LCI Industries Q1 2024 Earnings Conference Call INDUSTRIES FORWARD-LOOKING STATEMENTS Forward-looking statements, including, without limitation, those relating to the Company's future business prospects, net sales, expenses and income (loss), capital expenditures, tax rate, cash flow, financial condition, liquidity, covenant compliance, retail and wholesale demand, integration of acquisitions, R&D investments, commodity prices and industry trends, whenever they occur in this presentation are necessarily est ...

Financial Performance - Net sales for Q1 2024 were $968,029, a slight decrease of 0.3% from $973,310 in Q1 2023[9] - Gross profit increased to $223,906, representing a 20.4% increase compared to $186,071 in the same period last year[9] - Operating profit surged to $57,611, up 187.5% from $20,043 in Q1 2023[9] - Net income for Q1 2024 was $36,545, a significant increase of 404.5% compared to $7,259 in Q1 2023[9] - Basic and diluted net income per share rose to $1.44, compared to $0.29 in the prior year, marking a 396.6% increase[9] - The company reported a total comprehensive income of $33,282 for Q1 2024, compared to $9,259 in Q1 2023, indicating a substantial increase[12] - The effective tax rate for the first quarter of 2024 was 24.3%, slightly lower than 24.8% in the same period of 2023[102] Assets and Liabilities - Total assets as of March 31, 2024, were $2,981,336, a slight increase from $2,959,319 at the end of 2023[14] - Cash and cash equivalents decreased to $22,625 from $66,157 at the end of 2023, reflecting a decrease of 65.8%[14] - Total stockholders' equity increased to $1,356,884 from $1,355,036 at the end of 2023, a marginal increase of 0.1%[14] - Accrued expenses and other current liabilities totaled $177,217 thousand as of March 31, 2024, compared to $174,437 thousand at December 31, 2023, reflecting an increase of 1.0%[42] - Long-term indebtedness stood at $854,774 thousand as of March 31, 2024, compared to $846,834 thousand at December 31, 2023, indicating a slight increase of 0.9%[43] Cash Flow - Cash flows used in operating activities were $(7,654) for Q1 2024, a decrease from $74,676 in Q1 2023, reflecting a significant change in cash flow dynamics[17] - Net cash flows used in operating activities were $7.7 million in Q1 2024, a decrease from $74.7 million in Q1 2023, primarily due to a $111.7 million increase in cash used for net change in assets and liabilities[110] - Cash flows used in financing activities were $26.4 million in Q1 2024, primarily due to $26.7 million in dividend payments, compared to $76.8 million in Q1 2023[116][117] - The company experienced a net decrease in cash and cash equivalents of $43.5 million in Q1 2024, compared to a decrease of $24.0 million in Q1 2023[109] Inventory and Goodwill - As of March 31, 2024, the Company reported total inventories of $734.36 million, a decrease from $768.41 million at December 31, 2023[38] - The net balance of goodwill as of March 31, 2024, was $587.79 million, down from $589.55 million at December 31, 2023, primarily due to foreign currency translation adjustments[36] - The Company recorded inventory obsolescence reserves of $76.1 million as of March 31, 2024, compared to $71.3 million at December 31, 2023[38] Capital Expenditures and Financing - Capital expenditures in Q1 2024 were $8.6 million, compared to $17.2 million in Q1 2023, with total estimated capital expenditures for 2024 expected to be between $55 million and $75 million[112][114] - The Company issued $460 million in Convertible Notes with a coupon rate of 1.125%, maturing on May 15, 2026[48] - The fair value of the Convertible Notes was estimated at $454.5 million as of March 31, 2024, based on quoted prices in active markets[54] - The Company has a $600 million revolving credit facility, with $50 million available for letters of credit and up to $400 million in approved foreign currencies[44] - Availability under the revolving credit facility was $153.8 million at March 31, 2024, indicating sufficient liquidity for anticipated cash requirements[46] Segment Performance - The OEM Segment accounted for 78% of consolidated net sales, generating $758.3 million, while the Aftermarket Segment contributed 22% with $209.7 million[66][68] - Operating profit for the OEM Segment was $32.8 million, compared to a loss of $0.7 million in the same period last year, while the Aftermarket Segment reported an operating profit of $24.8 million, up from $20.8 million[70] - Approximately 52% of OEM Segment net sales were from components for travel trailer and fifth-wheel RVs for the three months ended March 31, 2024[67] - Aftermarket Segment net sales decreased by 3% to $209.7 million in the first quarter of 2024 compared to $215.1 million in the same period of 2023[99] - Operating profit margin for the Aftermarket Segment improved to 11.8% in the first quarter of 2024, up from 9.7% in the same period of 2023[100] Market Trends - Retail demand for travel trailer and fifth-wheel RVs decreased by 8% in the first three months of 2024 compared to the same period in 2023, primarily due to inflation and higher interest rates[84] - Industry-wide wholesale shipments of travel trailer and fifth-wheel RVs increased by 17% to 73,500 units in the first quarter of 2024 compared to the same period in 2023[84] - The company executed a strategic initiative to diversify markets, with 57% of net sales for the three months ended March 31, 2024 generated outside the North American RV OEM market[77] Corporate Governance - The company has a stock repurchase program authorized for up to $200 million, with $24.1 million spent on repurchasing 253,490 shares in 2022[64] - The company anticipates that future dividend policies will be determined by the Board of Directors based on financial needs and earnings[119] - The company maintained compliance with all financial covenants in its Credit Agreement as of March 31, 2024[118]

LCI (LCII) came out with quarterly earnings of $1.44 per share, beating the Zacks Consensus Estimate of $0.54 per share. This compares to earnings of $0.29 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 166.67%. A quarter ago, it was expected that this recreational vehicle parts supplier would post a loss of $0.11 per share when it actually produced a loss of $0.09, delivering a surprise of 18.18%.Over the last four quarters, ...

