Q2 2023 LCI Industries Earnings Call
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Good morning, Good afternoon, and welcome to the <unk> Industries Q2, 2023 earnings call. My name is Adam and I'll be your operator for today, if you'd like to ask a question in the Q&A portion of today's call and reduced sugar pressing star followed by one on your telephone keypad.
Now hand, the floor, absolutely and thats going to begin to Lillian. Please go ahead when you're ready.
Good morning, everyone and welcome to the LCI Industries second quarter 2023 conference call.
I am joined on the call today by Jason Lippert, President and CEO and Tim Advertiser.
And treasurer, we will discuss the results for the quarter in just a minute.
First I would like to inform you that certain statements made in today's conference call regarding LCI industries and its operations may be considered forward looking statements under the securities laws and involve inherent risks and uncertainty.
As a result, the company cautions you that there are a number of factors many of which are beyond the company's control.
That 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 of the forward looking statements are made.
As required by law.
With that I would like to turn the call over to Jason.
Thank you Lillian and good morning, everyone and welcome to Lci's second quarter of 2023 earnings call. We delivered solid results in the second quarter highlighted by continued content growth and sequential margin expansion as we navigate a challenging RV operating environment.
These were $1 billion down 34% compared to the prior year, but up $41 million sequentially.
From acquisitions completed in 2003 in 'twenty, two contributed approximately $17 million for the quarter.
While revenues are down compared to record highs reached in 2022, our results are still $386 million above the second quarter of 2019, we.
We continue to benefit from strength in our aftermarket international Marine transportation and housing businesses, which made a combined 64% of overall revenues this quarter, partially offsetting the impact from the significant year over year drop in RV wholesale unit shipments.
North American RV, they only 36% of our revenue this quarter, our diversified revenues are greatly helping make a difference in our results during the challenging RV environment.
Coupled with our steadfast commitment to driving long term operational improvements throughout our business, while continuing to move forward with our diversification strategy. We believe we will continue our trajectory of sustained profitable growth.
Pursuing the capitalizing on operational efficiencies remains a top priority with the flexibility we've added to our manufacturing footprint, we're able to quickly adjust capacity to match changes in demand are supporting areas in our business that are running strong our executive and plant leadership teams have been hard at work driving new cost savings initiatives driving new <unk>.
Sourcing initiatives and implementing hundreds of continuous improvement projects around the business to diversify and improve our overall cost structure.
We've been successful in right sizing, our overall cost structure, reducing general and administrative expenses I'll also significantly bringing down inventories to drive enhanced cash generation.
We continue to rationalize margins across the business and also divested a few smaller business units focusing on better margin product lines to improve our mix.
These combined actions along with the tailwind of lower freight and commodity costs and strengthen our financial profile, putting us in a solid position with sufficient cash in this uncertain operating conditions Needless to say our company will be in a better position with this reduced cost structure as the industry starts to normalize in the coming quarters.
Moving on to RV OEM sales decreased 55% during the second quarter of 2023 compared to 2022, largely due to decreased wholesale shipments.
We're beginning to see improvements in dealer inventory levels, we've been most challenged as destocking rates amongst dealers decelerates as inventories reach appropriate levels. In addition, 2022 and 2023 year vehicles are being moved out of the pipeline of 24 models begin to enter the market just over a month ago. This changeover also.
The major buying opportunity as viewers cut prices on older models, helping bring in new RV or is looking for great deals.
August and September OEM order forecasts have improved slightly over prior months a sign that they are likely hitting an inflection point in demand.
Camping trends this summer and also with millions more taking trips. This memorial day and fourth of July versus 22 against that backdrop of frustrated air travelers compared to air travel and other attritional loss of vacation.
Our being a 35% to 50% more affordable on average according to the recent RBI study, which makes it attractive choice in any economic environment.
During the quarter content with total RV increased 2% from the prior year to $5487.
Content for motor home RFP for the quarter increased 6% from the prior year to 3700 $60. A model changeover is also supported content growth in recent months as we continue to launch new and innovative products for our views. We are typically able to capture share in demand from the latest models, which normally feature additional leading edge content.
With each successive year.
Annual RV open house only a month away in September we're looking forward to showcasing some of our latest product introductions that have been driving content growth like our new 4000 series windows with built in shade systems independent suspensions, and ABS essentials, and air conditioners and much more moving.
Moving to the aftermarket revenues reached a record trailing 12 months of $854 million decreasing only 2% year over year for the quarter driven by inflationary pressures that are impacting consumer demand, partially offset by improvement in automotive end markets, which weigh positively on aftermarket results.
