Q4 2022 LCI Industries Earnings Call

Speaker 1: everyone and welcome to today's conference LCI Industries Q4 and FULLLEAR 2022 earnings

Speaker 1: My name is Bruno and I will be operating your call today.

Speaker 1: During the presentation you can register to ask a question by pressing star 1 on your telephone keypad.

Speaker 1: I will now hand over to your host, CFO , Mr. Brian Hall. Please go ahead.

Speaker 2: Good morning, everyone, and welcome to the LCI Industries' fourth quarter and full year 2022 conference call. I am joined on a 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 call regarding LCI Industries.

Speaker 2: 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 causes 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.

Speaker 2: These factors are discussed in our earnings release and in our form 10K and other filings with the SEC. The company disclames 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.

Speaker 2: except is required by law. With that, I would like to turn the call over to Jason Licker. Jason? Thanks, Brian . Good morning, everyone, and welcome to LCI's fourth quarter in full year 2022, her new skull.

Speaker 2: Our fiscal year 2022 marks another record year for LCI, as we reach all time high revenues while continuing to deliver strong margins.

Speaker 2: As we got to the back half of the year under precipitation strategy proved pivotal to our performance, helping to partially offset the impact of RV OEM production shutdowns and acted during the board's quarter to normalize inventory levels across the country.

Speaker 2: Thanks to the agility and operational strength of our veteran leadership teams, we were able to make necessary changes quickly in order to adapt to the volatile operating environment.

Speaker 2: These results are a testament to our cultural strength and long-term leadership teams, which we believe have been and will continue to be the cornerstone of our long-term success. We closed 2022 with a record 5.2 billion revenues of 16% year over year. This growth was supported by salad performance in our VNJs and industries.

Speaker 2: driven by overall growth in the outdoor lifestyle and aggressive content expansion and innovation. We completed four acquisitions throughout the year, adding two very strong industry brands to our portfolio, including Way Inter Global and Gerard products. Next sales from acquisitions completed in 2021 and 2022 contributed approximately 219 million in 2022.

Speaker 2: These acquisitions bolstered our innovative portfolio, which we have leveraged to continue our trajectory of record content growth.

Speaker 2: Looking at North American Arbiole in the South in 17% during the year compared to 2021, reaching 2.8 billion despite lower production levels in the back half of 2022. Industry of wholesale RV shipments for the year totaled roughly 490,000 units.

Speaker 2: And we expect with further softening in 2023 as the man continues to normalize to come off all-time highs.

Speaker 2: January and December , we're right sizing months for the industry. As industry OEM took a majority of these two months off to allow inventories at the DLS to rebalance.

Speaker 2: In the interim, we are working closely with the OEMs to keep our capacity aligned with the changing production levels. Despite lower RV-only in production, we have quickly and diligently worked to adjust cost and capacity, leveraging operational improvement, and implemented in the past years, as well as making some cuts.

Speaker 2: Overall, we've cut $370 million of costs out of our structure since our industry volume started to decline during the second quarter of 2022.

Speaker 2: Thanks to the agility of our teams and focus on our diversification into other markets, we have been able to shift some of our manufacturing costs to these other areas of our business that are running pretty strong in order to achieve maximum leverage.

Speaker 2: I do want to emphasize that retail demand has slowed but is stabilizing the levels that are still historically strong.

Speaker 2: Data like retail traffic and purchases from recent RV shows have proven to be a bright spot in an otherwise challenging macro environment, giving us confidence and need of mentally forward.

Speaker 2: Importantly, secular trends such as younger buyers, as well as the growth and popularity and availability appear to peer RV rentals, continue to bring new consumers into our lifestyle.

Speaker 2: Outdoors the NRV share to the largest peer-to-peer rental companies have recently said that US campers have rented RVs for over 3 million collected nights on their platforms. Additionally, RVA data revealed that 57 million North Americans are planning a trip in an RV this year, up from 58 million in 2022, with 50% of those surveyed RV years.

Speaker 3: our customers are committed to help us work through these costs.

Speaker 3: In addition, several continuous improvement projects we have in the pipeline remain focused on driving costs out of our business through automation. We have 10 new projects laid at implementation largely in the back half of 2023.

Speaker 3: Our team also achieved record content growth in both total units and motor homes.

Speaker 3: Content for Total RV for the full year 2022 increased 45% from the prior year to $6,090 while Content for Motorhome RV in the full year 2022 increased 43% from the prior year to $4,099. All supported by a long-term focus on innovation.

Speaker 3: and continued investment in our decapabilities as well as our acquisition strategy.

Speaker 3: Given the current R.B. production environment, our diversification strategy is paying dividends and it's proving to be critical to driving sustainable growth across our business.

Speaker 3: In prior down cycles such as 2008 and 2001, our performance was substantially impacted due to majority of our revenues coming from RV.

Speaker 3: Today our aftermarket, adjacent markets, international businesses make up 40% per 6% of our total met sales. In December and January , 64% of our sales came from our diversified markets.

Speaker 3: We have simply never been diversified while in a down cycle.

Speaker 3: We believe our ongoing focus on diversification will further cement our leading position into the broader outdoor recreation markets to support consistent, profitable growth in the???? need resources for the long-term community.

Speaker 3: Revenues in the North American aftermarket group year over year up 7% compared to 2021 are actually impacted by a drop in revenues in the automotive aftermarket business.

