LCI Industries(LCII) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements For the six months ended June 30, 2025, LCI Industries reported a 6.4% increase in net sales to $2.15 billion and a 9.6% rise in net income to $107.1 million compared to the prior year. The balance sheet shows growth in total assets to $3.17 billion, primarily driven by acquisitions and increased accounts receivable. Cash flow from operations decreased to $154.9 million from $185.3 million in the prior year period, while investing activities increased significantly due to acquisitions Condensed Consolidated Statements of Income For the second quarter of 2025, net sales increased by 5.0% year-over-year to $1.11 billion, while net income decreased by 5.8% to $57.6 million. For the six-month period, net sales grew 6.4% to $2.15 billion, and net income increased 9.6% to $107.1 million Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,107,250 | $1,054,544 | $2,152,840 | $2,022,573 | | Gross profit | $270,021 | $266,445 | $521,770 | $490,351 | | Operating profit | $87,804 | $90,604 | $169,121 | $148,215 | | Net income | $57,635 | $61,163 | $107,073 | $97,708 | | Diluted EPS | $2.29 | $2.40 | $4.23 | $3.85 | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $3.17 billion from $2.89 billion at year-end 2024, driven by a significant rise in accounts receivable and goodwill. Total liabilities also grew to $1.79 billion from $1.51 billion, primarily due to an increase in long-term indebtedness Balance Sheet Summary (Unaudited) | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $1,358,245 | $1,160,238 | | Total assets | $3,174,138 | $2,894,739 | | Total current liabilities | $484,298 | $412,053 | | Long-term indebtedness | $944,313 | $756,830 | | Total liabilities | $1,789,038 | $1,507,853 | | Total stockholders' equity | $1,385,100 | $1,386,886 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities was $154.9 million, a decrease from $185.3 million in the prior year period. Cash used in investing activities increased substantially to $123.4 million due to acquisitions. Financing activities used $4.1 million, reflecting significant debt restructuring and capital returns Cash Flow Summary (Unaudited, Six Months Ended June 30) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash flows provided by operating activities | $154,937 | $185,282 | | Net cash flows used in investing activities | ($123,350) | ($40,733) | | Net cash flows used in financing activities | ($4,102) | ($79,093) | | Net increase in cash and cash equivalents | $26,175 | $64,261 | Notes to Condensed Consolidated Financial Statements The notes detail significant financial events, including two acquisitions in the first half of 2025, major debt refinancing activities, and capital return activities through dividends and a new share repurchase program. Segment reporting shows revenue growth in both OEM and Aftermarket segments, with OEM operating profit increasing while Aftermarket profit declined - In H1 2025, the company acquired Freedman Seating Company for approximately $68.6 million in cash and Trans/Air Manufacturing Corporation for $29.6 million in cash[45][46] - In March 2025, the company issued $460.0 million of 3.000% Convertible Notes due 2030 and used a portion of the proceeds to repurchase $368.0 million of its 1.125% Convertible Notes due 2026, resulting in a $6.2 million loss on extinguishment of debt[61][75] - A new $300.0 million share repurchase program was authorized in May 2025, under which the company repurchased 424,132 shares for $38.5 million in June 2025[86][87] Segment Performance (Six Months Ended June 30) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | OEM Net Sales | $1,663,114 | $1,554,436 | | OEM Operating Profit | $113,657 | $83,399 | | Aftermarket Net Sales | $489,726 | $468,137 | | Aftermarket Operating Profit | $55,464 | $64,816 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 5.0% consolidated net sales increase in Q2 2025, driven by acquisitions and RV market share gains, though operating profit margin slightly declined. The OEM segment saw sales growth from acquisitions and a favorable RV mix, while the Aftermarket segment's growth was driven by product innovation, though its profitability was impacted by sales mix and higher costs. The company highlights its strong liquidity position, recent debt refinancing, and capital return programs. Key industry trends show a divergence between rising wholesale RV shipments and declining retail demand Industry Background The analysis of the North American RV industry shows a mixed environment. For the first six months of 2025, wholesale shipments of travel trailers and fifth-wheels increased by 8%, while retail demand fell by 3% due to inflation and higher interest rates. This indicates that dealers were building inventory despite softer consumer demand. The U.S. RV ownership base reached a record 8.1 million households in 2025, supporting robust demand for the Aftermarket segment - For the first six months of 2025, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs increased 8% YoY, while retail demand decreased 3% YoY[108] Travel Trailer & Fifth-Wheel RV Market Trends (Units) | Quarter ended | Wholesale Units | Retail Units | Estimated Impact on Dealer Inventories | | :--- | :--- | :--- | :--- | | June 30, 2025 | 81,400 (-1% YoY) | 97,100 (-2% YoY) | (15,700) | | March 31, 2025 | 86,300 (+18% YoY) | 62,400 (-4% YoY) | 23,900 | - The U.S. RV ownership base reached a record 8.1 million households in 2025, which is a key driver for the Aftermarket Segment's performance[118] Results of Operations In Q2 2025, consolidated net sales grew 5.0% to $1.1 billion, but operating profit margin decreased to 7.9% from 8.6% YoY due to executive separation costs and