LCI Industries (LCII) 2024 Q3 法說會逐字稿

Good morning or Good afternoon and welcome to the LCI Industries third quarter earning Call. My name is Adam and I'll be your operator for today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star one by one on your telephone keypad. Oh, I now hand the floor to Lillian Etzkorn to begin to Lillian. Please go ahead when you are ready.

Good morning, everyone and welcome to the LCI Industries third quarter, 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 for the quarter in just a moment. But first, I would like to inform you that certain statements made in today's conference call regarding LCI industries and its operations may be considered forward-looking statements under the security laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which would cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in our earnings release and in our form 10-K and other filings with the SEC, the company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of 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 and welcome to our third quarter, 2024 earnings call. We continue to execute well during the third quarter, improving margin and increasing share as we navigate some continued headwinds in the RV and marine sectors. Over the past six decades, Libert has been established as the leading global supplier of highly engineered components for the outdoor recreation, transportation and building products industries. We feel that our diversified product portfolio combined with the results of our continued focus on innovation, customer satisfaction and strategic acquisitions continue to help us win with our RV OEM and aftermarket customers. With these advantages, particularly our innovative high-quality content. We've been able to gain RV OEM market share, year-to-date in our top five product categories, appliances, awnings, chassis, furniture, and windows. These products made up roughly 71% of our total RV OEM business so far in 2024. Despite continued industry, softness in RV and marine net sales declined only 5% during the quarter to 915 million. The quarter also benefited from increased automotive aftermarket sales underscoring the success of our growth strategy as we track organically towards 5 billion in revenue for 2027. We also delivered meaningful profit growth. This quarter operating margin increased 100-basis points and operating income dollars grew 18% driven primarily by operational improvement and cost management initiatives. Supply chain improvements help lower material costs. Our product quality and technical training initiatives reduce warranty costs 10 million during the quarter. Furthermore, we continue to consolidate facilities and reduce our overall cost structure and footprint while maintaining scalable capacity. We believe there is further opportunity to execute on these types of cost savings initiatives and business unit consolidations to support and enhance profitability in the coming quarters only and we'll talk about this in more detail shortly. I will now move on to our results by business. RV OEM sales were 419 million down roughly 2% versus prior year. As the impact of lower motor home shipments and mix shift towards smaller totable units. All set the market share gains we delivered across our top product categories based on industry reports. Our reproduction is now closely aligned with wholesale shipments and viewers are reporting low inventory levels which should position us well when the industry begins, its rebound content per total RV was 5,100 and $31 down slightly versus prior year. While content per motor home RV was 3,700 and $39 up slightly versus prior year for total organic content was up 1% driven primarily by gains in our top five product RV OEM categories. This growth was more than offset by the mix shift, the single axle trailers which were up 38% over the same period in 2023.

Based on feedback from certain dealers, there should be a return to higher content trailers in early 2025. Furthermore, as new LC I components are added to 2025 model bills. We should see an acceleration in organic content growth which we believe should begin in the fourth quarter.

We supply the top RB brands with what we believe to be premium innovative content. These new product introductions should remain a key driver behind content expansion and help accelerate long term content growth as retail demand and industry production recover. We have already seen a strong response from customers to the products. We showcase that the RB open the house in September. These innovative products include our touring coil suspension or TCS. Our annual lack breaks larger windows, new glass doors and our new chill cube air conditioners, all of which are resulting in new business wins for 2025. Our new touring coil suspension or TCS. The first total suspension of its kind cuts road vibration and total units by about 50% which should extend the life of the RB and drive share gains by lowering maintenance costs and increasing customer satisfaction as consumers add more sophisticated content like this to their vehicles. TCS should fuel even greater demand. We've demonstrated TCs' effectiveness to several major OEM and dealers by having them experience the vibration that comes with a normal suspension as compared to our TCS, the dealers and OEM simply couldn't believe the difference the TCS made the significant investment we made here last year looked to be paying off and we believe that the addressable market for this unique product is over 150 million in revenue opportunity.

Our anti-lock brakes or ABS is a key example of our commitment to innovation and meeting customer needs. Before our launch, A S for RVS was virtually not existent and extremely cost prohibitive. Now, over 10 leading total RV brands have adopted it including Kruger and Reflection, two of the TOP3/5 wheel brands with more expected in fiscal year '25 we expect over time that it will be an industry standard largely because consumers seem to understand that purchasing an RV with interlock brakes means that the RV can stop in even shorter distances while improving emergency braking.

Today, orders have been strong which should position us to capture a significant share of this 150 to $200 million addressable market.