Speaker 3: Coming off a strong year in 2022, we're thrilled to see a record number of our views on the road. As more enthusiasts take to their RVs, we believe we will see more repair and replacement visits, which should continue to drive our aftermarket revenues.

Speaker 3: To accent that point, aftermarket parts revenues were up 65% in January .

Speaker 3: As we said in many prior calls, there have been 2 million RVs added to the system in the past four years. So there will be a need for parts and services that we supply as many of these RVs are now coming to the repair and replacement cycle.

Speaker 3: As the purchasing of RVs decreased for this season, we are already seeing an increase in service at dealerships. In 2022, we had 1.2 million calls to our contact center for service and repair related activity.

Speaker 3: This trend should be nothing short of fantastic for the aftermarket product and services businesses that assist our consumers with repair, replacement and upgrades.

Speaker 3: With that being said, we will continue to invest in this part of our strategy as we steer our aftermarket business toward the billion dollar mark.

Speaker 3: While our aftermarket RV continues to grow, we are maintaining our emphasis on creating a best-in-class customer experience, as engaging and listening to our customers as central to our building-long-term relationships and strengthening the lipric brand with dealers and consumers alike.

Speaker 3: The Lippert-Scouts program, which has grown substantially in membership in the past year, serves to provide valuable insights on our products and services, how customers use them, and most importantly, how we can drive improvements in products and services.

Speaker 3: Further, we held our second annual event for our beers across the US called the Libre Getaway during the last week of October in Pine Mountain, Georgia.

Speaker 3: It was a resounding success and consisted of five full days of learning, repairing and improving their RVs as well as listening and fellowships amongst nearly 400 people.

Speaker 3: We will continue to stay focused on developing relationships with the end consumer to help drive our business to more successful results.

Speaker 3: Turning to North American adjacent markets, 2022 revenues was 26 percent driven by demand in the marine along with solid content growth throughout the other adjacent businesses like bus, specialty vehicles, and power sports vehicles.

Speaker 3: Are Jason offering benefit from the scene secular tale when striving grows across the earth to market?

Speaker 3: Unlike RBOEM, marine production has been relatively stable, reducing pressure as RV demands

Speaker 3: In marine, we experienced substantially fewer challenges related to macro condition. As the overall market didn't ramp up as hard and as fast, and thus did not create as much access inventory at the RV business did.

Speaker 3: Like RV, we are continuing our focus on consumer groups and aftermarket related activity.

Speaker 3: We also saw the launch of our feeding division for Cracker Marine earlier this year in Missouri. We believe our developing relationship here will provide additional opportunity now that we are located near and supplying the largest pontoon and boat builder in the country.

Speaker 3: Our marine revenues for 2022 have increased to $493 million, and we are anticipating a flatter year on demand, which we believe we will improve through organic growth and market share gains.

Speaker 3: Our marine production facilities have never been operating at the peak levels they are today, and we expect their solid performance to continue as we continue to supply the high demand and offer many new products in the space.

Speaker 3: As a part of our diversification strategy, we have also been gaining traction in manufactured housing.

Speaker 3: With the rising housing prices impacting people across the country, manufactured housing continues to be an alternative for some that might be priced out of traditional residential homes.

Speaker 3: Also, during the past few years, residential window suppliers were plagued by demand and in turn created long delays for builders, our team took advantage and started offering entry-level vinyl windows at short lead times to residential builders.

Speaker 3: We are now starting to build a nice residential window lineup and a market that has over $3 billion annually in addressable market.

Speaker 3: And one other positive note around diversification is that we announced the key partnership last week with ATW, which is now owned by Bing Capital and it's the largest utility trailer built in the country. We launched a collaborative partnership to start supplying the Maxwells to all of their trailers starting this month.

Speaker 3: We are extremely excited and our team will strive to bring new products as well as incredible dealer and oil and services that they have never seen. We believe our adjacent market and expansion is key to our diversification efforts and our team continues to gain more and more momentum finding new products for the customers in these markets.

Speaker 3: Looking globally, our international business is also experienced growth in 2022, with revenues increasing 6% year-over-year, proving to be a stabilizing force in our diversification strategy.

Speaker 3: Growth in our international businesses was driven by the ongoing introduction of innovative products into EU markets and we are encouraged by the backlog in these businesses as we head further into 2023.

Speaker 3: Issues stemming from global chip shortages are easing slightly, which we feel will lead to more growth in the European RV business in 2023. We expect some of this demand to start breaking loose in the second quarter, as many oleems are starting to see chassis shipments increase so they can build more motor caravans.

Speaker 3: In addition, we continue to see great progress toward Lippert European components such as top-top and acrylic windows that are already popular in Europe being adapted by the US RV OEM.

Speaker 3: These opportunities could provide big competitive barriers for our competition because of the ability to utilize European designs, proven products, and production facilities.

Speaker 3: For the last couple years have been challenging for the European division, we are optimistic about 2023 being a year in which they are contributing to the overall company in a much more meaningful way.

Speaker 3: Turning our focus to innovation, throughout 2022 we had one of our largest product launch years in company history. And this should help bolster a challenging time for the community in America.

Speaker 3: With 150 people dedicated innovation and product development in our business, we are committed to making innovation a huge competitive advantage as few peers and competitors will invest this kind of money into innovation. R-A-D-S-B-S for our suspension systems, tire length tire pressure management systems.

Speaker 3: continued development of one control, a new window oning, appliance, and door designs evolving tremendous traction with OEMs, helping to fill out a fire reputation as a company that continues to refine and innovate our core products.