Operating profits of the aftermarket segment expanded significantly year over year in the second quarter, driven by market share gains declining commodity costs and targeted price increases.
We believe the RV automotive and marine aftermarket will continue to be a major driver for our business as we meet demand for our viewers looking to make improvements and repairs to the vehicles.
In addition, we feel with one hundreds of thousands of rental nice added annually through rental platforms like RV share an outdoorsy repairs and upgrades will be turbocharged as many <unk> go from being used just a few weeks a year or two as many as 20% to 30 weeks a year for some renters.
We continue to expand our why aftermarket product catalog by launching many new products and product programs and the RV aftermarket, helping us capitalize on nearly half a million rvs entering the repair replacement and upgrade cycle annually.
As we become a premier source for our targeted aftermarket we're continuing to expand our share in a nearly $5 billion addressable market, while strengthening the libert brand through our best in class customer service.
Our support teams in place to directly engage our beers everywhere.
To quickly solve problems and help people spend some more time on the road rather than in a repair shop.
In the month of June alone, our customer care Center took a record 180000 calls which is up 80% over last year.
We believe as a sign that we will continue to grow as we add content to continue to make the customer experience and service a central focus of our aftermarket business.
We also just announced our 30 annual lift we've got to wait on that which will be held in island Park, Idaho. This September .
Our teams are always excited for the opportunity to shape the future of our vein by engaging the community and collecting valuable feedback about the products.
The key in the lifestyle in July our customer experience team attended the EAA are venture Air show event in Oshkosh, Wisconsin that attracted over 50000, our viewers events like these along with other major initiatives like the campground project referred ambassadors kind of giveaways and liver scouts have been critical to helping us build trust in <unk>.
<unk> relationships with customers, all while helping us create a strong community that is involved with and heavily invested in the lipid brand.
Turning to North American adjacent markets second quarter revenues were down 8% compared to prior year, primarily due to softness in marine and manufactured housing end markets on a positive note. We continue to see stabilization and some growth in other meaningful adjacent markets like Transit bus school bus and utility trailer markets.
We're very focused on continued innovation in the marine markets and <unk>.
Products like our anchor systems thrusters, windshields, and seeding and moving the market to our patented electric bimini product lineup that is quickly becoming an industry standard since we launched it a few years ago.
In June we launched a partnership between our cabinets group and our waitress marinas the largest Marina management company in the U S to support and don't make different marine products to several events in celebration of National <unk>.
Because of our brand as one of the largest product supplier brands in both we have our customers' attention. It will continue to develop more featured products for the space.
Our international markets had another quarter of solid results due to the easing supply chain constraints that have hindered our OEM partners along with continued operating improvements as we integrate our acquisitions there helping to drive a sales increase of 6%.
As expected with chassis shipments increasing.
Oems are able to deliver higher levels of production to meet pent up demand.
We anticipate will be a tailwind through the remainder of the year.
We continue to leverage European innovations in our North American RV markets to drive long term content growth with products like Windows lines pop Thompson acrylic windows. These.
These types of products have the potential to strengthen our competitive differentiation in the U S with easy access to a proven European products designs and production facilities.
We look forward to driving further growth internationally as this business continues to contribute to our overall performance.
I'll move onto our innovation highlights in the past months, we've announced many new exciting product launches, including our <unk> with an industry first solar panel fabric.
The one control auto setup at basically an up leveling systems independent suspension axles windows with integrated line systems glass entry doors, ABS braking last feet pop types and much more.
Person launch this fall with Valero Hospice series solar Onyx will help us tap into a growing off grid trend.
<unk> provides the added benefit of up to 300 watts of solar power without the added expense and weight of installment conventional rigid panels on the roof of rfps redefining the possibilities of sustainable energy integration for off road enthusiastic.
We believe that our suspension system enhancements close one of the greatest opportunities for us as we introduce the avs concept for total rvs.
It has been around an auto suspension for decades, we have developed an ABS product that we think needs price point and performance expectations and quickly mining volume that should influence many of the industry, leading brands to make them move in this direction as many already have other.
Other innovations such as the industry's first glass door and windows with integrated lines.
Leaner and better looking design inside and outside the RV online all price points to consider these options.
We believe that innovation is a significant reason we are growing our business profitably through any meaningful content to most rfps over the last three decades.
On top of innovation culture remains a true differentiator for our business is that long stated the strong culture starts with experienced account leaders at the top.
Work to create trust and meaningful relationships and leadership opportunities for people to have the privilege to lead.