We are also starting to market this product to our utility trailer customers. We believe the utility trailer RV OEM that manufacture trailers that carry expensive cargo are going to gravitate towards this product. We're excited about this opportunity as there are approximately 600,000 utility and cargo trailers manufactured every year, our larger windows and new glass entry doors being purchased for use in many of the 2025 models should enable us to increase content on both total and motor home units. As we believe that consumers will happily pay a premium for more natural light and the functionality of the products like our four K window series with integrated shades. For example, Brinkley launched their brand two years ago with our new square bonded windows as part of their trademark new look. Lastly worth noting is our chill cube air conditioner, which was designed by our talented HVAC team based out of Arizona to be the quietest a scene in the North American market with the industry's highest capacity of 18,000 BTU S upon launch, we have seen immediate interest from many O EMS and this innovation will build on the market share we've been taking in this category over the last two years. Many people talk about innovation only to have their ideas end up as concepts in a showroom or a press release. We believe that real innovation like the newly launched products I just mentioned requires that the new products make it into the vehicles, creating meaningful revenues and ultimately help improve the customer's experience as we capture more content opportunities and as a wholesale shipments and mix normalize, we expect organic content growth to return to 3 to 5% on an annualized basis. The RVAI is projecting roughly 345,000 wholesale shipments in 2025 at the midpoint of its range, which should translate to over 100 million additional sales for our business. At current content numbers moving to aftermarket or aftermarket net sales were 231 million flats versus prior year. A strength in the automotive aftermarket was offset by some softness in the RV and marine aftermarket operating profit for our aftermarket division was an outstanding 13.9% for the quarter. Our current family of products which includes hitches, towing products and truck accessories continue to outperform delivering a 7% increase in sales during the quarter and equalling 54% of our total aftermarket revenues highlighting the impact of our diversification efforts. We are also driving aftermarket growth with our camping world partnership through which we have outfitted over 10 camping world RV parts retail stores since we acquired its furniture business and expanded our collaboration with its retail team. This past May sales of Lipar products to the camping world stores increased 47% in the quarter and we expect our revenues here to grow as we work together to increase the selection of lipar products, not only in those stores but also online and an additional camping world location.

In addition, our theory on suite of appliances including ovens hot water heaters, refrigerators, microwaves, Furnitures and air conditioners continues to support aftermarket content growth through the upgrade repair and replacement cycles contributing 47 million and just aftermarket revenues year-to-date up 18% from a year ago. For example, Fion's air conditioners which have a high replacement rate are one of the top selling products in the RV. Aftermarket. Our OEM sales of air conditioners and other products should set us up for direct replacement in the aftermarket. Once the repair cycle begins for an RV owner, as our OEM content increases on each product, the likelihood we get the aftermarket sale on those components should also increase. For example, in the first nine months of 2024. As compared to 2023 our air conditioner business is up 80% which not only shows our ability to gain share a new OEM content, but we believe both very well on replacement air conditioners and the coming replacement and repair cycles. Turning to adjacent markets, net sales decreased 11% to 266 million versus the prior year. Almost entirely due to weak demand in marine where dealers continue to right size inventory levels, international sales were down 9% due to high inventory and some extended OEM shutdowns. We are focused on aggressively expanding market share in the RV, marine and rail markets internationally using the same products and playbook that have made us a leader in North America. We are also working to launch appliances in the European care and market in 2025 which would be a substantial category for us in Europe. Elsewhere in the adjacent markets, we are gaining market share and transportation and building product markets by introducing new products and offering what we believe to be superior service, product quality and on time delivery. For example, we've leveraged our core competency in actual manufacturing to expand into the utility trailer market, supplying top brands like a TWS, Bigtech trailers and many others. Over the last couple of years, we have made meaningful headway as there are approximately 600,000 utility and cargo trailers built annually.

We see significant growth potential for our axles here and as we gain more share here, we plan to offer upgrades such as ABS and TCS that I mentioned earlier to these utility trailer suspensions.

As I mentioned on prior calls, our window and glass products are also driving meaningful revenue and off road vehicles as well as school and transit buses. We're also gaining more ground on a meaningful opportunity for residential windows which are a different category than our legacy manufactured housing windows. We have grown this business by 20 million just the last few years and are finding that more and more residential distributors and builders are having a great experience with our new entry level vinyl window products.

Moving on to capital allocation, our operating performance and inventory management have driven meaningful operating cash generation of $402 million over the past 12 months and we have reduced our leverage to two times.

We continue to evaluate M&A opportunities as they arise in our balance sheet positions as well on those opportunities in the RV, aftermarket, marine and transportation markets that we believe are right for us. We have had success in creating value by acquiring companies with experienced leadership teams, great products and significant growth opportunities and plan to continue to prioritize acquisitions with these criteria as we do this, we believe that enhancing our product portfolio continues to allow us to widen our competitive mode. In addition to M&A we plan to continue to use our balance sheet to fund innovation and operational improvements of the business in order to maximize the return of capital to our shareholders. Before I close, I'll touch base on a couple of cultural achievements for this quarter. At Lippert, we're committed to using business as a force for good and this is reflected in how we engage with our coworkers, customers and communities in August. We received the 2024 Community Impact Award from Culture of Good. Recognizing our dedication to a healthy culture and solid corporate citizenship. We also earned the five star achieve Well award from the Wellness Council of Indiana, highlighting our focus on workplace wellness as a driver of engagement and performance. Lastly, we are proud to announce in October, we crossed the one millionth hour of community service. Our teams have given back to the communities where we live and work since we started our 100,000 hours a year of community service program. In 2017, this year, 78% of our team members serve in at least one community service project, most of which were organized by our company's community impact team. We're proud of these milestones and remain committed to ensuring our team members have plenty of opportunities to serve with their fellow liberate team members regularly in our communities. In closing, I'd like to thank our fantastic team members for their hard work this quarter, guided by our experienced leadership team. We believe Lipar is poised for long term success. Our expansive competitive mode is made up of our experienced group of leaders, our large product breadth and our ability to be flexible with so many products across hundreds of thousands of skills not to mention our decades long, deep meaningful relationships with our customers and the solid understanding of our industries, the operational improvements and market share gains that we made in a difficult environment should position us well. But when retail demand rebounds and we remain confident that our continued focus on innovation, customer satisfaction and strategic acquisition should help us capture a meaningful share of the industry growth going forward. We look forward to continuing our progress and delivering value to all of our stakeholders as we close out 2024 I'll now turn to Lillian to give more color on our financial results.