Speaker 3: As mentioned earlier, we are thrilled about the acquisition of Girard and Wayener Global. Both add substantial products to our offering that connect our appetite for cutting-edge products with our desire to bring increased utility and aesthetics to each RV.

Speaker 3: These two acquisitions also make us the largest and most diverse appliance and automaker in the entire RV industry.

Speaker 3: One of the other things we are proud of around innovation is that we made several of our new products, the new standards. The standout in that category was our Instant Hot Water Heater designed taking the place of the older larger tank water hot heaters that have been around and standard for decades.

Speaker 3: With a second capital allocation, we continue to do our part maintaining a balanced deployment strategy. We remain receptive to strategic-dominated opportunities when they appear but are also focused on maintaining ample liquidity and a strong balance sheet with minus leverage.

Speaker 3: We have also continued to make strategic internal investments, specifically in automation, to add further flexibility to our cost structure. In 2022, we allocated over $70 million to growth in automation capex, and we anticipate allocating more dollars to these important projects in 2023.

Speaker 3: I'll now move around to our cultural highlights for the year. Here at Lippert, a well-rounded culture is our core focus, fostering an environment that values all team members and enables each team member to grow. We believe strong culture starts with experienced leaders of the task, but also creates opportunities for all team members to become leaders in their own role. To this end, we have a group of leadership coaches and a group of leaders.

Speaker 3: and impact team members around them more positively.

Speaker 3: In the end, we believe our great culture and focus of real resources on leadership development is the key to retaining people.

Speaker 3: We also believe that when people are retained over the long term, there is no question that quality, safety, efficiency, and innovation, the key fundamentals of the business all improve.

Speaker 3: Our culture focuses not only on how we can support our team members, but also how we impact the communities around us. Over 2022, Lippert team members performed over 150,000 hours of community service.

Speaker 3: through serving in various charitable organizations and mission work around the country. Over the last six years, our team members have collectively served over 700,000 hours of community service.

Speaker 3: We could not be proud of its accomplishment and our team's effort to give back to those in need and look forward to our culture initiatives having even more of an impact in 2023. And closing, as always, I'd like to thank all of our team members for their hard-working commitment in driving our business forward while upholding our company values and leading strong.

Speaker 3: We could not achieve such amazing results with office incredible dedication, a couple of those strengths and dimes of our leadership team.

Speaker 3: We look forward to continuing our progress in 2023, while we may not be setting volume records, we are dedicated to setting many other records, such as safety, efficiency, continuous improvement, and community impact records.

Speaker 3: We believe that we are in a great position, even the face of our v-vying challenges, to come out strong and are resolved and excited to continue our efforts in delivering long-term value for our customers and shareholders.

Speaker 3: I will now turn to Brian Hall, our CFOs, and discuss in more detail the fourth year financial results.

Speaker 2: Thanks, Jason. Our consolidated net sales for the fourth quarter decreased 26% to 894 million compared to the prior year period, impacted by a reduction in RB production, partially offset by growth in our other end markets.

Speaker 2: January sales were down 48% to 273 million versus January 2022 due to the continued decline in wholesale RV shipment as we estimate the industry shift less than 14,000 units in the month, many of which were produced in prior months. This was partially offset by continued diversification success with growth in adjacent industry.

Speaker 2: The current per-total RV unit increased 45% to a record $6,090, while content per motorized unit increased 43% to $4,099 compared to the prior year period. Toeble content growth can be attributed to organic market share gains of 15%.

Speaker 2: while acquired revenues contributed 7% of the year over year growth. We saw positive performance from our other end markets which helped to impartially mitigate the impact of softened RV demand.

Speaker 2: In the quarter, North American Marine sales increased 4% with our estimated content per powerboat increasing 19% to $1,712, driven by market share gains.

Speaker 2: Overall, sales to adjacent industries grew 3% versus the prior year period supported by the aforementioned growth in marine sales.

Speaker 2: Q4 2022 sales to the aftermarket decrease 17% compared to the prior year period, driven by a decline in automotive aftermarket sales partially offset by the sales and RV aftermarket sales.

Speaker 2: International sales decreased 1% year over year, representing 10% of our total company revenue, as exchange rates negatively impacted results by approximately 9% due to the strength of the dollar compared to the euro and British pound, excluding the exchange impact organic growth would have been 8% led by the strength seen in our rail markets.

Speaker 2: Gross margins were 16.4% compared to 24.1% in the prior year period.

Speaker 2: Driven down by one-time charges, production inefficiencies, and elevated input costs and aluminum, steel, and freight.

Speaker 2: Our one-time charges were a key contributing factor to margin compression and our EPS variance for this quarter.

Speaker 2: These one-time costs consisted of severance and inventory expenses leading to a negative impact of 62 cents per share. Severance expense was incurred as we worked to improve our cost structure and remove redundancies within our operations.

Speaker 2: Our one-time inventory charges primarily related to the difference in price at which we purchase these commodities such as aluminum versus the selling price as well as adjustments for excess and obsolescence reserves.

Speaker 2: Typically, the pricing variance is accounted for by our quarterly lag pricing address.

Speaker 2: However, given high volatility seen in the recent prices for some commodities, we incurred a one-time charge to earnings.

Speaker 2: Although these write-off hinder near-turn margins, we expect reduced margin pressure in the second half of 2023 as production ramps supporting profitability during the year.