Our leadership development programs and in House leader Development staff has made liberate a place where team members have the opportunity to grow both personally and professionally.
Just simply creating a better work environment, our cultural focus this had measurable impact on our company, helping us achieve an annualized voluntary turnover rate of 25% an incredible achievement given the environment, putting us far ahead of our peers.
The team members that are excited and energized to show up every day and here for the longer term. We believe we are able to more consistently build high quality products that are safer more productive workplace.
Within our culture. In addition to focusing on how we can support our team members. We also focus on how we can improve the communities around us and it's important for our stakeholders to know that we actually measurements in the first half of 2023 Liberty team members performed 65000 hours of community service at hundreds of charitable organizations over the last year and over 75.
5% of our 15000 team members participated in at least one serving event.
Overall, we could not be more proud of these accomplishments and the efforts from our global teams to give back and serve in the areas where we operate.
Florida, bringing our teams together to make even more of a community impact through the rest of 2023.
Regarding capital allocation, our priorities, keeping a strong balance sheet driving solid cash generation to pay down debt and maintaining sufficient liquidity in this challenging operating conditions.
We remain open to strategic M&A opportunities and have an acquisition pipeline, but our primary focus is on fortifying our balance sheet and making investments in the business to support our growth.
We are taking a diligent approach to capex, which we expect to be lower this year than last year by approximately $50 million targeted on high return investments in the past 18 months, we've invested over $50 million in new automation projects, including significant glass automation dedicated to the total and motor home window and once yield markets to <unk>.
Efficiencies at a new product market and improve product quality we.
We believe that automation projects like these have been transformational for our business and we are already seeing the benefit of these investments in our performance today.
In closing we want to give a very heartfelt. Thank you to all of our team members for their very hard work this year and what it has been a very challenging operating environment. We are proud to see how our teams continue to grow personally and professionally and contributing to the ongoing success of our business with the guidance of our driven tenured leadership teams.
Further into 2023, we believe we are very well positioned to keep us moving forward and deliver long term value for our stakeholders I am now going to turn the call over to willingness corn, our CFO to give more detail on our financial results Julien.
Thank you Jason.
Our consolidated net sales for the quarter decreased 34 one.
The 1 billion compared to the prior year period, primarily impacted by the reduction in North American RV production and decreased selling prices, which are indexed.
Great.
Firstly offset by acquisition.
So the month of July sales were down 20% to $295 million versus July of 'twenty, two primarily due to the decline in wholesale RV shipments.
As Jason noted we are continuing to see the benefits from operational improvements that we've made toward business. While also capturing continued tailwind from our long term diversification strategy.
Sales in North American RV Oems declined 57% sales scenario, Jason market after market and international businesses only declined 4%.
This significantly reduced the impact of year over year decline in the RV industry production.
This decline in Q2 2023 sales to North American RV OEM was again driven by a decrease in wholesale shipments.
Partially offset by content expansion in total another term.
Content for total RV hit it increased 2%.
487, while content per bill rate increase.
Increased 6% to $3750 compared to the prior year period.
Tell us what kind of growth can be attributed to organic market share gains of 7%, while the acquired revenues contributed 5%, let's say year over year growth.
Offset by the sales price reductions contractually tied to commodity prices.
Sales to the adjacent industries declined 6% versus the prior year sales.
Sales were positively impacted by acquisitions and pricing adjustments to our transportation product and were offset by lower sales in North American Marine Oems and manufactured housing.
<unk> content per powerboat decreased 17% to $1450, primarily due to price decreases associated with year over year declining input costs and changes in product mix.
Q2, 2023 sales to the aftermarket decreased 2% compared to the prior year period, driven by inflationary pressures impacting consumer demand.
International sales increased 6% year over year, including an estimated 2% positive impact of exchange rate in the quarter.
Supply chain constraints have been easing, which has enabled European Oems to pent up demand.
Gross margins were 21, 5% compared to 26, 6% in the prior year period.
Remember, we do see the impact of fixed production costs on lower sales volume and the timing of sales price reductions contractually tied to commodity prices.
Operating margin decreased compared to the prior year period in line with expectations as it continues to absorb fixed costs on lower sales pace and also decreased prices in that market.
The bright spot, we had a year over year increase in aftermarket margins driven by a decrease materially.
Material commodity cost, helping to partially offset the impact from lower overall sales.
GAAP net income in Q2, 'twenty, three with $33 $4 million or $1 31 per diluted share compared to $154 5 million or so.
$6 six per diluted share in Q2 of 'twenty two.
