Q2 2021 LCI Industries Earnings Call
Good day, and thank you for standing by and welcome to the Q2.2021, LCI Industries earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 and your telephone.
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And for any further assistance. Please press star zero and I would now it and hand the conference over to Brian Hall. Please go ahead and.
Good morning, everyone and welcome to LCI Industries second quarter 2021 conference call I am joined on the call today by Jason Lippert, President and CEO and director, we will discuss the results for the quarter and just a moment, but first I would like to inform you that certain statements made in today's conference call regarding LCI industries and its operations maybe.
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 and the forward looking statements. These fab.
Actors are discussed in our earnings release and in our form 10-K, and other filings with the SEC. The company disclaims any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law with that I would like to turn the call over to <unk>.
Jason Lippert Jason.
Good morning, everyone and welcome to Lci's second quarter 2021 earnings call. We delivered another incredible quarter as we continue to drive record results in 2021 demand across the recreational space remains at an all time high with no and insight to the waves of new consumers entering the outdoor lifestyle this quarter with historic for not just our <unk>.
And even for the RV industry as a whole as they hit a record of 153100 RV unit shipment and.
And at an annualized rate the industry is set to ship near 600000 units and 2021, even blowing past levels last seen in 2017, and we expect this trend to continue well into 2022 as inventories will likely remain at all time lows.
Despite supply chain related headwinds continuing to impact our business and our teams have proven their operational expertise and mitigating the impact of production related challenges, including rising input cost to enable us to meet our customer demand.
During the quarter, we achieved $1.1 billion and sales up 108% year over year or.
74% compared to second quarter of 2019, providing us with double and triple digit growth throughout each of our respective business market.
This growth has been supported by our focus on executing our diversification strategy as we work to integrate our newest acquisitions, including challenger Viata ranching and shout and Trask for.
Additionally, we continue to drive market share expansion and achieved strong content per vehicle growth as we further solidify our position as a global leader and the recreation space.
Turning to our performance by segment, beginning with RV OEM sales increased 151% year over year or 56% compared to the second quarter of 2019 to 595 million for the second quarter driven by elevated retail demand throughout both North America and the international markets we serve.
Preliminary results for July indicate no slowdown and this trend despite supply chain and labor constraints, which continue to impact the rate of increase for the entire RV industry.
Our RV chassis capacity has been significantly improved by the recent acquisition of Woolpack, allowing us to continue to meet the increased need for chassis as the Oems keep gearing up production and meet retail demand.
We're also leveraging our existing customer relationships and significantly increasing our revenues and 1 of our most recent acquisitions Trask quarter. In addition, we continue to experience significant efficiency improvement through several recent automation projects and continuous improvement and lean initiatives around the business as demand remains at an all time high we are focused on <unk>.
<unk>, our teams to roll out more continuous improvement projects to further increase capacity and improve quality efficiency and profitability.
Our RV margins were under pressure during the second quarter for a few key reasons first our commodities index is lagged by a quarter and these indexes dictate when customers get increase and specifically around steel related products steel has risen to over twice its historical highs and a very short period of time and and will simply take a few quarters to see these increases layer back in.
That said the indexes will also lag on the backside and keep our prices higher and allow us to recover when steel prices start to move back down.
Not only is labor and been problematic for the industry with respect to a significant shortage, where most of our facilities are located in northern Indiana labor wage increases and overtime premiums are also at the highest level, we've seen and the last couple of decades.
Freight costs and logistics have also been pretty unpredictable and all that said our teams have done an amazing job keeping up with wholesale demand without shorting, our customers and most importantly, the margin performance has been fantastic considering the amount of pressure, we have seen around material labor and freight against this record demand.
Content per unit has also continued to try and favorably despite an ongoing wholesale mix shift towards smaller entry level products content per towable, RV increased 7% year over year to 3600, $21, while content per motorhome RV increased 15% year over year to <unk> 644 year over year.
Over the course of the last year, we have gained significant market share and a few core product areas and the business. We expect to continue driving content increases throughout 2021, as we further expand our market share and keep bringing innovative advancements to our customers.
Turning to our aftermarket segment total revenue grew $229 million and the second quarter up 45% year over year driven in part by the performance of our RV aftermarket group and the Curt group as the team continues to work through record backlogs as well as the successful integration of our ranch and into our aftermarket portfolio we built.
