Lci Industries Q4 FY2024 Earnings Call

Hello, and welcome, everyone, to the LCI Industries Fourth Quarter and Full Year 2024 Conference Call. My name is Becky, and I'll be your operator today. I'll now hand over to your host, Lillian Etzkorn to begin.

Good morning, everyone, and welcome to the LCI Industries Fourth Quarter and Full Year 2024 Conference Call. I am joined on the call today with Jason Lippert, President and CEO; along with Kip Emenhiser, VP of Finance and Treasurer. We will discuss the results of 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 recent 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 as of 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.

Good morning, everyone, and thank you for joining us on our fourth quarter and full year 2024 earnings call. Today, I will go through our highlights for the year, provide an update on the industry backdrop and how we will strive to continue to expand our market leadership in 2025. Then I will break down our business performance by market and outline our financial strategy before turning it over to Lillian for a deeper dive into our financials. Starting with highlights from the year, 2024 proved to be a good year for Lippert as we showcased the resilience of our diversified business by delivering year revenue of $3.7 billion, down only 1% despite a challenging RV and marine backdrop. As our presence in various end markets such as building products international and aftermarket helped offset some of our headwinds and should effectively position us to reach our organic target of $5 billion in total revenue in 2027. We expanded our market leadership across our top 5 product categories: appliances, awnings, chassis, furniture, and windows, which together accounted for 71% of our North America RV OEM sales. We experienced 7% organic growth in the automotive aftermarket due to market share gains, demonstrating our leadership in the towing and truck accessories markets. We also feel that our recent acquisitions are really starting to gain momentum. We increased EBITDA by $89 million despite a weaker sales and mix backdrop by delivering cost savings and operational improvements, helping to pave the way for a return to double-digit margins as we strive to deliver further operational improvements. We supply game-changing innovations, especially our advanced coil suspension technology, our Furrion shelter conditioner, and our Lippert analog brake systems for towables. We feel that these products clearly set us apart from our competitors and help drive organic content for towable RVs, up 2% year-over-year in 2024. We are successfully delivering on our new Camping World partnership with product sales up 62% in their stores; we should be positioned to capitalize on more growth in 2025. Our goal this year is to outfit approximately 100 additional Camping World stores with different merchandising. Camping World has told us they are ecstatic with what we are doing as our partnering efforts are helping to drive their in-store and online aftermarket parts sales. And finally, we reduced net debt below 2x EBITDA as we created cash flow from operations of $370 million as we exit 2024. We're in a really good position, competing in what we believe are the right categories and markets to strengthen our leadership and drive continued market expansion. None of our 2024 success or 2025 vision will be possible without an incredible team. We are grateful for their hard work, dedication, and relentless drive to push us forward. Our commitment to excellence and innovation is what makes our success possible. I couldn't be more excited to continue building with them in 2025 as we execute on our vision and help the business reach new heights. Moving to the industry and macro backdrop. We are cautiously optimistic moving into 2025 as we are seeing that the RV backdrop has modestly improved. Orders are starting to improve, and the signs at many retail shows are more positive. Our January RV sales are up 17% as dealer inventories are at their lowest point in recent history, which should create a favorable environment for demand. Also encouraging are reports that interest rate declines have helped the dealer floor planning outcomes. If you take these things and consider that dealer profits are starting to improve, we believe there is a pretty good case to feel strongly that 2025 will hit its wholesale and retail estimates. Product mix is also looking like it will be in a much healthier situation and consumer optimism is on the rise. As a reminder, historically, when the industry comes off a two-year downturn, we usually see 3 to 7 years of industry growth. If the same trend occurs as in the past, we believe we stand in a great position to capitalize on those tailwinds. So how do we expand our leadership position in 2025? First, I want to emphasize that our market leadership matters. Over the last three decades, the team and I feel that we've built meaningful brand authority and trust with our customer base, which we believe has created a strong foundation for cross-selling whichever products we decide to manufacture. This strategy should help to continue to drive scale and other advantages that we believe make us the low-cost provider and the go-to for all things innovation. It also should give us a significant advantage as the supply side consolidates because we usually stand out when there are fewer choices because of our innovation and creativity. However, it is not just our market position alone that sets us apart. We think our competitive moat is built on many advantages that make us a trusted partner. I'll talk about seven of these that we believe position us to capitalize on industry tailwinds, drive sustained market share gains, and outperform the market in 2025. First, our best-in-class manufacturing attracts new customers and expands wallet share. This expertise and the decades of investment behind our high-precision manufacturing ecosystem should make it incredibly hard for others to replicate our manufacturing capabilities and speed on complex components across these boats and other product categories. Second, our extreme product breadth should give us a natural advantage in cross-selling, bundling and expanding our footprint with existing customers. Third, we are