Good morning, and welcome to the LCI Industries Q1 2023 Earnings Call. My name is Sam, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I’d now like to turn the call over to Lillian Etzkorn. Lillian, please go ahead.

Good morning, everyone, and welcome to the LCI Industries First Quarter 2023 Conference Call. I am joined on the call today by Jason Lippert, President, CEO, and Director; and Brian Hall, Executive Vice President. 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, which would cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in our earnings release, and in our Form 10-K, and other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Thanks, Lillian. Good morning, everyone, and welcome to LCI's first quarter 2023 earnings call. Before I begin, I want to take a moment to welcome Lillian to the Lippert team as our new Chief Financial Officer. Her financial acumen, combined with deep industrial and manufacturing expertise, makes her an excellent addition to Lippert as we focus on delivering our next chapter of growth. We are excited to have her join our family, and look forward to working together to drive our business forward for years to come. With that said, let's turn to our first quarter results. Coming off a record year and considering we are navigating a challenging RV environment, we started 2023 with solid results, delivering robust content growth and sequential margin expansion. Through our focus on operational discipline and flexibility, execution on diversification and company-wide commitment to innovation, we've been able to manage through declines in North American RV OEM production to support the profitability of our business. We delivered $973 million in revenues in the first quarter, down 41% compared to record results in the prior year, but up $79 million from the prior quarter. Net sales from acquisitions completed in 2023 and 2022 contributed approximately $28.5 million in the first quarter. Our Aftermarket, Marine, International, and other adjacent businesses are performing much better than RV, and made up a combined 63% of overall revenues in the quarter. As I've noted before, Lippert has never been more diversified in a down cycle, moving from manufacturing almost only RV products to building content for a wide variety of markets, including Marine, International, automotive, Aftermarket, and mass transportation. I am confident that continued execution on this strategy will keep us on the path of outperformance and consistent profitable growth over the long term. We are also seeing the benefits of the improvements implemented throughout our operations in recent years under the guidance of our seasoned leadership team. As RV industry production has declined, we've been able to adjust manufacturing costs quickly to align capacity while also making meaningful reductions to our overall cost structure, totaling $300 million in the past 10 months. Additionally, through solid working capital management, we significantly reduced our inventories during the quarter by $120 million, enhancing cash generation and strengthening our overall financial position. Moving into RV OEM, sales decreased 62% during the first quarter of 2023 compared to 2022, largely due to decreased wholesale shipments mentioned earlier. As expected, OEMs are continuing to adjust production schedules to better align with moderating retail demand and keeping dealer inventories at appropriate levels. Despite near-term declines, retail demand has remained similar to pre-pandemic levels. And early indicators from winter and spring retail point to healthy consumer interest. Secular trends, such as the growing Gen Z demographic and younger buyers and the growth of peer-to-peer rental RVs, continue to bring new consumers to the outdoor lifestyle, underscored by 57 million North Americans planning an RV trip this year, a 15% increase over 2022 based on RVIA data. Our reputation for quality and culture of innovation has continued to help us capture market share and drive strong content expansion. During the quarter, content per total RV increased 21% from the prior year to $5,881. Our content per motor home RV for the quarter increased 27% from the prior year to $3,985. As we capture consumer demand for sophisticated products like refrigerators, ABS suspensions, air-conditioners, pop-tops, chasses, and windows. With the upcoming model changeover in mid '23, we are already seeing successful content gains in the next generation of RV models of about $200 million based on current run rates. In the first quarter, we kicked off our partnership with ATW, the largest utility trailer builder in the country, supplying axles for the entire trailer lineup. These types of partnerships with premier manufacturers go a long way to help strengthen the Lippert brand and give us a great entry point to add even more content over the long term. Our newest axle facility consisting of about 150,000 square feet opened last quarter in Texas, to support this new partnership in the South. Moving to Aftermarket, revenues decreased 13% year-over-year, primarily due to lower sales in the automotive aftermarket. The need for products like mattresses, awnings, suspensions, air-conditioners, and appliances have created massive opportunities for growth, particularly as we see increased spending as people upgrade their RVs, illustrating the value of our recent acquisitions like Furrion, Girard, and Way. We expect appliances, one of our newer product categories, to particularly support growth in the next three to five years, as approximately 2 million RVs begin to enter their repair and replacement cycles. Further, we've also worked to build out our automotive aftermarket offerings, highlighted by the recent introduction of the ForeFront grille guard and bullbar specifically designed for the Ford Bronco, adding Lippert content to an iconic SUV model. The approximate 500,000 RVs entering the repair and replacement cycle each year help to extend the growth trajectory of our RV Aftermarket business. Aftermarket continues to add countercyclical support, helping to offset the impact of the RV business when production dips. We believe what was originally a $1.6 billion addressable market a decade ago, is now close to $5 billion, and that we've never been in a better position to capture that market share and expand content. Our mission to deliver a first-class customer experience has become very impactful with the expansion of Aftermarket. In the first quarter, Lippert took on approximately 300,000 communications, calls, and cases, on top of 1.2 million for the entire year of 2022, showing the incredible demand for customer support as consumers make repairs and upgrades to their vehicles. With the summer season right around the corner, the Lippert teams have significant opportunity to interact with customers and collect in-person feedback critical to enhancing our innovative offerings, as well as to provide support for our large portfolio of products and services. We attended a few rallies earlier this quarter, and Lippert representatives met with RV enthusiasts from around the country. Finding ways to creatively engage campers and RVers have led to a great return on investment for our business, helping us to build real trust and relationships with people who not only keep coming back to the Lippert brand, but also are out there advocating for us while they are on the road. Turning to the North American Adjacent Markets, first quarter revenues were down slightly, largely driven by some softness in the housing and trailer