Q3 2021 LCI Industries Earnings Call
[music].
Okay.
Good day and thank you for standing by welcome to the LCI Industries Q3 earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you need to press star one on your telephone please.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today. Please go ahead.
Good morning, everyone and welcome to the LCI Industries third quarter 2021 conference call I'm joined on the call today by Jason Lippert, President CEO and director, we will discuss the results for the quarter in just a moment, but first I would like to inform you that certain statements made in today's conference.
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 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 Jason Lippert Jason.
Good morning, everyone. We delivered another quarter of strong results driving both substantial top line and market share growth as consumers continue to gravitate toward the outdoor lifestyle in record numbers. Despite.
Operating in an environment littlewoods supply chain challenges material and labor shortages and rising input costs. Our teams powered through these headwinds to meet our customer commitments and fulfill record demand the recreational markets we serve.
During the quarter, we achieved $1 2 billion in sales up 41% year over year or up 99% compared to the third quarter of 2019. This great achievement by our teams has been supported by great organic growth and success of our recent acquisitions of Beata Challenger poly plastic and Curt, which underscores the strength of our diversification strategy. In addition, we can.
To increase our RV content per vehicle growth further solidifying our position as a global leader in the recreational space.
Before getting into the segment results I'd like to address our recent acquisition of Purion, which we announced at the beginning of August Purion is a premier distributor of a range of appliances and other electronic products for rvs and the wider transportation markets.
The addition of Purion with $230 million in forecasted sales for 2021 will help us tap into a $1 5 billion addressable market North America alone through its robust catalog of innovative products.
Implementing our OEM product lineups with kitchen appliances appliances and observation camera systems just to name a few.
Those are the teams products and innovative mindset, we believe that we have a real opportunity to double this business in the next few years.
North America, we plan to utilize Purion and broadening our offerings in the international markets by leveraging our existing global customer relationships. This will enable our company to unlock further market share, especially in the European and Australian caravan industry. Additionally, Paragon brings a strong aftermarket business with both in online and brick and mortar presence further acts.
Celebrating our company's aftermarket division, which is one of our fastest growing segments in.
Investment and growth in our aftermarket help accelerate our proven diversification strategy to support the long term growth of LCI.
Deliberate teams have been working closely with the Purion teams for several years through our distribution partnership and have longstanding ties with its strong management and R&D teams. Since the acquisition closed we've already kicked off a few exciting projects, which will be able to discuss in further detail in the coming quarters, we're incredibly excited.
Excited to welcome the Purion to the Liberty family and I look forward to them, helping us turbocharge innovation to further transform the industries we serve.
Turning to our performance by segment, beginning with RV OEM sales increased 44% year over year to approximately 667 million for the third quarter driven by strong demand across both North America and in international markets.
Preliminary results showed record sales for October, indicating continued industry strength carrying over into the fourth quarter and demand remains strong while dealer inventories are still at an all time low and not to mentioned campgrounds remaining fully book nationwide.
To mitigate the margin pressure, we've seen all year stemming from a combination of historically high steel and aluminum prices skyrocketing freight costs and widespread labor shortages. Our teams are focused on driving continuous improvement and automation initiatives across the company.
These efforts will also help us to create capacity without the need to put up many new buildings and we've allocated a record amount of capital towards these automation and continuous improvement projects with over 15 larger automation projects set to go live in 2022 on the first part of 2023.
Long term, we will continue to implement more projects like these to support margins, while also positioning our production to be agile repeatable and scalable in any environment.
<unk> content per unit ramp significantly during the quarter driven by our continued strong organic growth as our teams continue to bring new products to market and take market share of some of our competitors can supply well during this last 12 months.
Tempur towable, RV increased 10% year over year to 3700, $86, while content per motorhome RV increased 14% year over year to 2700 $32. Our teams are focused on continuing to take advantage of content growth through innovation and continued new and existing product development.
<unk> remains one of the cornerstones of our success and we are committed to meeting the demand for our technically sophisticated products to create a best in class experience for consumers as well as to meet the demands of the new Tech savvy customer.
In line with the recent consumer trends, we're also focusing more on developing our safety suite of products to bring safety related components of the RV space that are already existing in automobiles for years or ABS brakes are a prime example of one of our newest safety innovations for rvs.