Thank you, Jason.

Our innovative portfolio and reputation for best in class quality and service drove share gains during the quarter but revenue growth remains pressured as we navigate continued retail demand, softness in the RV and marine market. Our consolidated net sales for the third quarter were 915 million. A decrease of 5% from the third quarter of 2023 OEM net sales for the third quarter of 2024 were 685 million down 6% from the same period of 2023.

RV OEM, net sales for the third quarter of 2024 were 422 million. Down 2% compared to the prior year period led by a 22% decrease in motor home wholesale shipments and an increasing mix shift towards lower content single axle trailers. Year-to-date wholesale units through Q3, 2024 were 256,400. While year-to-date retail units were 286,600 units signaling healthier dealer inventory reduction. These impacts were partially offset by an 11% increase in North American travel trailer and fifth wheel wholesale shipments and overall market share gains. Specifically, we gained share in our top five RV product categories, appliances, awnings, chassis, furniture and windows. Year-to-date through September 30th 2024 content per towable RV unit was $5147 down marginally compared to the prior year period. While content per motorized unit was up slightly to $3768 content for towable RV unit was down primarily due to the shift in single axle trailers which have less overall content. These trailers accounted for about 23% of production in Q3 2024. Compared to the prior year of 18%. Typically, we would see a mixed range of 16 to 19% for these units. Organic content increased 1% both sequentially and year over year supported by share gains we delivered in the top product categories. We supply to RV OEMS. Appliances, awnings, chassis, furniture and windows, aftermarket. Net sales for the third quarter of 2024 were 231 million in line with 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 spend. Adjacent industries OEM net sales for the third quarter of 2024 were 262 million. Down 12% year over year. Primarily due to lower sales to North American marine and utility trailer. OEM marine sales were down 16% due to the impact of inflation and still high interest rates on retail demand. We expect softness in the marine industry to continue for the remainder of 2024 and into 2025 as well during this quarter. The decline was partially offset by increased sales for building products. As we continue expanding our footprint in this market by capturing demand for core products like windows and chassis for manufactured housing.

International sales decreased 9% year over year. The decrease was primarily driven by softening of marine and RV markets partially offset by strength in the rail market. As Jason knows it, we continue to focus on introducing popular European products in North American markets such as window blinds and pop tops. For the RV Market. Growth margins were 24% compared to 22% in 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 third quarter was $54 million or 5.9%. At 110 basis point improvement over the prior year period. Operating margin expansion was supported by operational improvements. I would also like to highlight the fact that our warranty costs reduced by $10 million during the quarter year-to-date, warranty costs have decreased by about $20 million compared to the prior year period. The operating profit margin of the OEM segment increased to 3.2% in the third quarter of 2024. This is compared to 1.5% for the same period of 2023.

The aftermarket delivered a 13.9% operating profit a 100-basis point contraction over the prior year period due to temporary mix shifts and heightened facility costs related to the investments we have made to expand capacity in the automotive aftermarket business.

GAAP net income in the third quarter was $36 million or $1. 39%earnings per diluted share compared to net income of 26 million or $1.02 earnings per diluted share in the prior year period.

EBITA in the third quarter was 85 million, an 8% increase compared to the prior year period. The variance between EBITA and net income growth during the quarter was primarily related to a 37% decrease in interest expense over the prior year period, reflecting our lower level of debt. In 2024 noncash depreciation and amortization was $96 million for the nine months ended September 30, 2024. While noncash stock-based compensation expense was 14 million for the same period.

We anticipate depreciation in amortization in the range of 125 to 135 million during the full year of 2024. At September 30, 2024, our company's cash and cash equivalent balance was $161 million. This is compared to 66 million at December 31st, 2023, for the nine months ended September 30th, 2024, cash provided by operating activities was $264 million with 31 million used for capital expenditures, 20 million used for acquisition and 80 million returned to the shareholders in the form of dividends on an LTM basis. Cash flows provided by operation was $402 million.