markets. We are just now starting to see some softness in Marine, but it's important to note that near-term declines in Marine should be more subdued than what we're seeing in RV due to the fact that Marine production has been far steadier, and did not rapidly increase like the RV production over the past couple of years. Our Marine and other adjacent markets have been providing critical support to our overall performance, particularly in January, when RV production was almost totally shut down. Transit and school buses are also a big part of our adjacent markets, and those markets are starting to see stability this year. We're also continuing to develop our Marine Customer Experience programs as we head into the summer boating season. Our Captain's Group now boasts over 2,400 members. Our passion for innovation, combined with our focus on customer experience, should continue to drive this segment as we expand our product offerings and execute on our diversification strategies. Our International business was nearly flat for the first quarter of 2023 compared to 2022, with supply chain constraints finally beginning to ease. European customers are receiving critical parts, like RV chassis, and starting to replenish inventories to meet pent-up demand. On another positive note, our International business has continued to be an innovation incubator, highlighting Lippert's ability to design and market sophisticated products that should be popular with North American customers. Pop-top units were once almost exclusively known as European products, but have now gained traction in the U.S., and add meaningful content to the B-van markets, one of the fastest growing markets in the RV space. In addition to pop-tops, our acrylic window products are starting to gain popularity in RVs as well, becoming yet another avenue to generate revenue and content growth using our great European product lineup. We'll keep leveraging these types of introductions across our global footprint. And with supply issues winding down, we expect our International businesses to provide a positive impact to our performance heading further into 2023. I'll now move on to our innovation highlights. We believe our focus on innovation and building our R&D capabilities is unparalleled in our industry. Consumer choice is driving the evolution of content. And with younger generations more attracted to the outdoor lifestyle than ever, we've increased our focus on innovative products that will match their interests. Our offerings like new leveling systems, new window systems, new slide-outs, pop-tops, ABS suspensions, new awnings, various accessories, OneControl camera technology and tire pressure management systems have helped to strengthen our competitive advantage and drive long-term market share expansion. Many of these products just mentioned have very newly developed market share, and we believe we have a great runway with these products over the long term. In addition, we are continuing to work towards our partnership around electrification components and products to make sure that we have a seat at the table around all things electrification of towables in the RV market. Last year, we launched ABS brakes for our RV and utility trailer axle system, which we believe has been one of the most well-received and best tech product introductions in Lippert's 30-year history. We're now at a 70,000 unit run rate with ABS, which represents 20% of the market. And we expect our market share to continue to increase significantly over the next five years, as we believe this technology we've developed for the industry becomes standard safety equipment on all RVs. Based on the feedback that we've received, we have found that consumers are very interested in more products like our ABS brake technology that have a laser focus on safety. Many of you know that our culture is a main differentiator here at Lippert, and very critical to our success. As we have stated in the previous quarters, we believe that a strong culture starts with experienced and caring leaders at the top, who work to create opportunities for our team members so they can become leaders in their own right. Our emphasis on in-house leader development has enabled team members to become the next generation of leaders at Lippert. We believe, as I said before, great leadership directly impacts the outcome of retention. And higher retention is directly correlated to increases in innovation, safety, efficiency, and quality, all of which are key drivers of success of any business. In the first quarter, we hosted our annual Pack-Out event in Northern Indiana, more than 1,500 LCI team members showed up, and packed over 108,000 items that were donated to the Boys & Girls Club Elkhart and St. Joe counties, as well as other organizations and local schools. It was yet another opportunity to demonstrate how business can be a force for good, utilizing our teams to make an impact in the communities where we live and work. Additionally, we launched our seRV With Purpose platform to create meaningful serving opportunities to connect RVers to each other and non-profit organizations through purpose-driven volunteering that we believe will forever change the communities where they camp. Lippert currently has six SeRV Ambassador families across the U.S., who travel full-time and help advance our community serving goals ultimately bringing the RV community closer together. RVers everywhere are loving the fact that we are taking the initiative to help connect them to serving opportunities while they are camping. Overall, we cannot be prouder of these accomplishments in our global team's efforts to give back to those in need. We look forward to our cultural initiative having more impact in the rest of 2023. Moving now to capital allocation, we are focused on fortifying our balance sheet through cash generation and diligent management to maintain ample liquidity with modest leverage. We are executing a balanced deployment strategy continuing to pay down debt, and at the same time, investing in innovation and operational enhancements that should drive efficiency, quality, and profitability throughout our business. We are still receptive to strategic M&A opportunities, but are focused on keeping a strong balance sheet and making growth investments in our business. In the first quarter of 2023, we purchased a small after manufacturing in Texas that helped us expand capacity in that market. We also allocated $7 million to growth and automation CapEx. And while our spending will be down in '23, we still expect to spend some additional dollars on targeted high return investment through the remainder of the year. In closing, I would like to reiterate that we believe Lippert is in a good position to deliver strong results over the long term. Our diversification strategy, cultural foundation, operational focus, and our ability to quickly flex our operations puts us on a path to deliver long-term value for customers and shareholders, and to further our leadership in the outdoor and recreation space as mobility diversified markets that we are in. I would like to thank all of our incredible teams for their hard work this quarter, and we look forward to delivering further progress throughout 2023. Finally, I would like to thank Brian Hall for the hard work and dedication he has shown over the course of his tenure at Lippert; Brian, best of luck, and thank you for all that you have done for our business and our teams. I will now turn to Lillian Etzkorn, our CFO, to give more details on financial results.

