Lci Industries Q4 FY2021 Earnings Call

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2021 LCI Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Thank you. I would now like to hand the conference over to your speaker today, Mr. Brian Hall. Please go ahead.

Good morning, everyone, and welcome to the LCI Industries fourth quarter 2021 conference call. I am joined on the call today by Jason Lippert, President, CEO, and Director. We will discuss the results for the quarter in just a moment. But first, I would like to inform you that certain statements made in today’s conference call regarding LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company’s control, that could cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in our earnings release and in our Form 10-K and other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason Lippert. Jason?

Good morning, everyone, and welcome to LCI’s fourth quarter and full year 2021 earnings call. 2021 was a year of incredible progress and highlights for LCI, as the larger outdoor recreation industry continued to grow at a very fast pace, highlighted by a record 600,000 RVs shipped during 2021. We broke records of our own, delivering all-time high revenues, along with record content and profitability, all while facing some incredible headwinds on labor, inflation, and supply chain fronts. I’m continually impressed and proud of our team’s ability to achieve such amazing results in this challenging operating environment. We believe that our cultural strength has been the cornerstone of this continued success, supported by an experienced leadership team that has kept Lippert on track and executing on our culture, values, and strategic priorities. We ended 2021 with $4.5 billion in revenues, up 60% year-over-year, largely driven by strong demand across all our markets. Our growth is also supported by six acquisitions, adding approximately $270 million in net sales. These acquisitions have helped us further expand our wide portfolio of innovative products while providing entry into new and meaningful markets, further establishing LCI as a global leader in the recreation space. RV OEM sales increased 73% during the year compared to 2020, reaching nearly $2.6 billion, primarily driven by heightened demand for RVs throughout the year. Families are recognizing that the outdoor lifestyle is a far more attractive alternative to the hassle of airline travel and hotel lodging, as well as more affordable considering the recent levels of inflation. With the freedom and convenience that come with RVs, it’s no wonder families across the globe are turning to RVs as the go-to choice for a positive vacation experience. The increasing popularity of peer-to-peer rentals has also contributed to the accessibility of RVs, opening the door to many new customers looking to try the experience before they buy. Our growth in the RV OEM segment was also supported by incredible operational execution on the part of our teams and minimizing many of the supply chain challenges that have impacted the industry. As we explored new supply channels and have worked to source materials in the U.S. and elsewhere when possible to avoid issues associated with international freight, we see fewer component issues compared to that of our peers, which has enabled our continued outperformance. With a focus on scalable growth, we are targeting 15 automation projects costing up to $40 million planned for 2022 and early 2023. We expect these operational improvement projects to support our long-term margin expansion and help offset the impact of inflationary pressures while improving quality and helping us to mitigate labor constraints to maintain stable production and meet the new heightened consumer demand. We delivered substantial content increases for the year in both towable units and motorhomes, driven by strong organic growth. Content for total RV for the full year 2021 increased 24% from the prior year to $4,198, while content per motorhome RV for the full year 2021 increased 15% from the prior year to $2,856, supported by several market share gains. As we head further into 2022, we expect the current strong pace of wholesale shipments to continue in the coming months as we execute during a dealer restocking period. That said, visibility toward the full year demand is limited due to uncertainties about the longer-term impact of inflation on consumer spending. We’ll have a better view of how to manage shaping up once the spring retail season ramps up. Our revenues in the Aftermarket segment grew year-over-year up 32% compared to 2020, supported by organic and inorganic growth drivers. The integration of Furrion is progressing smoothly, and we expect this business to contribute substantially to our aftermarket sales going forward as we leverage its robust catalog of innovative appliances and electronics to tap into a $1.5 billion addressable market in North America alone. As I’ve said throughout the past year, with a record number of RVs on the road and over 1 million coming into the repair and replacement cycle every two years, we expect a long runway for growth of our aftermarket business as we meet significant demand for repair, replacement, and upgrade components. As our aftermarket business is growing, we focus our attention and resources on enhancing the retail customer experience. The Lippert Scouts program, which has more than quadrupled in membership in the past year, serves to provide valuable insights on products and services, how customers use them, and, most importantly, how we can drive improvements. Other experiments like product giveaways and the Campground Project that help us meet, survey, and collect candid feedback from thousands of real campers and RV-ers nationwide. All this work culminated in the resounding success of our first Lippert Getaway RV rally in Pigeon Forge, Tennessee, attended by over 200 families, where we were able to meet face-to-face with customers and talk about RVs. The engagement we drove through this event far exceeded expectations, and we’re already hearing buzz among our viewers for our 2022 Getaway. The more we can creatively and effectively engage consumers, the better we can help them stay in the lifestyle over the long term and keep them connected to our team, our customers, and our products. We believe that establishing Lippert as a leading name in customer service will be another competitive differentiator to drive growth and strengthen our overall business for many years to come. As popularity for the outdoor lifestyle grows, our ability to