We're already seeing substantial demand for the product as it comes to the market to add our safety products are designed to be compatible with one control further extending the capabilities of our platform and ecosystem, while providing more flexibility and technology for the customer's recreational experience.
Turning to our aftermarket segment total revenue grew to $219 million in the third quarter up 18% year over year deliberate aftermarket teams in automotive RV and marine continue to work through very extensive backlogs.
For our aftermarket products are significant as units being service are at an all time high because used rvs continue to enter the repair and refurbishment cycle in record numbers.
With a record number of RV is currently on the road and $1 million coming into the repair and replacement cycle. Every two years the trend should be nothing short of fantastic for aftermarket products and service businesses that assist the RV consumer with repair replacement and upgrades as.
As we look to serve this growing group of existing users and those brand new to the lifestyle customer experience initiatives like liberate Scouts program and a campground project remain top priorities.
These innovative initiatives allow us to collect valuable feedback directly from the RV users themselves, which we can utilize to improve our current and future offerings and services to rvs everywhere.
This quarter, we engaged over 200 families through our liberate getaway, which was our company's first RV rally meeting with owners groups and hosting our first ever all lippard Influencers summit at a wonderful campground in Pigeon Forge, Tennessee.
For four days in Tennessee, we listened to the rvs loyal to our brand and based on their comments and testimony has become abundantly clear we are doing more for this group in just about anyone out there with respect to listening to these customers in order to more favorably impact RV customer experience.
Turning to our adjacent markets revenue for the third quarter increased 55% year over year to $281 million.
With marine and other related markets being driven by the same secular trends propelling the army and aftermarket segments.
Marine demand remained strong but industry production has also been impacted by supply chain that said, we are successfully growing market share, which we've delivered with the support of our Lexington, Viata tailor made marine businesses.
As you May recall, we purchased an electric bimini product about a year ago and we are just now starting to transition much of the industry away from manual to electric power of entities, while creating an aftermarket option for this as well.
We launched our seating division for tracker Marine earlier this year in Missouri, and we believe it's been a great success with a lot of additional opportunity now that we are located near and supplying the largest pontoon boat builder in the country. Other notable progress continues to be made in our utility and trailer axle businesses. It has now eclipsed sales in our RV axle suspensions and <unk>.
<unk> outpaced the industry grow significantly.
Winning new accounts in this space monthly due to our relationships and product offerings due to the success of similar programs in RV. We've also launch customer experience initiatives for boaters and other users in the marine space. We look forward to these findings to fix existing customer pain points and elevate the customer experience and the boating world, while bringing more attention to deliberate.
Rand.
Our international businesses showed strong performance with revenues, increasing 47% year over year to $88 million from what we've seen it is clear to us that European consumers continue to turn towards the outdoor lifestyle in fact caravan in motor caravan retail was up 70% for the month of September.
The European RV industry seems to be reacting a little slower and catching consumer demand in the U S.
So we believe that this could be a nice tail for us is Europe's ron could extend longer than that of the U S.
We continue to see a rise in interest in European products in the U S and U S. RV Oems are increasingly adopting lipsitz European components, including our euro pop tops steps doors windows and bad list five years ago, none of these European products or even being sold in the U S. This strategy further helps establish our brand reputation as a.
A global innovator at the moment pop tops or B vans made in our Europe facilities provide a large opportunity for growth as we work towards building. These in the U S. Like we have the other products of the U S manufacturers that we've adapted from Europe, our European products and R&D continue to be steady secret weapons for our sales teams as they allow us to offer products.
To our customers that would otherwise not be possible without our Europe business isn't creative product teams.
Next I'd like to highlight the recent progress we've been making with regards to sustainability reporting over the past year, we've taken a focused effort to understand the impact of our operations on the environment and the communities in which we operate exploring sustainable business practices that can drive value creation over the long term through these efforts, we have made real operational improvements, including the <unk>.
Stablish meant of environmental management system to monitor and reduce waste and updates to our safety training requirements to highlight these and many other advancements we'd like to announce that we'll be publishing our inaugural corporate sustainability report in late Q4.
Which we'll use to report on our ESG performance and track improvements into the future.