The most important thing we have going for aftermarket businesses. The sheer record number of RV is entering the aftermarket population was about 1 million rvs being brought into use every 2 years now it creates an incredible opportunity for our aftermarket business for repairs and service and upgrade opportunities with many of our products. Additionally, because of the new ownership trends.
<unk> are not being purchased solely for single family use but also for use and the new peer to peer rental marketplace.
These rental platform service and amazing opportunity to introduce consumers to the RV lifestyle, while also enabling our entire RV population to monetize their vehicle for an additional stream of income while not and use.
The surge in popularity and peer to peer rental speeds up the RV replacement cycle brings many more prospective customers into the lifestyle as well as creates a case for heavier use.
We believe this will inevitably create the need for more repair and replacement services, which enables us to leverage our wide product offerings and repair parts and services network to meet this increasing consumer demand for upgraded parts and replacement parts.
Turning to our adjacent markets revenue for the second quarter increased 107% year over year or 60% compared to the second quarter of $2000.19 million to $269 million as marine and other related markets continue to benefit from similar secular tailwind driving growth across RV and the aftermarket segments.
In line with RV and marine customers have seen soaring demand, but have also been impacted by widespread and supply chain issues.
And thankfully we are beginning to see the easing of some of these constraints and marine business has continued to serve as 1 of the primary drivers of our diversification strategy supported by the strong performance of theater and tailor made marine enabling us to expand our market share and the space, while also boosting content growth.
And there are deep industry relationships allow us the pipeline for our new marine innovations that we continue to develop and and at our add to our marine content.
We also continue to grow our axle and suspension product line revenue significantly and the trailer market, which has added nicely to our top and bottom line.
Our international businesses showed strong performance with revenues, increasing 133% year over year or 226% compared to the second quarter of $2000.19 million to $103 million.
International demand for Rvs remains elevated which we've been able to successfully capitalize on through our numerous acquisitions, we've made and the recent past and Europe we.
We believe this space will continue to grow meaningfully and the near future as it continues to see record demand and.
Innovation by our Europe teams as well as the development of our aftermarket products and that market and our focus on rail marine and caravan industries and Europe should also bolster lci's results from the near term.
The European markets, and which we operate including Germany, Italy, the Netherlands, and the UK I think continued albeit delayed recovery consistent with North America.
International customers are embracing the RV lifestyle as they embark on their summer holiday. This month for the second quarter retail caravan registrations, increasing 27, 5% across Europe.
Our long term strategic initiatives revolve around innovation and product development, which play a critical role in establishing our position as an industry leader as.
And as demand remains at record levels, we have not let up on continuing to figure out how to add improved features and to existing products as well as to develop new products to further enhance the customer experience and the future.
And example of our innovative capabilities as our continued evolution of our 1 control platform by utilizing the 1 control platform customers can now control and incredible range of vehicle function from leveling and slide out the lighting and HVAC systems and.
In addition to our 1 control products and we anticipate great success over the next 12 months and the launch of our tire pressure management systems battery systems excellent suspension innovations or new ladder innovation electric bimini and thrusters for the pontoon market as well as our pop top rough for the class B van market, which is the fastest growing segment of RBS and North America.
With regards to capital allocation, we have maintained our focus on integrating our recent acquisitions and paying down debt, while pursuing strategic acquisitions.
At the same time, we are continuing to invest more heavily and innovation and optimizing our manufacturing footprint to ensure we have capacity to meet the heightened demand, while identifying cost efficiencies where possible and closing we want to thank all of our team members for their dedication and hard work as we have continued to meet all time record demand for our products, while delivering quality.
<unk> to our customers our performance.
Continues to be driven by the operational strength and tenure of our workforce got it by and incredible leadership team that keeps us on track and executing our strategic priorities.
We look forward to continuing down the path of industry outperformance as we keep delivering value for the stakeholders of our business well into the future I will now turn to Brian Hall, our CFO to discuss in more detail our second quarter financial results.
Thank you Jason our consolidated net sales for the second quarter increased 108% to $1.1 billion compared to the prior year driven by strong market performance, coupled with solid company execution.
Acquisitions contributed $54 million to our quarterly results with organic growth contributing the balance of the improvement.
As Jason mentioned July sales remained strong increasing 25% and when adjusted for the difference and OEM shutdowns and year over year. It would imply a growth rate of approximately 35% indicative of current Q3 growth expectation.