the leaders in RV and Marine innovation. Innovation has been part of our DNA for over 25 years as we started launching products that our customers were asking for beyond chassis. We have so many new exciting projects in the pipeline, and in 2023 and 2024, we launched some significant products like our glass patio systems, 4K Windows, and ABS. With these products, we believe we have essentially created another $500 million in addressable market for RVs. Fourth, we deliver unmatched dealer support through our robust technical support network. This is a significant competitive advantage that most people don't realize because we are forming significant relationships outside of the OEM channel. From our mobile service teams that assist customers who have broken down on the road to our tech teams that travel to dealers every week for service training, our 200 customer service agents handle over 1.25 million customer interactions. The dealer body relies on Lippert to help train and fix issues around thousands of products that are constantly changing or being added to our portfolio. Fifth, we're the low-cost producer. Decades of manufacturing expertise, along with our immense volume, should give us the purchasing power that allows us to deliver exceptional value while protecting our margins. Sixth, we are an effective consolidator. With a solid balance sheet and strong track record of strategic acquisitions, we should have the flexibility to pursue any compelling opportunities that arise. With this team having done over 70 deals in the past couple of decades, acquisitions are in our DNA. Finally, our leadership team has seen it all. We have successfully navigated many economic cycles and industry cycles, but most importantly, over the last 20 to 30 years, our team has developed a lasting and consistent culture built on trust and long-term meaningful relationships with our OEM partners and with each other. In addition to expanding our market leadership in 2025, we will strive to drive operational leverage and optimize overhead costs to ensure our fixed cost structure remains as efficient as possible, supporting profitability and long-term value creation as we progress back towards double-digit operating margins. To prove how serious we are about making sure our cost structure is optimal, we have set a stretch target of an 85 basis point improvement for this year in our overhead and G&A cost structure. I'll now move on to our results by business. In 2024, RV OEM net sales totaled $1.7 billion for the full year, up 7% versus the prior year, reflecting continued market share gains across our top product categories. This growth came despite a mix shift towards smaller towable units as many of our products remain critical to RVs and should be insulated from decontenting risks. At the Tampa RV Super Show, we showcased innovative products that are driving new business wins for 2025. Some recent innovations, as we mentioned earlier, that continue to gain momentum include our advanced coil spring suspension, which has drawn significant interest from OEMs and dealers alike, opening a new addressable market worth more than $150 million. Currently, it has been launched by a few top 10 towable brands, with more top brands adding it this coming model year. Our antilock braking system has been adopted by many leading towable RV brands, giving us access to $150 million of market opportunity. We also anticipate this product will emerge as a standard across utility and cargo trailer segments in the near future, creating even more total addressable market with this great product lineup. Our Helix Coil spring Fifth Wheel pin box was recently awarded Best New Exterior accessory at the SEMA Show in Las Vegas, Nevada. Our Furrion shelter conditioner, by far the quietest and most powerful in this class among the other air conditioner brands, has gained immediate interest from OEMs and consumers alike, further strengthening our position in this category as the new leader in HVAC systems. We also continue to expand RV content with larger windows and glass entry doors for 2025 models, which provide more natural light and enhanced functionality. Frankly, RV has incorporated these square-bounded windows with integrated shade systems in their high-end units, demonstrating the premium value that these products bring to the market. We have invested over $50 million in glass processing technology over the last few years to keep us leading in all things glass and windows. Looking ahead, we're confident we can capture additional content opportunities as wholesale shipments and product mix normalize, and that organic content growth should return to 3% to 5% annually. For 2025, we project 335,000 to 350,000 wholesale shipments, or more than $100 million of additional RV OEM sales at current content levels, to our top line as we strive to capitalize on the nearly $3 billion in addressable opportunities for the current products. Supporting these projections, Blue Compass, the second-largest RV dealer in the country, reported record sales at the Tampa RV show, up 20% from their best prior year. Furthermore, LCI's January sales increased 17% year-over-year, which we believe are all signs that point to the improvement in the industry backdrop. Turning to the aftermarket, net sales were $881 million for the full year, roughly flat year-over-year. Strength in the automotive aftermarket was offset by some softness in the RV and marine aftermarkets. Operating profit for the aftermarket segment remained strong at 12.6%. The Kurt family of products, including hitches, towing solutions and truck accessories, delivered impressive growth of sales increasing 7% during the year, contributing 54% of the total aftermarket revenues. Kurt's strong performance underscores our ability to execute meaningful acquisitions that ultimately contribute to sustained growth. Notably, our ranch and truck accessories are featured on trucks in popular TV shows like Land Man and Yellowstone. Camping World's furniture business acquisition and accompanying supply agreement has continued to exceed our expectations as we have outfitted more than 14 Camping World stores with Lippert products, increasing our sales with the world's largest RV retailers by 62% year-over-year. We expect continued growth as