Speaker 2: Looking ahead, we are applying to deliver profitability despite the macroeconomic conditions moving into 2023.

Speaker 2: S-DNA costs as a percentage of sales increased year over year due to the one-time cost noted previously.

Speaker 2: Operating margins decrease compared to the prior year period in line with expectations as we absorb fixed costs on a lower sales base and consume the aforementioned high cost inventory layers.

Speaker 2: Gapnet loss in Q4 2022 was $17.1 million or $68 per diluted chair compared to net income of $82.3 million or $3.22 per share in Q4 2021. This decrease was a reflection of lower RV demand.

Speaker 2: EBITDA decreased 93% to 10.2 million in the fourth quarter compared to the prior year period.

Speaker 2: Moving on to full year 2022 results. Fails to North American RBOEMs increase 17% driven by increased interest in the outdoor lifestyle and content expansion.

Speaker 2: Sales to North American adjacent markets increased 26% to 1.2 billion in 2022, and North American aftermarket increased its total sales by 7% to 825 million dollars. While international sales increased 6% to $398 million compared to the prior year period.

Speaker 2: Acquired revenues were approximately 219 million for full year 2022. noncash depreciation and amortization was 129.2 million for the 12 months ended December 31- 2022, while noncash stock-based compensation expense was 23.7 million for the same period.

Speaker 2: We anticipate depreciation and amortization in the range of 130 to 140 million during full year 2023, primarily due to amortization from RISA acquisitions.

Speaker 2: For the 12 months ended December 31, 2022, cash generated from operating activities was 603 million, with 131 million used for capital expenditures, 108 million used for business acquisitions, and 127 million returned to shareholders through 103 million.

Speaker 2: of dividends and 24 million in share repurchases. Operating cash flows were positively impacted by increased earnings and as inventories continue to normalize, we will pay the production in the impact of working capital on cash generation.

Speaker 2: Driven by our strong operating cash flows, we further pursued our capital allocation strategy of de-leveraging our balance sheet, making net payments of $178 million on outstanding borrowings during 2022. At the end of the fourth quarter, we had an outstanding net debt position of $1.1 billion or 1.5 times pro-form EBITDA, adjusted to include LTM EBITDA.

Speaker 2: which we expect to positively impact our operating cash flows.

Speaker 2: Full year 2023 capital expenditures are anticipated in the range of 80 to 100 million dollars.

Speaker 2: Given the uncertainty in the marketplace, we anticipate RV production levels to remain volatile in the short term.

Speaker 2: As a result, we estimate the January consolidated sales results of down 48% to be indicative of full Q1 2023 results. As our VOM production remains suppressed while the dealer base seeks the right inventory levels for expected demand.

Speaker 2: The sales decline is primarily driven by the reduction in RV production as we anticipate Q1 2023 RV shipments between 45 and 50,000 units.

Speaker 2: Looking forward to Q2 and beyond, we are anticipating RV shipments to improve more in line with those experience in the back half of 2019, which results in an estimated RV shipment range of 330 to 350,000 units for full year 2023.

Speaker 2: While we have responded quickly to reduce our cost structure, material cost headwinds, as discussed in prior quarters, will continue to limit profitability through the first quarter. And we anticipate operating profit margins to return to mid to high state conditions regrets in 2023.

Speaker 2: That is the end of our prepared remarks. Operator, we're ready to take questions. Thank you.

Speaker 1: Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now.

Speaker 1: If you'd like to cancel that question, please press the star followed by two.

Speaker 1: And please do also remember to unmute your microphone.

Speaker 1: Our first question is from Catherine Thompson from Thompson Research Group. Catherine?

Speaker 4: Your lens now open. Please go ahead. All right. Thank you for taking my questions today. First, I'm going to focus on the OEM ramp up, and if you could give some cadence to that. And then also just clarify what you're, as you said, you're prepared commentary. You're seeing some...

Speaker 4: good strong demand for maintenance.

Speaker 4: at RV dealers, which is for units that are already sold. Can you talk about what trends you've seen historically?

Speaker 4: with maintenance versus sales, and is there a divergence in that trend that you're seeing in today's market that could be positive for the outlook?

Speaker 3: Yeah, I'll start, Catherine. Regarding the ramp up or just where the industry is going from where we're at, obviously we've been in ramp down mode and just trying to get to a pace with the industry is where wholesale is being outpaced by retail. So, you know, we've had a...

Speaker 3: A couple hiccups here in November and December , but for the most part it feels like the next couple months will be retail outpacing wholesale, hopefully longer than that, but by a pretty fair margin. You know, still trying to find the bottom I think where we've got some customers that are taking, you know.

Speaker 3: weeks of the time down between now and in the March feels like. Kind of we're hoping after that and in March April timeframe things start to take up and you know certainly the you know all the retail outpacing wholesale that's going on today is just taking chunks out of dealer inventory which is where we need to get to to see some some wholesale orders again.

Speaker 3: and parts for service, and we just see that activity up significantly right now. And we know that that trend will continue, especially as they have more time to service units and more service base have come online over the last 12 months. So Brian , I don't know if you want to add to the aftermarket piece. I think maybe not so much on the aftermarket piece, but to give you some additional

Speaker 2: 70,000 plus units. But if the OEMs, you know, whole production levels pretty, well, hold them down or suppress here temporarily, as Jason said, to let the inventories deplete some. We would then expect that to start to come back up. And like we said, you know, if you look more in line with...