Together with operating sustainability comes in support of our team members and communities two key pillars of our cultural Foundation. That's built Liberty. The company that it is today just four weeks ago I had the opportunity to chair along with the support of a large group of lipid volunteers an auction for the boys and girls club Goshen, Indiana through which we raised $2 million to benefit that.
Local use.
I could not be prouder with volunteers, who helped out of this benefit illustrating our ability to give back to the communities that are supported lippert since our earliest days.
This event was one of almost 100 events our team members across the globe took part in in the month of October last week, we had over 2000 team members participate in our Companys annual volunteer week during which our philanthropy team created serving events daily for our teams to take part of it.
Witching gears to capital allocation, we are focused on integrating our recent acquisitions remain receptive to strategic M&A opportunities as we pay down debt as I mentioned earlier, we are investing heavily in the automation of our manufacturing footprint to ensure we maintain the appropriate capacity and quality to meet the heightened demand for recreational products, while identifying cost.
Pnc's, where possible in closing I'd like to thank our dedicated team members that work so hard to overcome challenges while cultivating a culture that supports sustainable growth and continuous improvement we could not consistently deliver these results without this dedication along with the strength and guidance of our dedicated leaders all over this company.
We look forward to continuing our incredible momentum as we deliver value to our shareholders in 2022 and beyond.
I will now turn the call over to Brian Hall, our CFO to discuss in more detail our third quarter financial results.
Thank you Jason.
Our consolidated net sales for the third quarter increased 41% to $1 2 billion compared to the prior year driven by continued strength in market performance, along with strong operational execution acquisitions contributed $78 million or 10% growth to our quarterly results with organic growth contributing the balance or 31%.
Of the improvement.
As Jason mentioned the October sales were up 52% from October 2000, $20 million to $441 million and implied growth rate of over 50% for Q4 when seasonally impacted we.
We expect to see continued elevated demand into the remainder of the year.
Q3, 2021 sales to RV Oems increased 44% compared to the prior year due to heightened wholesale and retail demand current north American RV industry production rates also remain high implying 2021 wholesale shipments of approximately 577 to 587000 units an all time record for the industry.
Yes.
We substantially expanded content and <unk> and motor homes during the quarter.
As Jason mentioned content per towable, RV unit increased 10% to $3786 and content per motorized unit increased 14% to $2732 compared to the prior year. The content growth can be attributed to organic growth such as several new product introductions. In addition to the impact of pricing.
Increases enacted during the quarter.
We continue to see robust performance in the marine market driven by similar tail wins bolstering RV.
North American Marine sales increased 119% in the quarter as production further increase to support elevated demand, which we expect to continue through the fourth quarter acquisitions contributed $23 million or 49% of this growth.
Sales to adjacent industries grew 55% aftermarket segment sales increased 18% and international sales increased 47% as strong secular trends continue to drive consumers into the recreation space.
And our continued execution of our diversification strategy, we closed the acquisition of Purion during the third quarter as Jason had stated previously. This addition will not only open doors for us as we continue to expand on our OEM offerings with their innovative products to help drive long term content expansion, but also help us grab further market share.
By leveraging <unk> existing distribution channels.
Approximately 40% of theory on sales to the aftermarket with the remaining 60% being OEM.
Gross margins were 21, 6% compared to 26, 8% in the prior year quarter pressured by headwinds, including elevated freight material and labor costs. The cost of steel again rose increasing 23% during the quarter, partially offset by the aforementioned price increases.
As we have mentioned previously many of our price increases are passed onto our customers on a two quarter lag, which was the primary contributing factor to the margin pressures we have experienced.
Price increases which were effective during October have now surpassed the bottom of the curve and we are beginning to see some margin expansion when compared sequentially to Q3 results. We are anticipating Q4 margins to improve 100 to 150 basis points from Q3.
SG&A costs as a percentage of sales decreased from the third quarter of 2020 as well as sequentially due to a decrease in fixed costs paired with higher sales offsetting increases in freight and transaction costs.
Operating margins decreased roughly 375 basis points compared to the prior year period again, driven by increased labor expense to meet heightened production requirements and the increasing cost of steel aluminum and freight partially offset by lean manufacturing and automation initiatives. We have continued to introduce.
GAAP net income in Q3, 2021 was $63 4 million or $2 49 per diluted share compared to $68 3 million or $2 70 per diluted share in Q3 2020 declining due to the previously mentioned cost pressures, partially offset by strong sales growth across all of our business.