As of September 30, 2024 our net inventory balance was $705 million down from 768 million at December 30th of 2023 and 792 million at September 30, 2023. As I've stated before, this business is a strong generator of cash.

At the end of the third quarter, we had outstanding net debt of $661 million.02 times perform EBITA adjusted to include LTM EBITA of acquired businesses and the impact of non-cash and other items. As defined by our credit agreement for the month of October sales were down about 4% versus October 2023. Primarily due to an approximate 3% year over year decrease in North American RV production and a 12% year over year decline in marine sales.

We are maintaining our estimated full year wholesale shipment range of 315 to 325,000 units. As lingering consumer demand headwinds continue to impact retail performance which we expect to begin improving as additional interest rate reductions are made lowering financing costs for consumers.

As we think about Q4, we expect overall revenue to be down 4 to 5% year over year. We expect RV OEM sales to be fairly consistent with prior Q4 level. We also expect operating margin to expand versus Q4 of last year and to come in at about 2% which would be down from Q3 primarily related to lower sales and seasonality. We are projecting positive net income in Q4 along with continued positive net cash flow from operation for the full year of 2024 capital expenditures are anticipated to be in the range of 35 to 45 million.

Looking ahead, we aim to continue to utilize our balance sheet to pursue strategic opportunities to help us capture profitable growth and deliver shareholder value while maintaining a long term leverage target of 1.5 times net debt to EBITA.

We continue to strengthen our financial profile by making consistent operational improvements to our business while capturing demand for our innovative products, which is resulting in market share expansion across 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.

That is the end of our prepared remarks, operator, we are ready to take questions. Thank you.

As a reminder if you'd like to ask a question on today's call. Please press star one on your telephone keypad now to the queue and preparing to ask a question, please ensure you are unmuted locally.

And our first question today comes from Fred Whiteman from Wolf Research. Fred, your line is open. Please go ahead.

Hey, guys, good morning. Thanks for taking the question, helpful to get the, the wholesale shipment outlook for next year. But I'm wondering if you could just help us with the mix components of that and then maybe if it's relevant, the commodity headwinds as well too.

You know, when you say mix components, you're talking about just mix of the RV types.

Correct? Yes.

Yeah. So, you know, it's, it's, it's hard to say, I mean, I, like we said in our prepared remarks, we feel like from a mix standpoint that it should normalize a little bit more. I don't know that it'll ever go back to, you know, we, we look at single actual trailers, you know, that have the lowest amount of content back a couple of years ago and it was around 15 to 17% of the total make up of tolls. And it's jumped up, you know, over over 20 here in the last quarter. So, we feel it's going to go back down. I don't know if it goes back down to 15 to 17 but should get a little bit better than what it is today. But as, as far as the, the wholesale outlook, we're, we're looking at, you know, 335 to 355 somewhere in that range. It's, we'll tighten that up next quarter. But feel it'll be a, you know, single digit increase off of, or, or high single digit increase off of this year.

And fred to your question in terms of the commodity pricing pass throughs. We've been seeing that mi mitigate as we've gone through 2024 calendar year. You know, we're still putting together our plans, you know, clearly for next year as we're in the budget season right now, but I would not expect pricing pass throughs to be anything material as we're looking into next year as we really have mitigated that at this stage.

Definitely more stabilized.

Makes sense. And then I'm.

Wondering just post-election if you could remind us the the import exposure that you guys have to China specifically and, and maybe how we should think about that potentially impacting colleagues going forward.

But without giving you the actual numbers, I can tell you that since, you know, you know, 2020 when we, when we first started dealing with a lot of the tariff activity that happened, you know, you know, we, we've mitigated a lot of our risk in, in China specifically. So, you know, we've had some company directives since, since then to, to de risk out of, out of China. So, it's still you know, still a significant portion of our, our spend, but much less than what it was a few years ago.

And we're going to, you know, if, if the tariff activity happens like it did last time, you know, we, we assume we'll have a few months to respond and, and and plan and those, those plans include, you know, taking more offshore Asia near shoring here and then, you know, obviously bringing some of the production back to the US US for, for manufacturing. So, and then what we can, you know, what we can't mitigate, we, you know, we work to pass through so that those are kind of our kind of our playbook.

Okay. Thank you.

The next question comes from Craig Kennison from Bird Craig. Your line is open. Please go ahead.

Good morning. Thanks for taking my question just to follow up on, on Fred's topic there on tariffs. Are you able to share what your tariff tax was or has been in the last few years?

Craig? No, I don't have that in front of me. I can take that back and and see if we can find something and follow up with you separately.

And obviously. We're getting a lot of questions on it. So, thank you. And maybe wanted just to ask you, Jason whether, you know, in the context of tariffs, whether you feel like you have competition that might be more disadvantaged than you and you look at it holistically, maybe there's a different perspective on it.