Speaker 2: retail sales occurring. So at some point as they continue to deplete inventory there's going to have to be orders and production to follow suit and replenish inventory in the system.

Speaker 4: Okay, that's helpful. As a follow-up to that, there's several larger retail shows.

Speaker 4: that have occurred at the beginning of this year. Any color on trends from those and what this could pertence to the future?

Speaker 3: Yeah, yeah, we've talked to a lot of OEMs and a lot of dealers over the last handful of painful weeks that they've had big shows since Tampa in January and all the traffic commentary around retail traffic and purchases have been really healthy. And I think, you know,

Speaker 3: We're seeing that take out of inventories to rebalance de-writ inventories. Like Brian said, there's been a lot of positive remarks de-writcing inventories come down to a healthy level where we can see they're going to have to buy for the summer summer summer season. They know it.

Speaker 3: And I think everybody's just positioned to get dealers in the best position they can before that starts to happen. But I think, you know, around the show is all signs and commentary. I've been positive. Retails seems to have stabilized. I just look at, you know, how bad Q4 felt. It's 77 or 70,000 units retail wholesale roughly. If you analyze that.

Speaker 3: So, but retail staying healthy is the most important thing we have looking for our industry right now. It's preparing to stay that way.

Speaker 4: Okay, and then final question for the day on inflation. You said you prepared to mark freight and rolls were up in Q4, but what we're seeing in other industries, wide variety of industries, definitely you're having certain costs, natural costs, but other labor including pulling back.

Speaker 4: how do you think about the balance of inflation or even deflation as you look out in 2023? Thank you.

Speaker 2: Yeah, I mean, I'd start first with from a pricing perspective, you know, we, to our customers, you know, we've been saying throughout a lot of 2022, we've had some pretty meaningful price decreases, which I think is consistent with your commentary about what we're seeing in the marketplace for steel, aluminum, freight. We are seeing those costs come down.

Speaker 2: from the all-time highs that we experienced these last couple of years. So we've been given price decreases, but from a consumption perspective for us and our income statement results, we've talked that we've been heavy on inventories. Some of those costing layers are some of the all-time high costs that we're consuming today.

Speaker 2: That certainly was a headwind for the fourth quarter. And as we, I think, communicated at the end of the third quarter, we expected that. I expect that to continue into the first quarter. We certainly are starting to see improvement in our inventory layers. But with the little volume that we're seeing here in the first quarters, taking some time to chew through that.

Speaker 2: But I do expect that to be, I expect us to be through most of that through the first quarter. And as we get into the second quarter, we should start to get back on par with where I think we would expect us to. So, you know, from a margin perspective, because that's the biggest needle mover, I would say. You know, as Jason said, obviously we've had to respond quickly and take a lot of costs out of the business. And we'll continue to do whatever is necessary.

Speaker 2: mid to high single digit type margin view for operating income.

Speaker 2: margin view for operating income. Great. Thank you very much.

Speaker 1: Our next question is from Scott Stember from Rot, MKM. Scott, your line is now open. Please go ahead.

Speaker 1: Our next question is from Scott Stember from Rot, MKM. Scott, your line is now open. Please go ahead.

Speaker 2: Brian , from what you're saying about the, I guess, the lag of getting that higher price inventory through the channel and matching things up, it sounds like the first quarter could be challenged from a profit standpoint or...

Speaker 2: or do you think it will be profitable in the first quarter? I think that as we look at Q4, I can contrast Q4 with Q1. Q4, you know, you had the one timers in there like we talked about 62 cents, EPS impact.

Speaker 2: I'd say from a margin perspective, if you take those out, you're pretty darn close to break even for fourth quarter. I expect that given January's performance, and we think that that's going to be a bit indicative of what the first quarter looks like. We'll see a little bit of ramp up here in February and a little bit more in March, but pretty consistent with the declines we saw throughout the fourth quarter. So I think they're pretty similar.

Speaker 2: four to five percentage points of margin headwind that we've been experiencing these last couple quarters as we consume those layers of inventory. Okay, and then back to the aftermarket, you talked about how the automotive side really drove the decline. Okay.

Speaker 5: in the corridor. Can you maybe give a little bit more content on that and the other side of the business, the RV, how did that perform in the corridor?

Speaker 3: So, yes, the RV business is exceeding expectations in terms of just volume. So, no problems there. And again, it's all service and repair parts are related. I mean, it's some upgrade and just on the laughter market business through all channels, consumer, retail, Amazon, dealers, and all the distributors that we do business with there. This works. So far all this is a story. Of course, all this stuff is guaranteed and adding all this will be ord madly.

Speaker 3: We expect that to continue through this year on the automotive side as largely driven by new car sales. So it's everybody knows there's just a lot of...

Speaker 3: availability for new cars. It isn't being trucks are being produced like they were three years ago. So when new cars are down, new automobile sales are down and production is down and our our hitch business is impacted by that. But we expect that to start slowly coming back.

Speaker 3: And we've adjusted our business, we chased materials down all last year. I'm steel because you know, you know, mostly the content we have on the the curved automotive side of our business. So it's all of the indexes that just possibly we work through them in towardies will see that possibly impact margins through the whole course of this year. And I'd add to that, Scott, to look full year, we really started.

Speaker 2: sharp contrast in the performance. When you look to the fourth quarter, as the automotive side began to slip more and more, it was off about 24%, almost 25% for the fourth quarter. So you can see that that's the side of the business, which it was running about half and what we experienced in the back half of the year, it's now to less than half of our overall aftermarket business.