EBITDA decreased 65% to $88 2 million Congress for the second quarter compared to the prior year period.
Non cash depreciation and amortization was $65 5 million borrowers for the six months ended June 30th 23.
On non cash stock based compensation expense was $9 1 million.
For the same period.
We anticipate depreciation and amortization in the range $130 million to $140 million during the full year 2003.
For the six months ended June 30 hit the 23 cash generated from operating activities was $274 million.
Importantly, a use for capital expenditures 26 million units for business acquisition and $53 million returned to the shareholders and this quarter that dividend.
Operating cash flows were negatively impacted by lower sales and partially offset by the positive changes in working capital.
The improvements in working capital were led by the initiatives, we put in place to decrease inventory, which has resulted in a decrease of $200 million year to date.
Inventory continues to normalize we expect further improvements to working capital and positive impact to cash flow.
We have made net debt repayment and our long term debt of $179 million year to date through June 30.
At the end of the second quarter.
Had an outstanding net debt position of $921 million, one times pro forma EBITDA adjusted to include LTM EBITDA.
And the impact other noncash items.
And we look forward, we are focused on continuing to maintain a strong balance sheet and targeting a long term leverage of one five times net debt to EBITDA.
In the near term.
And to integrate recently completed acquisitions, which we expect to positively impact our operating cash flows in the coming quarters.
For the full year 2023 capital expenditures are anticipated in the range of $60 million to $80 million.
We continue to expect that RV production levels will remain volatile in the short term.
We estimate our July consolidated sales are down roughly 20% to be indicative of a third quarter 'twenty three resolve it.
With RV OEM production remains depressed as dealers continued destocking to get inventories to more appropriate level.
We anticipate Q3 of 'twenty three RV shipments will be between 65 and 75000 units.
With a full year estimated range of $2 90 to 310.
We believe third quarter financial results will be very similar to the second quarter.
Looking ahead, we are confident in our ability to keep our solid performance and are very well positioned to continue managing through operational challenges to create long term shareholder value.
Is that this is the end of our prepared remarks, and we're ready to take questions.
As a reminder, if you'd like to ask a question today. Please press star followed by one on the telephone keypad now to enter the queue.
To ask a question. Please ensure you have headsets on muted locally.
Our first question today comes from Kathryn Thompson from Thompson Research Group Catherine Your line is open. Please go ahead.
Hi, Thanks for taking my questions today.
This is really more about the balance of doing into the Elkhart open house, and where inventories in the field right now.
Have you seen we started seeing each other this year, but are you seeing dealers discretion out orders to a degree for the open house and maybe running a little bit leaner.
And hopes of bleeding, placing orders for new units or do you feel that inventory right now.
Really reflects current demand and just really kind of understanding.
How do you think about inventories going into that show.
Thanks Catherine.
I think that it's more the latter of what you just said I think that you know obviously dealers can they go.
Get to a point, where their inventories are so low where they need to order and need to stay stocked up.
Dealer inventories are obviously.
<unk> decelerated the Destocking was because theres still be stocked I mean, the way we've looked at it as you know from Q1 2020, when we felt inventories were fairly normalized.
We're about 85000 units almost 100000 units less today in this quarter than what we were.
Back then so it feels and again I'm, just giving you a feeling yards are empty here the shipyards at the Oems are pretty empty.
If you go back just 12 months ago. They were they were chalk full.
But the orders are picked up it feels like 10% or so for August and September like they need units because the last.
The last handful of months Ive, obviously been we've been pretty star for orders. So it feels like they need some of those units to get through open House and then we're anticipating.
No.
We are anticipating continued to stock up as camping world setting there.
Their recent recent release that they were going to continue to stock.
Through the next six months and gain inventory so that's what it feels like.
Okay.
Hudson is a cash generation you previously said that inventory.
Obviously.
Inventory and cash go hand in hand, especially if you have an inventory buildup.
But with lower inventory and debt reduction.
Hum a key bogies that you're focused on.
From here what is your outlook on inventory to cash conversion and usage.
Hey, good morning, Catherine it slowly.
So as you noted we've done some significant reductions in our inventory year to date, we've reduced it by about $200 million.
We aren't going to look to continue to reduce inventory through the second half of the year, probably not at that type of pace, but we are gonna still.
Still continued to rightsize, our inventories as we move forward.
We've had very strong cash generation in the first half of the year.
I expect that we're going to continue to be generating cash as we move into this next half so the company's been positioned very solidly.
And very focused on cash generation and that's going to be something that we will continue.