Thank you, Jason. Our consolidated net sales for the first quarter decreased 41% to $973 million compared to the prior year period, primarily impacted by a reduction in RV production. For the month of April, sales were down 37% to $338 million versus April 2022 primarily due to the decline in wholesale RV shipments. As Jason noted, we are seeing effectiveness of our diversification strategy on the results this quarter, while sales to North American RV OEMs declined 64%, sales in our success with growth in the adjacent market. Aftermarket and international businesses only declined 5%. This significantly lessened the impact of the year-over-year decline in the RV industry production. The decline in Q1 2023 sales to North America RV OEMs was again driven by a decrease in wholesale shipments partially offset by double-digit content expansion in towable and motor homes. Content for towable RV units increased 21% to $5,881 while content per motorized unit increased 27% to $3,985 compared to the prior year period. Towable content growth can be attributed to organic market share gains of 15% while acquired revenues contributed 7% of the year-over-year growth. Sales to Adjacent Industries grew 1% versus the prior year period, offsetting some of the reduction in RV sales. Sales growth was primarily from acquisitions and pricing adjustments to our transportation product, offset by lower sales in North America Marine OEM and manufactured housing. Marine content per powerboat decreased 3% to $1,608, primarily due to price decreases associated with year-over-year declining input costs and changes in product mix. Q1 2023 sales to the Aftermarket decreased 13% compared to the prior year period, driven by a decline in automotive aftermarket sales. International sales decreased 1% year-over-year, representing 11% of our total company revenue, as exchange rates negatively impact results by approximately 4% due to the strength of the dollar compared to the euro and British pound. Excluding the exchange impact, organic growth would have been 3%, led by the strength seen in our rail markets. Gross margins were 19.1% compared to 28.2% in the prior year period due to elevated input costs and the impact of fixed production cost on lower sales volume. We continue to expect reduced margin pressure in the second half of 2023 due to increased production, supporting enhanced profitability as we move through the year. Operating margins decreased compared to the prior year period in line with expectations as we absorbed fixed costs on a lower sales base. GAAP net income in Q1 of 2023 was $7.3 million or $0.29 per diluted share compared to $196.2 million or $7.71 per diluted share in Q1 of 2022. And this is due primarily to the lower RV demand. EBITDA decreased 83% to $52.5 million for the first quarter compared to the prior year period. Non-cash depreciation and amortization was $132.5 million for the 3 months ended March 31st 2023 while non-cash stock-based compensation expense was $4.7 million for the same period. We anticipate depreciation and amortization in the range of $130 million to $140 million during the full year 2023, primarily due to the increases in capital investments to enhance production capacity and ensure further manufacturing efficiencies. For the 3 months ended March 31st 2023, cash generated from operating activities was $75 million, with $17 million used for capital expenditures, $6 million used for business acquisitions, and $27 million returned to shareholders in the form of dividends. Operating cash flows were negatively impacted by lower sales and partially offset by the positive changes in working capital net of acquired businesses as it generated $130.7 million more cash in the first 3 months of 2023 compared to the same period in 2022. As inventories continue to normalize, we expect further improvements to working capital and positive impact on cash flow. At the end of the first quarter, we had an outstanding net debt position of $1.1 billion, 2.3 times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses and the impact of other non-cash items. As we look forward, we are focused on continuing to maintain a strong balance sheet and targeting longer-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 2023, capital expenditures are anticipated in the range of $80 million to $100 million. We continue to expect that RV production levels will remain volatile in the short term. As a result, we estimate the April consolidated sales results of down 37% to be indicative of full Q2 2023 results, as RV OEM production remains suppressed while the dealer base seeks the right inventory levels for expected demand. The sales decline is primarily driven by the reduction in RV production as we anticipate Q2 2023 RV shipments between 75,000 and 85,000 units. Looking forward to Q2 and beyond, we are anticipating RV shipments to improve to more in line with those experienced in the back-half of 2019, which results in an estimated RV shipment range of 310,000 to 330,000 units for the full year 2023. As we continue to reduce our cost structure and material cost headwinds, profitability will be limited through the second quarter. And, we anticipate operating profit margins to return to mid- to high-single digits in the second-half of 2023. That is the end of our prepared remarks. Operator, we're ready to take questions. Thank you.