we plan to further expand the selection of Lippert products online and in Camping World locations. In addition, other dealerships have taken notice and are asking for our help to enhance their stores. Our Furrion suite of appliances includes backup observation cameras, ovens, hot water heaters, refrigerators, microwaves, furnaces, and air conditioners, helping to drive aftermarket revenue through the upgrade, repair, and replacement cycle, contributing $56 million to our aftermarket group sales alone for the year, a 22% increase over 2023, again demonstrating our ability to improve acquisitions. We feel that Furrion is a perfect example of how we can significantly impact the aftermarket by driving meaningful OEM volume with acquisitions that have large product portfolios like Furrion. To further capitalize on the aftermarket as a large number of vehicles transition out of warranty periods, we've emphasized training programs, strengthening dealers' knowledge of and preference for Lippert products by equipping technicians with the expertise to service and install our offerings effectively. Over the course of 2024, we trained 36,000 dealer service personnel, had 1.6 million views of our tech support seminars, 65,000 technical product class completions, and 2.1 million overall page hits on our How-To Technical Service Pages. All in all, our aftermarket business represents more than $10 billion in addressable market. Our presence has grown substantially since our entrance in 2013, and we will continue to focus on organic and inorganic growth in this critical area for us. Turning to adjacent markets, net sales decreased 13% to $1.1 billion for the full year when compared to the prior year, largely due to weak demand in marine as dealers continue to optimize their inventory levels. Excluding North American marine sales, adjacent markets totaled $867 million, only down 6%. In the year, we feel as though we've made significant strides in several end markets that position us well to achieve growth moving forward. In the utility trailer market, we've leveraged our core expertise in axle manufacturing to supply leading brands with approximately 600,000 utility and cargo trailers built annually; we believe this market is a significant growth opportunity for LCI content. As we continue to gain share, we plan to introduce several advanced upgrades such as ABS and TCS, further enhancing utility trailer suspension performance and safety for the end consumer. In the world of utility trailers, axles are the largest single content item. Additionally, our window and glass products successfully add to our content gains in areas like off-road vehicles, school buses, and transit buses. This represents a significant content opportunity as approximately 70,000 buses of all types are built annually. For building products, we have gained notable traction in residential windows over the past few years, growing this business by $20 million as more residential distributors and builders recognize the value of our entry-level vinyl window products. Our entry-level product has been so successful that we just launched a premium residential product lineup. This represents only one of many products we have that have been gaining share with builders. Others include our chassis for manufactured homes, residential form components for tubs, and showers. Turning to capital allocation, our strong performance and effective inventory management generated $370 million in operating cash flows over the last 12 months, enabling us to pay down $89 million in debt and reduce leverage to below 2x. Our solid balance sheet should position us well to pursue a robust pipeline of M&A that aligns with our strategic goals in existing markets. We feel we have a proven track record for driving value through acquisitions, focusing on companies with experienced leadership teams, exceptional products, and significant growth potential. In addition to M&A, we remain committed to funding innovation and operational improvements to drive long-term growth while maximizing shareholder returns. This past quarter, we advanced our commitment to returning cash to shareholders by raising our dividend by 10% to $1.15 per share. Providing this value to shareholders remains a key priority and reflects our confidence in the strength and resilience of our business in the short and longer terms. Closing with culture is intangible, but it truly drives results at Lippert as we remain committed to maintaining a great workplace where we have the best leaders driving on values consistently. When we create a great workplace, people tend not to leave very often, which helps create consistency and momentum in the manufacturing processes and overall business results. Even in a difficult year like 2024, our retention was better than the industry average. This year, we probably surpassed our ambitious 100,000-hour volunteer initiative goal through events such as the built-to-serve event in Fort Wayne, Indiana, where Lippert leaders supported Shepherd's House, a non-profit providing long-term care for homeless veterans facing addiction and mental health challenges, along with hundreds of other events put on by our teams to assist our communities in need. We are trying to set an example for many other businesses to follow because we believe that by doing this, business can be a greater force for good in the world. Our inclusion on Newsweek's 2025 list of America's most responsible companies highlights our continued progress in environmental, social, and governance initiatives. We also advanced our sustainability efforts by implementing resource and waste monitoring across some of our facilities and publishing our third year of Scope 1 and 2 greenhouse gas emissions data. These initiatives reinforce our focus on transparency and accountability, supporting Lippert's vision of long-term growth, benefitting stakeholders. In closing, I want to thank our dedicated team members once again for their incredible efforts. We believe Lippert is well-positioned for long-term success, and we are excited about the road ahead as we continue to innovate, deliver exceptional customer experiences, and create value for all of our stakeholders. I'll now turn it over to Lillian, who will provide more detail on our financial results.