Channels.
Adjusted EBITDA decreased 1% to $118 1 million for the third quarter compared to the prior year.
Noncash depreciation and amortization was $80 2 million for the first nine months ended September 30th while noncash stock based compensation expense was $20 3 million for the same period, we continue to anticipate depreciation and amortization in the range of $110 million to $120 million during the full year 2021 prime.
Merrily due to increases in capital investments to enhance production capacity and enable further manufacturing efficiencies.
For the nine months ended September 30 cash generated from operating activities was $12 million, while a $155 million was used for business acquisitions $74 million for capital expenditures and $64 million was returned to our shareholders in the form of dividends.
Operating cash flows were negatively impacted by the intentional increase in working capital to support heightened demand and minimize supply disruption. In addition to rising prices of steel and aluminum based products.
At the end of the third quarter, we had an outstanding net debt position of $1 billion or.
Or one eight times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses.
With the constantly evolving operating environment, we are focused on maintaining a strong balance sheet and continue to target a long term leverage of one five times net debt to EBITDA in the near term we are working to integrate recently completed acquisitions, which we expect to positively impact our operating cash flows in the coming quarters.
For the full year 2021 capital expenditures are anticipated in the range of $130 million to $150 million.
Looking ahead, we are confident in our ability to continue delivering strong performance results and remain dedicated to further executing our growth strategy to drive long term value creation for shareholders that at the end of our prepared remarks, operator, we're ready to take questions. Thank you.
At this time, if you would like to ask a question press star one on your telephone keypad.
First question comes from the line of Scott <unk> with C. L King.
Good morning, guys and thanks for taking my questions. Good morning, Scott.
Just starting out maybe just talk about purion a little bit.
Honestly, you guys have a history with them a few years ago and what's different now that you're.
Taking over the entire thing they're walking away from it a few years ago and then maybe just talk about.
The margin profile of how this will impact.
The overall results.
Yeah sure. So the big difference is that we have total control over the entity now prior we were strictly sales and distributions. So we did all the warehousing logistics and sales work.
We had a little input on product, but not much and today you know we have 100% control over product, which is the big piece of it. So we control the amount of money that goes into innovation and R&D, we can listen to the customers and figure out what they need and go right.
Right to the R&D and engineering and start designing products that the customers are asking for as opposed to just take what's given to us. So.
We said in the earlier remarks that we feel we can double that business in the next few years, you know strictly because you know competitions in a good spot for us with the competition's relatively weak in that space, there's a lot of opportunity.
Theres not a lot of innovation in that space and Purion is the clear innovator in that space and.
There's a lot more they can do with appliances and electronics so.
Does that answer your question.
Yes, but also about the margin profile.
Yeah, and then from a margin profile.
It's about 60% OEM and 40% aftermarket business today, which the aftermarket side has grown significantly since when when we were in the partnership with them a couple of years ago. So aftermarket certainly taken off and has very very attractive margins as you would anticipate much better than our <unk>.
Our consolidated aftermarket margins.
From an OEM perspective perspective, I would expect those margins to come in pretty consistent.
Consistent with our other OEM margins.
Just given the competition and.
And some of the margin profile, we're seeing today and they werent really hammering aftermarket Scott. So that's you know, we obviously have a robust structure.
Sales force and distribution network, there and we're going to leverage that.
No really fully take advantage of the aftermarket opportunity versus just the you know the.
The e-commerce.
You know in some of the other smaller aftermarket business they were doing.
Got it.
It sounds like a similar overall operating margin profile to the whole company.
On the aftermarket part.
As I said, that's that's accretive to the margins that we're seeing on our legacy aftermarket business today.
That should be where we should see consolidated margin expansion.
Alright, and then just on the price front.
I know you guys, usually have the two quarter lag and.
Price increases are now going through intra period.
Just talk about how that's going.
Any sign that.
Consumers are pushing back in.
And then just last question would just be on the gross margin or the margin commentary, Brian that you've made about 100 basis points were you talking gross margin or operating margin.
Yes, so with respect to the the feedback from the consumer end of the world, we're not seeing anything yet our understanding is that we'll start seeing some of the you know the dealers were first out with you know more significant margins because they just sold inventory that they had and they were selling at or above.