Our first question comes from Kathryn Thompson with Thompson Research Group. Kathryn, your line is now open.

Hey, good morning. This is actually Brian Biros on for Kathryn. Thank you for taking our questions. First, I wanted to ask you about the OEM production rates you guys touched on in the prepared commentary, and really just to see if the production levels are coming back at the rate that you previously expected, I guess at Q1, or at when we talked earlier? We've heard chatter about taking it a little bit longer to give dealers a little bit more time to adjust their inventory levels of '22 units, add up the model year '24 is next to ship, so maybe they're taking a little bit longer to bring production levels back. I'm just curious to see how that squares with the previous expectations you guys had.

This is Jason. We noticed that some units were brought forward due to significant discounts offered during most of the first quarter, as dealers aimed to clear out their 2022 inventory. Going into Q2, we found that about 35% of the total inventory in the field consists of 2022 units, which will continue to move. However, we anticipate a slowdown in wholesale production for Q2 because dealers are reluctant to manufacture a large number of 2023 units right before the release of the 2024 models in the coming months. We expect wholesale numbers to align with what we experienced in Q1, around 77,000 units, not due to a lack of demand for replenishing inventory, but because dealers want to avoid overcrowding their lots with 2024 units when there are still many 2023 and 2022 units available. We foresee an increase in wholesale activity in Q3 as the inventory levels decrease.