Thank you, Jason. Lippert's strong reputation for best-in-class quality and service, along with our robust portfolio of innovative products fueled share gains during the quarter. However, revenue growth remained constrained as persistent softness in retail demand across the RV and marine markets continued. Our consolidated net sales for the fourth quarter were $803 million, a decrease of 4% from the fourth quarter of 2023. OEM net sales for the fourth quarter of 2024 were $621.6 million, down 6% from the same period of 2023. RV OEM net sales for the fourth quarter of 2024 were $376 million, down 3% compared to the prior year period, driven by a 24% decrease in motorhome wholesale shipments and a shift in unit mix towards lower content single-axle travel trailers. These impacts were partially offset by a 7% increase in North American travel trailer and fifth-wheel wholesale shipments and overall market share gains. Content per towable RV units was $5.97, up 1% compared to the prior year period, while content per motorized unit was up 7% to $3,742. Content per towable RV unit was up primarily due to increased adoption of Lippert innovation, largely offset by a continued shift to single axle trailers, which have less content overall. These trailers accounted for about 24% of production in Q4 of 2024 compared to the prior year of 20%. Typically, we would see a mix range of about 16% to 19% for these units. Organic content increased 1% sequentially and 2% year-over-year, supported by the share gains we delivered in the top product categories we supply to the RV OEMs, specifically appliances, awnings, chassis, furniture, and windows. Aftermarket net sales for the fourth quarter of 2024 were $181.6 million, an increase of 1% compared to the same period in 2023, primarily driven by continued growth in the automotive aftermarket, partially offset by softness in the RV aftermarket, which has been negatively impacted by lower consumer discretionary spending. Adjacent industries OEM net sales for the fourth quarter of 2024 were $245.5 million, down 9% year-over-year primarily due to the lower sales to North American marine and utility trailer OEMs. Marine sales were down 15% due to the impact of inflation and high-interest rates on retail demand, and we expect softness in the marine industry to continue for the first half of 2025. During the quarter, this decline was partially offset by increased sales in Building Products as we continue expanding our footprint in this market, capturing demand for core products, supplying axles to top trailer brands, and adding windows in off-road vehicles, school buses, and manufactured housing. Gross margins for the fourth quarter of 2024 were 21.1% compared to 19.2% for the prior year period, supported by decreased steel prices, lower inbound freight costs, and the impact of material sourcing strategies we've implemented to lower input costs. Consolidated operating profit during the fourth quarter was $16 million or 2%, a 170 basis point improvement over the prior year period. Operating margin expansion was supported by operational improvements, such as facility consolidations and overhead reductions. I would also like to highlight that our warranty costs reduced by $9 million during the quarter. For the full year, warranty costs have decreased about $29 million compared to the prior year period, driven by the implementation of product quality initiatives. The operating profit margin of the OEM segment increased to 0.3% in the fourth quarter of 2024 compared to a loss of 1.8% for the same period of 2023. The aftermarket segment delivered a 7.9% operating profit margin, in line with the prior year period. GAAP net income in the fourth quarter was $10 million or $0.37 earnings per diluted share compared to a net loss of $2 million or $0.09 loss per diluted share in the prior year period. EBITDA in the fourth quarter was $46 million, a 29% increase compared to the prior year period, driven by higher earnings and a 46% decrease in interest expense over the prior year period, reflecting our lower levels of debt in 2024 and improved provisions for income taxes of about $6 million. Moving on to full year 2024 results, full year net sales were $3.7 billion, down 1% year-over-year. Sales to RV OEMs increased 7% to $1.7 billion, driven by a 13% increase in wholesale shipments of travel trailers and fifth-wheel units in addition to market share gains, partially offset by a 24% decrease in motor home wholesale shipments and a shift in unit mix towards lower content single-axle travel trailers. Sales to adjacent markets decreased 13% to $1.1 billion in 2024, primarily due to lower sales to North American marine and utility trailer OEMs, driven by current dealer inventory levels, inflation, and elevated interest rates affecting retail consumers. Aftermarket sales were relatively flat when compared to the prior year at $881 million as gains in the automotive aftermarket effectively offset impacts from lower RV and marine aftermarket demand. The total company operating profit margin for 2024 was 5.8%, up from 3.3% in 2023. The operating profit margin of the OEM segment increased to 3.7% for the full year compared to 0.6% for 2023 as we made significant operational strides. The aftermarket segment delivered a 12.6% operating profit margin compared to 12% for 2023, which made up over half of our total operating profit despite only making up 24% of total sales, demonstrating how our diversified business exposure has effectively supported profitability. Non-cash depreciation and amortization was $125.7 million for the 12 months ended December 31, 2024, while non-cash stock-based compensation expense was $18.7 million for the same period. We anticipate depreciation and amortization in the range of $115 million to $125 million during the full year 2025. At December 31, 2024, our company's cash and cash equivalent balance was $166 million compared to $66 million at December 31, 2023. For the 12 months ended December 31, 2024, cash provided by operating activities was $37 million, with $42 million used for capital expenditures for acquisitions and $109 million returned to shareholders in the form of dividends. Additionally, the company had net repayments of indebtedness of $89 million. As of December 31, 2024, our net debt balance was $737 million, down from $768 million at December 31, 2023. At the end of the fourth quarter, we had outstanding debt of $591 million, 1.7x pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses and the impact of non-cash and other items as defined in our credit agreement. For the month of January, sales were up 6% versus January 2024, with RV sales up 17% and aftermarket up 6%, offset by softness in international and other adjacent markets. We are anticipating an estimated full year wholesale shipment range of 335,000 to 350,000 units as lingering consumer demand headwinds begin to abate. As we think about Q1, we expect overall revenue to be about flat year-over-year. We expect RV OEM sales to be up about 9%, and we expect continued softness in marine and international markets. We also expect operating margin to be flat to slightly improved over Q1 of 2024. Looking to capital allocation for the full year of 2025, capital expenditures are anticipated to be in the range of $50 million to $70 million. We continue our aim to utilize our balance sheet to pursue strategic opportunities that help us capture profitable growth and deliver shareholder value while maintaining a long-term leverage target of 1.5 to 2x net debt to EBITDA and maintain our commitment to returning cash to shareholders. We intend to further strengthen our financial profile by making consistent operational improvements to our business while supplying innovative products that result in market share expansion throughout the business. We expect to see industry recovery across the markets we serve over the next several years. In addition to organic growth fueled by our market share expansion, we look forward to continuing this progress driving sustained profitable growth as we advance towards our $5 billion revenue target in 2027 while remaining committed to returning to double-digit margins. That is the end of our prepared remarks.