Q2, 2021 sales to RV Oems increased 151% compared to the prior year due to the sustained record RV OEM retail demand and sales to adjacent industries grew 107% aftermarket segment sales increased 45% and international sales increased 100.
Third and 33% as consumers continue to turn towards outdoor leisure activities driving strong demand and our markets across the board.
As Jason mentioned demand and our core RV and marine markets.
Record level, which coupled with the significant inventory replenishment cycle is resulting in record production volumes.
Current North American RV industry production rates would imply 2021 wholesale shipments of approximately 570 to 590000 units and all time record for the industry.
We drove further content growth and bolt <unk> and motor homes and content per towable, RV increased 7% to 3006 hundred $21 and content per motorized unit increased 15% to 2000 and $644 compared to the prior year.
The content increase and <unk> was a result of organic growth and addition to the $29 million and acquired revenue.
Growth rates and the marine market also remained high as the industry continues to work to support consumer demand North American Marine sales increased over 200% supported by modest acceleration and production rates as well as the addition of $18 million and acquired revenue.
We have made strong progress towards our diversification strategy at the end of the first quarter, we announced the closing of ranch and our first bolt on acquisition for the Curt group as well as Shao, which creates a strategic presence for us and Germany.
In June we also announced our acquisition of <unk>, a specialized metal fabricator that utilizes innovative technology to supply custom aluminum sidewalls and panels to the recreation and transportation OEM markets.
Gross margins were 23, 6% compared to 24, 5% and the prior year second quarter. The decline was primarily due to the steep climb and material and freight costs, partially offset by strong overhead leverage.
Cost of steel has increased over 250% from September of 2020, while aluminum has increased over 60% during the same period.
We anticipate the current headwinds from higher input costs to continue through next quarter as I have mentioned on prior calls while the pricing from many of our products as the index the steel and aluminum costs. There remains that traditional lag time and effectiveness of approximately 2 quarters.
SG&A costs as a percentage of sales decreased from the second quarter of 2020, due primarily to the leverage of fixed costs on higher sales.
SG&A cost as a percentage of sales are up slightly when compared to the first quarter of 2021, due primarily to the aforementioned increase and freight costs, which is also negatively impacting outgoing shipment costs transaction costs were also significantly higher during the second quarter.
We expanded operating margins by over 460 basis points from the prior year period, primarily due to the favorable impact of continued organic sales growth coupled with operational efficiencies driven by increased automation and lean manufacturing initiatives. These benefits were partially offset by increased labor expense to meet heightened production requirements.
And the increasing cost of steel aluminum and freight.
GAAP net income and Q2, 2021 was $67.9 million or $2.67 per diluted share compared to $13.2 million or <unk> 52 per diluted share in Q2, 2020, primarily due to strong growth and sales across all our business segments adjusted.
<unk> EBITDA increased 68% to $121.3 million for the second quarter.
Noncash depreciation and amortization was $51.3 million for the 6 months ended June 32021, while noncash stock based compensation expense was $13.9 million and the same period.
We continue to anticipate depreciation and amortization and the range of $100 million to $110 million. During the full year 2021, primarily due to increases in capital investments for capacity and efficiency.
For the 6 months ended June 32021 cash generated from operating activities was $24 million, while $104 million was used for business acquisition and 42 million for capital expenditures and $42 million was returned to our shareholders and the form of dividends.
Total capital expenditures for the second quarter included 65% dedicated to maintenance and 6% and automation investments and 29% to new market share.
While demand and our core markets remain at record levels. The industry continues to face challenges with supply chain constraints and rising material cost to address. These challenges. We are focused on strategic management of working capital, including intentionally building up levels of certain inventory items to avoid future.
This has allowed us to further cement our relationships with Oems and grab market share from other suppliers that have experienced supply chain issues.
At the end of the second quarter, we had an outstanding net debt position of $910 million, 1.8 times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses.
During the quarter, we also priced $460 million and aggregate principal amount of 1.125% convertible senior notes due in 2026. The net proceeds from this offering were approximately $448 million, which we and part used to repay outstanding borrowings under our revolving credit facility with the remainder to be used to fund.
Current and future growth opportunities.
We continue to prioritize maintaining a strong balance sheet and targeting long term leverage of 1 to 1.5 times net debt to EBITDA as we worked to integrate recently completed acquisitions, which we believe will contribute strong operating cash flow.
Capital expenditures are anticipated in the range of $130 million to $150 million for the full year of 2021 unchanged from previous expectations as we focus on various smaller scale continuous improvement and automation projects that support growth and continue to build capacity to support heightened production rates.