MSRP.
Likely in these types of cycles as we're starting to catch up and still still trailing and coming into a point where.
Our selling prices will exceed our our costs that we've been that had been rising will be in a position where likely the dealers aren't pension their margins margins, a little bit and I'll start working its way back down the chain. So.
But to date, we haven't seen anybody back off and I don't know if it's because you know new buyers.
They look at a 20000 dollar trailer that might've been $15000 a year ago and not.
Not really affecting the payment that much.
You know some of the new buyers. They don't really know what to expect in terms of price and $20000 might seem a fair price from you know looking at a trailing like that so.
But the long and short is we haven't seen much much kicked back on the inflation. That's been passed on in terms of selling price increases all the way up to the consumer.
And Scott to wrap that up on margins. So as I mentioned in my prepared remarks. The we finally have what we believe reached a turning point at the bottom of the curve.
Where we're starting to catch up a little bit so in the fourth quarter. We had the October price increases that were meaningful.
Our index contracts and so we're expecting.
100 to 150 basis point improvement to start here in October so.
So it's good to finally see that com.
And as for where it falls on the P&L.
Im talking operating profit margins, but really all the compression we're seeing in margin is due to gross margin.
Due to direct labor and materials, so that that's where we're really experiencing at all and offsetting it is leveraging our manufacturing overheads as well as our SG&A over overheads.
Got it that's all I happen to know thanks.
Thanks Scott.
Your next question is from the line of Kathryn Thompson with Thompson Research.
Hey, Good morning. This is actually Brian Biros on for Catherine. Thank you for taking my questions. Maybe if you could start with <unk>.
Before any additional thoughts around any.
Any differences from a normal seasonality just given.
The amount that October was up with the record backlog that you can work through and you can work through all day every day and probably still not really make a dent I was just wondering how you're approaching Q4 from a normal seasonality versus this year.
Yes, I mean, we're just looking at run rates.
Respect the OEM, we certainly keep a pulse on what's going on at the dealer and the retail level, but you know right now run rates are at all time highs I mean, there are above where they were at last quarter. So.
There's just some constraints on.
From a supply chain and materials and labor standpoint, so we.
We could actually run more than what we're running today or what were forecasted a run for the quarter. If we could just get materials in them.
And not have some of the supply chain issues that we're having but you know the industry is running at about 600000 clip right now if you take.
All the production from all the manufacturers on the OEM side, it's about 600000, and they're trying to run more than that but our supply chain kind of got a constraint of 600000, and we feel that that will continue to alleviate overtime, but it's just going to take some time for some of these issues that have popped up to work themselves out, but then Brian as far.
Is the seasonality I think I said in my prepared remarks October was up 52% I would expect for the quarter to pull back a little bit from that just due to the typical shutdowns around Christmas and new year's.
We're working with the Oems right now to try to gauge how how consistent that is with what we've seen in the past.
I suspect it won't be.
Two different from what we saw last year or maybe even compared to July of this year. So it will take some time down and I'm sure it'll be a week or maybe even a day or two beyond that.
Understood. Thank you helpful.
And final question I guess, you guys have talked about automation for awhile now.
Yes every quarter it seems like that just becomes more and more of a thing you guys should continue and invest in how has that thought process changed recently if at all.
It seems like bigger projects might be on the table now versus before I think they were kind of looking at more smaller projects trying to consume kind of a manual process are you guys thinking about bigger things now or how are you thinking about automation now going forward given supply chain still challenges still remain some of them seem to be around for a while for the bottlenecks.
Yeah, So our process typically works.
We analyze each cell in the business each manufacturing cell and we tried to lean it out and work through continuous improvement to try to make as much.
Progress on improvement at make the cells as efficient as possible and then once we do that the next step is okay can we automate it. So I would tell you that we're not looking at bigger projects are projects kind of fit in the realm of you know few hundred thousand dollars on the high side of our low side.
A few million dollars on the high side is kind of the sweet spot of that cost will allow us to automate a full solid production and thats, where we experienced the most efficiency in.
The biggest improvement in quality and the biggest improvement in safety.
And then just allows us to like I said in our opening remarks as to be repeatable and scalable.