innovate has proven to be critical in meeting consumer demand. Our tire pressure management systems, our continued development of one control systems, and the newly introduced safety suite of products have solidified our reputation as a company operating on the cutting edge of RV technology. Now that Furrion has been brought into the fold, we have even more innovative projects slated for launch that we’re excited to announce later in the year. We’ve also recently announced the launch of many new suspension products, including ABS brakes for axle systems and independent suspension systems for the growing Gen Z and overland consumers. The global shift toward electric vehicles represents a monumental and innovative opportunity for Lippert, and we are already preparing for what the future of RVs might look like. Only a few weeks ago in January, we unveiled our prototype EV towable RV chassis that we have been developing at our advanced R&D center in Northern Indiana. This concept vehicle consists of an array of lithium batteries specially housed in our chassis. The battery system is intended to power all the RV's electrical system for multiple days of boondocking. We also displayed a new aluminum chassis design along with regenerative braking and drive axles paired with remote control capabilities. While we plan to continue refining our concept prototype, we expect to begin rolling out parts of this technology in 2023. We believe this project will be a huge stride in reducing the environmental impact of RVs on the environment. We are also very excited about the continued progress of our suite of Class B products, with retail sales per Class B van RVs having doubled in the last several years. We’ve been working hard to develop a full line of products for these vehicles, including our pop tops. This option, which allows OEMs to install a bed on the roof of a B van, is increasingly being adopted by consumers. Turning to the adjacent markets, full year 2021 revenues rose 58%, again driven by heightened retail demand for marine and other related markets. Additionally, our market shares in housing and cargo trailers both increased dramatically in 2021. Content per unit in marine has increased over 2 times what we delivered in 2019. Whereas RV inventories are starting to build back, marine inventories remain very low. And accordingly, we anticipate a longer runway for growth in this business over the next two years. Our international businesses grew 58% for the year compared to 2020, supported by our introduction of innovative products into the European markets. Demand across Europe remains high, supported by the same secular drivers supporting heightened demand domestically. 2021 retail caravan registrations in Europe increased 8%, with the largest market, Germany, up over 4%. However, because Europe is largely motorhomes, the chip shortages are impacting industry production a little more than what we’ve seen in the U.S. That said, our European RV and Marine divisions are continuing to provide solid innovations for use with customers domestically. We continue to see our Lippert Europe products being adopted by U.S. OEMs, further supporting our content gains. Looking ahead, we remain optimistic about our company’s ability to drive growth in our international markets while also realizing synergies and products that we bring to our North American customers. Moving on to capital allocation, we are maintaining our focus on integrating our recent acquisitions and paying down debt. At the same time, we are continuing to invest more heavily in innovation and optimizing our manufacturing footprint to ensure we have capacity to meet heightened consumer demand while identifying cost efficiencies where possible. In 2021, we allocated over $40 million to growth in automation CapEx, and we anticipate allocating even more to these important projects in 2022. I’ll now move on to some cultural highlights for the year. Here at Lippert, we work hard to maintain a culture that values all team members and enables each team member to see how his or her individual contributions help us meet our greater goals. Our culture focuses not only on how we can impact our team members but also on how we impact the world around us, starting with our communities that we work and live in. We started our cultural journey 10 years ago, and we know it’s having a real impact. Not only are we hearing incredibly positive feedback from our team members, but our retention is also significantly higher than in past years, even in the face of some of the headwinds impacting labor markets today. In alignment with our core values, we recently published our inaugural corporate sustainability report covering our progress across a wide range of ESG-related topics. This report includes initiatives such as our mission to replace conventional energy with solar power at seven facilities, the identification of a board committee focused on ESG, and our focus on reducing team member attrition rates by way of elevating a healthy and safe company culture. We believe our growth in recent innovations, along with our increasing focus on ESG, will mean our Lippert team members, their families, and our customers will be able to better enjoy the communities where we live, work, and play long into the future. I’d also like to mention the amazing strides our teams made in keeping up with our commitment to serving and supporting local communities. Over 2021, Lippert team members performed over 100,000 hours of community service through serving at various charitable organizations around the country. Over the last five years, our team members have collectively served 550,000 hours of community service. We could not be prouder of this accomplishment and our team’s efforts to give back to those in need and look forward to our culture and initiatives having even more impact in 2022. In closing, I’d like to thank all of our team members not only for their tremendous work and commitment to delivering quality products to our customers, but also for staying aligned to our culture that has made Lippert so successful. We could not have achieved such amazing results without this incredible dedication and record amounts of team members staying with the business over the long term, coupled with the strength and guidance of our leadership teams. We look forward to continuing this tremendous progress in 2022 as we keep creating value for the team members, customers, and shareholders. I will now turn to Brian Hall, our CFO, to discuss in more detail our fourth quarter and full-year financial results.