With these strong results, we remain confident and our ability to drive growth for LCI and deliver shareholder value over the long term as we continue to execute on our proven growth strategy.
That is the end of our prepared remarks, operator, we're ready to take questions. Thank you.
As a reminder, if you'd like to ask a question simply press star 1 on your telephone keypad ICANN and its star 1 to ask a question.
First question comes from the line of Kathryn Thompson with Thompson Research.
Hi, Thank you for taking my questions to day, just for the quarter. If you could you gave a lot of great detail about COVID-19.
Various impacts.
And to get balance price increases volume.
Some planned downtime because there were differences year over year.
And seasonality for the rest of the year as we think about the stair step for revenues and margin. Thank you.
Okay, Hi, Catharine its Brian.
And so starting with gross margins I would tell you that from.
Materials and pricing certainly had the most significant impact on gross margins and the way I've kind of looked at it is its almost approximately 300 basis points worth of negative impact just the difference and materials and pricing that we saw and the second quarter now a lot of that starting to catch up and the third quarter.
<unk> and as our input costs, such as steel aluminum and freight of continued decline I'm expecting that to stretch a little bit more and of the.
Quarters beyond that.
And might even be a chance that it makes its way into the first quarter of next year, just given the fact that aluminum and steel are still climbing.
And today.
Most of that is offset by a lot of great overhead leverage. So by the time you are said and done and your gross margin was down by 60 basis points I think as I said.
And that's mainly offset by all overhead leverage when you're getting the SG&A S.
SG&A the transportation costs are pretty significant and there and those increased almost 60 basis points from the.
And even from the first quarter of this year. So we've continued to see.
Inbound and outbound freight climb at a pretty significant rate and to give you an idea I think from first quarter to second quarter, that's almost $11 million of additional cost.
From additional train outgoing transportation thats within our SG&A costs and the remainder you've got a couple of million here and there I think amortization was up a little bit almost a couple of million dollars.
And then the.
Transaction costs as I mentioned in my prepared remarks, we're up some as well so.
Certainly had those as I would say those are the <unk>.
And every line and the.
Financial statements those are the key key movers from.
And for the quarter.
Okay and.
Is it.
If you were to.
Cut and the top 3 and.
Terms.
Headwinds from.
And inflationary standpoint, you mentioned steel aluminum and transportation.
And Thats to me has the greatest impact and which of the 3.
Ladies and Mt, and the least amount of visibility.
Yes steel and aluminum combined are almost 50% of of our material spend so it's a pretty significant mover and and when you were talking.
Steel up 250%.
From September of last year, and Thats been pretty significant for us to judge.
Just for and work with our customers.
To accommodate all of the issues that they're dealing with from a supply chain perspective.
And trying to meet record demand. So we've been pretty strategic as we've worked through that and there is still some to come there a lot of the steel though is tied to some index in contracts. So that's where you do get a lot of the 2 quarter lag from <unk>.
Aluminum within that 50% call aluminum, maybe 10 to 15 percentage points from the rest of the steel. So obviously steels number 1 for us but for aluminum and I think aluminum is the 1 that we still see climbing here and the short term. It seems like steel has gotten up into the mid 90 <unk>.
A pound and aluminum still and it's kind of at least slow slowed its climb some.
Aluminum is still continues to go up so I think aluminum is the 1 that's going to continue to to her for the coming quarters and you know and.
And freight is I think going to be a problem for a long time, we don't really see that.
And correcting itself and the near term. So that's those are things that are probably going to do.
And we're going to be dealing with well into 2022, I would just add real quick Catherine that Hugh.
You take steel for example, our largest raw material costs went up 3 times, what it was prior to Covid over the course of 12 months and it's it's.
It's not stabilized, but its not and accelerated climb like it was over the last 12 months. So the hope is that it's at least manageable at this point same with freight rates up Tenex from Asia from what it was prior to Covid.
And that stabilizing so we might have a little bit of more increase there, but more likely downside opportunity over the next 12 months and a lot of upside or a lot of moving cost.
Okay. That's helpful. And then just on acquisitions always been very active and term centers.
The acquisition front, typically buying assets and a smaller market share and being proactive with technology, and then expanding it and see dominate.
And did make a little bit different acquisition that was more on that and the commodity side and maybe help us understand some of the logic behind that and.
And how you see.
Bruce.
Task going forward just in general.