Got it, that's helpful. Yes, thank you. As a follow-up, I want to address the higher inventory costs. You previously mentioned a potential headwind of 400 to 500 basis points from selling higher-priced inventory during the lower-volume quarters in Q4 and Q1, and possibly a bit in Q2. Given the current run rates and outlook, can you share what the flow-through rate for that higher-cost inventory looks like now? Thank you.

Hey, Brian, this is Brian. Yes, it's playing out about what we anticipated. We certainly have been consuming some higher cost, I would say, probably the more meaningful product category for us now is a lot of any imported product and a lot of the higher container costs. So, freight, we're still pulling a lot of that through. Steel and aluminum have balanced out for the most part. It's a volatile market, so it'll continue to move up and down, but probably not as meaningful as what it was historically. So, we picked up sequentially a little bit of margin from what we anticipated in getting to some cheaper inventory layers, and would expect that to continue to play out through the second quarter, assuming materials stay pretty stable, the back half of the year is where we start to see more of that benefit. So, it's playing out pretty consistent with what we anticipated.

Thank you. The next question is from the line of Fred Wightman with Wolfe Research. Fred, your line is now open.

Hey, guys, good morning. I was just wondering what retail number you have baked into that 310,000 to 330,000 wholesale outlook?

Yes. So we're planning right now on 340,000 to 360,000, and that's based on a significant level of dealer touches. A lot of the big dealers have weighed in on that. And 340,000 to 360,000 is about the consensus out there, which we agree with.

Perfect. And then, all super helpful. And then, Jason, you made a comment about some recent softness in Marine. I think you also said recent softness in manufactured housing. But can you just sort of walk through what exactly you were referring to if there's sort of a downtick in production rates on the Marine side, if that's something to be worried about or any other color there would be helpful?

Just to start with Marine, we're starting to see rates get pulled back a little bit because dealers are relatively full there. I think they're expecting a good retail season. But to that, our production rates are down 15-ish percent for the next quarter, and that really just started here in late-April. So, it's pretty refreshing on the housing side. They had some down production or lower production in Q4 coming into Q1, but with some of the touch points we've had with our housing customers, they're expecting a good run the rest of the year, so.

And Fred, this is Brian. I don't think that's changed much from what we had been communicating previously. We thought that pontoon would run at least in the tail end of the second quarter. It made it just to the beginning in the second quarter, and it started to slow some. But I think it really depends on the category of boat. Some of the fiberglass stuff seems to be doing a little bit better, and maybe not inventories at the level of pontoon. But everything seems to be slowing in line with what we had previously thought.

Makes sense. And just a clarification, the down 15%, is that a sequential comment, a year-over-year comment, what exactly is that?

That's just based on rates last quarter. And we don't have production schedules out past another month or so. So, it's just near-term, and I think that the Marine dealers and OEMs are just being very cautious given the environment. And dealers' inventory isn't bloated, but they're just being cautious with how they proceed, and if retail is really strong this summer, then they'll need to reload a lot quicker than the RV guys did.

Makes sense. Thank you.

Thanks, Fred.

The next question is from the line of Dan Moore with CJS Securities. Dan, please go ahead.

Thank you, good morning. Brian, thanks for all your help, best of luck. And Lillian, welcome. Look forward to meeting you. Thanks for the update on the wholesale and retail outlook for the year. Jason, look, when you think about RV demand, given all of the surge in new buyers that we've had over the last few years, where would you peg kind of a normalized view once we get through recessionary fears, et cetera? What's sort of the new normal in terms of retail demand for RV in your mind?

I appreciate the question, Dan. I believe we will gradually return to a normalized figure. I'm not certain when that new normal will be, whether it will be in 2024 or 2025. However, I think an appropriate estimate for the industry is between 450,000 and 500,000 units. The demographics are favorable for both our business and the industry as a whole, with increasing numbers of new buyers entering the market and more avenues for people to discover RVs. Ultimately, 400,000 to 500,000 units is not significant relative to North America's total population. We are optimistic about reaching that figure, and once we navigate through the heavy inventories and the economic challenges posed by inflation and interest rates, I believe we can achieve that number. Most people in the industry share this sentiment, and it doesn't rule out the possibility of exceeding it.