Yeah, I, I feel that way for sure around some of our product lines. I mean, we obviously build a lot of products and, you know, even have, you know, products like chassis, which, which is our largest product line in the company for RV. You know, almost 100% of the components there are sourced domestically. So, that's not an issue for some product lines. But, you know, like I said a minute ago, we're, we're de risking out of China. We have been for several years and several of our competitors are still firmly planted there. And that, that gives us a huge advantage because we're already, we're already out on some products like appliances and furniture and things like that where we can continue to, to bolster some of our import, importing partners that are not in, in China specifically, not to say that some of those other partners won't get tariffed as well, but likely not as much as China.

And then maybe a big picture question if I look prior to the pandemic shutdown, just looking at four or five years prior to that, your average ebita margin was in that 8 to 10% range, maybe 9%.

What are the, what are the ingredients to getting you back to that level?

Yes. So, I'll, I'll answer a couple different ways. I'm sure Lilly has a couple of thoughts on that as well. But if you go back to 2018, 2019, we, you know, we were much more heavily concentrated from an RV perspective there. So , we've diversified the business significantly since that period of time, which is c caused some of the added cost structure. And we, you know, we've got mature businesses there. Now, I think we've talked about that the last couple of calls, our margins in those other businesses are starting to mature and become better and become additive to that double digit margin that we've been shooting for. And then as soon as we, you know, we've done so much cost work around the business, just cost structure work and, and, putting ourselves in a great position for when we see this inflection point in the next couple quarters in RV. It'll, it'll start to really show up. But, you know, we feel we're going to get back to double digit margins as soon as the business normalizes on, on the RV side specifically. And, you know, we kind of consider normalization of 400 to 425,000, you know, wholesale range with, with RVS where, you know, it's kind of average over the last 10 to 15 years.

Great. Thank. You.

The next question comes from Daniel Moore from CJS Securities. Daniel, your line is open, please go ahead.

Yes. Good morning, Jason. Good morning, Lilian. Thanks for taking questions. You mentioned again 335 to 355,000 wholesale units. Just wondering if you could talk a little bit about the cadence you'd expect within that range kind of H1 versus H2 and then, you know, appreciate the color on content. Do you think you can get back to 3 to 5% contact content growth in '25 or will that be a little bit more dependent on, you know, mix and the level of entry level, single axle trailers over the next 12 months.

Definitely dependent on mix. And but yeah, I think we're, you know, if you would ask me a few days ago, I might have a different answer than today. But I think with, you know, the reduction in interest rates, the pending inflation improvement and the, you know, current inflation improvement, we've already, we've already had the deceleration there. You know, I think the biggest thing is just the consumer confidence, which I think we saw yesterday is, you know, looks, looks better than we might have anticipated. And then you look at probably the most important thing is the, you know, decade record low inventory levels that we're seeing on a dealer lot. So, their inventories are really, really depressed and I think we're, we're poised and ready for a restock. So, I think that, you know, again, depending on when you looked at this I feel a lot more comfortable today. It's going to be sooner than later, but definitely in the next quarter or two. And then, you know, hopefully we have a back half that's pretty strong.

Very helpful. And then, you know, I know this is a crystal ball or maybe guidance, guidance in terms of the question, but you know, you solid operating margin improvement this quarter, obviously, Q4 has a little bit less absorption. But when you put it together, you know, exiting somewhere around 5% in terms of operating margin for, for 24 you know, given the outlook that you kind of given for RV, how do we think about, you know, potential for what margin uplift might look like in 25? Let's say, you know, our marine is down modestly and RV is in that range that you described.

Yeah. So as we think about next year and we are, as I mentioned, we are in the process of, you know, finalizing our budget at this point for next year. So, we'll provide more color on our next call. But as I think about the ,ession from this year to next, there's there's a few different puts and takes, you know, clearly, we're expecting to see that continued modest growth and progression on the RD side of the business. When we think about the marine side of the business, it's probably going to be a little bit more tepid as we as we look towards the next year. And a couple other puts and takes within our adjacent businesses that said, my expectation for the business would be a modest increase in terms of our margin and our profitability for next year. Just from the perspective of a couple of things, you know, one clearly just with the revenue uplift, we get better fixed cost absorption with our facilities. We've, we've talked about in the past, you know, down in terms of the consolidation of our footprint and and more of the optimization, we're going to continue to work towards reducing some of the footprint, which will also take some cost out of the system. Continue focusing on some of the overhead cost to reduce as well. So, really trying to attack it on several different fronts, you know, first and foremost being, you know, volume benefits and then also focusing on continuing to improve our cost as we move forward.

Yeah, I I I double double down on the cost improvement comment there. We're we're going to and probably come up. Well, we're not going to probably in Q4, we'll, we'll talk on the call a little bit about where our cost structure is headed based on some of the improvements IBI's we feel we can still make. I mean, we've been talking about bounce bouncing along the bottom of the industry here for, you know, a couple of years now, especially in the last few quarters as we kind of, you know, felt the, felt the bottom, but we, we do feel that we've got momentum on cost structure improvement. Would also say that, you know, with some of our top innovations that we talked about, along with some of our chassis and window and other top five product categories that we've got significant market share to gain there. I mean, I'd say that over half a billion in total addressable market and some of those categories. When you look at chassis windows, our A Bs and T CS, we talked about leveling appliances, axles and slide outs. It's a, it's a pretty big market share opportunity there that we're going to continue to go after and depending on where mix ends up next year, that can just be a nice tailwind for us if mix kind of normalizes just a little bit.