To be working towards the balance of the year and it feels it feels like if volume stays up as we kind of see the trend for August September what we have.
Immediate visibility for obviously, we can we can reduce inventory at a quicker clip than what we have the last couple of months, but.
July was obviously a little slow again, if August September rest of the year pickup we can we can move inventory out and generate more cash though.
Okay.
And then final question can you touch on the nuclear.
Updated automation efforts.
Just where you are in.
And given.
That's right is this an opportunity you can speed up some of those initiatives.
Yes, we've obviously squeeze capex this year for obvious reasons.
But we had quite a few projects flowing into the year that were carryover from 2022.
Probably most notable is.
Our our glass automation that we're doing for windshields, which will be a new product line for us for global and modernized arby's.
Especially on the <unk>. So the windshields are really ticked up over the last few years.
You see it probably about 30% of the total is now with windshields on the on the fronts, where they didn't have anything.
In prior years. So we've got automation for those two lines of I'd say, we'd probably got 40 or so million of automation in one building for glass now.
Half of that is online and the other half is coming online over the next.
Six to eight months so.
And we've got other projects that we've got in the backburner warming up for.
24 assumes cash improves.
Okay perfect excellent thanks very much.
Yeah. Thanks Catherine.
Yeah.
The next question comes from Fred Wightman from Wolfe Research. Your line is <unk>. Please go ahead.
Hey, guys. Good morning, I just wanted to follow up on the comment about <unk> being similar to <unk> I wasn't sure. If that was a comment in terms of total dollar performance. So sales EBITDA earnings was that a comment on year over year performance, what exactly did you mean by that.
Hey, good morning credits Lillian.
But what I was referencing with that really is comparability to the second quarter of this year as performance both.
From the topline perspective, and the overall earnings for the business.
Okay Perfect and then did you guys I apologize if I missed it did you give an update at the retail number for 'twenty three.
I don't know, if we did or not but.
We feel the retail for this year is going to be somewhere in the $3 75 range and we feel you know $3 75 to 400 for 24, that's kind of what we're throwing out and I think that's in line with some of the other.
Public company, so the state of their forecast.
Okay, Great and then just lastly, I think last quarter, you said from an inventory mix perspective model year 'twenty two it looks like 35% do you have an updated number for that sort of where it stands today.
Can you repeat that again.
Just the mix of model year, 'twenty Twos, I think last quarter, you said it was around 35%.
Yes.
Yes, so it feels it feels and doing all the dealer touches and talking to all the Oems that it's around the it's nearing the 10% Mark some dealers have 15% that we've touched and others others are in the five 3% to 5% range. So it's definitely.
Declining pretty good with respect to the <unk>.
Performance I, just want to be clear that while we're.
While we're challenged in the times recently with lower volumes, we feel very confident as we stated.
In past years.
This is a double digit oi business and and we will get back there, but there is there is some choppiness in just volume and getting through some of our inventory challenges and things like that over the next couple of quarters, just wanted to be clear about that.
Okay, great. Thank you.
Okay.
The next question comes from Mike Swartz from tourist Securities Mike King. Your line is open. Please go ahead.
Yeah, Hey, good morning, everyone.
Just maybe for Lilly and the question I think previously you had.
Said, you anticipated mid to high single digit operating margins for the full year, I think youre, implying kind of mid single digit again for the third quarter. So do you have an update there it seems like it would be probably at the lower end of the range, but I don't want to put words in your mouth.
Yeah, No I think that's probably fair. So if were seeing how the cadence for volume coming through and as we're seeing the RP business cadence seen them and what how do you see the balance of the year. It probably is you know more at that that mid single digit for this year and as Jason I'll just comment.
Ted.
Just immediately previously yes, we do still see this business on a longer term basis being a double digit business.
Just taking a little bit of time as we get into more normalized operating patterns for the industry to get there.
Gotcha Okay.
And then just a point of clarification I think you said your kind of visibility into.
August and September are the production looks better than.
Past months I'm guessing you're talking about.
Maybe June July .
Or was that year over year basis or was that absolute production levels I just wanted to clarify that.
Well I think I think one of the things that we want we want a lot of the investors understand specifically as the ramp down that we've seen over the last you know you go back to.
April of 2022, just over a year ago, we were on a run rate of 725000 units as an industry that was if you annualize the monthly production in April and that's what we were kind of shooting towards and if you look to you know one.
One year later in April 23 were running at a 260000 run rate. So the deceleration of the business is a lot greater than what it might have looked at from the outside saying Hey, We finished 22 at a 500000 unit wholesale in.