Speaker 5: the whole active market doing in January .

Speaker 2: Yeah, I mean, for January everything's still suppressed. I would tell you the automotive side did get slightly better. We started to see some orders come in there. So instead of 24 or 25% off like it was in the fourth quarter, it was only off 17. The RV marine side of the business was better than that, but still down slightly in January .

Speaker 2: when we're looking at how their orders are coming in, but it's at least it's not down as meaningful as what the automotive side is, and we expect that as we move through the winter months, and people get their units out for the season that we'll start to see that continue to improve. So when we get to the back half of the year, we're definitely anticipating all the aftermarket to be up, you know, start probably in the summer months at some...

Speaker 3: single-digit growth rate but then double digit back to double digits when we get towards the end of the year. The two other things that ads got is that automotive is about half of the aftermarket business. So it waits heavy when it waits one way or the other. And then we've got the on the RV side. It's just, you know, there's all sorts of opportunities with service parts, but...

Speaker 5: That's through largely retail and dealers and the big chunk of our aftermarket business from the R&E side is wholesale distributors and they've got inventories to work through as well. Last question on the aftermarket. There was a slight operating loss within aftermarket in the quarter. That was strictly related to the auto side and it sounds like...

Speaker 2: probably having to do with input costs as well. Yep, you're correct. I'm both both friends. Definitely at the volumes that we were experiencing on the automotive side and the seasonality when you get into the fourth quarter and first quarter for automotive.

Speaker 2: It typically is extremely low margin, so I would call that normally in the off-season low single digit type margin. So to see that flip to a loss is not much of a surprise. And then couple that with, like you just mentioned, consuming some of the high cost steel layers in a lot of those hitch products.

Speaker 2: We've certainly seen very consistent with what we've seen across the entire business, where it's quite a bit of a headwind through the back half of 2022 and into this first quarter or so of 2023. Okay, thanks guys, take my questions again.

Speaker 2: seen, you know, very consistent with what we've seen across the entire business where it's quite a bit of a headwind through the back half of 2022 and into this first quarter or so of 2023. Okay, thanks guys, take my questions again. Thanks, Scott.

Speaker 2: Our next question is from Fred Whitman from Wolf Research. Fred, your line is now open. Please go ahead. Hey guys, good morning. I was hoping you could just give a comment on the timing of the model year changeover as we see this depressed production level extend farther and farther versus where people might have planned. Do you think that your customers are just going to move to model year 24 products when they resume production?

Speaker 3: a lot of that product in the pipeline, but we've heard all sorts of stories over the last couple months where the OEMs are doing what they need to do to blow that product out to the dealers and get it in the hands of the retail so that it's just flushing through the system. On the other hand, the 23s, there's not a lot of that product being built, so I don't anticipate that's going to be a big issue.

Speaker 3: Certainly, you'll have some of what you're talking about, but I think that the OEMs and dealers do a really good job working together to, they both have the same common issue here and both have to collaborate to figure it out. So I think in the past they've done a really good job of that one who's been that kind of bad wind, but they'll get through it. Okay, and then Brian , you gave us the total number for the one time.

Speaker 2: costs in the quarter, I think you saw I said, as a 62 cent headwind, can you just break that down between severance and then the inventory hit?

Speaker 5: It's about the in from an inventory perspective as a bulk of it is about 44 cents. So the remainder is the 19 cents, which is seven cents.

Speaker 1: Perfect, thank you so much. Our next question is from Craig Kennison from Baird.

Speaker 1: Craig, your line is now open. Please go ahead. Yeah, hey, thanks for taking my question as well. I wanted to follow up on Fred's last question regarding the COVID-19 pandemic. How do you feel about the COVID-19 pandemic? How do you feel about the COVID-19 pandemic? How do you feel about the COVID-19 pandemic?

Speaker 5: your cost structure going forward. How should we think about SGNA in Q1 and how to go forward basis following the action you took in Q4?

Speaker 5: Hey Fred, or Craig. So I would say that we've continued to make adjustments to our cost structure. We really started having to make some bigger swings at it in November and December as we saw what production schedules looked like.

Speaker 2: So there's been additional adjustments that will continue to make as we write size and get better visibility into the coming months. I do think that obviously from a percentage of sales perspective here in the fourth quarter and first quarter to see our FDNA costs slightly elevated. Certainly the expectation and then resume or head back to the more normalized levels when we get the volume in the second quarter.

Speaker 5: So I don't think it's going to vary too meaningfully, but we have taken some additional costs out of it. And obviously from a compensation perspective, as you would weigh things more with when the profits are actually incurred, given the expectations we have for the first quarter, that will be a much lighter quarter from that perspective.

Speaker 6: So for the first quarter, could you just give us a sense for the cadence of margin and where you expect the full year margin to be, at least what range might you expect that to be in?

Yeah, I mean, I think that, you know, it really 2021 is a good year for comparison. When I look at, you know, and I just say little bits by chance when you look at top line expectations and then look at kind of the what type of margin we were running throughout 2021.

our expectations would be that that's pretty similar when we have the volume. So once you take first quarter out, which as I mentioned is, you know, we're expecting break even to a small flight profit there. Once you move past that and we get volumes resuming to more normalized levels.

We would expect mid to high single digit type margins. And I think that at least the way we're seeing unit production play out today, which there's a lot of uncertainty in that, Q2 would be, I would call it eight to 10% type margin, and then that improving throughout the remainder of the year as volume increases. Fourth quarter normally would be a little seasonally different, but at least through the second and third quarter, which would be the meaning.