Financial Performance - Net sales for Q1 2024 were $968 million, a decrease of 1% from $973.3 million in Q1 2023[4] - Net income increased to $37 million, or $1.44 per diluted share, compared to $7 million, or $0.29 per diluted share in Q1 2023[4] - EBITDA rose to $90 million in Q1 2024, up from $53 million in Q1 2023[4] - Operating profit for the total company increased significantly to $57,611,000 from $20,043,000 year-over-year, indicating a strong recovery in profitability[25] - Net income for the three months ended March 31, 2024, was $36,545,000, compared to $7,259,000 in the same period last year, reflecting a substantial improvement[29] - EBITDA for the three months ended March 31, 2024, was $90,300,000, significantly higher than $52,542,000 in the same period of 2023[33] Segment Performance - RV OEM net sales increased by 15% to $459.6 million, driven by a 9% rise in North American RV wholesale shipments[8] - Aftermarket Segment operating profit margin improved to 11.8%, up from 9.7% in the same period last year[4] - Aftermarket net sales were $209.7 million, down 3% year-over-year, primarily due to lower marine market volumes[10] - The OEM Segment net sales reached $758,311,000, remaining relatively stable compared to $758,173,000 in the prior year, while the Aftermarket Segment net sales decreased to $209,718,000 from $215,137,000[25] Cash and Liquidity - Cash and cash equivalents decreased to $22.6 million from $66.2 million at the end of 2023[13] - The company reported a decrease in cash and cash equivalents to $22,625,000 from $66,157,000 at the end of the previous quarter[27] - Accounts receivable increased to $344,406,000 from $214,707,000, indicating a rise in sales on credit[27] - The remaining availability under the revolving credit facility decreased to $153.8 million from $318.2 million, reflecting tighter liquidity[31] Inventory and Acquisitions - Inventory was reduced by $34 million in Q1 2024, totaling a decrease of $175 million from Q1 2023[4] - The company acquired CWDS, LLC's furniture business in May 2024, expanding its furniture portfolio[4] Tax and Capital Expenditures - The effective tax rate for Q1 2024 was 24.3%, a slight decrease from 24.8% in Q1 2023[12] - The company anticipates a full-year annual tax rate of 24% to 26%[31] - Estimated full-year capital expenditures are projected to be between $55 million and $75 million[31]

Financial Performance - Consolidated net sales for 2023 were $3.8 billion, a decrease of 27% from $5.2 billion in 2022, primarily due to a nearly 39% decrease in North American RV wholesale shipments[24]. - Net income for 2023 was $64.2 million, or $2.52 per diluted share, compared to $395.0 million, or $15.48 per diluted share, in 2022[25]. - The OEM Segment represented 77% of consolidated net sales in 2023, with approximately 47% of OEM Segment net sales coming from travel trailer and fifth-wheel RV manufacturers[30]. - Aftermarket Segment net sales decreased 1% from $891.3 million in 2022 to $881.1 million in 2023, with CURT Manufacturing accounting for approximately half of these sales[37]. - Total OEM Segment net sales decreased by 33% to $2.9 billion in 2023, with travel trailers and fifth-wheels down 48% to $1.36 billion[190]. - Operating profit margin for the OEM Segment fell to 0.6% in 2023 from 11.1% in 2022, while the Aftermarket Segment improved to 12.0% from 8.3%[175]. - Interest expense increased to $40.4 million in 2023 from $27.6 million in 2022, primarily due to rising interest rates[190]. - Net cash flows provided by operating activities were $527.2 million in 2023, down from $602.5 million in 2022, mainly due to a decrease in net income adjusted for non-cash items[203]. Acquisitions and Growth - Acquisitions completed in 2022 and 2023 contributed approximately $73.6 million to net sales in 2023, with two acquisitions in 2023 totaling $25.8 million[24][28]. - The company is expanding into adjacent industries and international markets, which involves significant resources and carries risks of failure due to limited brand recognition[110]. - Approximately 61% of net sales in 2023 were generated outside the North American RV OEM market, up from 46% in 2022, indicating successful diversification[178]. Operational Metrics - Capital expenditures for 2023 were $62 million, including $12 million in automation investments and $12 million in capacity investments[41]. - The company operates over 110 manufacturing and distribution facilities across North America and Europe[41]. - As of December 31, 2023, the company had approximately 11,700 full-time team members, with 10,200 in North America and 1,500 internationally[56]. - The company has 140 total facilities, with 115 located in North America and 25 in Europe, indicating a robust operational footprint[161]. Employee Engagement and Community Support - The retention percentage for team members in North America improved to 71% in 2023, up from 57% in the prior year[60]. - Team members logged over 143,000 volunteer hours in 2023, with 85% participation, an increase from 75% in 2022[62]. - The company donated more than $1.1 million in 2023 to support community needs, focusing on children and families, education, and health[62]. - Over 8,000 "dreams and goals" were achieved by team members in 2023, covering various personal and professional development areas[61]. - Engagement in the wellness program improved from 53% in 2022 to 67% in 2023[64]. Risks and Compliance - The company believes it is currently operating in compliance with applicable laws and regulations, with no material effect on operations or financial condition[55]. - The company faces risks related to conducting business internationally, including operational and financial uncertainties[115]. - Cyber-attacks are increasing in frequency and sophistication, posing risks to customer retention and operational efficiency[119]. - The company is subject to numerous regulations, and failure to comply could result in significant penalties and adversely impact financial results[120]. - Changes in laws related to climate change could impose additional costs on the company, affecting its business operations and financial condition[124]. - The company faces risks related to environmental laws, which could lead to fines and remediation costs that adversely affect operations[126]. Financial Structure and Debt - The company has a debt structure that includes term loans, 1.125% convertible senior notes due 2026, and a revolving credit facility, which may increase leverage and financial risk[141]. - The ability to service substantial debt depends on future performance, which is influenced by various uncontrollable economic and competitive factors[142]. - Debt agreements impose covenants that require maintaining certain financial ratios, which if breached, could lead to defaults and adversely impact operations[144]. - An increase in interest rates could significantly raise borrowing costs, adversely affecting financial condition and cash flows[145]. - The company has paid regular quarterly dividends since March 2016, but future payments depend on business performance and financial conditions[146]. Market Conditions - The company experienced lower RV and marine OEM volumes in 2023 due to inflation and elevated interest rates impacting consumer discretionary spending[80]. - The RV industry experienced a nearly 37% decrease in wholesale RV OEM shipments in 2023, negatively impacting the company's net sales for the year[89]. - Steel and aluminum comprised approximately 30% and 10% of the company's raw material costs, respectively, highlighting the impact of volatile raw material prices on financial performance[92]. - The company imported about 30% of its raw materials and components in 2023, making it vulnerable to geopolitical risks and supply chain disruptions[96]. - The inability to develop innovative new products or respond to changes in consumer preferences could adversely affect net sales and operating results[99].