Got it. Just switching gears to Aftermarket. If you gave this, I apologize. Just price versus quantity in the 13% decline year-over-year, and what's your outlook for Q2 and the remainder of the year?

Yes, hey, Dan, it's Brian. I would tell you it's not driven a lot by price. Really, the automotive side of the business had some channel issues, a lot of inventory out there, so we saw some slowness, some volatility in orders. I think that we've gotten through a lot of that. A lot of the wholesale distributors, I think, are right-sized in their inventories today. We're starting to see some orders pick up here over the last month or two and expecting that to continue as they enter into their busy season as well, here for the spring/summertime. So, I think that we're past what at least appear to be some of the worst of what we saw in Aftermarket, and expect that to continue to, at least, flatline, and then start to grow from here in the short term.

And a couple other comments I'd make, Dan, on that is we said automotive was responsible for the decline in Aftermarket sales, but RV is holding strong. And I think the important thing about RVs is that we've been peeling away at inventory, dealer inventories and our own inventory, since June of last year, when the volume really started dropping off. So, we're almost a year in to working through this. And as you know, a lot of these cycles that we have in this industry don't last longer than 14 to 18 months. So, we're almost a year through getting through some of that, but our RV business is remaining strong. The automotive stuff, while it's been down the last couple quarters, it's starting to come back. We've seen some nice orders the last few weeks, so.

Very helpful. Last for me is on cash flow. Sounds like we're still targeting another release of the $180 million in inventories this year, is that correct? And AR has jumped a bit, maybe part of it was the acquisition, but that offset a little bit of the inventory benefit in Q1. So, just how do we think about AR as progressing for the remainder of the year, and what maybe operating cash flow could look like for '23? Thanks again.

Hey, Dan, it's Lillian. Good morning, and good to meet you. So, I think we're still anticipating the benefit from the inventory pulling through and benefiting the operating cash flow. There has been a little bit of lumpiness with some of the other working capital that we'll work through. But I'd say, overall for the year, we're expecting still to have very strong cash generation for the business.

And Dan, to add to that, seasonally, our receivables are at a low point in the fourth quarter. So, you would typically, as that builds back up in the first quarter, you would see that negative impact on cash. But that's pretty normal, and I would expect that to be pretty consistent the rest of the year, until we get to the fourth quarter, which is when we then tend to pull a lot of that cash in. But certainly feel really good about the inventory reductions. I mean through April now we're cumulatively for the down $150 million in inventory. So, certainly, I would say exceeded my expectations from how quickly we've been able to generate the cash out of it. So, feel pretty good about our target for the full-year.

I would also say with the inventory, that's something that the team is very laser-focused on, and actively is monitoring and measuring how we're progressing on those targets.

Thank you. The next question is from the line of Craig Kennison with Baird. Craig, your line is now open.

Hey, good morning. Thanks for taking my questions, and congratulations, Brian and Lillian. Question on content per unit, how do you see your content per unit trending in your key segments as the year unfolds?

Yes, Craig, from a content perspective, this is the first quarter where we haven't really discussed pricing creating much disruption in that area. Year over year, pricing has remained fairly consistent, so our growth has been largely organic and from acquisitions. This is the first clear number we've seen in a while. I believe there is still some pricing flexibility available. As costs decrease, we will continue to offer price reductions to our customers. However, it's not at the level we have previously seen in the last 12 to 18 months. We are experiencing good progress, and we have a significant model changeover in the RV segment coming up in a few months, which should bring in considerable new business. We are seeing solid mid-to-high single-digit, and sometimes double-digit, content gains in many of our developing markets. The slight decline in the Marine segment's content number we just reported is mainly due to pricing adjustments and some changes in market mix. The shift in the powerboat segment away from pontoons is impacting our content opportunities, which is reflected in the 3% decline we reported.

And Craig, we've never had more of a robust launch on innovation that we've had in the last couple quarters. So, we mentioned ABS brakes, that's a $300 to $400 add-on to every single axle out there on probably 100,000 axles. There's the new window products with integrated shades, the OneControl additions, we continue to gain more market share there. We've been talking for a couple decades now about just a continually rising target on content because of all the product introductions and refreshes on existing product that happen continually.