Really helpful. Last one, I'll jump back, but you mentioned M&A and obviously with the, you know, significant cash generation, we've, we've seen over the last 12 months, leverage has come down nicely and hopefully IBI's bottoming here. So takes two to tango, but talk about the pipeline and you know, your outlook for M&A over the next kind of 6 to 12 months relative to the last 6 to 12. Thanks again.

Yeah, yeah, we've, we've obviously been fairly inactive the last couple of years just to preserve cash and, and do the right things and the smart things. There. We have had a lot of conversations with a lot of different targets in the last several quarters. So, you know, hopefully starting to get close on some things and definitely expect more activity to come about the next next couple quarters. But, you know, we're, we're hoping that M&A is more active in the next, in the next calendar year than what we've seen this year. Obviously, I feel good about it.

Thanks again.

The next question is from Mike Swartz from Truist Securities, Mike, your line is open. Please go ahead.

Good morning. Maybe to start just Lilian I think you had mentioned. And Jason, you had mentioned that organic content in the total total business was up about 1% and in reported content was down. One, can you help us bridge the GAAP on what, you know, pricing mix some of the other M&A some of the other variables might have contributed to the quarter?

Sure, Mike.

I'd say the biggest contributor to the downward pressure this quarter is is mix. As I mentioned in my prepared remarks, you know, our, the the percentage that we saw in the quarter for a single actual trailer came in at about 23%. Typically, we'd see anything from 17 to 19% is what we have seen historically that that head went alone, pressured the content number by about 3.5% in the quarter or on a trailing 12 month basis. From an organic perspective, that was actually a positive for us in the quarter. Again, it was up up 1%. The commodity prices at this point to pass through really is, is pretty mitigated at this point. So really what we're dealing with is predominantly that mixed number that I was, I was referring to offsetting a good chunk of the, the organic growth that we're seeing. And as we think about the content on a go forward basis, we'll start seeing in the fourth quarter, more of the pickup on some of the innovative products that Jason's been talking about, that we highlighted at the open house. We'll start seeing that organic content come up as we progress into the fourth quarter and then as we move into next year again, presuming that production, production picks up as well. We will still need to be watching that the mix number because I think that is going to continue to be a headwind as we move into 2025 as Jason was, was commenting on. But do you feel good about the organic pickup at this point?

And just to just to kind of echo Lillian's comments on the single axle trailers? I mean, you know, it's up 38% from, from last year. Camping world, I mean camping world is a big driver of that, that that unit. I mean, they pushed a lot of those into the into the market to entice some first time buyers. And it's been, I think a good thing. But when you look at the content on those trailers versus what you would typically see in a travel trailer, the average travel trailer price is around 30 ish 1,000 today. And you know, some of those are selling for 9 to 11,000. So you can just imagine the the lack of content in a lot of those trailers. So they've given us some indication that the that the next couple quarters are going to see some more normalized ordering patterns with, you know, trailers with more content. So, you know.

Okay, that, that's helpful and then just to follow up Lilian, I I may have missed it. But did you, but did you cite what M&A added to the quarter.

In.

Terms of.

Sales?

Yeah, yeah.

In terms of consolidated sales. I did not but it's, it's pretty small again to the comment that that we made in terms of M&A it's been pretty quiet the last couple of years. We only had the one acquisition earlier this year as it related to to the the camping world furniture business. So the sales related to M&A really call it single digits.

Okay, that's great. And then final question on CapEx, I noticed you pulled that down a little bit. Is that just a timing issue with some of those capital projects now falling in 2025.

I'd say, part of it will be timing. I would expect CapEx to tick up next year if the cadence of the spend and, you know, frankly, while we have been generating, you know, very strong cash flow throughout this year and last year, you know, the team has been focused on focusing, focus, focusing the spend on what's truly necessary from, you know, a maintenance perspective.

Yeah, so to that, to that extent, I say, you know, we're, we're spending where we need to spend and it's more of a timing that we'll, we'll see that uptick a little bit more into next year.

Okay, great. Thank you.

Thanks.

The next question comes from Scott Stember from Roth, Scott. Your line is open. Please go.

Ahead.

Good morning and thanks for taking my questions.

Good morning.

Jason, maybe we talk about the aftermarket. Obviously, the business on a net basis is doing what it's supposed to do right in these tough times. But, how do you view this business for, for next year specifically, On the RV side, assuming that the, I guess the attachment side of the business starts to flatten out and then maybe on the break fix side of the business as all these RVS that have come into the market since the pandemic wear and tear, just trying to get a sense of what we can look for in the next year or two there.

Yeah, on the truck, the automotive and truck accessory side, just real quick. You know, we, we anticipate will continue to, to grow nicely like it did this, this past year, we've had a lot of good tail ones there. But with respect to the RV, I'm glad you asked the question because it's a, it's a good one if you look at, you know, the amount of RVS that are coming out of the warranty cycle, you know, out of warranty, you know, it's about a million and a half from 2020 to 2022 million and a half RVS . So, that's a lot of RVS that are, the warranties are going to be completely expired on those in 2025.