Sure.
Thanks, Ken sure sure so with the most recent acquisition of <unk>.
And any acquisition the things we're looking at is can we innovate products do.
And do they have.
A large growth runway and how does the competition field luck and all 3 of those boxes are checked there and we feel we can innovate the product significantly.
We feel that there's really it really only 1 other player in the game there and we had our customers knocking on our door over the last 8 or so months asking us and again the game because we're already doing a lot of.
A lot of metal work as Brian alluded to earlier, our largest 50% of our rock costs are our steel and aluminum so and we look at the side met all on on the RV products out there. It's a significant product content opportunity. That's right now wheelhouse and we feel we can we can innovate and grow on top of that you know.
The the RV and flocks.
And the RV category that are growing the fastest are the small entry level units that require the metal siding, so theres, a greater need for that product anyway right now so.
Perfect fit and we can we feel we can grow it pretty significantly over the next 24 months.
Okay, great. Thank you.
Your next question comes from the line of Scott <unk> with CL King.
Good morning, guys and thanks for taking my questions as well.
GAAP.
Alright and gigawatt.
Great detail about whats impacting the operating margin, but if we look at it from the back half from the year could you just give a little granularity of where we can look from the operating margin.
And we're looking for to remain in this level, notably in the third quarter.
Or it sounds like Theres, a little bit of improvement going on but you just have to give us all of them and if you could.
And I think that certainly early if you rewound to earlier and the year, we were talking about price increase and catching us up and.
And that we would be able to.
Recoup a lot of that when we got into the second quarter and third quarter.
As I mentioned, the fact that steel and aluminum and freight have continued decline and you then have the quarter to 2 quarter lag on many of our product pricing adjustments I think that it's going to drag out into multiple quarters as I mentioned earlier, and maybe even a little bit and the Q1 of next year just given the.
And that we're still seeing those input costs climb so we're working very closely with our customers.
Net.
Push through some price adjustments, where we can.
But a lot of those index arrangements are going to cause a drag out so from a margin perspective, I certainly think that there there is some upside potential given the volumes that we're running and the strong leverage that we've seen.
But I think that lag and price price adjustments along with the continued climb and input cost is going to cause some temporary level level setting of that margin and so I'm not expecting it to change greatly from at least and the next quarter or so and certainly with a significant part of our pricing increases coming.
By way of index as Scott. There is there is that lag happens over the next few quarters and then <unk>.
Pricing will certainly subside at some point in time.
Prices remain elevated over the longer term.
All the while we catch up with the.
The price decrease going the other way when that happens whenever that happens.
Total benefit and just.
To be clear.
The index thing and it's the <unk>.
Same delayed at the same time period on the way up is on the way down correct. That's correct.
Okay.
So and as far as listening to me and RV side and of its 50000.
Amongst range and demand appears to continue.
Incrementally growing to new levels, but.
And how do you see production over the next couple of quarters is this probably.
And the most of the industry can eat right now have you seen any relief on the horizon from.
And that.
Yes, I think all suppliers and Oems alike are trying to increase capacity anywhere they can.
And the most refreshing thing I've seen over the last.
Handful of months and several Oems and suppliers, including US are looking at production capacity outside of Elkhart County.
1 of the biggest constraints going forward is going to be labor.
And the.
Elkhart County is only only got so much labor and we're all working on some creative strategies.
And to bring more labor to this area and increase our ability to produce but like I said, the most refreshing thing I've seen is Oems.
Oems and some suppliers going outside and linear counties to tap some of the labor outside of this area and Thats pretty stressed so.
A lot of people are getting a second shifts up and getting capacity running that way some of the OEM capacity comes online third and fourth quarter the new capacity.
So.
And I think right now to answer your question 50 thousands.
Will grow it will grow very slowly.
But it certainly feels like the.
You know, we're heading toward a 55000 number and the near term.
Got it and then just lastly July very nice growth of 24%.
Haven't got from all of the math here, but if you I guess.
Adjusted for the timing of when and acquisitions.
Fully penny coal it sounds like the lion's share, obviously and growth and still organic correct.
Oh, yeah, yeah for the most part of the acquisitions of.
<unk> accounted for quickly almost 10% and orders so about 10% of the growth and the quarter and I'm expecting it to decline from from there as we're seeing strong organic growth and.
And all categories and we've seen some nice organic growth out of our acquisitions. We've made this year already.
Got it.
