LCI Industries 2026 Q2 Earnings Call

Thank you, operator, and thank you everyone for joining us. This morning, Lillian and I will provide an overview of the business and share why we are energized about LCI's future. We delivered solid second quarter results with expanded profitability despite continued soft outdoor recreation industry demand. Our 2026 performance has been driven first and foremost by our self-help initiatives. Through disciplined operational efficiencies and strategic cost reduction actions, we've structurally improved our cost base and expanded net margins despite a challenging wholesale RV production environment and continued retail softness. Our disciplined cost management execution and increased product content per unit has fundamentally strengthened our earnings power and positioned us to generate higher returns throughout the cycle. Although I have been in the Interim CEO role for only two months, I have served on LCI's board for more than seven years.

My first priority when taking the CEO role was to spend time with our dedicated team members, supply chain partners, and valued customers. Those conversations have left me more impressed than ever by our team's commitment to supplying outdoor recreation for transportation and housing markets with a broad array of highly engineered quality products and related services at affordable prices. I am energized by the opportunities ahead and by the appreciation expressed for the value LCI delivers every day across the dynamic markets we serve. It is an incredible honor to serve in my new capacity, working alongside trusted colleagues while leading such an impressive organization. Having spent nearly three decades in this industry helping build a national retail brand after leading my own family's dealership business, I come to my new role as a builder, not just a caretaker.

My four proven yet simple guiding principles are curiosity, alignment, accountability, and gratitude. I intend to apply each of those as we move through this transition. Less than two months ago, my first investor call for LCI was to announce the proposed merger with Patrick Industries. As we continue to spend time with Patrick's leadership team, our enthusiasm and confidence continues to build around the meaningful long-term value and opportunity the merger will unlock. We are excited about the compelling strategic and financial rationale for the proposed merger. Together, we expect to create a broader, more innovative product platform and cost effectively bring more products within reach of outdoor recreation consumers. For the time being, until the transaction closes, it remains business as usual at LCI. Ryan Smith and Jamie Schnur continue to lead our operating segments as group presidents.

Our senior leadership team remains intact and execution remains sharp. Our talented, innovation-minded teams remain squarely focused on our strategic priorities, maintaining a well-balanced portfolio, expanding across adjacent OEM markets, growing our aftermarket presence, considering accretive M&A opportunities, streamlining our operations and cost structure, partnering with our customers to deliver solutions, and accelerating content gains through new product innovation. Our expanding product pipeline, combined with our engineering capabilities and deep customer relationships, provides a meaningful runway for continued content expansion. This collaborative, innovative spirit has driven remarkable growth over the years, with currently an estimated $270 million annual revenue run rate from our top five innovations. Backed by the strength of our balance sheet and disciplined capital allocation, our strategic focus and operational execution will propel our drive to enhance shareholder value.

In aftermarket, the large installed base of Lippert content already in the field creates a durable growth platform and strengthens our connection with customers throughout the product lifestyle through our network of dealer partners, technical care teams, factory service centers, and mobile service capabilities. Our diversification strategy to add and build the aftermarket segment and other OEM markets adjacent to RV has enabled us to profitably grow our business with higher margin offerings and mitigate the cyclicality of the RV industry. As part of our commitment to helping customers navigate the impact of rising prices, our finance and procurement teams moved quickly to identify, document, and file eligible claims early in the IEEPA tariff refund process. Their efforts will enable us to return nearly $90 million in tariff refunds directly to our customers, providing meaningful support to their businesses and to the broader industry.

We took this responsibility seriously and made the deliberate decision to manage this effort internally rather than rely on third-party recovery firms that often charge large contingency fees on the amounts recovered. While this represented a significant undertaking for our teams, they executed with exceptional discipline and expertise, maximizing the value returned to our customers. I want to personally thank our finance and procurement teams for their unwavering commitment and outstanding execution. Their work reflects our culture of partnership and our dedication to serving the markets in which we operate. While these refunds have a minimal impact on our P&L, given their pass-through nature, they represent something more important. We made a commitment to our customers that we would work diligently to mitigate the impact of tariff-related price increases wherever possible, and we have honored that commitment.

I want to thank all of our team members, not only for their focus, resilience, and commitment during this transition, but also for the overwhelming warm welcome they've extended to me. Their execution and partnership is the foundation of our performance and gives me great confidence in LCI's future. I'll now hand it over to Lillian to walk us through the quarterly results and our updated outlook for the full year.

Thank you, Johnny. Thanks everyone for being with us. We continue to execute well across the business in the second quarter, delivering improved profitability despite persistent softness in outdoor recreation demand. This performance reflects the strength of the platform we have built, the hard work of our talented team, and disciplined execution against our self-help initiatives, including operational efficiencies, strategic cost reductions, and increased product content per unit. Together, these actions have structurally improved our cost base, expanded margins, and strengthened our earnings power across the cycle. As Johnny noted, it remains business as usual, and our team is squarely focused on advancing these priorities and driving shareholder value. With that, I'll walk through the key financial results and operating metrics for the quarter. For the second quarter of 2026, and speaking on an adjusted basis, our consolidated net sales were down 4% to $1.1 billion.

OEM net sales declined 10%, while aftermarket net sales grew 11%. In the context of towable RV wholesale units being down 20% in the quarter, we are pleased with the resilience in our sales. Starting on the OEM side, our revenue performance reflects a decrease in North American travel trailer and fifth-wheel shipments, as well as an increase in RV sales mix towards lower content single-axle trailers. Favorably offsetting factors include targeted commercial actions to address higher input costs and adjustments tied to select commodity indices and content gains from recent product innovations. Top-line adjustments relate to tariff refunds passed through to customers. In the earnings slide deck, in an effort to further enhance transparency, we've included a full income statement reconciliation for this quarter's adjustments. Innovation remains a key driver of LCI's growth and customer value proposition.

Despite the reduced mix of fifth-wheel units, we saw an 11% year-over-year increase to $5,831 of content per unit. This was supported by strong adoption of recent product launches that are now generating more than $270 million in normalized annual revenues. Content per motorized unit increased 2% to $3,852. We expect approximately $140 million of additional annualized revenue from new product placements during the 2027 model change. Combined with our advanced manufacturing capabilities and expertise in mission-critical components, the innovation pipeline continues to deepen customer relationships and expand LCI's content across leading brands. Turning to our aftermarket business, the 11% year-over-year growth in adjusted net sales was driven by targeted commercial actions to address higher input costs and adjustments tied to select commodity indices, sales from acquired businesses, and new customer volumes in the automotive aftermarket.

This increase also reflects the resilience of our installed base and continued execution across the business. More than $15 billion of replaceable LCI content has entered the RV market over the past decade, supporting a growing service opportunity as approximately 1.5 million units move into repair cycles over the next several years. We are expanding our reach through a 400-plus member care and technical organization, new dealer-based retail concepts, factory and mobile service offerings, and added distribution capacity. We continue to see repair and replacement demand as RV ownership and used unit acquisitions have increased over recent quarters, and this should serve as a tailwind moving forward. From a profitability standpoint, we saw significant improvements during the quarter, and the team is continuing to drive our self-help initiatives.