You've mentioned giving some price back as your cost changes. Just curious, is that figure something that would go down sequentially? Or is there enough innovation and other drivers to that metric such that you could see?

You've mentioned giving some price back as your cost changes. Just curious, is that figure something that would go down sequentially? Or is there enough innovation and other drivers to that metric such that you could see? Continue growth.

Yeah Craig, if you look at it, you know, and if you were to go back and contrast the past few quarters on a year over your basis, you know, you certainly saw that grow to all time highs, you know.

and the 50 plus percent range, where at 45 percent today, when you start to dig into the details of that, our organic growth rate is some of the highest I remember seeing and you know, my tenure here. So at 15 percent, acquisitions add another 7 percent.

As you fast forward into the next quarter or two, I would expect those acquired revenues to probably not vary too much. And I think that we're gonna, we've won enough business and expect to continue gaining share during 2023 that I would expect that double digit type organic growth rate for us to continue, at least here in the near term.

which is far greater than our historical 3-5% average. Now, if you look at the remainder of that, that's price. And, you know, as we've talked over the last couple years, you know, to see the 35-plus percent type inflationary numbers pushing through the system has certainly been the case, but that's retracted.

If you look at the balance of it for the fourth quarter numbers that we saw, that's way down from where it was in the third quarter and as a fast forward into the first and second quarter, I would expect that price number to continue to come down as we give those price adjustments back to our customers.

to where that would be on a more normalized basis. And you should be back by the first, second quarter to where you're really just, price is not a part of the picture and it's more about the organic and acquired revenue growth.

That would be on a more normalized basis and you should be back by the first, second quarter to where you're really just price is not a part of the picture and it's more about the organic and acquired revenue growth. Great. Hey, thank you.

Thanks, Greg. Our next question is from Mike Swartz from Thruist. Mike's interline is now open. Please go ahead.

Hey guys, good morning. Maybe to start, just on the, I think Jason you called out a $370 million cost reduction program that was put in place in 2022. Maybe give us a feel for how much of that was actually realized in 2022 and how much I guess the remainder we'll see in 2023. Yeah, I mean, I'll jump in there, Mike. I'd say we.

So I would say that's what's been realized at this point. We probably have a little bit more to go, but probably not meaningful enough until we really see what sales levels are going to be. I think here in the short term, like I mentioned earlier, we've taken some additional costs out in January based on...

changing forecasts, but we're really looking forward to the second and third, fourth quarter as to what levels of the cost structure we need to target. Yeah, I think that just to add to that, it's, you know, we're, you know, when you get into cost cutting mode, you just keep going. So there's things that we're looking at, you know, every single day we're in, you know, we're in cost cutting mode right now all over the business. And, you know, we're just trying to...

make sure that we're not cutting too deep because we do feel that we're going to be to a you know a 400,000 unit-ish run rate you know toward the middle of the year. That's what we feel we're going to get back to. So we don't want to cut so deep that we can't sustain you know higher levels of production once we once we see it. And then you know that's what I'd add there.

Okay, that's helpful. And then just on the Marine business, I think you made some comments that you think it'll be flatish in 2023. Is that including market share gains or is that what you see just from industry production?

Yeah, I think that starting out early in the year, at least what visibility we have from the manufacturers is that run rates aren't changing a great deal. There's some up, some down. So overall for us, we're expecting pretty flat through the first quarter and into the second quarter. I think it's yet to be determined as to how much that varies throughout the year. Certainly there's going to be some pricing adjustments.

on a for the manufacturer, especially get further into the year. You know, feel steady right now. They've been running it a good clip for a while, and we anticipate at some point in time, it'll cool off, but we're not seeing it at this point in time.

Okay, great. Thank you. Our next question is from Brett Jordan from Jeffries. Brett, your line is now open. Please go ahead.

Thank you. Our next question is from Brett Jordan from Jeffries. Brett, your line is now open. Please go ahead. Hey, good morning guys.

Quick question on maybe you said this but did you talk about your expectation on 23 retail and RV just sort of so we can line up what shipments might be versus clearing inventory? Yeah we said on retail 370 to 390 is our as our expectation.

wholesale $325 to $350. And then on marine the same question I guess are you seeing that retail demand is clearing the inventory or is inventory building on the marine side? Obviously there's a backlog there because of supply problems but is retail still as strong as it had been?

Yeah, I think that I think that they had been building some inventory and retail is falling off just a little bit. But again, like I just mentioned a minute ago, we're not seeing the production rates change much on the OEM side. We dissipate to that, I'll happen at some point in time this year. But you know, with the introduction of electric bimini's and a lot of seeding content, you know, we've got we've got plenty of

new business there to override any way the business might soften or the market might soften. Okay, and then a really big picture question. I guess you commented in the beginning about the RVA forecast of 63 million RV trips this year. And I think you talked about peer-to-peer RV share because I'm just trying to do the math. If there's 11 million RVs in the population, we're going to have 63 million people using them. And I think that's a really big picture question.

Is this peer-to-peer sharing to get this utilization? And I guess at some point, is peer-to-peer a risk to the industry and that one RV can serve as 10 people, as opposed to 10 people buying an RV? You know, does it impact a man at some level? Yeah, certainly both. It certainly both. When you look at the, you know, 3 million rental nights that RV sharing outdoors, you know, have gone public with over the last two months.

want to buy an RV. Certainly, you'll have families that want to rent anytime they use it, but you're going to have families that jump into the lifestyle and want to have their own and not use somebody else's every time they take a trip, especially if they're going to use it often. So that's kind of the sum of the feedback we hear from the consumers from our customer experience team.