Financial Data and Key Metrics Changes - The company reported a revenue of $3.8 billion for 2023, a decline from $5.2 billion in 2022, primarily due to lower RV and marine industry production levels [31][49] - The gross margin improved to 19.2% compared to 16.4% in the prior year, driven by a positive mix and lower sales volume [76][100] - Operating cash flow was strong at $527 million in 2023, with a net debt position of $781 million, representing 2.7 times pro forma EBITDA [46][78] Business Line Data and Key Metrics Changes - Sales to North American RV OEMs decreased by 47% to $1.5 billion, while sales in North American adjacent markets decreased by 8% to $1.1 billion [77] - Aftermarket net sales were $881 million for the year, down 1% compared to 2022, but up 10% in Q4 2023 [37][50] - Content per total RV decreased to $5,058, while content per motorhome RV was $3,506, reflecting index pricing reductions [33][98] Market Data and Key Metrics Changes - International sales increased by 4% year-over-year, driven by decreased supply chain headwinds abroad [67][99] - Marine production dropped sharply in Q4 2023, with expectations of continued softness into the next two quarters of 2024 [39][53] - The company anticipates a decline in marine sales for the year, while RV orders showed an increase in February [53][65] Company Strategy and Development Direction - The company has diversified beyond recreational vehicles into transportation vehicles, marine, automotive, and residential markets, achieving nearly 50% revenue growth in new markets over the past five years [31][32] - A new joint venture, Amerimax for Mobility, was established to enhance product offerings in the RV sector [36] - The company is focused on operational improvements and cost optimization to support long-term profitability [32][72] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges in the RV and marine industries but expressed confidence in the company's ability to weather these challenges and capitalize on growth opportunities [31][56] - The company expects to see organic content growth of 3% to 6% in the RV sector, driven by new product launches and market share gains [113][139] - Management highlighted the importance of innovation and R&D investments to maintain competitive advantages [68][70] Other Important Information - The company completed 20,000 continuous improvement projects in 2023, enhancing its manufacturing efficiency [32] - The company returned $106 million to shareholders in the form of dividends in 2023 [52] - The company has a strong focus on community engagement, with 75% of its workforce participating in service events [71] Q&A Session Summary Question: Can you clarify the impact of index pricing on content? - Management noted that index pricing significantly impacted content per unit, with a mid-teens percentage give-back effect observed [83][120] Question: What are the expectations for profitability in Q1? - Management expects profitability to be lower than the previous year's first quarter due to marine softness, but RV production is anticipated to improve [84][91] Question: How is the marine market performing? - The marine market is experiencing a significant decline, with production down 40% to 50% compared to the previous year [112] Question: What are the expectations for content growth in 2024? - Management anticipates positive organic content growth of 3% to 6% for the year, despite pricing headwinds in the first half [113][139] Question: Can you provide insights on the new glass and acrylic factory? - The factory is targeting multiple markets, including residential and commercial, with a focus on innovative glass products [114][116]

LCI Industries FY 2023 Earnings Conference Call Whenever, wherever, we make your experience better. Forward-looking statements, including, without limitation, those relating to the Company's future business prospects, net sales, expenses and income (loss), capital expenditures, tax rate, cash flow, financial condition, liquidity, covenant compliance, retail and wholesale demand, integration of acquisitions, R&D investments, commodity prices and industry trends, whenever they occur in this presentation are n ...

Financial Performance - Net sales for Q3 2023 were $959.3 million, a decrease of 15.3% compared to $1,132.1 million in Q3 2022[9] - Gross profit for Q3 2023 was $210.9 million, down 16.6% from $253.1 million in Q3 2022[9] - Operating profit decreased to $45.6 million in Q3 2023, a decline of 47.9% from $87.6 million in Q3 2022[9] - Net income for Q3 2023 was $25.9 million, a significant drop of 57.7% compared to $61.4 million in Q3 2022[9] - Total net sales for the nine months ended September 30, 2023, were $2.95 billion, a decrease from $4.31 billion in the same period of 2022, representing a decline of approximately 31%[74] - Net income for the nine months ended September 30, 2023, was $66,572,000, a decrease of 83.8% compared to $412,103,000 in the same period of 2022[16] Assets and Liabilities - Total assets as of September 30, 2023, were $3,033.8 million, down from $3,246.9 million at the end of 2022[14] - Cash and cash equivalents decreased to $31.2 million from $47.5 million at the end of 2022[14] - Long-term indebtedness as of September 30, 2023, was $908.245 million, a decrease from $1,095.888 million as of December 31, 2022[45] - The balance of retained earnings as of September 30, 2023, was $1,206,525,000, down from $1,221,279,000 at December 31, 2022[21] - Current assets decreased to $1.23 billion as of September 30, 2023, from $1.39 billion at the end of 2022[14] Cash Flow and Capital Expenditures - Net cash flows provided by operating activities for the nine months ended September 30, 2023, were $389.3 million, compared to $485.5 million for the same period in 2022[16] - Capital expenditures for the nine months ended September 30, 2023, were $50.1 million, down from $103.7 million in 2022[16] - Cash flows used in financing activities were $333.4 million in the first nine months of 2023, primarily due to net repayments under the revolving credit facility and dividend payments[128] Dividends and Stock - Cash dividends paid were $26,590,000 for the quarter ending September 30, 2023, maintaining a consistent dividend of $1.05 per share[21] - The Company declared total dividends of $79.744 million for the year 2023, with a per share dividend of $1.05 for each quarter[65] - The total dividends paid in 2023 amounted to $79,744 thousand, with a per share dividend of $3.15, compared to $102,726 thousand in 2022 with a per share dividend of $4.05[65] Segment Performance - For the nine months ended September 30, 2023, the OEM Segment accounted for 76% of consolidated net sales, down from 83% in the same period of 2022[71] - The Aftermarket Segment's net sales increased to 24% of consolidated net sales for the nine months ended September 30, 2023, up from 17% in the same period of 2022[72] - The OEM Segment's net sales for travel trailers and fifth-wheel RVs were $1.03 billion for the nine months ended September 30, 2023, compared to $2.26 billion in the same period of 2022, a decrease of approximately 54%[74] - Aftermarket Segment net sales for Q3 2023 increased by $11.2 million to $230.8 million, a 5% increase compared to Q3 2022[110] Inventory and Goodwill - The Company recorded inventories of $791.884 million as of September 30, 2023, down from $1,029.705 million as of December 31, 2022, reflecting a decrease of approximately 23%[39] - The net balance of goodwill as of September 30, 2023, was $579.912 million, up from $567.063 million as of December 31, 2022[37] - The Company has recorded a decrease in raw materials inventory to $484.3 million as of September 30, 2023, down from $600.6 million at the end of 2022[39] Economic Conditions and Risks - The Company noted that negative economic conditions, including inflation and interest rate fluctuations, could continue to impact its business and financial results[28] - The company is exposed to market risks related to changes in raw material prices, particularly steel and aluminum, which could impact future profitability[145] Compliance and Financial Covenants - The Company was in compliance with all financial covenants as of September 30, 2023[57] - The maximum net leverage ratio covenant limits the amount of consolidated outstanding indebtedness based on trailing twelve-month EBITDA[58]