Consistent so I think that's our sweet spot that's what we're going to stay on and you get into these big projects and you know there's just a there's just a lot more complexity to those.
We've had our success really working on automating one cell at a time and if you consider that we've got 100 facilities around the globe Theres lots of single cell opportunities to automate and that's what we're focused on.
Thank you.
Thanks.
Your next question comes from the line of Mike Swartz with Jimmy Choo.
<unk> Securities.
Hey, guys good morning.
Maybe just help us think about the price cost dynamic I think in the second quarter. You said your costs were uncovered by about 300 basis points, what I guess, what did that look like in the third quarter and then how do we think about that in the fourth quarter maybe beyond.
Yeah, I mean, it's continued to be a battle. If you go back and look at the curve and the steepness of that curve for steel and aluminum and given that we were lagging a couple of quarters on our.
Our price increases that had gotten worse and worse.
As we were anticipating some of those costs to plateau, and we would be able to catch up in the second quarter that did not happen in the third quarter, then deteriorated some more from there I would tell you that our materials.
Year over year is what I'm going to give you our materials are over 500 basis points to the negative compared to Q3 of the prior year. So that gives you an idea of just the disconnect between material input costs and pricing today.
From from where we were a year ago. So it's gotten a little bit worse, but now where we're at in the fourth quarter is as I mentioned.
You mentioned in prepared remarks, and then on the on the question earlier, we're expecting 100 to 150 basis points of improvement that's primarily price.
Catching up and surpassing what we were seeing from an inflationary perspective on our input costs. So it's primarily materials. So youre starting to see us turn the corner on that and we should start to expand margins from there and as you know how many of those index agreements are there contractual there on a two quarter lag and so that will continue into <unk>.
The first quarter.
And likely a little bit in the second quarter as well of 22 and steel is largely one of our largest input cost is our largest input cost on raw materials. So you know at the beginning of the year, we thought that steel would kind of eclipse our top out in Q2, some time and it just it just kept running so are our index pricing to our.
Our customers continue to trail that and until a few weeks ago.
Peak, so you know.
That's where the the improvement that Brian is talking about is coming from is our selling prices. You know next quarter will finally, our this quarter will finally catch our our input cost and.
Even out so.
Okay, great. Thanks for the color and then maybe Brian second question, just just looking through the P&L I mean, it looks like the SG&A dollars were down quarter over quarter slightly revenue was up you had some more acquisitions in there I know some of your outbound freight costs actually were up in the quarter I believe so.
Understand why why you had so much SG&A leverage during the quarter.
I would tell you the slight improvement from a dollar perspective and from a margin perspective would be the little bit of improvement in transportation.
So a lot of our outgoing shipping costs.
On a contractual basis as well so some of those are getting passed along with a lag. So we saw a little bit.
Just looking back through past quarters.
Our shipping costs, where some of the highest we've seen as a percentage of sale in the second quarter and we saw a little bit of improvement in Q3 back to.
More on par with what we had in the first quarter. So that's the real driver between that that nominal improvement I would expect those SG&A costs to you know to remain somewhat consistent.
Price increase will certainly help from a margin perspective, but aggregate dollars.
Should remain relatively consistent.
Okay, great. Thank you.
Your next question is from the line of Fred Wightman with Wolfe Research.
Hey, guys, maybe just to follow up on some of the steel commentary is the I assume that reflects some of the easing tariff environment and could you just sort of talk about how big of a tailwind do you think that could be just some of the price pressure that you've seen over the past year plus.
We haven't seen any of that yet I mean, the price run up is strictly been kind of supply and demand based I think so.
It's just I mean, it's run up to three times.
Oracle trend. So you know we didn't think it would get much higher than 60 cents a pound and it's worked its way all the way up to the mid Ninety's. So.
But it should ease from there I mean, we don't know where it's going to settle back down certainly not it is maybe not historical trends.
But but certainly much lower than it is today.
That's where our index has turned favorable as you know chasing on the way down it's more.
Beneficial and impactful to us from a bottom line perspective than chasing it on the way up and I do think that some of the conversation around easing.
Trade negotiations Europe.
That's likely to have some sort of impact I don't know that we've seen it completely at it might be some of why it's leveled off here recently, but I think we're still.
Uncertain with the outlook as far as where it goes from here it feels like its peaked.