Thank you, Jason. Our consolidated net sales for the fourth quarter increased 55% to $1.2 billion compared to the prior year, driven by continued strength in market performance, coupled with strong execution against strategic initiatives. Acquisitions contributed $97 million or 12% growth to our quarterly results, with organic growth contributing the balance or 43% of the improvement. As Jason mentioned, January sales were up 71% from January 2021 to $526 million, a strong indication of the expected growth rate for Q1. Q4 2021 sales to RV OEMs increased 67% compared to the prior year due to heightened wholesale and retail demand. Current North American RV industry production rates also remain high, and we closed the year with a record 600,240 wholesale unit shipments. We drove further content expansion for towables and motorhomes during the quarter. Content per towable RV increased 24% to $4,198 and content per motorized unit increased 15% to $2,856 compared to the prior year. The content growth can be attributed to organic growth, in addition to the impact of price increases enacted during the quarter. Acquired revenues contributed 5% and 6% of the year-over-year growth in towable and motorhome content per unit respectively. We continue to see robust performance in the marine market, driven by the same demand fueling growth for the RV OEM segment. North American Marine sales increased 113% in the quarter as production continues to ramp up to meet the heightened demand. Acquisitions contributed $19 million in revenues or 38% of this growth for the quarter. Sales to adjacent industries grew 52%. Aftermarket segment sales increased 25% and international sales increased 28% as the recreation space continues to attract new customers. Gross margins were 24.1% compared to 25.2% in the prior year quarter, pressured by near-term headwinds, including elevated freight, material, and labor costs. On a sequential basis, gross margins improved by approximately 350 basis points, supported by the price increases we enacted in the second half of 2021 and solid operating leverage. We anticipate some margin contraction mid-year as supply chain pressures begin to ease, and we begin to contractually ease pricing with our customers in our traditional quarterly leg. We are expecting margins to improve approximately 150 to 200 basis points from Q4 2021 to Q1 2022 considering materials and pricing alone. SG&A costs as a percentage of sales decreased from the fourth quarter of 2020 as well as sequentially due to fixed costs spread over a higher sales base, offsetting increases in freight and transportation costs. Operating margins increased roughly 375 basis points compared to the prior year, driven by the successful implementation of our efforts to continuously improve our manufacturing process by increasing automation. GAAP net income in Q4 2021 was $82.3 million or $3.22 per diluted share, compared to $48.7 million or $1.92 per diluted share in Q4 2020, increasing due to increased demand accompanied by effective cost management. Adjusted EBITDA increased 66% to $146.3 million for the fourth quarter compared to the prior year. Moving on to full year 2021 results. Sales to RV OEMs increased 68%, driven by heightened retail demand throughout the year. We drove further content expansion for towables and motorhomes during the quarter as I previously mentioned. Sales to adjacent markets increased 58% to $1.1 billion in 2021. And our Aftermarket segment increased its total sales by 32% to $829.1 million, while international sales increased 58% to $374.4 million compared to the prior year. Acquired revenues were approximately $270 million for the full year 2021. Non-cash depreciation and amortization was $112.3 million for the 12 months ended December 31, 2021, while non-cash stock-based compensation expense was $27.2 million for the same period. We anticipate depreciation and amortization in the range of $140 million to $150 million during the full year 2022, primarily due to increases in capital investment to enhance production capacity and enable further manufacturing efficiencies. For the 12 months ended December 31, 2021, $194 million was used for business acquisitions, $99 million for capital expenditures, and $87 million was returned to our shareholders in the form of dividends. Operating cash flows were negatively impacted by the intentional increase in inventory to support heightened demand and minimize supply disruption, in addition to rising prices of steel and aluminum-based products. At the end of the fourth quarter, we had an outstanding net debt position of $1.2 billion, or 1.8 times pro forma EBITDA, adjusted to include the LTM EBITDA of acquired businesses. With the constantly evolving operating environment, we are focused on maintaining a strong balance sheet and continue to target a long-term leverage of 1.5 times net debt to EBITDA. In the near term, we are working to integrate recently completed acquisitions, which we expect to positively impact our operating cash flows in the coming quarters. For the full year 2022, capital expenditures are anticipated in the range of $130 million to $150 million. Looking ahead, we are confident in our ability to continue this momentum throughout 2022 and remain dedicated to further executing our growth strategy to drive long-term value creation for shareholders. That is the end of our prepared remarks. We’re ready to take questions. Thank you.