So, what that means is going to drive a lot of customers pay opportunities as those continue to age. So, and then you've got, you know, from a warranty standpoint or cost standpoint, you've got 23 and 24 starting to enter the warranty cycle. Now, compared to the, the high-volume years we had in 2020 to 2022. So, you know, warranty should, you know, have some, have some downward pressure where we're not going to see the kind of warranty we saw, and it was just a massive amount of RVS being built. So it's a really good dynamic for us as you're looking at our, you know, our aftermarket business for repair and replacement and upgrade. It's a, it's a lot, you know, it's a million and a half RVS that are completely coming into the customer pay cycle, which is, you know, where we make our, our warranty opportunity dollars on, on repair and replacement and upgrade.

Makes sense.

Last question. Also on the, on the aftermarket, when you guys were, were aggressively, you know, advancing this back in, I guess, three or four or five years ago, the narrative was that this business could be two X on the margin versus the O AM business. Is that still the case? And would that suggest that the margins in aftermarket could go into the high 10s pushing 20%?

Depends on the mix? I mean, if you look at our, we've said in the past quarters that our, our automotive aftermarket margins are are less and, you know, it's about 60% or 54% of our, our total aftermarket revenues. So as long as we keep that mix, I mean, likely, you know, that's, that's not going to happen, but we're still going to have nice margins and great opportunity. We've like I just mentioned with the units coming out of warranty into the customer pay cycle. It's a huge opportunity for us over the next 2 to 3 years, we're going to start seeing all those come in to play. And, and we've obviously demonstrated over the last 10 years since we started the aftermarket division that we, we know how to run this business and it's mature now and we're driving really good margins. So.

Got it. That's all I have. Thank you.

Thanks, guy.

The next question comes from Tristan Thomas-Martin from BMO capital markets. Tristan, your line is open. Please go ahead.

Good morning.

Good morning. I was.

Trying to quantify a potential tariff impact. I think last year you called out about 30% raw materials and components is imported. And then Jason, I think you said a was a significant amount from China. So does that mean north of so like 15 %of raw materials and components imported from China or not? That the right way.

I have the number off the top of my head, but like I said earlier is significantly less than what it was in 2020. And I, I think, you know, the way to look at the tariff, if you're, you know, kind of looking high level at this way to look at the tariff potential is, you know, a we're likely to have some time to react, you know, might be a matter of months like it was the last go around. But I think, you know, our margins didn't really suffer the last and that we, we had this because we, we took action right away. And again, those actions are, you know, offshoring China more than what we are today. And we're already in process because we started that process a few years ago. And the near shoring here more in the US and they're bringing some of the products back for us manufacturing, which we're actively considering all three of those right now. I think we'll, we'll be fine when it comes to tariff. And the fourth option obviously is to pass some of that cost along which we did and, you know, we did, you know, when the last t came out. So I think the way to look at it is we know how to you. We've actually had a lot of practice dealing with that the last go around. So I think we'll be, we'll be fine this time.

Okay. So do you think that, are you going to proactively try to take some of those steps or I just read that we've already.

Yeah, we've already been doing that. We've been once, once we started the, you know, offshoring China program, you know, a few years ago, we've been actively continuing to do that and have some company goals around that to move, move product out of, out of China. So that's, that's one way that, that's one way to look at it I think is that we're, you know, we're in practice of doing that today. (multiple speakers)

We'll.

Get you more color on specific.

We'll get you more color on the specific, you know, specific things once we know more.

Yeah. No more color would definitely definitely be helpful considering how quickly I feel like things can change, post the election and then just really quick with something like a TCS. Is that a 25 million or 25 benefit or is that really like a 26 and. Beyond story?

I think it's, it's 25 and beyond. I mean, we've, you know, we launched it this year, obviously and we've got some really good brands on it and that's really how you, you promote innovation and you really, you know, get to get a good return and quick return on innovation is getting the right brands on it quick. So, you know, we've got brands like Brinkley and Alliance Grand Design. We've got the other majors looking at it, but we've got some really top notch brands that are already using it today. So, you know, some of it depends on when they want to implement it, whether it's a model year change or running change. But our goal is to, you know, put, put this product ABS and a couple of the others on steroids over the next couple of years with programs and really make it more of an industry standard.

Okay, thank you.

Thanks.

Our final question today comes from Brandon Long from D.A Davidson. Brandon, your line is open. Please go ahead.

Good morning. Thank you for taking my questions.

First one following up on Tristan.

Good morning first, just following up on Tristan's question, globally is 30% of your raw materials and components imported. Still the right way to think about the business heading into 2025 or has that mix increased or decreased? Any just looking globally? Not, not just China.

I, I don't know the right number and we'll, we'll get back to you on that Brandon and interest for that matter. But I would say that that that number is decreasing because of our initiatives to, to bring more, you know, bring more either, you know, to North America or offshore Asia.