PART I – FINANCIAL INFORMATION [ITEM 1 – FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201%20%E2%80%93%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements of LCI Industries, including statements of income, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [CONDENSED CONSOLIDATED STATEMENTS OF INCOME](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) This section presents the company's financial performance over specific periods, detailing net sales, gross profit, operating profit, net income, and earnings per share Condensed Consolidated Statements of Income (Unaudited) | Metric (in thousands, except per share amounts) | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net sales | $1,014,639 | $1,536,150 | $1,987,949 | $3,180,718 | | Gross profit | $218,120 | $409,085 | $404,191 | $873,328 | | Operating profit | $55,174 | $218,789 | $75,217 | $488,490 | | Net income | $33,426 | $154,530 | $40,685 | $350,711 | | Basic EPS ($) | $1.32 | $6.07 | $1.61 | $13.82 | | Diluted EPS ($) | $1.31 | $6.06 | $1.60 | $13.76 | [CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) This section outlines the company's total comprehensive income, including net income and other comprehensive income components like foreign currency translation adjustments and actuarial gains on pension plans Condensed Consolidated Statements of Comprehensive Income (Unaudited) | Metric (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $33,426 | $154,530 | $40,685 | $350,711 | | Net foreign currency translation adjustment | $763 | $(13,688) | $2,763 | $(16,570) | | Actuarial gain on pension plans | $100 | $13,985 | $100 | $13,985 | | Total comprehensive income | $34,289 | $154,827 | $43,548 | $348,126 | [CONDENSED CONSOLIDATED BALANCE SHEETS](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (Unaudited) | Metric (in thousands) | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------ | :--------------------------- | :------------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $22,094 | $47,499 | | Accounts receivable, net | $299,469 | $214,262 | | Inventories, net | $830,020 | $1,029,705 | | Total current assets | $1,235,245 | $1,390,776 | | Fixed assets, net | $478,885 | $482,185 | | Goodwill | $584,312 | $567,063 | | Other intangible assets, net | $477,307 | $503,320 | | Total assets | $3,076,397 | $3,246,912 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Current maturities of long-term indebtedness | $27,712 | $23,086 | | Accounts payable, trade | $182,637 | $143,529 | | Total current liabilities | $441,452 | $421,300 | | Long-term indebtedness | $915,756 | $1,095,888 | | Total liabilities | $1,705,500 | $1,865,904 | | Total stockholders' equity | $1,370,897 | $1,381,008 | | Total liabilities and stockholders' equity | $3,076,397 | $3,246,912 | [CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash flows provided by operating activities | $273,565 | $347,971 | | Net cash flows used in investing activities | $(55,589) | $(120,422) | | Net cash flows used in financing activities | $(243,319) | $(234,390) | | Net decrease in cash and cash equivalents | $(25,405) | $(7,908) | | Cash and cash equivalents at end of period | $22,094 | $54,988 | [CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) This section details changes in the company's stockholders' equity, including net income, stock issuance, compensation, other comprehensive income, and dividends Changes in Stockholders' Equity (Six Months Ended June 30, 2023) | Metric (in thousands) | Common Stock (in thousands) | Paid-in Capital (in thousands) | Retained Earnings (in thousands) | Accumulated Other Comprehensive Income (Loss) (in thousands) | Treasury Stock (in thousands) | Total Stockholders' Equity (in thousands) | | :-------------------------------- | :-------------------------- | :----------------------------- | :------------------------------- | :----------------------------------------------------------- | :---------------------------- | :---------------------------------------- | | Balance - December 31, 2022 | $285 | $234,956 | $1,221,279 | $6,704 | $(82,216) | $1,381,008 | | Net income | — | — | $40,685 | — | — | $40,685 | | Issuance of common stock (net) | $1 | $(9,586) | — | — | — | $(9,585) | | Stock-based compensation expense | — | $9,080 | — | — | — | $9,080 | | Other comprehensive income | — | — | — | $2,863 | — | $2,863 | | Cash dividends | — | — | $(53,154) | — | — | $(53,154) | | Dividend equivalents | — | $1,057 | $(1,057) | — | — | — | | Balance - June 30, 2023 | $286 | $235,507 | $1,207,753 | $9,567 | $(82,216) | $1,370,897 | [NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=10&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, estimates, and specific financial line items [1. BASIS OF PRESENTATION](index=10&type=section&id=1.%20BASIS%20OF%20PRESENTATION) This section describes the company's business, operational scope, seasonal trends, and the impact of economic conditions on its financial reporting - LCI Industries (LCII) and its subsidiaries, primarily Lippert Components, Inc., supply engineered components to OEMs in recreation, transportation, and housing markets (RVs, boats, buses, trailers, manufactured homes, modular housing) and their related aftermarkets[23](index=23&type=chunk) - The company operates over **120 manufacturing and distribution facilities** across North America and Europe[23](index=23&type=chunk) - The company's sales and profits are historically highest in the second quarter and lowest in the fourth quarter due to seasonal industry trends, though these trends can be impacted by factors like dealer inventories, economic conditions, consumer confidence, and severe weather[24](index=24&type=chunk) - The preparation of financial statements requires management to make estimates and judgments, which are continuously evaluated based on historical experience and other available information, with actual results potentially differing significantly from these estimates[27](index=27&type=chunk) - Negative economic conditions, including financial and credit market fluctuations, increased inflation and interest rates, trade uncertainty, natural disasters, global public health crises (e.g., COVID-19), and armed conflicts (e.g., Russia-Ukraine), have negatively impacted and could continue to impact the Company's business, liquidity, financial condition, and results of operations[28](index=28&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the accounting principles applied in preparing the financial statements and notes any recent pronouncements - The Condensed Consolidated Financial Statements adhere to accounting policies described in the December 31, 2022 Annual Report on Form 10-K[29](index=29&type=chunk) - No recent accounting pronouncements not yet adopted are expected to materially impact the Condensed Consolidated Financial Statements[30](index=30&type=chunk) [3. EARNINGS PER SHARE](index=11&type=section&id=3.%20EARNINGS%20PER%20SHARE) This section details the calculation of basic and diluted earnings per share, including the treatment of common stock equivalents and antidilutive instruments Weighted Average Shares Outstanding for EPS Calculation (In thousands) | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Weighted average shares outstanding for basic EPS | 25,329 | 25,438 | 25,273 | 25,377 | | Common stock equivalents (stock-based awards) | 108 | 80 | 86 | 106 | | Weighted average shares outstanding for diluted EPS | 25,437 | 25,518 | 25,359 | 25,483 | | Equity instruments excluded (antidilutive) | 165 | 112 | 162 | 111 | - The Company's **1.125% convertible senior notes due 2026** were antidilutive for the three and six months ended June 30, 2023, as the average common stock price was below the conversion price of **$165.65**[31](index=31&type=chunk) - Warrants to purchase **2.8 million shares** of common stock with a strike price of **$259.84 per share** were also considered antidilutive for the three and six months ended June 30, 2023, as the average share price was below the strike price[32](index=32&type=chunk) [4. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS](index=12&type=section&id=4.