Thank you. Your first question is from the line of Fred Wightman from Wolfe Research. Your line is open.

Hey, guys, good morning. I was hoping you could just give a little bit more detail on that January number. It looks like it picked up on a two-year basis. And just hoping you could sort of put that into context with the inventory situation across the channel. I mean, if we look at Slide 4, it looks like we’ve built a fair amount of inventory already. But if you could just put those sort of two data points together, that’d be great.

Yeah. So hey, Fred. From a strategic perspective, you got two things driving the increase. The OEMs did pick up production rates starting in the first week of January. So from what we were running in the fourth quarter, there was a little bit of a lull with a couple of weeks around the holidays, but then their volumes and outputs have picked up during the month. I think that while inventories do, as you would know, start to seasonally improve during this time of year as wholesale would normally outpace retail, I think at this point it’s a little too early to expect the OEMs to adjust their production rates as they’re all seeing quite a bit of success with the early dealer shows down South. I wouldn’t expect those rates to change much in the near-term. The second part would then be our price increases, as we’ve been discussing. They’re on a two-quarter lag, so we had some in the fourth quarter and additionally had more index adjustments that went into place during January, effective January 1, that at this point puts us pretty well on par with where a lot of the current input costs are. So, a lot of that lag we’ve made some catch-up on here these last two quarters.

And I would just add that all the suppliers had a good solid two weeks to set the table for January and make preparations and clean up some of the supply chain messes that were out there. So when the OEM set the ground running in the first week of January, most of the suppliers were all caught up and had the OEMs stock full of supply. So the OEMs were able to run pretty clean in January.