And 23 looking at a 300000 plus unit wholesale so the difference is a lot greater but.
Yes, I think that what we have visibility on today August and September being up.
We should get into better comps, obviously significantly.
Significantly better comps as we get closer to the first quarter.
But right now all we have visibility on is August and September and it feels like 10, 10% over what we saw in May June and July which had.
Several weeks of downtime and all three of those months.
More than more than normal for those months. So I hope that answered your question if not you can.
Keep trying.
Okay.
That's helpful. Thanks, guys.
Okay.
Okay.
The next question is from Bret Jordan from Jefferies. Your line is open. Please go ahead.
Yeah on the prior topic I guess, you'd say Q3 is similar to Q2, but it sounds like most of Q3s would be running better than Q2 or is that just better year over year I'm trying to reconcile the.
August and September being up.
<unk>.
<unk> second quarter, Yes, I think we've got some yeah I think we've got some puts and takes with our diversified businesses that might be where some of the.
Clear clarity needs to be but if you look at August in Europe . They take they take the entire month down where you look at Q2, we had a pretty robust quarter for Europe . So you've got to look at all the different industries and segments.
Fundamentally but for the RV segment I think is what we're speaking to as we see orders at least for August and September not knowing what October is going to be yet.
And still there.
We can't be certain that they don't come back.
After.
After open house or even in the next few weeks and say Hey, we need to take a week down in September . So is telling you what we see today.
Yes.
And on that.
Okay.
Brett just to expand a little bit on that from a sequential perspective as we look at some of the other other industries I think it is important to note that.
Europe generally speaking is it lighter from a seasonality perspective for Q3 because of.
The shutdowns that we have in the various countries.
The other area that we're.
We're seeing softness as expected is in the marine side of the business, but that was down a little bit sequentially in the second quarter and as we progressed through into the third quarter. That's also going to be down again sequentially. So again to the point that everything kind of the puts and takes we are seeing strength in certain areas clearly.
Yep.
Clearly some of these adjacent markets are being puts and takes with the RFP.
Okay, and what's the second half impact from commodities I mean, what what you can see in price deals that you have now.
Yes, we've got I mean again lots of lots of you.
You know positives or negatives there we have some commodity <unk>.
Pricing going down we have some that are going up we have commodity indexes, where some of our pricing to customers is going up some of it is going down. So again overall I think that it's a pretty net neutral result.
We'll know more about Q4 next next quarter, but that's.
It's kind of kind of where we're at.
Okay, and then one last question.
Outlook on sort of content as the Oems the manufacturers are rolling out to 'twenty for us.
Is there is there a bias to sort of try to get consumer prices lower.
On average moving content down or is it sort of try to make them more appealing by moving content off is there any shift there.
Yes, I mean definitely the shift is.
As you've heard maybe from some of the other public calls.
There is a real push to get pricing down as pricing crept up over the last couple of years.
And some of that is coming through the content and some of that's coming through just pure discounting.
When I look at our products.
I've said this in the past, but I.
I think it's helpful to repeat it.
When our units taken a slide out or axles or a chassis theres not really much that changes from a content standpoint on that.
Because they need those products windows on things you can't really build units without those their content and largely on product a lot of products that we don't sell.
So when I look when I think about our products and the content and the only time, we get we get a little pinched as when the market tends to go from high end units to entry level units or.
Bigger travel trailers to smaller travel trailers and the market shifts that way, which we're seeing a little bit of especially when you look at big class a motor homes and diesel motor homes. Those are certainly taking the biggest hit but again.
It's a small overall part of the entire market. So.
I hope that's helpful.
Yeah, great. Thank you.
Yep.
The next question comes from Scott <unk> from <unk>.
Scott Your line is open. Please go ahead.
Hey, good morning, guys and thanks for taking my questions.
Good morning.
Can we get I'll go back to the content the conversation.
It sounds like you wont be as impacted by D. Contenting, so looking out to 2024.
Factoring everything and where do you see organic content growing I know you've been in a three 3% to 5% range.
As a goal right, but do we still say there.
Yes, I think if you if I think if you peel out inflation and those pressures certainly we our goal is to continue to add bells and whistles and features.
Listing products and then continued to come out with new product lineups.
We've been doing that for the better part of 20 years <unk> been pretty successful I would also add that we haven't we haven't lost market share. During this time. So that's another strength that we've got as we can.
Tend to continue to keep our market share.
Pretty level or grow it over time so.
Given all that I think that that's a still a fairly safe assumption.
Netting out any kind of inflationary.
Issues and things like that.