%20ACQUISITIONS,%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This section reports on recent acquisitions, changes in goodwill by segment, and the composition of other intangible assets - During the first six months of 2023, the Company completed **two acquisitions** for an aggregate cash purchase consideration of **$25.8 million**, resulting in **$18.3 million of goodwill**[34](index=34&type=chunk) - The acquisition of Way Interglobal Network LLC in November 2022 for **$54.8 million** (including a **$2.0 million holdback**) had preliminary purchase price allocation adjustments in H1 2023 due to updated net working capital balances[35](index=35&type=chunk)[36](index=36&type=chunk) Changes in Goodwill by Segment (In thousands) | Metric | OEM Segment (in thousands) | Aftermarket Segment (in thousands) | Total (in thousands) | | :---------------------------- | :------------------------- | :--------------------------------- | :------------------- | | Net balance – December 31, 2022 | $399,736 | $167,327 | $567,063 | | Acquisitions – 2023 | $18,314 | — | $18,314 | | Measurement period adjustments | $(2,905) | $(143) | $(3,048) | | Foreign currency translation | $1,721 | $262 | $1,983 | | Net balance – June 30, 2023 | $416,866 | $167,446 | $584,312 | Other Intangible Assets (In thousands) | Asset Type | Gross Cost (June 30, 2023) (in thousands) | Net Balance (June 30, 2023) (in thousands) | Net Balance (December 31, 2022) (in thousands) | | :------------------------ | :---------------------------------------- | :----------------------------------------- | :--------------------------------------------- | | Customer relationships | $517,588 | $337,331 | $356,711 | | Patents | $122,373 | $54,676 | $58,326 | | Trade names (finite life) | $98,650 | $74,600 | $76,430 | | Trade names (indefinite life) | $7,600 | $7,600 | $7,600 | | Non-compete agreements | $11,484 | $2,756 | $3,886 | | Other | $609 | $344 | $367 | | Total | $758,304 | $477,307 | $503,320 | [5. INVENTORIES](index=13&type=section&id=5.%20INVENTORIES) This section provides a breakdown of inventory components and the associated obsolescence reserves Inventories, Net (In thousands) | Inventory Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------- | :--------------------------- | :------------------------------- | | Raw materials | $503,777 | $600,601 | | Work in process | $45,379 | $44,850 | | Finished goods | $280,864 | $384,254 | | Inventories, net | $830,020 | $1,029,705 | - Inventory obsolescence reserves were **$61.5 million** at June 30, 2023, up from **$55.9 million** at December 31, 2022[39](index=39&type=chunk) [6. FIXED ASSETS](index=13&type=section&id=6.%20FIXED%20ASSETS) This section details the company's fixed assets, including their cost and accumulated depreciation and amortization Fixed Assets, Net (In thousands) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------- | :--------------------------- | :------------------------------- | | Fixed assets, at cost | $976,047 | $945,255 | | Less accumulated depreciation and amortization | $497,162 | $463,070 | | Fixed assets, net | $478,885 | $482,185 | [7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=14&type=section&id=7.%20ACCURRED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) This section itemizes accrued expenses and other current liabilities, including employee compensation, warranty provisions, and deferred acquisition payments Accrued Expenses and Other Current Liabilities (In thousands) | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------------------------- | :--------------------------- | :------------------------------- | | Employee compensation and benefits | $54,837 | $77,804 | | Current portion of accrued warranty | $41,988 | $35,148 | | Deferred acquisition payments and contingent consideration | $33,692 | $34,013 | | Other | $65,582 | $72,273 | | Total accrued expenses and other current liabilities | $196,099 | $219,238 | Accrued Warranty Activity (In thousands) | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Balance at beginning of period | $54,528 | $52,114 | | Provision for warranty expense | $40,128 | $28,164 | | Warranty costs paid | $(31,968) | $(18,646) | | Balance at end of period | $62,688 | $61,632 | | Less long-term portion | $(20,700) | $(21,460) | | Current portion of accrued warranty at end of period | $41,988 | $40,172 | [8. LONG-TERM INDEBTEDNESS](index=14&type=section&id=8.%20LONG-TERM%20INDEBTEDNESS) This section details the company's long-term debt, including convertible notes, term loans, revolving credit facilities, and compliance with financial covenants Long-Term Debt (In thousands) | Debt Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------ | :--------------------------- | :------------------------------- | | Convertible Notes | $460,000 | $460,000 | | Term Loan | $365,000 | $375,000 | | Revolving Credit Loan | $122,960 | $289,067 | | Other | $3,440 | $3,959 | | Unamortized deferred financing fees | $(7,932) | $(9,052) | | Total | $943,468 | $1,118,974 | | Less current portion | $(27,712) | $(23,086) | | Long-term indebtedness | $915,756 | $1,095,888 | - The Credit Agreement provides for a **$600.0 million revolving credit facility** and a **$400.0 million Term Loan**, maturing on December 7, 2026, with variable interest rates based on a base rate or SOFR plus an applicable margin[44](index=44&type=chunk)[45](index=45&type=chunk) - Availability under the revolving credit facility was **$270.0 million** at June 30, 2023, after accounting for certain limitations related to the maximum net leverage ratio covenant[45](index=45&type=chunk) - The Company issued **$460.0 million in 1.125% Convertible Notes due 2026**, with a conversion rate of **6.1469 shares per $1,000 principal amount** at June 30, 2023[47](index=47&type=chunk)[48](index=48&type=chunk) - The notes are convertible under certain circumstances and redeemable by the Company on or after May 20, 2024, if specific stock price conditions are met[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - An amendment to the Credit Agreement on May 23, 2023, adjusted certain financial covenants (increasing maximum total net leverage ratio and decreasing minimum debt service coverage ratio) for the two fiscal quarters ending June 30, 2023, and September 30, 2023, with the Company in compliance at June 30, 2023[55](index=55&type=chunk) [9. LEASES](index=17&type=section&id=9.%20LEASES) This section presents the components of lease expense, distinguishing between operating, short-term, and variable lease costs Components of Lease Expense (In thousands) | Lease Expense Type | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :----------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating lease expense | $15,670 | $13,236 | $30,914 | $26,148 | | Short-term lease expense | $1,307 | $1,934 | $2,787 | $3,774 | | Variable lease expense | $1,200 | $936 | $2,200 | $1,649 | | Total lease expense | $18,177 | $16,106 | $35,901 | $31,571 | [10. COMMITMENTS AND CONTINGENCIES](index=17&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) This section outlines the company's financial commitments and potential liabilities from business combinations, product recalls, environmental regulations, and legal proceedings - The Company finances a portion of business combinations with holdback payments and contingent earnout provisions, measured at fair value quarterly, with contingent consideration balances not material at June 30, 2023[59](index=59&type=chunk) - The Company cooperates with customers on product recalls and may incur future expenses for investigations or recalls[60](index=60&type=chunk) - Operations are subject to environmental regulations, and the Company may incur expenditures for future investigation and remediation of sites affected by hazardous materials[61](index=61&type=chunk) - In the normal course of business, the Company is subject to legal proceedings, but management believes any monetary liability beyond current provisions would not be material to its financial position or results of operations[62](index=62&type=chunk) [11. STOCKHOLDERS' EQUITY](index=18&type=section&id=11.