That makes sense. And then Brian, I think you made a comment that the January number is a good run rate, or at least a good indication for the quarter. But if we look back at what you guys reported for January year-to-date last year and then where Q1 came in, it would seem to imply that sales accelerated in February and March. I’m wondering if you’re sort of planning for that again this year, or if there’s something different, if we’re just looking back?

Well, we certainly have visibility on February orders and some of the March orders. So the run rate – if you just look at the run rates that OEMs are moving at right now, it’s kind of on pace with RVIA has put out there in terms of an annual outlook of 610 or 615,000 units. That’s kind of where they’re running right now. In March, they’re looking at more of a 640, 650 run rate. So it does look like it’s going to pick up. The question is, will supply chain and some of the other headwinds allow us to hit those numbers?

And Fred, one other thing I’d add. I believe, last year, in January, the shutdowns by the OEMs straddled year-end, so you had some closures in December and January. This year, most of the OEMs were all shut down during December and then hit the ground running at full pace in January. So that’s a little bit of a dip, I think, in the prior year that we saw in January.

Perfect. Thanks, guys.

Your next question is from Mike Swartz of Truist. Your line is open.

Hey, guys, good morning. Wanted to touch on the towable content numbers in the quarter; there was a big jump sequentially, and obviously year-over-year. But maybe give us a little context, how much of that increase is being driven by pricing relative to maybe core market share gains?

Yeah, I would probably break that down into three buckets. First are our organic gains, new business, new market share. We’ve talked about that, as we layered in new business over the last 12 months. That certainly has been running in a range pretty consistent with our historical trends of somewhere around 5% or so, usually 3% to 5%. I think we’ve been a little more on the high side of that. Acquisitions, there are some acquired revenues in there. I believe it’s right around 5% on the towable side of things, and then the remainder you would see a lot of that being driven by price adjustments as that’s caught up to keep pace with our input costs today.

Okay, okay. That’s helpful. And then, I think, Jason, you mentioned there are more automation projects on tap for this year. I guess early next year, I think you said upwards of $40 million in investments. Just remind us what the return on that spend typically looks like and how quickly we’ll see some benefits from those investments?

Yeah. So we’re five or so years into our automation journey. We started with a couple of really small projects and moved to some bigger projects. Our sweet spot for investments tends to be in the range of $1 million to $4 million per project, which typically pays back within one to three years on average. So they’re pretty good payback opportunities, but it allows us to take the labor out of those work areas and redistribute them to other areas where we need labor, because labor is certainly an ongoing challenge. It’s really been a huge advantage for us as we continue to do more automation projects and we’ve refined our selection of projects to maximize our returns.

Okay, great. Thank you.

Yeah.

Your next question is from Craig Kennison of Baird. Your line is open.

Hey, good morning. Thanks for taking my questions. Jason, I just wanted to call out all the cultural progress that you’ve made. I do remember back in the day, you had a lot of higher turnover than you do today. And it doesn’t get called out on these quarterly calls.

Thank you. That’s awesome. I appreciate you acknowledging that.

So Brian, on the margin front, could you just reiterate what you said about your outlook for Q1 and how you think the cadence will flow through the balance of the year?

Yeah, certainly. First, you’d have to acknowledge how volatile the markets are. We’ve seen steel, aluminum, and freight exhibit quite a bit of volatility moving up and down. So it’s hard to predict too far out, although for the most part, you can look at what steel is doing currently and use that as an estimate for two quarters out, because those index adjustments are contractual and automatic. As it relates to the current quarter, as I mentioned earlier, just getting our cell sales prices in line with our current input costs, which has been a journey over the last 12 to 18 months, is expected to provide another 150 to 200 basis point improvement in margin, going from fourth quarter to first quarter. On top of that, I would look at our normal incremental margin improvement, call it 20% to 25% on the added volume, as our fixed costs are essentially pretty consistent moving from Q4 to Q1. You’d get another 150 to 200 basis point margin improvement from that. Obviously, that piece is a 100% cost of goods sold, and it will impact gross margins. The incremental margin would be spread over both our manufacturing overhead and SG&A, so you’ll see pick up some in both sections of the P&L.