Our first question is from Fred Wightman from Wolfe Research.

I would like to begin with the tariff question. Could you provide an overview of your outlook for the year regarding steel and aluminum tariffs, including your current inventory levels and your approach to pass-through? I recall that in previous discussions, you mentioned a two-quarter lag on pricing adjustments until contracts are reset, so I would appreciate your insights starting with tariffs.

Yes, certainly, Fred. Thank you. We haven't included any considerations for tariffs in our plan, so it does not currently reflect that aspect. The situation remains fluid, and there are many factors to discuss. The most significant point is that chassis, which constitute our largest product line, source nearly all of their steel from domestic suppliers. Therefore, we do not face any issues with our primary products. Overall, we estimate a 50 basis point impact from tariffs, but we believe we can offset most of this through either one-time pricing adjustments or adjustments via our indexes. Our suppliers are also eager to maintain our business, so they are collaborating with us to minimize the impact. We have successfully managed similar situations in the past, and we are confident we can navigate this one as well. There are many variables at play, but I hope this provides some clarity.

It does, yes. So just to confirm, when you're saying the 50 basis points is just the steel and aluminum tariffs? Or is that sort of assuming China as well?

To clarify, that's regarding China and the steel and aluminum. The impact of steel and aluminum would be much less because we don't have the same level of impact from domestic sourcing.

So Fred, your comment on the steel aluminum, you're correct that we already have pass-through mechanisms on those two commodities. Those are commodities that historically we've passed through cost increases and decreases at the same time. So I would expect that we would continue to fully execute on that model going forward for the tariffs to Jason's point to mitigate the impact there.

Okay. And then on content per unit. There were a couple of comments about just healthier mix, and then you gave the disclosure about the percent for single axle. It looks like it ticked up a little bit sequentially. So can you just help us think about maybe where that single axle mix is expected to trend this year? And then maybe what that means for content per unit in towables specifically?

Yes. Yes, it's obviously risen in the last couple of years. I would say that if you look at our total chassis output on single-axle trailers, in '24, it was about 12,000 units more than in '23. We saw it tick up a little bit for January, about 1,000 units over last January. But our anticipation is that, that starts to subside and normalize sometime in Q2. We've had a lot of conversations with dealers, and they're very aware of the mix situation and feel that we've exhausted inventories on that product pretty well over the last one and a half years. So there's a lot of brands making that single axle trailer, where if you go back two or three years ago, there were only a couple of brands making the trailer. So yes, I saw it tick up a little bit for January, and might see a little bit of a flat to uptrend this year, but I would say that we are going to see the mix normalize here sometime after the start of Q2.

Our next question is from Daniel Moore from CJS Securities.

Maybe just talk a little bit about obviously January started up the year strong. You expect dealers to continue to restock through kind of January through February, March, April timeframe ahead of the spring selling season; just any additional color in terms of what you're hearing there would be helpful.

Yes, I think I have a bit of a throat issue. I want to make a few comments. In Q4, we averaged about 4,100 chassis per week, while in Q3, it was approximately 4,400 per week. Last year in Q2, we were close to 5,200 per week. Currently, we are averaging 5,300 per week. We have good visibility for February and March. February started strong, and I am getting positive feedback from dealers regarding March; January was also solid for the good dealers. While some dealers may be facing challenges, the larger players seem to be performing well with good shows, volume, and retail traffic year-to-date. Is that helpful?

Could you provide more insight into the penetration and acceptance rates for some of your recent innovations, such as suspension systems, anti-lock brakes, and glass entry doors and windows? While I understand you may not have precise data to share, how should we consider the ramp-up of these penetrations looking towards 2026 compared to 2024 and 2025?

Yes. Yes. So if you look at some of the products you mentioned, we've got close to a $500 million total addressable market we've created with those products in the near term. I would just say you have to think about it as like TCS, for example, we're really excited about that product for a lot of reasons. Obviously, it improves the durability and longevity of a lot of the components that go into the RV by lessening the vibrations that the unit experiences going down the road. But it's an $800 to $1,200 piece. So those more expensive pieces take longer to penetrate, but how this market works, it's a me-too market, and we've got that product starting out on the right brands. It's had great success at the shows. Ultimately, consumers are going to want products that enhance the experience and contribute to a better-quality unit over time. So ABS is double digits up from last year in terms of product placement for this upcoming model change in June. Window is not as pricey as TCS and ABS, but that's seeing progress. We should be the largest air conditioner manufacturer in the industry after this year with the launch of the new units and the success they've had. So we're having good success so far. I would just look at expensive products, that simply take a little longer to penetrate, but maybe think of it that way.