%20STOCKHOLDERS'%20EQUITY) This section provides details on common stock, dividends, stock-based awards, and stock repurchase programs Common Stock Information (In thousands) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------- | :--------------------------- | :------------------------------- | | Common stock authorized | 75,000 | 75,000 | | Common stock issued | 28,665 | 28,519 | | Treasury stock | 3,341 | 3,341 | | Common stock outstanding | 25,324 | 25,178 | Regular Quarterly Dividends Declared and Paid (In thousands, except per share data) | Period | Per Share ($) | Total Paid (in thousands) | | :---------------- | :------------ | :------------------------ | | First Quarter 2022 | $0.90 | $22,870 | | Second Quarter 2022 | $1.05 | $26,702 | | Third Quarter 2022 | $1.05 | $26,701 | | Fourth Quarter 2022 | $1.05 | $26,453 | | Total 2022 | $4.05 | $102,726 | | First Quarter 2023 | $1.05 | $26,563 | | Second Quarter 2023 | $1.05 | $26,591 | | Total 2023 | $2.10 | $53,154 | Deferred and Restricted Stock Units (DSUs & RSUs) Activity | Metric | Number of Shares | Weighted Average Price ($) | | :-------------------------- | :--------------- | :------------------------- | | Outstanding at December 31, 2022 | 277,774 | $120.92 | | Granted | 159,640 | $114.22 | | Vested | (129,583) | $112.24 | | Outstanding at June 30, 2023 | 301,404 | $118.55 | Performance Stock Units (PSUs) Activity | Metric | Number of Shares | Weighted Average Price ($) | | :-------------------------- | :--------------- | :------------------------- | | Outstanding at December 31, 2022 | 162,381 | $120.12 | | Granted | 140,953 | $108.42 | | Vested | (100,046) | $101.11 | | Outstanding at June 30, 2023 | 203,770 | $122.57 | - The Board authorized a **$200.0 million stock repurchase program** on May 19, 2022, expiring May 19, 2025, with no shares repurchased during the six months ended June 30, 2023[66](index=66&type=chunk) [12. SEGMENT REPORTING](index=19&type=section&id=12.%20SEGMENT%20REPORTING) This section disaggregates the company's net sales and operating profit by its OEM and Aftermarket segments and geographical regions - The Company operates in two reportable segments: OEM Segment and Aftermarket Segment, with intersegment sales being insignificant[67](index=67&type=chunk) - The OEM Segment accounted for **76% of consolidated net sales** for the six months ended June 30, 2023, primarily supplying engineered components to RVs and adjacent industries (boats, buses, trailers, manufactured homes)[68](index=68&type=chunk) - The Aftermarket Segment accounted for **24% of consolidated net sales** for the six months ended June 30, 2023, supplying engineered components to related aftermarket channels, including retail dealers, wholesale distributors, and direct to retail customers[69](index=69&type=chunk) Net Sales by Segment and Geography (In thousands) | Segment/Geography | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | **OEM Segment** | | | | | | U.S. | $665,868 | $1,188,038 | $1,334,319 | $2,497,467 | | International | $93,140 | $88,240 | $182,861 | $175,393 | | Total OEM | $759,008 | $1,276,278 | $1,517,180 | $2,672,860 | | **Aftermarket Segment** | | | | | | U.S. | $234,901 | $240,246 | $435,388 | $470,413 | | International | $20,730 | $19,626 | $35,381 | $37,445 | | Total Aftermarket | $255,631 | $259,872 | $470,769 | $507,858 | | **Total Net Sales** | $1,014,639 | $1,536,150 | $1,987,949 | $3,180,718 | Operating Profit by Segment (In thousands) | Segment | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | OEM Segment | $18,642 | $190,577 | $17,921 | $435,951 | | Aftermarket Segment | $36,532 | $28,212 | $57,296 | $52,539 | | Total operating profit | $55,174 | $218,789 | $75,217 | $488,490 | Revenue Disaggregated by Product (In thousands) | Product Category | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | **OEM Segment:** | | | | | | Chassis, chassis parts, and slide-out mechanisms | $202,735 | $486,591 | $400,791 | $1,046,311 | | Windows and doors | $220,094 | $301,985 | $438,705 | $632,343 | | Furniture and mattresses | $125,346 | $229,520 | $265,909 | $471,746 | | Axles and suspension solutions | $88,635 | $93,378 | $164,384 | $190,423 | | Other | $122,198 | $164,804 | $247,391 | $332,037 | | Total OEM Segment net sales | $759,008 | $1,276,278 | $1,517,180 | $2,672,860 | | Total Aftermarket Segment net sales | $255,631 | $259,872 | $470,769 | $507,858 | | **Total Net Sales** | $1,014,639 | $1,536,150 | $1,987,949 | $3,180,718 | [ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=22&type=section&id=ITEM%202%20%E2%80%93%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a comprehensive analysis of LCI Industries' financial performance, liquidity, and capital resources for the periods presented, discussing industry trends, segment-specific results, and the impact of economic factors on operations, along with forward-looking statements and risk disclosures - LCI Industries, through Lippert Components, Inc., supplies engineered components to OEMs in recreation, transportation, and housing markets (RVs, boats, buses, trailers, manufactured homes, modular housing) and their related aftermarkets[76](index=76&type=chunk) - The company operates two reportable segments: OEM Segment and Aftermarket Segment, with over **120 manufacturing and distribution facilities** in North America and Europe[77](index=77&type=chunk) - Historically, sales and profits are highest in Q2 and lowest in Q4 due to seasonality, but this has been impacted by factors like dealer inventories, economic conditions, and the COVID-19 pandemic[79](index=79&type=chunk) - Negative economic conditions, including inflation, rising interest rates, trade uncertainty, and global conflicts, have negatively impacted and could continue to impact the Company's business[80](index=80&type=chunk)[82](index=82&type=chunk) [INDUSTRY BACKGROUND](index=23&type=section&id=INDUSTRY%20BACKGROUND) This section details the market conditions for the North American Recreational Vehicle (RV) industry and Adjacent Industries, including wholesale shipments, retail demand, and dealer inventory levels, along with the outlook for the Aftermarket Segment - The RV industry's annual sales cycle typically runs from October to September, with wholesale shipments exceeding retail sales from October to March to build dealer inventories, and retail sales exceeding wholesale shipments from April to September[84](index=84&type=chunk) - Industry-wide wholesale shipments of travel trailer and fifth-wheel RVs decreased **54%** in the first six months of 2023 compared to 2022, primarily due to a **21% decrease in retail demand**, driven by rising interest rates impacting consumers[85](index=85&type=chunk) Wholesale vs. Retail RV Unit Sales and Dealer Inventory Impact (United States and Canada) | Period | Wholesale Units (units) | Change (YoY) (%) | Retail Units (units) | Change (YoY) (%) | Estimated Unit Impact on Dealer Inventories (units) | | :-------------------------- | :---------------------- | :--------------- | :------------------- | :--------------- | :-------------------------------------------------- | | Quarter ended June 30, 2023 | 71,600 | (46)% | 105,300 | (19)% | (33,700) | | Quarter ended March 31, 2023 | 61,200 | (60)% | 71,400 | (25)% | (10,200) | | Twelve months ended June 30, 2023 | 268,200 | (51)% | 341,700 | (21)% | (73,500) | - Industry-wide wholesale shipments of motorhome RVs decreased **17%** in H1 2023, with retail demand down **12% year-over-year**, attributed to inflation and rising interest rates[86](index=86&type=chunk)[88](index=88&type=chunk) - The Company estimates full-year 2023 industry-wide wholesale shipments for travel trailer, fifth-wheel, and motorhome RVs to be approximately **290,000 to 310,000 units**, a **37-41% decrease from 2022**, due to dealer inventory levels, inflation, and rising interest rates[89](index=89&type=chunk) - Economic uncertainty is expected to negatively impact consumer discretionary purchases in Adjacent Industries (trailers, boats) in H2 2023, while manufactured homes, buses, and trains are anticipated to maintain current production rates[91](index=91&type=chunk) - The Aftermarket Segment is expected to see a slight increase in sales in H2 2023 as distribution channel inventories stabilize, though tempered by inflation and rising interest rates on consumer discretionary spending[94](index=94&type=chunk) [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed breakdown of the company's consolidated and segment-specific financial results for the three and six months ended June 30, 2023, compared to the prior year, highlighting key revenue and profit drivers, including the impact of commodity costs and fixed expenses Consolidated Financial Highlights (In millions, except per share amounts) | Metric | Q2 2023 (in millions) | Q2 2022 (in millions) | Change (YoY) (%) | YTD 2023 (in millions) | YTD 2022 (in