Thank you. And then Jason, maybe a question on your Aftermarket business, I'm curious how you would define your sweet spot for your automotive and your RV Aftermarket? Is it typically in year one, after the RV is purchased by a consumer or does the peak in Aftermarket revenue at a later period?

I think you've got a little bit of both. I mean the way we look at a lot of the Aftermarket revenues for RV are just in the terms of upgrades and repairs and services. So, I would say the repairs and services is probably a little bit heavier. And that's generally occurring probably years two, to three, to four, based on various data that we have. But there's certainly upgrades that happen upfront. The vehicles out there today come equipped with a lot of our prep opportunities. So, we'll prep a vehicle for our cameras or for slide-toppers or for something like that that the consumer might want, and they have the part to attach it with on the unit, and then they have to buy the actual physical piece in the aftermarket. But I'd say it's more heavily weighted toward a few years into the ownership with repairs and services. And then the automotive side, it's a lot of hitches, and towing, and storages, and truck accessories, and things like that, that are generally bought upfront with a vehicle.

Perfect, thank you.

Thank you.

The next question is from the line of Bret Jordan with Jefferies. Bret, please go ahead.

Good morning, guys.

Morning.

Hey, good morning. The feedback you're getting, I guess you talked about the recent color from the Marine channel, and obviously a lot of RV channel checks to come up with your retail estimate. Are you getting any color as far as the cadence of retail sales traction? You talked about strong show and trust, but are we seeing any pickup in buying as we get into the summer months?

It's kind of a wait-and-see. I mean, summer purchasing and summer activity is really just starting to happen now. So, I think we'll have a really good view of that over the next couple months. Obviously, wholesale production is way down, and we've kind of matched almost unit for unit on wholesale to retail the first quarter. But this is when the heavy retail really starts. So, I think we're optimistic. And dealers are expanding, they're making acquisitions, they're trying to get better. They're anticipating a decent retail selling season. So, we have no reason to anticipate that there's not going to be a lot of buying out there. And again, some of the early activity we've heard is there's a lot of interest, and there is purchasing. Again, we're not that far off of 2019's number so far this year, and it was 460,000-unit retail year. And we're estimating 340,000 to 360,000 as we said earlier. So, we're 15% or so off '19's 460,000 number right now. And I think that it might stay that way, which gets us to that high end of that 340,000 to 360,000 range. So, we're optimistic.

Yes, Bret, I wanted to add that early on, retail performance was quite strong. Looking back over the past six months, the comparison to 2019 has been very positive, currently sitting less than 5% below that. March was really the first month where we saw retail slip significantly. I believe weather played a role in this slowdown, as I tend to hear that online sales were doing exceptionally well at several dealers. While customers may not have been going out due to the weather, they were still placing orders online. So, there is some positive sentiment, and we are looking forward to seeing how retail performs in the coming months. I've mentioned that it’s essential to assess April and May retail numbers, as it’s challenging to draw conclusions based on the lowest retail months of the year, which occur in winter. Therefore, these next couple of months will be crucial to observe.

One positive development is that our industry tends to collaborate effectively, especially when it comes to moving products and offering discounts. We are currently seeing a lot of heavily discounted products available, whether to OEMs, dealers, or retail consumers. This discounting can encourage consumers to purchase, mitigating the impact of inflation, especially since there was little discounting over the last three years. Overall, this is favorable news for consumers, who appear to be in a healthy position right now. We will have to observe the next couple of months closely.

Okay. And then a question on the balance sheet, I think you'd said Q2 might look a lot like April, down 37. Dropping a good EBITDA quarter, prior-year Q2, does that create the leverage ratio issues in the short-term or is your inventory liquidation going to de-lever and keep the covenants okay?

No, we're pretty comfortable with how things are progressing as we're looking at the movement through this year with the inventory depletion that we're anticipating that we feel pretty good about our position.

Okay, great. Thank you.

Thank you.

Our last question today is from the line of Brandon Rolle with D.A. Davidson. Brandon, your line is now open.

Good morning. Thank you for taking my question. First, just a clarification, I think you said model year '22 inventory about 35% of the new inventory, and the market is model year '22. I guess I am thinking as model year '24 is coming out, could you speak to how much model year '23 inventory is the channel right now? And maybe how '24s trickling could impact sales of those units and potentially have another kind of model year '22 situation but maybe not to the same extent?