Okay. And then just want to clarify; I appreciate the commentary on tariffs, potential 50 basis point headwind mitigated to some degree, hopefully, a better year in terms of RV shipments a little more overhead absorption. So how are you kind of thinking about a range of operating margin for '25 relative to '24 when you put all that together?

Dan, we're not putting out a specific margin target for this year, but how I would characterize it is that we expect incremental margins at about 25%. So the leverage that we'll get from the volume increase will definitely help increase the margins. We'll also continue to be very focused on cost reductions. You saw us from a non-material perspective we shared that we had over $28 million of cost reductions in 2024. We're targeting to implement comparable types of levels as we're looking at 2025, again, non-material related. So looking to reduce overhead costs, G&A related types of expenditures, which will also improve margin. So we're expecting a reasonable margin uplift this year. Obviously, the tariffs are an overhang that the team needs to work aggressively to mitigate, but we are confident that we'll continue to expand the margins as we progress through 2025.

To add to that, I would like to mention that as we move out of these cycles, we are clearly noticing a turning point. We have our costs under control, making it easier to manage them now compared to when we're 24 months into a growth period and reopening factories. We are still closing a few factories and evaluating some business units, which is beneficial, and we have effectively managed costs, particularly in general and administrative expenses and overhead. I believe this will continue to positively impact us in the upcoming quarters.

Our next question is from Joe Altobello from Raymond James.

I guess I'll start with operating margin for '25. I know you're not providing a target. But if we think about the, I guess, the three buckets you mentioned: the 25% incremental margin on volume, then I think you mentioned earlier an 85 basis point improvement in overhead and G&A cost savings. And then the third bucket would be the tariff that would sort of offset that. Is that how we should be thinking about the margin for '25?

Based on the first two buckets, we are seeing incremental margins at 25% for additional revenues and cost reductions. Our focus remains on reducing facilities, which we made significant progress on in 2024, and we're continuing on that path. We aim to lower overhead from a full-time equivalent perspective, striving for maximum efficiency along with ongoing reductions in general overhead costs and direct spending. Regarding tariffs, based on our current knowledge, conditions are changing daily. Our team has adapted well to this variability. We are projecting about a 50 basis point challenge stemming from the additional tariffs on steel and aluminum from China, which we are addressing. We have long-established mechanisms for passing through costs related to steel and aluminum and will keep utilizing these strategies. While we do not expect tariffs to heavily impact margins, I remain vigilant, checking the news each day for any updates. Our approach is to stay flexible and adjust as necessary.

Yes. Well, we know today, I think the clearest way to say it is that we feel pretty confident that we can mitigate most of that. What we don't know coming in the near future, we will deal with that stuff as it comes. But with what we know today, we feel pretty confident we can mitigate most of that.

Got it. Okay. And Jason, just kind of shifting over to your retail outlook for the year. Your commentary on the call has been pretty upbeat. But if you look at the numbers, I guess you're looking for kind of flattish retail this year. So maybe help us to understand sort of the disconnect or the perceived disconnect there and maybe what the variables are that would get you towards the lower end or higher end of that range?

Yes, there are many factors at play, but we have been performing well in retail over the past couple of years. We've approached it somewhat conservatively, yet I believe we can certainly argue for the higher end of that range. I have a lot of confidence in the industry. We've been involved for a long time and produce excellent products that cater to various needs. With the recent changes in product mix, we now have smaller units suitable for multiple applications. I expect we will see some increase in FEMA this year, especially with more discussions happening since the new administration has engaged. We anticipate some replenishment of FEMA stock this year, so while there are many variables to consider, overall, we are optimistic about being at the mid to high end of the retail spectrum.

Our next question is from Scott Stember from ROTH Capital Partners.

Jason, if we talk about the aftermarket speaking specifically to Camping World, can you just give us a frame of reference of how many stores you're in right now? And what do you expect to be, and I guess, 100 more by the end of this year?

Yes. Yes. So we're going to have to bring on some resources to do that. We kind of did the last 14 to come slowly, working closely with Camping World to make sure we were doing what they needed. Obviously, we completed the acquisition and the supply agreement, and our new partnership there in the middle of last year; it took us a few months to get going. Then we upped those stores toward the tail end of '24. They like what we've done. I think they're pretty satisfied with what they've seen so far. It's really given a nice little facelift to some of their depart stores. Our goal is to bring on some resources here. We're doing that as we speak and then start up-fitting as many stores as we can. They'd like to do it in all of them, but we can't roll it all out that fast. So it's been great where our products are getting a lot of face time and visibility in their stores. The customers coming in see our products right away, and we have been focused on helping sell through those inventories. So it's been really good so far. Other dealers are asking us today also to do some enhancements for their part stores as well.