And just to tie that back to your intro there on culture, I mean, without a solid culture and the things that we’re doing there, we wouldn’t be able to attain those types of incremental margins, and we wouldn’t be able to grow $1.7 billion in a year or onboard 3,500 people if we didn’t have a strong culture. So really, the culture is foundational to how we succeed in all these areas. So I appreciate you acknowledging that.

Yeah, thank you. And then following up on capital allocation, you’ve got a lot of opportunity, obviously, internally, which you mentioned in response to Mike’s question. But what does the deal pipeline look like? What is your appetite for your own stock at its current multiple? How do you weigh all of those opportunities, which seem to be plentiful today?

Yeah, I mean, certainly, we’re always looking to allocate capital to the highest returns and take advantage of opportunities as we see fit. The M&A pipeline is consistent as it has been; nothing significantly changing there. So, as we evaluate where to deploy our capital, certainly, we’ve strategically built up our inventories as discussed, to assist in our ability to mitigate any supply chain disruptions and keep pace with the record volumes that we’re running at today. We’ve been mindful of that and deployed a lot of capital there. We’ve also prioritized a lot of these automation projects, as I mentioned, with the labor benefits they provide. We can deploy people where we need them to continue to keep pace with these kinds of record volumes.

And we’ve been consistently allocating capital over the years, whether it’s through dividends, organic CapEx, or acquisitions. It feels like acquisitions have taken quite a bit of CapEx in recent years, while CapEx back into the business and automation remains a close second. Moving forward, it seems we have an ability to put more CapEx back into the business and focus on organic growth. Since we’ve seen significant growth over the past year, we can see ourselves investing more money back into the business while still pursuing acquisitions, though perhaps they may take a backseat at times.

Great, thank you.

Yeah.

Your next question is from Daniel Moore of CJS Securities. Your line is open.

Thank you, and thanks for all the color, Jason and Brian. Maybe talk a little bit focused on the aftermarket side of the business. And obviously, you mentioned 1 million RVs coming in every two years. Could you just share your outlook for growth in 2022 as well as the M&A pipeline?

Yeah, I think, as we’ve discussed over the last few years, the aftermarket opportunities are significant. We’re moving toward $1 billion of our total business. Not many realize how much opportunity there really is in the aftermarket with repair, replacement, and upgrade parts for all these RVs coming in. It’s not only the one million coming in every year; those RVs stay and need more work. The RVs of today have probably doubled the content they had 10 years ago because there are more bells and whistles that we’ve been adding based on customer demand. We see tremendous opportunities and are preparing our infrastructure to enhance retail customer experience.

And it seems like in your prepared remarks you’re moving toward more of a branded strategy on that side of the business. Obviously, OEMs know your LCI brand well, but maybe just elaborate on that. How much of it could ultimately be a pull from the customer versus a push from you through Camping World and other dealers? Thanks.

Yeah, in this day and age, there’s a growing need for more people who can assist consumers to help make them happier and solve problems. It’s not just about getting help from dealers and OEMs; people want a trusted source available to answer their questions. We’re trying to provide 24/7 service, focusing on the issues that arise. We want to keep new buyers connected and feeling comfortable because their biggest fear is not having someone to guide them. This is especially important for first-time buyers, and we've established a dedicated customer experience department to meet those needs.

Okay. Last one for me, and I’ll jump out. You highlighted the Class B growth and your content. What does your content look like on Class Bs today with the TAM, and what do you think it could be?

Right now, there’s $65 million in total potential parts for our product lines, which is about $5,200 per Class B. We’ve got about 830 of that today. However, we’re currently launching several new products, like awning steps and some furniture and pop tops. We can quickly boost our content in that category as we roll those products out.