millions) | Change (YoY) (%) | | :---------------------- | :-------------------- | :-------------------- | :--------------- | :--------------------- | :--------------------- | :--------------- | | Net sales | $1,014.6 | $1,536.2 | (34)% | $1,987.9 | $3,180.7 | (37.5)% | | Net income | $33.4 | $154.5 | (78.4)% | $40.7 | $350.7 | (88.4)% | | Diluted EPS ($) | $1.31 | $6.06 | (78.4)% | $1.60 | $13.76 | (88.4)% | | Operating profit | $55.2 | $218.8 | (74.8)% | $75.2 | $488.5 | (84.6)% | | Operating profit margin | 5.4% | 14.2% | (8.8) pp | 3.8% | 15.4% | (11.6) pp | - Consolidated net sales decreased primarily due to a nearly **44% decrease in North American RV wholesale shipments** and decreased selling prices indexed to commodities, partially offset by **$17.2 million from acquisitions** in Q2 2023[96](index=96&type=chunk) - Consolidated operating profit margin decreased due to lower selling prices (commodity-indexed) and the impact of fixed costs on reduced organic sales, partially offset by decreases in material commodity costs[96](index=96&type=chunk)[97](index=97&type=chunk) OEM Segment Net Sales by Market (In thousands) | Market | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (YoY) (%) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | Change (YoY) (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------------- | :---------------------- | :---------------------- | :--------------- | | Travel trailers and fifth-wheels | $338,739 | $814,509 | (58)% | $669,292 | $1,767,735 | (62)% | | Motorhomes | $71,185 | $91,480 | (22)% | $140,736 | $178,734 | (21)% | | Adjacent Industries OEMs | $349,084 | $370,289 | (6)% | $707,152 | $726,391 | (3)% | | Total OEM Segment net sales | $759,008 | $1,276,278 | (41)% | $1,517,180 | $2,672,860 | (43)% | OEM Segment Average Product Content per RV | Content per: | 2023 ($) | 2022 ($) | Change (YoY) (%) | | :------------------------ | :------- | :------- | :--------------- | | Travel trailer and fifth-wheel | $5,487 | $5,379 | 2% | | Motorhome | $3,760 | $3,557 | 6% | - OEM Segment operating profit decreased significantly in Q2 2023 (by **$171.9 million**) and YTD 2023 (by **$418.0 million**) due to decreased commodity-indexed selling prices, the impact of fixed costs on reduced organic sales, and a sales mix shift to lower margin products, partially offset by decreases in material commodity costs and reduced G&A[101](index=101&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk) Aftermarket Segment Net Sales (In thousands) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (YoY) (%) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | Change (YoY) (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------------- | :---------------------- | :--------------------- | :--------------- | | Total Aftermarket Segment net sales | $255,631 | $259,872 | (2)% | $470,769 | $507,858 | (7)% | - Aftermarket Segment operating profit increased in Q2 2023 (by **$8.3 million**) and YTD 2023 (by **$4.8 million**), driven by decreases in material commodity costs and pricing changes, partially offset by the impact of fixed costs on reduced organic sales and higher production facility costs[110](index=110&type=chunk)[112](index=112&type=chunk)[115](index=115&type=chunk) - Interest expense, net, increased to **$20.6 million** for YTD 2023 from **$12.4 million** in YTD 2022, primarily due to higher global interest rates on variable-rate debt[116](index=116&type=chunk) - The effective tax rate for YTD 2023 was **25.4%**, down from **26.3%** in YTD 2022, mainly due to an increased benefit related to the cash surrender value of life insurance[117](index=117&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=28&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section outlines the company's financial position, cash flow activities, and ability to meet short-term and long-term financial needs, detailing operating, investing, and financing cash flows, available credit, and future capital expenditure plans - As of June 30, 2023, the Company had **$22.1 million in cash and cash equivalents** and **$270.0 million available** under its revolving credit facility[119](index=119&type=chunk)[121](index=121&type=chunk) - Management believes these resources are adequate to finance anticipated cash requirements for the next twelve months[121](index=121&type=chunk) Summary of Cash Flows (In thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash flows provided by operating activities | $273,565 | $347,971 | | Net cash flows used in investing activities | $(55,589) | $(120,422) | | Net cash flows used in financing activities | $(243,319) | $(234,390) | | Net decrease in cash and cash equivalents | $(25,405) | $(7,908) | - Operating cash flows decreased primarily due to a **$310.0 million decrease in net income**, partially offset by a **$235.8 million net change in assets and liabilities**, mainly from a **$209.3 million decrease in inventory**[123](index=123&type=chunk) - Cash used in investing activities for YTD 2023 was **$55.6 million**, primarily for **$34.1 million in capital expenditures** and **$25.9 million for acquisitions**[125](index=125&type=chunk) - Full-year 2023 capital expenditures are estimated at **$60 to $80 million**[126](index=126&type=chunk) - Cash used in financing activities for YTD 2023 was **$243.3 million**, mainly comprising **$168.5 million in net repayments** under the revolving credit facility, **$53.2 million in dividends**, and **$10.7 million in Term Loan repayments**[128](index=128&type=chunk) - The Credit Agreement includes financial covenants, which were amended on May 23, 2023, to adjust the maximum total net leverage ratio and minimum debt service coverage ratio for Q2 and Q3 2023, with the Company in compliance at June 30, 2023[131](index=131&type=chunk) [CORPORATE GOVERNANCE](index=30&type=section&id=CORPORATE%20GOVERNANCE) This section confirms the company's adherence to corporate governance requirements and the availability of related documents and policies - The Company complies with SEC and NYSE corporate governance requirements, with governance documents and committee charters available on its investor website[133](index=133&type=chunk) - A Whistleblower Policy, including a toll-free hotline, is in place for reporting complaints about accounting, internal controls, auditing, or other concerns[133](index=133&type=chunk) [CONTINGENCIES](index=30&type=section&id=CONTINGENCIES) This section refers to the detailed disclosures on commitments and contingencies provided in the financial statement notes - Information regarding commitments and contingencies is included in Note 10 of the Notes to Condensed Consolidated Financial Statements[134](index=134&type=chunk) [INFLATION](index=30&type=section&id=INFLATION) This section discusses the impact of inflation and commodity price volatility on raw material costs and the company's ability to pass these costs to customers - Prices of key raw materials (steel and aluminum) are influenced by demand, commodity-specific factors, and inflationary pressures, decreasing in H1 2023 but historically volatile[135](index=135&type=chunk) - While commodity prices are expected to remain generally consistent in upcoming quarters of 2023, there is no assurance that raw material costs will not increase, or that future cost increases can be fully passed on to customers[135](index=135&type=chunk)[146](index=146&type=chunk) [NEW ACCOUNTING PRONOUNCEMENTS](index=30&type=section&id=NEW%20ACCOUNTING%20PRONOUNCEMENTS) This section refers to the disclosures on new accounting pronouncements provided in the financial statement notes - Information on new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements[136](index=136&type=chunk) [USE OF ESTIMATES](index=30&type=section&id=USE%20OF%20ESTIMATES) This section highlights management's reliance on estimates and judgments in financial reporting and the potential for actual results to differ - The preparation of financial statements requires management to make estimates and judgments (e.g., product returns, inventories, goodwill, income taxes, warranty obligations)[137](index=137&type=chunk) - Estimates are based on historical experience and assumptions, but actual results and events could differ significantly from management's estimates[139](index=139&type=chunk) [FORWARD-LOOKING STATEMENTS](index=31&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements, noting