Alright, Thanks again, guys. Thanks Scott.
Your next question comes from the line of Bret Jordan with Jefferies.
Good morning, This is mark Jordan on for Brett.
Just switching gears and the aftermarket and Vic can you kind of talk about some of the trends Youre seeing right now and you're still seeing strong demand for replacement and repair parts and.
Kind of maybe what are you seeing from more of the upgrade from parts and and furniture, and particularly and rvs.
Yes, so I all of our all of our aftermarket.
Categories from repair and replacement service and upgrades are all they are all very strong right now, we're seeing increases and all of those categories.
And I think 1 of the 1 of the trends that we've seen here recently is our aftermarket partners, they're all asking for more products. So we're adding more.
More products to our aftermarket categories.
As I mentioned and my my opening comments, the peer to peer and rental market is creating a case for heavier and heavier use of the <unk>.
Because theres more.
Our visa ran and the peer to peer market places that have really evolved over the last 12 months to 18 months.
Creating a whole new avenue for repair and replacement of interest because our views are getting used more.
Prior to prior to Covid you could've made the case that the average use of and RV is.
2014 to 21 days and Thats, certainly increasing with all this peer to peer marketplace rental.
So that's really good for our business on top of the fact that we've got half a million rvs coming into us every single year.
And that's that's going to be great for our aftermarket business.
Okay great.
And then I guess thinking about the current group.
Demand for.
RV and marine and <unk> been pretty strong lately. So I have to imagine that's been pretty solid for the current group's hedge products is there anything to note there.
No I would say just the amount of whether its rvs, our bike racks or anything that people are going to do and the outdoors you need a hitch and.
And we're the largest potential supplier and the country. So it's it's really good for that business, we don't see that slowing down and like I said.
Earlier, and we've got you know.
590000 unit run rate right.
Right now for the industry this year.
We're running at a rate and if you take July right 625000, if you were to blow that out and under 11 months.
No.
And that's just going to create a case for you know for more hedges and more current products and we're continuing to innovate and develop and launch new products there for the outdoors.
Great and then do you have any early reads from that ranch and acquisition.
No, yes, it's early but I mean their order their orders and backlogs are robust as robust as our Curt Curt group businesses. So.
And so what I can tell you there.
Okay, great. Thank you very much for taking the questions.
Thanks.
Your next question comes from the line of Fred Wightman with Wolfe Research.
Hey, guys. Good morning, I wanted to just circle back onto the production rate numbers that you gave that $5.70 to $5.90, I think is consistent with what you had quoted last quarter, but you guys outlined and capacity investments that you're making and then Theres also some OEM capacity coming online and <unk> and <unk>.
Any sense for how much capacity that could add to the market is it just that incremental 5000 units that you sort of touched on and.
And any sort of color on where you think wholesale production could go over the next few quarters would be helpful.
And the industry could build or could sell a lot more than what we're building today.
But there's just there's too many material and labor constraints.
You can add capacity really really fast on the OEM side and the supply side, but at the end of the day.
The entire OEM output and sell through the wholesale is strictly relying on the weakest supply chain links and Theres. Some weak ones out there every week something is popping up but what I can tell you is is that we've seen this increase and gradual increase from where we ended up last year to this 590.
Oh 575 to 590 rates it looks like we're going to hit this year based on current current numbers and it just feels like we're going to continually gradually increase as the.
Entire supply chain, you know get through some of these material constraint problems get through some of these labor constraint problems adds capacity.
It just feels like you can you can kind of count on the industry continuing to inch up volume as you've seen over the last over the last 12 months and that type of fashion and not not any slower not any faster.
Okay. It makes sense, so sort of slow and slow and steady.
I guess to shift a little bit the color that you gave on the peer to peer rental impact for the refresh cycle could you put some more numbers around that I mean is that a big enough chunk of business to where you could see and.
And acceleration versus that 3 to 5 year trade and trade up cycle that you've touched on in the past how impactful could that really be either from a wholesale sort of from new RV side or the aftermarket business just with more.
Wear and tear on those units yes.
Yes.
And there's a lot to that question, but I would tell you without a doubt there is.
And talking to some other peer to peer rental companies, they're looking to put their own fleets and because they don't have enough RV, Brian RV owners and their marketplace to support all the demand that's out there.
The numbers like 75% of all people end up getting to 1 and 2 on RV by starting out with a rental search.
So the fact that there is just.
These vast marketplaces out there right now for people to get into and RV and try them.