Your next question is from Scott Stember of C.L. King. Your line is open.

Good morning, guys.

Good morning, Scott.

Good morning, Scott.

Outside of Furrion, can you talk about some of the trends that you’re seeing in the adjacent segment? Whether it’s high-speed rail, European RV—just give us an indication of how that’s gone?

Yeah, sure. Well, marine is doing really, really well right now, and they have much longer runway than RV in terms of the amount of inventory. The dealers have enough inventory, so we think there’s another 18 months of filling the pipeline. Our contents have doubled from 2019. Outside of marine, Europe will be a little sluggish with the chip shortage impacting motorhomes. About 60% of their total vehicles sold are motorhomes, so it’s tough for them to build units. Some production capacity is shifting to towable units as we supply some towable content over there. The specialty vehicle and bus market is flat right now, but we’re gaining content and share there.

Got it. And just lastly, on Furrion, now that’s back into the fold, you’ve got the aftermarket angle that wasn’t there before. Can you talk about how that will drive the business from a sales perspective going forward and maybe the margin profile for the Furrion aftermarket versus your traditional aftermarket?

Furrion’s aftermarket previously composed nearly 40% of their total business. They weren’t in as many distribution and dealership channels as we are. So we’re currently in the process of integrating their products into our traditional channels. It’ll take time to ramp up the supply chain, but we look forward to discussing further market share gains with Furrion this year, both on the OEM and aftermarket side.

Got it. That’s all I have. Thank you.

Hey, Scott.

Your next question is from Kathryn Thompson of Thompson Research Group. Your line is open.

Hi, thank you for taking my questions today. One just more of a clarification on the inflation side and looking at your content per unit having a nice increase, as you’ve always been steadily moving up with that metric. But how much of this in the quarter, or maybe you can look over the past trailing 12 months, has been related to inflation versus your ongoing initiatives to increase content per unit? Thanks.

Hi, Kathryn. From a normal content growth perspective, it’s pretty consistent with what we’ve shown in the past, between 3% to 5% growth. On the towable side, the impact of that was around another 5 percentage points; motorhomes were a little higher at around 6%. The remainder of the growth can be attributed to price impact. Overall, you’ll see anywhere from 25% to 30% type increases in price across the board. We’re pretty consistent in seeing that inflation impact as well. So as we go quarter-by-quarter and the 12-month number bakes in those price increases, you’ll continue to see similar inflation impacts.

And because there were so many supply chain problems with competitors last year, we experienced more meaningful market share gains in several categories like awnings, doors, axles, and chassis, so we are looking forward to 2022.

Yeah, and that kind of opens the door, Jason, to my next question, just going to ask about, we’ve seen a variety of industries over the past 18 to 24 months have and have not in terms of market share gains, and clearly, you have gained market share in a variety of categories. How much of those market share gains do you think are sticky? Who are you taking market share from, and what are the top three to five categories where you think the stickiness will remain going forward?

Sure. The most important point is that we have been good partners with the OEMs. We bailed a lot of situations out and put the OEMs in a position where they could ship units when they thought they might not be able to. We capitalized on these challenges and were able to establish longer-term commitments during that time. Our top products gaining market share include awnings, entry doors, axles, and chassis. The stickiness of these new relationships is better than ever because we provided value during those tough times, and there’s an ongoing focus on maintaining good relationships with our customers.

Okay, great. And then just a final question. We were in Florida for the Super Show; there are several big retail shows coming up. What’s your outlook? You’ve got great backlogs; that’s going to keep you busy for quite some time. But from a consumer standpoint, what trends are you seeing now that would impact the mix of business you do going forward?

Certainly, we expect longer trends in marine. We talk about that segment as well; there’s significant opportunity for growth in that market. On motorhomes, there’s still a lot of backlog, which is promising since we have substantial content in that category. The Class B segment, we just talked about, continues to see strong growth—potentially 25% to 50% annually. We can continue to develop excellent content across various RV sizes. We are focused on innovation and product launches that will address evolving customer needs, as we’ve been actively gathering direct feedback from consumers.