that actual results may differ due to various risk factors, and disclaims any obligation to update them - This Form 10-Q contains forward-looking statements regarding financial condition, results of operations, business strategies, and other matters, which are estimates reflecting management's best judgment[140](index=140&type=chunk)[141](index=141&type=chunk) - Numerous factors, many beyond the Company's control, could cause actual results to differ materially from forward-looking statements, including economic impacts, pricing pressures, raw material costs, seasonality, credit availability, and regulatory changes[141](index=141&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the Company disclaims any obligation to update them, except as required by law[141](index=141&type=chunk) [ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=32&type=section&id=ITEM%203%20%E2%80%93%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section describes the company's exposure to market risks, specifically related to fluctuations in short-term interest rates on variable-rate debt and changes in raw material prices, and outlines its approach to managing these risks - The Company is exposed to market risk from changes in short-term interest rates on its variable-rate debt, though a hypothetical **0.25% increase** in the indexed interest rate would not materially affect results of operations[144](index=144&type=chunk) - The Company is also exposed to changes in steel and aluminum prices and has used derivative instruments to manage these exposures, but had no outstanding commodity derivative instruments at June 30, 2023[145](index=145&type=chunk) - Historically, the Company has been able to obtain sales price increases to partially offset raw material cost increases, but there is no assurance this will continue or that timing will match cost increases[146](index=146&type=chunk) [ITEM 4 – CONTROLS AND PROCEDURES](index=32&type=section&id=ITEM%204%20%E2%80%93%20CONTROLS%20AND%20PROCEDURES) This section confirms that LCI Industries' management, including its principal executive and financial officers, evaluated the effectiveness of its disclosure controls and procedures, concluding they were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and concluded they were effective as of June 30, 2023[149](index=149&type=chunk)[150](index=150&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[150](index=150&type=chunk) PART II – OTHER INFORMATION [ITEM 1 – LEGAL PROCEEDINGS](index=33&type=section&id=ITEM%201%20%E2%80%93%20LEGAL%20PROCEEDINGS) This section states that LCI Industries is involved in various legal proceedings in the normal course of business, but management believes that any resulting monetary liability or financial impact beyond current provisions would not be material to the company's financial position or results of operations - The Company is subject to proceedings, lawsuits, regulatory agency inquiries, and other claims in the normal course of business[153](index=153&type=chunk) - Management believes that any monetary liability or financial impact beyond current provisions would not be material to the Company's financial position or results of operations after final disposition, including anticipated insurance recoveries[153](index=153&type=chunk) [ITEM 1A – RISK FACTORS](index=33&type=section&id=ITEM%201A%20%E2%80%93%20RISK%20FACTORS) This section confirms that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed with the SEC on February 24, 2023 - There have been no material changes to the risk factors discussed in Part I, Item 1A – Risk Factors in the Company's Annual Report on Form 10-K filed on February 24, 2023[155](index=155&type=chunk) [ITEM 5 – OTHER INFORMATION](index=33&type=section&id=ITEM%205%20%E2%80%93%20OTHER%20INFORMATION) This section reports that no directors or officers of LCI Industries adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2023 - No directors or officers adopted or terminated any Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023[157](index=157&type=chunk) [ITEM 6 – EXHIBITS](index=33&type=section&id=ITEM%206%20%E2%80%93%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including corporate organizational documents, amendments to the credit agreement, CEO and CFO certifications, and interactive data files in XBRL format - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Amendment No. 5 to the Fourth Amended and Restated Credit Agreement, CEO and CFO certifications (Sections 302 and 906), and Inline XBRL financial information[159](index=159&type=chunk) [SIGNATURES](index=34&type=section&id=SIGNATURES) This section contains the official signature block for the Form 10-Q, confirming its submission by LCI Industries, signed by Lillian D. Etzkorn, Chief Financial Officer, on August 8, 2023 - The report was duly caused to be signed on behalf of LCI Industries by Lillian D. Etzkorn, Chief Financial Officer, on August 8, 2023[161](index=161&type=chunk)

Financial Data and Key Metrics Changes - Consolidated net sales for Q1 2023 decreased 41% to $973 million compared to the prior year, primarily impacted by a reduction in RV production [49][111] - EBITDA decreased 83% to $52.5 million for Q1 compared to the prior year period [51] - Gross margins were 19.1% compared to 28.2% in the prior year due to elevated input costs and the impact of fixed production costs on lower sales volume [21] - GAAP net income in Q1 2023 was $7.3 million or $0.29 per diluted share, down from $196.2 million or $7.71 per diluted share in Q1 2022 [125] Business Line Data and Key Metrics Changes - Sales to North American RV OEMs decreased 62% in Q1 2023 compared to 2022, largely due to decreased wholesale shipments [42] - Aftermarket revenues decreased 13% year-over-year, primarily due to lower sales in the automotive aftermarket [8][148] - Content per total RV increased 21% from the prior year to $5,881, while content per motor home RV increased 27% to $3,985 [14][20] Market Data and Key Metrics Changes - North American Adjacent Markets saw slight revenue declines, driven by softness in housing and trailer markets [16] - International sales decreased 1% year-over-year, representing 11% of total company revenue, with exchange rates negatively impacting results by approximately 4% [148] - RV shipments are anticipated to improve to a range of 310,000 to 330,000 units for the full year 2023 [150] Company Strategy and Development Direction - The company is focused on fortifying its balance sheet through cash generation and diligent management while remaining receptive to strategic M&A opportunities [19] - The diversification strategy has been effective, with significant growth in adjacent markets helping to offset declines in RV production [147] - The company is investing in innovation and operational enhancements to drive efficiency, quality, and profitability [19][116] Management's Comments on Operating Environment and Future Outlook - Management noted that retail demand has remained similar to pre-pandemic levels, with early indicators pointing to healthy consumer interest [42] - The company expects reduced margin pressure in the second half of 2023 due to increased production, supporting enhanced profitability [21] - Management expressed confidence in the company's position to deliver strong results over the long term, driven by diversification and innovation [48][116] Other Important Information - The company has implemented cost structure reductions totaling $300 million in the past 10 months and significantly reduced inventories by $120 million during the quarter [7] - The company anticipates capital expenditures in the range of $80 million to $100 million for the full year 2023 [126] Q&A Session Summary Question: What is the outlook for OEM production rates? - Management indicated that production levels are expected to return to normal as dealers adjust their inventory levels of older units before new models are released [128] Question: How is the Aftermarket business performing? - Management noted that the Aftermarket revenues are primarily driven by upgrades and repairs, with expectations for growth as the market stabilizes [135] Question: What is the impact of inventory levels on sales? - Management highlighted that significant discounting has been observed to move older inventory, which is expected to positively impact sales moving forward [152]