a lower-margin product mix. The OEM segment's sales rose 5% driven by acquisitions and RV market share gains, with operating margin slightly declining. The Aftermarket segment's sales increased 4%, but its operating margin fell from 15.5% to 13.5% due to unfavorable product mix, higher material costs, and strategic investments - Q2 2025 consolidated net sales increased 5.0% YoY, primarily due to approximately $35.0 million in sales from acquisitions (Freedman Seating and Trans/Air Manufacturing)[123] - OEM segment operating profit margin in Q2 2025 was negatively impacted by $13.9 million in tariff costs and $2.6 million in executive separation costs[128][126] - Aftermarket segment operating profit margin in Q2 2025 decreased to 13.5% from 15.5% YoY, negatively impacted by a shift to lower-margin products, investments in capacity, and higher material costs[133][134] - The effective tax rate for H1 2025 increased to 26.4% from 25.4% in H1 2024, primarily due to an increase in non-deductible executive compensation[143] Liquidity and Capital Resources The company maintained a strong liquidity position with $191.9 million in cash and $595.3 million available on its revolving credit facility as of June 30, 2025. Operating cash flow for H1 2025 decreased to $154.9 million from $185.3 million YoY. The company executed significant financing activities, including issuing new convertible notes and repurchasing old ones, and returned capital to shareholders through dividends and a new $300 million share repurchase program - As of June 30, 2025, the company had $191.9 million in cash and cash equivalents and $595.3 million of availability under its revolving credit facility[146] - Net cash from operating activities decreased in H1 2025 primarily due to a $168.0 million increase in accounts receivable from seasonally higher sales[150] - Capital expenditures for full-year 2025 are projected to be between $50 million and $70 million[153] - In May 2025, a new $300.0 million stock repurchase program was authorized, valid until May 2028. The company repurchased $38.5 million worth of shares in June 2025 and another $62.5 million between July 1 and August 1, 2025[162] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from interest rate fluctuations on its variable-rate debt and price volatility of raw materials, particularly steel and aluminum. Management notes that a hypothetical 0.25% increase in interest rates would not materially affect results. The company actively manages tariff impacts through supply chain diversification and other sourcing strategies - The company is exposed to market risk from changes in short-term interest rates on its variable rate debt[174] - The company is also exposed to price changes for raw materials, specifically steel and aluminum, and has historically been able to pass on a majority of cost increases to customers[175][176] - The company's tariff mitigation strategy, including supply chain diversification, helped minimize the pricing impact on customers and support profitability in the second quarter[176] Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company concluded that its disclosure controls and procedures were effective as of June 30, 2025. There were no material changes to the company's internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[180] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[181] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings arising from the normal course of business. Management does not believe that the final disposition of these matters will have a material adverse effect on the company's financial position or results of operations - Management believes that any potential monetary liability from ongoing legal proceedings, after final disposition and anticipated insurance recoveries, would not be material to the company's financial position[183] Risk Factors A new risk factor has been added to address the potential negative impact of changing global tariff frameworks. The company warns that tariffs could increase the cost of goods, disrupt the supply chain, and negatively affect demand, which could materially harm the business and its financial results - A new risk factor was added regarding the potential negative impact of global tariffs on the company's business, operating results, and financial condition[185] - The company states that tariffs have increased sourcing costs and could negatively impact product demand, potentially having a material adverse effect on the business[186] [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=ITEM%202%20%E2%80%93%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) This section details the company's stock repurchase activities. The previous $200 million program expired in May 2025. A new $300 million program was authorized in May 2025. During June 2025, the company repurchased 424,132 shares at an average price of $89.79 per share, for a total of approximately $38.1 million Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased (in millions) | | :--- | :--- | :--- | :--- | | April 2025 | — | $— | $147.6 | | May 2025 | — | $— | $300.0 | | June 2025 | 424,132 | $89.79 | $261.9 | - On May 15, 2025, the Board of Directors authorized a new stock repurchase program for up to $300.0 million of common stock over a three-year period[188] Other Information During the second quarter of 2025, no directors or officers adopted or terminated any Rule 10b5-1 trading plans or any non-Rule 10b5-1 trading arrangements for the purchase or sale of company securities - No directors or officers adopted or terminated a Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[190] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Sections 302 and 906) and financial data formatted in Inline XBRL