And the more of those talks continue and the more there might be more imports coming into the U S. It certainly should bode well for supply and demand and bring some prices down but if.
It's yet to be seen.
Okay, and then on the content per unit side can you just sort of help us think conceptually about how we should be modeling that sort of post purion and then as the supply chain environment hopefully starts to normalize a little bit here you guys have called out some share benefits just from some of the smaller competitors being more capacity constrained than you are but when you look at it from a higher.
How do you see that shaking out for both categories going forward.
Yeah, I mean, we're running it.
Speak most of <unk> because that's.
The dominant category. So we're over 10% growth right now in the third quarter certainly pricing.
As we've talked historically pricing has not been a meaningful part of the content growth. So prior to this quarter, we were running about 7% so I think pricing.
Its definitely starting to be the difference maker in that content growth now none of these content numbers have theory on in it.
We only owned them for a couple of weeks there in September the last for the quarter and for consistency purposes. They're not included any of the historical numbers either so now on a go forward basis Purion will start to leverage in.
We are as we mentioned they are on a 230 million dollar type pace today, 60% of that is OEM and like Jason said, we think we've got a good opportunity in the next two years to double that business. So.
And we think we've got a plan to do that so that should give you an idea of what theory on will do to that no. I think pricing is going to continue to have an impact favorable impact of content. So we should expect to see that in the next couple of quarters.
As that becomes a little more meaningful as we mentioned previously it feels like the the content that we buy is given in terms of opportunities about $7500. It feels like that's run them closer to 10000 with all the other things that we've added in in terms of total opportunity, we've got new products coming on onboard two point O innovations on a lot of.
So that always bumps up the opportunity as well, but that gives you a range that is higher than 7500 today of opportunities.
Perfect. Thank you guys.
Chris.
Your next question is from the line of Daniel Moore with CJS Securities.
Good morning, Thanks for taking the questions, Jason and Brian.
Just in the aftermarket business.
You know as you kind of look at the Crystal ball, what kind of organic growth.
Look at it in that business over the next three to five years.
Is that at all dependent on the direction of wholesale shipments of rvs boats et cetera.
I mean as far as percentages go.
Lapsed all the Curt.
Acquisition, and so were and we haven't done much in the way of acquisitions in that space. So I think Q.
Q2 was around 36% growth Q3 came down a little bit.
I think we've been chasing some price there as well so.
Certainly double digit.
It's been a long time since we've been below 10% in that category. So usually 15% to 25% I think is a good long term run rate for legacy business now theory on I think the growth opportunity that we have there certainly supply chain is going to be.
An obstacle, but as the supply chain.
For the coming years.
Alleviate or.
Are the issues alleviate I think we'll be able to certainly add to that growth rate given of the purion product and as you I think Jason mentioned in his remarks about the.
Millions of a million units every couple of years that are out on the road and as you work through the three to five year trade in and upgrade cycle. That's certainly bodes well for aftermarket growth that's really what I'm I think we're laser focused on from our aftermarket group is a great separator for us Thats, what a lot of other companies either arent focused.
On her arent thinking about but.
When you look at the 2021 and 'twenty two you were talking about $1 7 million rvs into the you know.
And of the RV universe, and those are going to come into the repair cycle in a couple of years. We've got you know maybe a $1 million in 2018 in 2019 so.
Look at those five years and how those units are going to fall into the repair and replacement and upgrade cycle I think that that bodes really well for our organic growth opportunities not to mention that we're continuing to take.
New products and we've got our own innovation Department for aftermarket and now we're working those products and then you look at the way Rvs are getting used and I keep talking about peer to peer Reynolds every single call, but you look at just peer to peer Reynolds and there's just more people out there experimenting and if you're using an RV 20 days a year.
And you run it you know three or four more times that gets us more its going to be need to be serviced more so even if 10 or 20% of the whole RV population takes advantage of peer to peer running.
<unk> units are going to use more and need to get service more and that just bodes well for our aftermarket division.
Perfect and then just honing in on Purion once we get past Q4, and the initial kind of accounting or acquisition accounting do you expect the margin accretion that you described earlier for 2022 or is that more of a longer term outlook.
That's one and then two given supply chain challenges.
What type of growth should we be thinking about for the next kind of 12 to 24 months. Thanks.