And going back to the RV side of the equation for aftermarket. You talked about the current business being up. How did the RV side do? And are you seeing at least in January, any signs of break-fix kind of repair demand picking up?

I haven't noticed the repair pickup yet. Last year, we experienced a slight decrease in the RV segment, but typically we see fluctuations in the aftermarket, similar to the retail side where foot traffic is reduced. There’s a perspective that with declining retail sales, more renovations occur. However, our aftermarket RV business did not decline as much as our other sectors. With the 21 and 22 model years, in which we manufactured over 1 million units, we anticipate these RVs will soon be coming out of warranty and entering the repair and replacement cycles for customer payments. We will keep you updated.

Got it. And then on the European side, can you talk about what you're seeing from the European OEMs on the RV side?

Yes. I think they've struggled the last couple of months. If you just break it down simply, the European businesses feel very strongly that the first half is down, and the second half is up over last year. So kind of flip-flop of what they saw last year. Last year, they had a really decent year. The first quarter was up, and the second half was down; this year they are expecting the first half to stay down and depressed and see a bit of an uptick in the second half, still I think around 200,000 total units, which is still a reasonable year considering they're going to have a soft first half.

Our next question is from Mike Swartz from Truist Securities.

Maybe just to start, and I apologize if I missed this, but just in the quarter, Lily, what was the impact of, I guess, pricing mix on the towable content?

In terms of the pricing mix, it was pretty benign. I mean, really, I'd say less than a point in terms of that. We really haven't seen the magnitude of an impact there as we had historically. Really, when I think of the mix, what's driving it right now, it really is the overhang. What's depressing it, I'd say, is the overhang of the single axle trailers that we've seen that uptick up to the 24% level. We're still generating nice organic growth, and that's expected to continue to expand when we look at the number for the first quarter in comparison; I expect that to be closer to the call organic growth that we would typically like to see. It really is the single axle mix that is depressing the content number at this stage, not pricing.

Yes. When you consider how much single axle mix there is today, there are not really many features. You don't really have much furniture; one axle to slide out, small chassis, consider those things. The fact that we're still doing as well as we are from an organic standpoint, I think that speaks volumes about where we're gaining share and where we're innovating and placing new products that are creating top-line opportunities that we didn't have a year ago.

Okay. Great. And just a follow-up on that. I think, Jason, you had mentioned on the call that the plan over time, when mix and production kind of normalize, you expect to be in that 3% to 5% organic range. It sounds like you're going to be there in the first quarter. Is it safe to say that we should be within that 3% to 5% range for the full year for 2025?

Yes. I think that's reasonable.

Yes. No, I'd say that's reasonable.

Yes. Mix could really go the other way and then not get closer to normalizing; then we'd have other conversations, but we feel pretty good about that.

Our next question is from Patrick Buckley from Jefferies.

On the January results, I guess within that 17% increase in RV OEM sales, how much of that growth was from underlying increase in demand at the retail level? And I guess was any of that increase driven by OEMs trying to stay ahead of tariffs or in anticipation of a potential rebound for the spring selling season?

I believe there wasn't any advance buying related to tariffs or concerns about pricing increasing; this was mainly driven by retail demand. Blue Compass, for instance, has shown over a 20% increase compared to last year, which is a positive indicator given that they are the second-largest retailer. Feedback from various dealers suggests that retail conditions are good, though not exceptional. However, they are certainly better than last year, placing us in a fairly strong position from the retail standpoint.

Great. Got it. And then I guess, taking a look at the marine market, I think you included expectations for a second-half rebound in your slides. I guess what's the current sentiment with the dollars right now? Are you starting to see more willingness to take inventories? Or is that going to be destocking through the first half? What gives you confidence in that second-half rebound?

It seems like the marine market is about a year and a half behind the RV cycle we've just experienced and are now exiting. However, we anticipate that the second half will show improvement and positively influence wholesale demand. Generally, dealers are currently trying to manage a significant amount of inventory, which we are observing on the production side as well. When the market does turn around, it will clearly benefit our marine business, as the last six months have been challenging. There are companies facing difficulties, while others are performing reasonably well given the current environment. That's how I see the situation.

Our next question is from Brandon Rollé from D.A. Davidson.

First, just on tariffs. I think recently you had disclosed that your import mix is 30% imported. What percentage is specifically China? And what percentage is specifically Mexico? And what percentage would any other major buckets be?

We have not and do not plan to disclose the import figures by country in our 10-K. However, when we publish the 2024 report later this month, you will notice a slight increase year-over-year in imports. This is not due to a higher involvement in international markets, but rather a result of timing with Chinese New Year purchases. In 2023, more of these purchases were pushed into 2024, and we also moved some purchases from 2025 into 2024 in anticipation of possible tariffs. Overall, you will see a slight uptick in the 10-K, but this is related to supply chain management and inventory procurement rather than changes in sourcing. Regarding the impact of tariffs, our exposure to the China tariffs is approximately 50 basis points, and we are actively working to mitigate the effects of tariffs on steel and aluminum. We have established pricing pass-through mechanisms that we have used for many years and will continue to implement. As the administration considers additional tariffs, our team is prepared to manage and minimize those impacts moving forward.