Okay. And I think one of the mitigation efforts you had mentioned was potentially passing through those costs to the consumer. Do you feel like obviously we're in a different environment now with the more price conscious consumer and elevated interest rates, do you feel like that mitigation effort might be, you know, a little challenge just given pricing so important right now in the market?

Well, let me be clear, I mean, that's our last you know, that's our, our, our last priority is to, to pass it along. Our first priority is to find a way to mitigate it through, you know, finding new suppliers, whether they're, you know, in different countries or whether we're bringing the the product back here and finding suppliers domestically or, or building the components domestically. But again, well, you know, we always work with the O EMS and it's a last resort to, to pass it along to the consumer. And it's usually a, a small portion of what the overall picture is going to look like. Once we find out what that picture actually is.

Okay. And just finally, I think in the press release, you had mentioned strong market share gains within the chassis market. Can you talk about maybe the market share gains you're seeing within chassis? It seemed like a couple of O ems in the market had maybe gone to another supplier for certain products. And I know even one had mentioned that maybe traditional suppliers needed to earn their business moving forward. So any, any color there on, you know, what strong means and maybe where your market share is today versus where it was at the end of last quarter. If possible. Thank you.

Yeah, I think that, you know, I can give you a couple of different examples, but you know, more of the fifth wheel manufacturers and we're, we're literally supplying 98% of the fifth wheels today. So more of the fifth wheel manufacturers are looking for more durable chassis foundations because of the fact that, you know, people are just using them more. They're, they're not full timing necessarily more, but they're live living in the units more and using them more. They're taking them off road. So, there's been a significant desire by a lot of the O Ems and a lot of the brands that build Fifth Wheels to, to have some beef or bigger chassis. So we've been working steadily there, which TCS increases the content significantly if you can think about it in a way that you're just adding a lot of steel and things like that. You know, we've changed some of our slide out mechanisms. We, you know, we put leveling in the chassis where we just talked about TCS and the new suspensions that we're offering, those have to come with the chassis that's going to drive market share improvement there. But you look at all the things that we're doing and you talk about maybe, you know, your comment about has, has, has there been business traded, you know, where we've lost some market share? Yeah, I mean, every year there's a couple of, there's a couple of puts and a couple of takes. So I think, you know, if you look at the last 10 years, yeah, we might have lost a couple of brands, you know, each year, but we've also picked up a couple of brands each year and then that net net of all that is that we've, you know, we've improved our, our chassis revenues, you know, year-to-date nine months over the last nine months last year. And even with some of the cost, get backs and things like that.

Okay, I can tell you, there's no more of a, just from a, just from a, you know, total chassis package. You know, there's nobody that does all the different types of chassis that we do today and has the flexibility and design capabilities and manufacturing capabilities to build some of the types of the units that we're building. So if you're, you know, most brands have, you know, ranges across from small travel trailers or to, to the large toy haulers. And, you know, we're really the only manufacturer out there that can do all of it. So.

Right, I was just focusing on the puts and takes, if you had any examples of maybe some takes to offset some of the puts.

Yeah, I'd say most of the most of the market share came from us having brands that were having the brands that were winning. And I've, I've talked about that on prior calls where, you know, we, there's, there's a lot of brands out there, you can, you can gain an account, but if they're not building many units, then, you know, it's, it's better to have the brands that are, you know, gaining market share and adding volume to the production every year. So I think I'd look at it more that way than you know, maybe the way you're looking at it is that. Helpful?

No, that is because, and just lastly, you said you have like a 98% market share within Fifth Wheels. I guess how much more market share is there to gain in that category? Then if that's where you're gaining the most share at this time.

You answered your own question, you just answered your own custom question brand. I think that the way to look at the market share there is that like I just said, there's going to be, you know, you know, grand design is a good example. They just added some significant volume in terms of steel to their, to their units to, to beef them up. So that people say, I don't want to spend more time on my, you know, spend six months that what's going to last longer and the foundation's gotta be solid. So we're putting significant amount of content, the Fifth Wheels right now for that specific reason, that goes all the way down to some of the mid profile travel or fifth wheels that are, that are out there as well. So I think that, you know, is brands start to do that. Other brands are going to look at that because they're going to market the units that way that they've got stronger foundations, they've got bigger chassis and here's what they've done. And, you know, once all the brands do that, it, it increases and improves content pretty significantly. So obviously from, you know, that 2% or 5% or whatever the whatever the actual number is, it's, you know, there's not a lot of, of units to gain unless that market grows. But the where, where the dollar content gain is and all these things that they're, they're putting in chassis including TCS because that's going to need to be added to the chassis as well. There're chassis improvements that need to happen to accept that TCS system on the suspension. So hopefully that's helpful.

No, very helpful. Thank you so much.

Yes, please.

We have no further questions. So, I'll turn the call back over to Jason for closing remarks.

All right, we appreciate everybody for tuning in today. We look forward to giving you more color on the next quarterly call in a couple months. Thanks.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.