 505000.
Back in 2017, I think it was in.
This is the first capacity that's been added since then so so I think that thats.
That certainly gives us the opportunity to go north of that I'm, assuming supply chain and everything can can keep pace and again, we've talked a lot about rvs a day, but.
We've got we've got a lot of other parts of our business the arent really hinging on what the what the RV business does so.
The aftermarket business is going to continue to grow no matter, what the number on that no matter what the RV wholesale number is and that's something we're excited out and going to continue to pour energy into our adjacent markets on international markets.
They're going to continue to grow we're growing significantly in the.
The utility on cargo trailer world right now in terms of components. There. So we got a lot of other good things going on too.
Okay, Yes.
I mean could you hazard a guess in terms of maybe how many units.
The industry.
Needs to produce over retail in order to kind of get back to equilibrium I mean it.
It seems like if if retail is up even just a little bit.
The industry has to produce.
In excess of that and you are talking about something in the I would.
Let's see.
$5 20 to $5 50 range to kind of at least make a debt and some of the units have been taken out I mean is that the type of number that maybe.
Possibility for this year.
And then I guess just for your question is just on the Capex.
My understanding was capex in the past it was kind of added in at.
At least on the OEM side. It was something that you could kind of pull back and then.
Re enter as you needed it.
Is that something different where.
If we're doing 550000 units annually or something like that I mean, how.
Much capex, you're looking at at that point.
Kind of a steady state basis.
I would say a couple of things you are you are correct.
And your the numbers you were throwing out from a industry perspective, what we'd have to do to build inventories back I mean, I think a 120000 plus units were taken out of the system over the last two years.
Which is pretty significant so.
Outpace retail.
To build inventories back I think you've got to be in that 50 to 70000 type unit level to really get inventories.
Reasonably close to where they should be so that's certainly depending on where retail that puts you in that $5 50, plus type category.
So it's really going to be the capacity that can come on line and how strong you know watching retail and.
See where that goes for 2021 and beyond so but from an.
On investment perspective, I mean, I would tell you I would tell you that from LCI eyes view.
If you went back to 2017.
The industry was planning to go to $5 40, So I would tell you a lot of the capacity investments. We made back then where to put us on pace to be able to deliver 540000 units.
Ultimately the industry never got there, we consolidated a few smaller facilities, but since.
Since then now we've kind of consolidated some things where in some bigger nicer facilities to where we can add on and they can expand capacity.
So I would tell you we're in that range for at least LCI from a capacity perspective, and the investments that we're doing are to take advantage of new opportunities and grow beyond that.
Okay, and then maybe just a quick follow up.
You talk about what maybe what percentage of your workforce is vaccinated are and maybe what the outlook is there.
Yes, we don't have data around that yet.
But we will have more.
I'll have more.
Update on that in the next quarters call.
Okay. Thank you.
Yep Thanks, Steve.
At this time I will turn the call over to Mr. <unk> for closing remarks.
We thank everybody for the for the questions and for joining us on the call and we'll see you next quarter. Thanks, very much bye bye.
This concludes today's conference call you may now disconnect.
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