They say that after the second try.
After the second run all.
They're they're highly likely to buy.
And the fact that Theres, just a marketplace, where this can happen and that wasn't always available. So.
Outdoorsy, specifically has some really good data around their owner base. So you can get on their website and look at some of that but they're owner base. They've got owners that have multiple <unk> that never own multiple RV is just because of the fact that they have.
They have and ability to create some site income on.
And running their rvs so.
And again all of this creates a case for heavier use of the <unk>, which ultimately whereas and tiers.
And the components that need to be replaced and a lot of those are ours.
Makes sense thanks, guys.
Your next question comes from the line of Mike Swartz with 2 and Securities.
Hey, guys good morning.
Just wanted to touch on RV content loads and the quarter, obviously, some some pretty strong growth there and I think Jason and Brian you said that a lot of that's coming.
Organically, maybe give us little more context about what's driving that are you starting to see some some trade up our mix towards towards higher content and units are.
Exactly it's behind that during the quarter.
I would say for the most part we've been talking for the last probably 3 quarters now where we've talked about other suppliers that were maybe a little challenged.
And getting product to the Oems and we were we were pretty strategic about layering that business and so over the last 3 quarters, you've seen new business get layered into that that content per unit number so and we've expected that to continue to accelerate I would say the obvious thing is how much.
Price driving that but I would tell you price in the trailing 12 months period is not yet driving it and a meaningful way with west and a couple of percentage points.
We were still given price decreases as steel and aluminum were declining during 2020. So net net I would expect that to maybe even start to accelerate a little bit more of some of the price adjustments come in but we're still layering and new business as well and really from an acquisition perspective.
And the RV side its been trans core.
Would be the 1 that had a small impact.
Challenge or a little bit so.
And so some smaller deals so its not having a meaningful impact on the content and I'd say that the increase in the content and the meaningful increase in content and speaks largely to the market share we have taken because we just keep seeing.
The amount of entry level units.
And that are getting shipped out there, it's a pretty significant number and there.
And I'd say, they're trending away from fifth wheels, right now, but theres a high focus if you talk to any dealer out there, they're looking to get their hands on as many trailers and smaller trailers as they can get and that's certainly driving the opportunity for content down and you look in the face of that we have increased content, that's that's pretty fantastic.
Okay, and then Brian just on the SG&A side and understanding I think a lot of and the sequential.
The increase in SG&A dollars was transport costs, and maybe help us think about from an absolute dollar standpoint.
The SG&A line should look like and the next quarter.
Or 2 and others, sometimes seasonality there and theres some acquisitions coming in I guess is there is there a way we should think about that going forward.
Yes.
And although I've said this before and then it.
It goes the opposite direction, but I would anticipate it to stay.
Relatively consistent I think that the big movers that I mentioned.
Transportation cost that's not going away anytime soon so I do think that those as I mentioned sequentially from Q1 to Q2, it was up $11 million.
And <unk>.
Aggregate dollars within the SG&A line alone.
I'm not expecting that to change much in the coming quarters. So the.
The other things that I mentioned, a couple of million here a couple of million there some of those.
Do ebb and flow. So you might be you might see some movement, plus or minus $5.5 million or so for things like that but.
For the most part I would expect it to remain relatively consistent.
Okay, great. Thank you.
Your next question comes from the line of Dan Moore with CJS.
Good morning. This is Brendan on for Dan I, just wanted to ask real quick.
Looking at aftermarket from a margin.
And perspective, how much opportunity is there to expand margin and that business as it continues to gain scale and you have these and these catalysts.
Well certainly our price increases are lagging and that market like <unk> like our OEM business. So we will consider consider continue to catch up margins and get where we need to be based on all the the.
Scattered cost increases that we've seen across the business. So that's 1 piece, but like I said earlier, the customers and all channels and that space or are looking to get product. However, they can.
And unlike a lot of small suppliers out there, we beefed up our inventories we've been able to get inventory. So that we can get products out there and supply channels, we have and in the past.
The dealers the warehouse distributors the consumers on E comm out there, they're all looking for for products, whether it's repair and replacement or upgrade parts and service part so.
And our aftermarket team has done a stellar job of getting out there and and getting in front of all of those channels and making sure that they're plugged with products. So.
And our margin opportunities, great and will continue to launch new innovations in that space.
Over the coming months, we have substantial prep programs going on with all of our Oems right now so.
We put prep.