Alright, and then looking at the marine side, getting a little bit softer than the previous quarters, but could you maybe just flesh it out.
Pontoon versus more expensive types of boats.
Yes, I think that you know, obviously ponds, we sell a lot of a lot into the pontoons, but we sell we sell a lot of windshields to all the all the bigger boats as well. So we have some decent content there, but I think because over the last couple of years. They just as you all know they havent ramped that marine business hasn't ramped up as high.
And as fast.
And to the levels that RV did compared to where they were.
We feel that this cycle is going to be relatively short lived.
Most of the OEM customers, we talk to are talking.
First quarter to get some of the inventory flushed out, but I don't feel that the dealers have.
Same type of problem or more the size of the problem with marine inventory that the RV dealers had with the RV inventory and especially on the <unk> side.
Alright, and then last question on the aftermarket you talked about your customer call centers having.
Tremendous increases of inbound calls can you maybe talk about.
Where is that coming from is that related to repair work break fix or.
What are you hearing from dealers as far as.
No.
Warranty and things like that.
Yeah, Yeah sure. That's a great question, yes, 180000 or anybody else on calls and communications in each of the last two months so.
If you look at over the last 10, or so years that we've really had our our call center running and running full tilt.
Really rarely had a quarter.
They had less service impact and in calls in the prior quarter. So you know.
We put more rvs out there we're going to get more calls we put more content out there we're going to get more calls I think the other thing that leads to the more calls and opportunities is the fact that.
I think we're servicing better than anybody else in the industry. So we tend to get calls when maybe other people's lines are busy.
We're monitoring every single call how quickly we answer.
How much we're putting toward.
No.
Sales on each of those calls and their sales efforts obviously in each of those calls even if it comes in for repair, but the answer to your question on repairs.
My guess would be 65, 70% of the calls come in for service repairs warranty things like that the rest or hey, I'm thinking about getting bits of that product from IRB.
I get it how do I get it I don't want to get it installed.
And then we've got service to handle to handle all of those things so.
And our best estimation of the calls into our our service center are going to continue to grow over time, especially as we put more and more content.
Out there, which is which is good for our aftermarket and one of the reasons why it's growing like it has.
Got it that's all I have thank you.
Thanks Scott.
Yeah.
As a reminder, if you'd like to ask a question Thats star slipped by one on your telephone keypad.
Question is from Daniel Moore from CJS Securities. Your line is open. Please go ahead.
Thank you good morning, Jason Good morning, Lillian covered a lot of ground already but maybe just one or two quick ones.
The decon tanked and the content discussion, maybe if we take that over to marine content was down I think I heard 17%.
What was the split between price and mix and do you anticipate mix being maybe a little bit more of a headwind at least near term.
If customers are looking for kind of lower price point lower amenity models.
While they're looking for some of those exact numbers I'll say a couple of things. One is we just started measuring marine content within the last year. So some of those numbers might just be fuzzy because we're starting to just starting to measure it certainly some of thats inflationary because we have given some decreases.
But I would tell you that just when we look at the pontoon market and Forest River had their their dealer show just the other day.
The pontoon boats feel like there is expensive as they've ever been.
What what dealers are looking to buy you don't see very many of the entry level.
A 30000 dollar pontoons anymore like it used to I mean, there's a lot of lot of pontoons that are in the <unk>.
70 to $100000 range.
Lots of bells, and whistles and feature and you look at electric Bimini as you look at some of the power arches, obviously, they're putting more windshields on pontoons today, which they didn't do in the past in seating packages that we do a lot of or getting more expenses. So.
<unk>.
So I'd say that that's probably the best.
The best color, we can give you there and maybe the color will become more clear in future quarters, as we get more time under our belt reporting the content.
Fair enough funding that's out there maybe <unk> wouldn't be on capital allocation.
Capex as you mentioned tightening the belt a little bit are there projects that you deem as less necessary or maybe just sort of pushing things out to fiscal 'twenty four when things get a little bit clearer.
Yeah, I'd say that we're just we're just pushing them out I mean, all the projects that we've got on the.
The block right now are we feel are important.
We wouldn't put him on we prioritize them.
Some of those projects or automation projects. So.
Those usually take priority because.
We're improving our labor on quality and safety all while.
Putting putting these capex in place so.
When we look at last year at $138 million in Capex in this year at 65, we're just trying to put the most important important projects 65 ish million in Capex this year.
What we look to be at we're just trying to prioritize the most important ones. We can do in that in that range.
It makes sense and lastly.
Appreciate the color Lillian.