Yeah, I mean, I think you are into next year before you start to see some of the margin appreciation.
They had a.
Third party logistics company that.
We had to start out with and we're working through that now to remove them from the channel and we will take over the distribution as we handled it before so we should certainly see a little bit of improvement there, but that will take some some time to integrate and so certainly 2022 is when I would expect to see some of it on the aftermarket side of things.
I think you know.
From the get go we should see margin appreciation there is their margins or even sell into some of the big box stores.
And there's good margins there. So so I think we'll start to see that but again thats about 40% of their business today and supply chain to your point, we will be likely the first part of the year.
First two quarters will be a little challenging, but we're expecting to have some additional suppliers in place for their products. So we think we can.
Expand our opportunity in the back half of 2022.
Alright very helpful. Appreciate the color.
Sure.
And your last question comes from the line of Ethan Huntley with Jefferies.
Hi, Good morning. This is Ethan Huntley on for Bret Jordan, Thanks for taking my questions.
Just with regards to the October sales being up 52% year on year can you sort of break out what percentage of that might be organic versus acquired.
Okay.
Oh good good question, Ethan I wouldn't expect it to be a much different than the Q3 numbers that I threw out because really purion was acquired at the tail end of September or mid September and didn't impact us meaningfully so.
If you were to look at Q3 Q3 was about.
31% organic and almost 10% acquisition growth year over year, So I think for Q4.
Given theory on that might pick up.
Maybe a couple of points being the acquisition.
And but I also think organic will you know that'll be the balance.
Okay. Great. That's helpful. And then just sort of into Q4 I know you said sort of expect a pullback in November and December but is there any sort of color or commentary you can provide on the magnitude of that pullback.
I'll just chime in here I mean, like I said, you know the run rates, we're running at record run rates right now to the tune of <unk> <unk>.
600000 unit run rate as I said before theyre scheduling more than that.
Industry supply chain has enabled us to hit those numbers yet so suppliers are working on alternative.
Supply chain opportunities to be able to get to some of those higher numbers and they've scheduled even more for.
Q1.
So supply chain is a real problem right. So I think the only thing thats going to impact seasonality. In Q4 is the fact that I think both of the both of the weeks that most of the manufacturers are taken down or in the month of December versus sometimes are split between January and December. So I think you get it from that aspect but.
Certainly, they're not taking more time bound at Thanksgiving and.
Run rates are at an all time high so I think that you look at the run rates for October carried forward October and November maybe with an extra week of seasonality because of both holiday months of December falling and in that month and I think that helps you get to the number.
Great. Thanks. Thank you and then just lastly here any sort of anecdotal commentary on the retail trends you've been seeing and then I guess sort of to that extent any outlook on sort of the OE backlog would be helpful.
Yes, I mean retail is still a pretty solid I mean, this is coming into the time of year when it slows up a little bit just historical but you know the Oems and dealers are anticipating a robust selling season Lucentis show season starts.
OEM backlogs seem pretty significant still.
I mean, they're telling us to gear up their adding facilities.
Of all the Oems are adding facilities right now so some of those are coming on online right now some of them came online last quarter, others will come online over the next couple of quarters.
So I.
I think I think we're just preparing for a robust selling season in next couple of quarters.
Great. Thank you for taking my questions.
Sure.
There are no further questions I will now turn the call back over to Jason.
Well, thanks, everybody for tuning into the call I just want to make one last comment that are we really appreciate the hard work and efforts that our teams have done to overcome significant challenges on labor and materials and supply chain and everything there I mean, it's it's been no small feat and our customers have told us that we are in the top couple of supplier.
In terms of the way we supply to all the crisis. We've underwent in the last 12 18 months. So we will see next quarter I. Appreciate you tuning in for the call. Thanks.
Ladies and gentlemen. This concludes today's conference call Conference call you may now disconnect.
Okay.
Uh huh.
Yes.
Yes.
Yes.
[music].
Okay.
Okay.
Okay.
Sure.
[music].
Okay.
Yeah.
[music].
Yeah.
Uh huh.
Great.
Okay.
[music].
Okay.
[music].
Yes.
Yeah.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Yes.
[music].
Yes.
[music].
Okay.
Hum.
Okay.
[music].
Yes.
[music].