Prep hardware on the Rvs.
And the OEM side, so that it's easier to plug and play aftermarket items into.
The OEM items and it doesn't and creates a situation where the OEM doesn't have to put on a high cost component.
They can leave that to the aftermarket and we've gotten really good at that over the last handful of years.
Okay, great. Thank you.
Your next question comes from the line of Shawn Collins with Citigroup.
Okay, great, Thanks, and good morning, Jason and Brian.
And <unk>.
My question is on operations.
North America is clearly.
Clearly experiencing and recent COVID-19 reappear and with the Delta there.
And I just wanted to ask a visit from that.
<unk> from manufacturing and operations, both on a labor availability standpoint, and processes and and <unk>.
Maybe how you think about this long term is this now a permanent reality and operations I presume.
Yes, so you know.
And it Hasnt impacted our operations I think over the last 4 weeks, we've seen a couple of cases, a week, which you know and back in October.
October and November of last year, we were seeing 50 to 100 cases a day.
And so it's.
And we're tracking to the extent and we can.
Vaccinations and things like that we're making it easier for our team members to get vaccinated, but it hasnt impacted our production over the last couple of months.
And if anything from the market standpoint, it's just going to prolong some of the COVID-19 related demand we've seen in the marketplace. As a result of some of the recent happenings with the Delta Varian and things like that.
Gotcha, that's helpful Jason and thank you.
Maybe just a quick follow up.
You've made 3 acquisitions in 2021, not unprecedented as you've done a lot of acquisitions, but you are in an unprecedented business cycle and you are also experiencing rising input costs.
So a lot going on can you just talk about how the integration is going on those 3 acquisitions I think 1 is in Texas and 1 is in Germany, and and the most recent warrant and maybe Pierre thanks.
Yeah. So.
And I would tell you that.
We're getting better and better with our after the 75 acquisitions me and our team have done over the last 20 years.
We've kind of straight away from a lot of the.
I won't say tuck in but tuck in.
Acquisitions that they get folded into an existing operation that don't have quite the leadership team.
We're buying more today and a lot of businesses and companies that have very grounded capable leadership teams.
Allows us to be more acquisitive and what we've done in the past and be more effective at the integrations. So.
I would tell you that from the ranch and acquisition.
Rock, our CEO of the Curt group.
Hold of that and they.
And they're doing a terrific job getting that 1 integrated our seating and our door acquisitions from the recent months are going great.
Management team is still intact.
And we're seeing synergies and then we've had some pretty significant organic growth from those operations already.
It's been great from the European perspective, because it gives us kind of electronics.
Handle.
And we've got some new products there that we're looking at bringing back to the U S. Like we have other European acquisitions. We've made so it's all and all by Walmart and it's been it's been really really healthy and good this year from an integration standpoint, and I think I would add.
Just how much more mature we are and that integration process. I mean, we do look to make sure that we integrate them into our system.
And we've got teams that are well versed and doing so.
And then also our culture, so taken and our culture leadership programs and putting them into these organizations.
To help give them more of the tools they need to be successful and I think that Jason's point. Those those are the maybe a bit of a change in strategy from 20 years ago, We're looking for a great innovative product great leadership teams.
And I think Theres a lot of great companies out there that fit that mold and we went out and we raised.
Some additional capital here during the second quarter, the pipeline full and I think that theres, great options for us out there to to be strategic and fold and the right technology the right aftermarket business the right innovative products the right teams as we mentioned.
And that can create a lot of long term value for shareholders with the other and challenger. It was $160.160 million and revenues roughly we acquired there.
Those are right here in town and so I think when you look at acquisition and integration. We can always integrate the ones that are close to our home office and where the.
And the brunt of our team members and leadership staff as we can integrate those faster and more effectively.
And then we can.
Businesses that are.
And then are a day trip away for example, but we integrated project management office and the last 12 months for our.
Our our bigger acquisitions, just to make integration more meaningful so hopefully that answers your question.
Okay. That's great that's very helpful.
Jason Thanks, Brian Thank.
Thank you.
At this time there are no further questions and I'll turn it back to Jason and Macpherson for closing comments.
Hey, everybody. Thanks for joining us on the call. We've got a lot of great things going on around the business with customer experience and leadership and innovation and demand. So were looking forward to update you on our results next quarter. Thanks for tuning in.
Yes.
Thank you, ladies and gentlemen that today's conference call you may now disconnect.
Okay.
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