You mentioned your leverage target one five times again.
Would you want to get back down.
<unk> to 100% of the way there are all the way there before you kind of start looking at M&A again, or if you've made meaningful progress would you start to consider smaller tuck ins along the way. Thank you.
Yeah, No I think it's I think what I would want to see is that we're making meaningful progress.
We're always going to be looking for opportunities from an M&A perspective to the extent that it makes sense for the business and its strategically aligned with our objectives.
So if the right opportunity came forward and we were making meaningful progress that I'd be comfortable doing that.
Say for right now as we stated you know really focused on making sure that the balance sheet is very strong and it's basically.
But always willing to entertain opportunities as long as we're making that progress.
Makes sense. Thank you again.
Thank you.
Yeah.
The next question comes from Craig Kennison from Baird. Greg. Your line is open. Please go ahead.
Hey, good morning, Thanks for taking my question as well it's been a good call.
I think I have a decent handle on stocking trends in the RV channel and then in the Marine channel Im wondering if theres any color you can shed any light you can shed on.
Any stocking trends in your aftermarket channel.
Yes, it's real difficult Craig.
To answer that question in a way that's going to provide you any kind of.
Better color than maybe what we already what you already have but I will.
I'd say that the trends typically typically follow them.
The retail unit retail unit trend so.
When the dealers or are challenged.
Challenged a little bit there typically holding back on those inventories.
But there's also the <unk>.
A factor that you have with when retail flows down and and people are moving more used product. They are tending to use a little bit more.
Aftermarket parts to upgrade and things like that and obviously, we sell a lot of those so.
All I can tell you that our you look at our our quarter were 2% down which you know is a lot better than obviously, what the market's doing.
But I think a lot of that as we continue to just put more content into the into the channels the aftermarket channels.
Our automotive side is a factor that that's that's been bumping up a little bit recently.
What was it a little bit challenged in past quarters, and then you've got the the marine channel as well so you've kind of got three channels and aftermarket when you look at that number.
Versus just our RV, OEM, which is strictly or be that helpful.
Yeah.
It is thank you Jason and then just an unrelated question I hopped on a little late but did you offer any commentary on.
Your appetite for acquisitions in this environment.
Yes, I think you know, we're obviously staying super diligent on.
The capital expenditure side and we're just.
We're looking at companies, we've got a pipeline.
We're pushing some of those out right now for obvious reasons, but.
I don't anticipate when we get back to 2024, I mean, M&A is still an important part of our growth strategy and we're still going to continue to look at acquisitions as actively as we have in the past might look a little bit different as we look more to marine in aftermarket in and a little bit less in RV, but just depends on what presents itself, but we're going to stay.
Yes.
Great. Thank you more tuck ins more tuck ins likely that are smaller like we'd like we've announced this year, we announced to do smaller deals. So if those types of things come along obviously those would be easier to consider.
Yeah.
That's helpful. Thank you Jason.
Yes, correct.
The next question is from Brandon <unk> from D. A Davidson. Your line is open. Please go ahead.
Good morning. Thank you for taking my question I just had a quick one on the labor situation in Elkhart could you comment on the availability and maybe competition for labor.
Industry starts to ramp up production.
Yes sure.
I'll start by saying, it's it's a little bit of a mystery to me.
We are having obviously one of the biggest downturns in RV the industry's ever seen this communities.
Pretty heavily relied on that industry and different than a weight on nine.
I've talked to a lot of people recently I haven't heard you know I haven't heard a lot of people screaming and complaining that they can't find work so that there is.
There's a lot of people obviously that have done.
<unk> done really well the RV workforce probably that.
Our comfortable staying for a period at this kind of a four day work week level.
But you know unlike the last big dip we had I just we're just not hearing about a lot of people having trouble finding jobs I think the other industries in the area.
Are finally, getting some of the labor that they need in a lot of those businesses are doing okay. As you know this.
This industry.
The economy in general is still growing a little bit.
Sure.
<unk>.
The RV industry.
Struggling right now and has for the last 12 months, but.
That's good to know that people are seem to be sticking around so long answer to your question, but hopefully that's helpful.
Yes. Thank you.
We have no further questions. So I'll turn the call back to Jason for concluding remarks.
Yes, I just want to thank everybody for joining the call. Obviously, it's been a year of dealing with some of the RV challenges, but it feels like we're starting to see some of the light at the end of the tunnel and we look forward to update updating you on that over the next couple of quarters. So thanks for joining the call.
Yes.
Okay.
This concludes today's call. Thank you very much for your attendance you may now disconnect.
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