I believe that due to the low production in 2023, there isn’t much inventory available. We don’t have a reliable metric for that, and there is a lack of consolidated field inventory data for analysis. People are focusing on the 2022 inventory, which is why our numbers look better. I don’t see 2023 as an issue. We have numerous checkpoints with dealers and OEMs, and no one is indicating any problems. Instead, they are mentioning that part of the reason for taking some time off before the July 4th holiday is to manage the amount of 2023 inventory that could overshadow the early 2022 units available. The OEMs are exercising significant discipline. Over the past couple of decades, I’ve seen similar situations arise, but I haven’t witnessed the OEMs being as disciplined or responsive as they are now in making decisions that will benefit the industry and dealers in the long run.

And Brandon, I would add that we talk to a couple of the larger financial institutions in the space. And, we haven't seen inventory age over 365 days since, I think, back to 2018 in any kind of meaningful way, but as you know back then, it was typical to have some units age to that point, but we have just now for the first time since 2018 had some products start to age out. But it's at pretty normal levels compared to what the industry has seen historically. Three or four planning at pretty low number as well, so…

Okay, great. And just one last follow-up, just on pricing and affordability of new RVs right now, do you feel like we have reached a new baseline for price of the new RV? Or, do you feel like over the next couple of years, pricing could come down meaningfully?

Yes, you will see some changes. I can't say they'll be significant, but the costs associated with building the business will persist, and labor inflation is likely here to stay. There was a time from 2021 to 2022 when material costs were notably higher than normal levels. We believe some price adjustments will occur. We have already observed some changes in our product pricing over the past couple of months, particularly with our index agreements related to aluminum and steel. While some pricing adjustments will happen, much of it will remain. Over the next few quarters, we expect to see some discounted units available to consumers, which may offer significantly lower prices compared to what they would have paid six months ago.

Thank you. Our last question is from the line of Tristan Thomas-Martin with BMO Capital Markets. Tristan, please go ahead.

Good morning.

Good morning.

Can we maybe go into a little more detail of kind of which inventory levels at the dealership chains whereas some of the moms-and-pops have positioned on a relative basis?

Yes, I believe that aside from having more 2022 models, the product mix with the dealerships is probably what they find most challenging. However, I don't think the inventory levels or the number of units on dealer lots are the main concern. We need to move some of the 2022 models. Additionally, with the low wholesale production planned for the next few months, especially leading up to the July 4th holiday and the subsequent shutdown, this should help clear out some of the 2022 models. We anticipate that the dealers will need to restock their inventories in the third and fourth quarters to ensure they have enough products for the upcoming season. That's our perspective on the matter.

Okay, I was just curious some of the larger chains may be a little bit leaner than some of the smaller chain?

I would say the larger chains are probably the best at managing their inventory because they are efficient at quickly moving their products and are capable of getting products promptly when needed due to their larger order sizes.

Okay, got it. I think Camping World called out they are seeing multiples coming on their dealership prospects. What do you guys think for your M&A multiples that you are looking at?

I believe that for everyone in our industry, multiples are going to be lower for a while compared to the peak of COVID and even in some cases before COVID. However, we are noticing that especially on the dealer side, multiples are returning to more reasonable levels. We are actively looking and remaining engaged in M&A, but we are not making many significant acquisitions at the moment due to a focus on intelligent cash preservation on our balance sheet. That said, the smaller deals we have completed have had very reasonable multiples.

Okay, thank you.

Thanks, Tristan.

Thank you, Tristan. That concludes our Q&A session for today's call. I'll now turn the call back over to Jason for any concluding or additional remarks.

Yes. So, everybody thanks for jumping in the call today. And while the RV industry remains challenged, just remember that we are almost a year in. So, we have dealt with a lot of big hurdles already. We are really excited about diversification opportunities and progress. I think that's helped us hold up things really well. Our diversified categories are really performing well, and we knew they'll perform in a time like this. So, we try to present progress at next quarter's meeting. We will see you then. Thanks. Bye-bye.

That concludes the LCI Industries' Q1 2023 earnings call. Thank you all for your participation. You may now disconnect your lines.