Okay, perfect. Thanks for answering my questions today.

Yeah, sure.

Your last question is from Bret Jordan of Jefferies. Your line is open.

Hey, good morning, guys.

Good morning.

Good morning.

Could you give us a little more color on Europe? I think you sort of mentioned it’s sluggish given the lack of chassis. But could you talk about the consumer demand? Are they putting deposits down just to get out and try to buy products?

Yeah, we’ve seen the same trends and new buyers over there, and there is significant consumer demand. Unfortunately, consumers want products but just can’t get them—much more so than the U.S. here, where we have more access to inventory and the lead times are a little shorter. Motorhomes are the bigger piece of the market in Europe, and their inventories are very depleted. We’re still optimistic about future potential.

Okay. Your comment on inflation, you mentioned looking for something in the 20 to 30% price increase range, as a result of COVID disruption. How much of that is already baked into the sticker versus what’s left to come?

I feel like the increases in the supply chain have passed on to the OEMs and are pretty well baked into their prices for this quarter. There will probably be some smaller increases coming, but there will also be decreases in other commodities to offset. It feels like the situation will remain stable overall as the dealers are starting to think about keeping their sales competitive.

Okay. And one final question, you talked quite a bit about the aftermarket and the service demand. Given that there’s not much integrated service or service provider chains in the RV space, is this something that you could potentially vertically integrate into your model, or are you primarily focused on supplying parts and consultation?

It’s a really good question. We have some service bases around the country right now, and we do work on our parts. The question is whether we become a full-service provider for units. We’re exploring everything. We’re attempting to meet our commitment to solutions for consumers, especially as the number of service techs available is quite low due to labor shortages. So we want to play a part in addressing these needs while optimizing our existing processes.

Great, thank you.

Your last question is from the line of Craig Kennison of Baird. Your line is open.

Yeah, thanks for letting me back in the queue. So, Brian, I just want to clarify something you said about margin. I think you mentioned that you see some margin contraction mid-year due to supply chain issues. Is that a year-over-year comment or a sequential comment?

Primarily what I’m addressing there is that as I know you watch the commodity markets and what steel and aluminum have done and have been doing; it’s hard to predict too far out. We will see those adjustments from the contractually established index, so it’s more on the sequential side. As we’ve caught up now, you would start to see the reductions based on those adjustments. Of course, today is a solid market environment, but as prices decline, you would see that impact, which given where prices are today, it’s obviously a solid market and could go anywhere.

That’s very helpful. And then, Jason, you’ve got this new capability to tap into the RV consumer in a different way. There’s a lot of curiosity about that first-time buyer and their experience over the last couple of years, and whether they will stay in this industry. What insights have you gained about their plans to stay in the market?

For first-time buyers, a key aspect we’ve learned is that they want someone to guide them. They appreciate initiatives from both dealers and OEMs, but they need a trusted source to avoid frustrations. We’re trying to ensure that they feel confident they can reach out to us at any time for help. We’re focusing on building a community where they can ask questions, providing resources, and fast responses—ultimately keeping them connected to the RV lifestyle, which can help reduce churn.

Great. Hey, thanks again.

Yeah, sure. Thanks.

Thank you. Presenters, I’m not seeing any other questions at this time. I would like to hand the conference back to Mr. Jason Lippert for closing remarks.

I just want to say before I close that we had a strong year—growing $1.7 billion is no small feat—and I want to shout out to all of our team members, all 15,000 across the globe, who have participated. If we didn’t have a good culture and good teammates that were committed to coming back and dedicating passion and energy into our business every day, there’s no way we could have achieved what we accomplished in 2021. We’re really looking forward to 2022, we’ve got a lot of momentum, and we’ll talk to you about that next quarter. Thanks.

Thank you so much. Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.