Most of our imports are outside of North America. So we don't disclose the exact amount, but a lot of it's outside North America.

Okay. And then on OEM revenue. Revenues were down $37 million, but EBIT was up $14 million. Last quarter, you had said you didn't expect any inventory gains during the fourth quarter, but this dynamic does seem to imply there were some in the quarter. How large were they, if any?

Without disclosing how much we did, once we knew the new administration was likely to impose tariffs, we purchased some products in advance to ensure we were covered. We are in a solid cash position to do this, and we aim to shield our customers from any price increases we can postpone. Therefore, we made some purchases in the fourth quarter.

Okay. And just finally, I just wanted to touch on volumes versus content per unit dynamic this year. The Towable industry shipments were up 1.5%, but entering this year, you mentioned production versus shipments and 2023 lag production by about 30,000 to 35,000 units. You said production was actually in the range of $2.75 to $2.80 versus the 313. So by shipping in line with production, your volumes should have been up in the 25% to 30% range. So I'm just trying to square the dynamic with towable revenues only up 1.5% this year. Could you explain that disconnect?

Yes. So really, the biggest driver there is going to be the shift in mix that we've been talking about with the single axle units being lower price points, frankly, compared to the prior units. So that's going to be driving the biggest delta there that would account for that.

There's a significant variation in content when considering a unit built with two axles, a few slide outs, and all the other furniture and chassis components. Our chassis prices range from $253,000 to $400,000 for a single-axle unit. Therefore, the shift in mix has a considerable impact on that.

Okay. Because it seems like content per unit is down almost 17% over a two-year period. But we continue to hear about share gains. So I was just trying to square that. So it's just all due to mix then.

Yes. Brandon a reminder on that, there are probably a couple of big levers there, and then we should move on to allow others to come through the queue. You had the pricing pass-through, which related to a cost reduction that drove the price down the content value down. The mix is a tremendous impact as well. That's offset and mitigated or slightly mitigated by the organic content increase. You had two big drivers down that are unrelated to organic comps in the unit.

And just a reminder, content dollars are up 50% since 2021. So that's just an easy way to look at it.

Our next question is from Tristan Thomas-Martin from BMO Capital Markets.

Just trying to kind of wrap my mind around how it works. I think in 2024, right, steel pricing was coming down, so that was a tailwind. If we start to see sale pricing go up because of tariffs after that, call it, quarter to two kind of pass-through, does that mean it becomes a headwind?

Just to make sure we're answering the question the way you're intending in terms of a content number or material costs, because there's going to be a difference there, right? Your material costs will start to see if the cost increases for steel due to tariffs; you'll see the material cost hit. And then there can be a lag of up to one to two quarters for the pricing to take hold. So you'll have a little bit of a lag there if that's what you're trying to capture, Tristan, in your assessment. Net-net, it neutralizes, but it can take a quarter or two to catch up.

Right. I would say that as steel pricing did fall as you explained a second ago over the last year, we're more toward historical normalized lower steel costs. The OEMs probably have baked in maybe a little bit higher steel than what we're seeing today at the lows. I'd be more concerned if we were jumping up 20% or 30% on cost and getting back up to $0.50 a pound or $0.60 a pound where we saw some of that land during COVID, but we're back into the 30s right now.

Okay. I was trying to suggest that there might be a couple of quarters where we see some benefit before things return to normal, as you mentioned in your answer. Additionally, I have another quick question. What industry volumes are supporting the 2027 revenue target?

Close to, I would say, close to a 400,000 unit run rate, which is pretty normal if you look at the last decade of wholesale production.

Our next question is from Alice Wycklendt from Baird.

I think if I look at your 2025 outlook, the range of retail sales is in excess of the range of wholesale shipments. What's the rationale for the expectation that dealer inventory might come down again at a time when I think the industry seems to think that inventory is pretty clean?

To your question, if we think inventory could come down, dealer inventory could come down?

Yes. I mean, I think that's what's implied by the range of retail being higher than wholesale shipments. So just wondering if you think that means that dealer inventory has to come down more.

I don't really have a strong opinion one way or the other since the movements are quite minor. I believe retail will perform well this year, and I feel confident in the range we've provided of $3.45 to $3.60. I'm not sure if that addresses your question, Alice. Yes. Obviously, we crunched cash the last couple of years to get to our 1.5 to 2x leverage. We're having a lot of conversations right now. We've got acquisition targets that we're looking at in all of our diversified businesses, including RV and Marine. We've got a couple that we're talking to right now. We're hopeful we're going to do some M&A this year, but it's been a couple of years of just kind of keeping quiet. Our pipeline is full.

This concludes our Q&A session. So I'll hand back to Jason for closing remarks.

Thanks, everybody, for joining the call. We're excited about some of the inflection we've seen in the volume and hope to report a good quarter next quarter. We'll talk to you then. Thanks. Bye-bye.

This concludes today's call. Thank you for joining us. You may now disconnect your lines.