I think it's really healthy for the industry. Then the rental individuals that are running these RVs to the consumers, some of these guys and gals are buying 510, 50 units and having a fleet and running them out and servicing them that way. Right. Okay. And then one last question I guess on the cadence of pricing.

I was going to mention this on a comment a minute ago, but there's actually some price increases going on too. So other areas where we didn't have indexes, we're holding price as long as we can. So I mean, we're going to manage margin the very best we can to hit the target numbers we talked about a little bit ago, which would feel for a really down year or pretty solid. Yeah, Brad, I would add on the...

On the contractual one, July 1, as we had discussed previously, was a very meaningful decrease for our customers. January 1 is another one. October was actually a slight increase, very nominal. But it's so, given the volatility in that, in the space, we've seen it move up and down. But some of the more meaningful decreases on a contractual basis have already been given at this point.

Okay, great. Thank you. Ladies and gentlemen, just a reminder if you still like to ask a question, please press star 1 on the telephone keypad.

Our next question is from Daniel Moore from CJA Securities. Daniel, please go ahead and launch now open.

Thank you. Thank you for all the color. I greatly appreciated just maybe crystallize for aftermarket. What are you thinking about for growth for the full year? You give a lot of color and commentary about some of the buying patterns for January , but what are your expectations for growth in the second? In addition to the catbacks, just talk about how much work in capital you think you can take out this year and what a free cash flow number might be.

You know, so a little under what we've seen historically, but certainly given the current headwinds we've been seeing that, you know, that we should see a lot of improvement there. From a cash perspective, you know, I think that we'll have a better operating cash flow year in 2023 than we had in 2022.

assuming we continue to bring inventories down. So, you know, based on the guidance that we're given on the overall expectations for the business, plus an additional 300 plus million type reduction in inventories for the year, you should be in excess of 700 million of operating cash flows.

which is actually slightly north of what we experienced in 2022. So from a cash perspective, we're expecting a really, really strong 2023. I appreciate the call again. Thank you.

actually slightly north of what we experienced in 2022. So from a cash perspective, we're expecting a really, really strong 2023. Appreciate the call again, thank you. Thanks, Dan. Thanks.

Our next question is from Brandon Roulet from DA Davidson. Brandon your line is now open please go ahead.

I just had a quick question on your shipment outlook. Did that change at all since your preannouncement a couple weeks ago? No, I don't think so.

Okay. And then on just the content per unit and decontenting, you know, given pricing seems to be the biggest impediment to retail right now. How much decontenting are you expecting, you know, in this upcoming model year 2024? I think a lot of people are expecting 24 to be cheaper than 23 and 22. I don't know if you're able to gauge that or if it's on a brand by brand basis, but, you know, on average, I guess how much decontenting you expect to take place.

on a lot of our prior calls, you know, the innovative products that we supply to the industry due to the fact that they're not really commoditized, they're really special. We tend to have more of these types of options and sell the stuff into the units, whether the industry is good or bad.

They tend to take out the commoditized type products, the commodities of the units, and replace them with better features and values, and take cost out that way. We just don't supply a lot of commodity type products to the industry. While they might may do that, it tends not to affect us much because if you need an axler slide out on the unit, you're going to use an axler slide or a leveling system or things like that. You're not going to take that stuff that the consumer needs off the unit. So, that's a short answer.

Okay, all right, thank you. Our next question is from Tristan Thomas Martin from BMO Capital Markets. Tristan, your line is not open, please go ahead. That's great. I just had a question on your industry.

production out what's at first quarter? Please set 40,000 to 50,000 units. January was at 14 and seems like production started to come back in February . It's probably going to ramp up a little more in March. Where the odds the industry ends up coming in ahead of your expectation. Well, there's always a chance. So, you...

You know, as we've said before, we usually don't have great visibility out beyond three, four weeks from an order perspective. So it's a hard question to answer, but it's all going to depend. And at this point where we're at on February 14th, dealers, it has to be put into a lot of orders. And that's going to take time for them to produce. That hasn't really been happening yet. So I wouldn't expect, you know, it to vary greatly. But there's always a chance. Better, you know, our 325 to 350, we bet on, you know, we feel that's what what a good number is. But at the end of the day, it's, you know, there's a lot of positives out there. I mean, you know,

five. You know we're doing a good spot to get out or above what we're talking. I don't I wouldn't bet on below. I'll make some. Thank you. We currently have no further questions. I will now hand back to our speaker for final comments. Mr. Jason Lippert please go ahead. Thanks everybody again and again I'll second what I would I just get on talking about. I you know we're A D Maryl No. I know. This is aawatack. The

We're in a difficult period in the RV cycle right now, but we've been through it before. We've got solid leadership and the business is also much more diversified today than what it was 10, 12 years ago. We went through it the last time and that's it. It's going to give us a nice lift on the look business this time around. It doesn't feel nearly as bad as the last time we went through a recession.

And as I said, the OEMs and the dealers and the consumers are relatively healthy. So I think we're in a good spot. We look forward to updating you. We'll know much more about the market and where the RV business is headed. The next time we have a call. So thanks for joining us. See you next time.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.