LCII - NYSE

Good morning, and welcome to the LCI Industries Q1 2023 Earnings Call. My name is Sam, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. [Operator Instructions] I'd now like to turn the call over to Lillian Etzkorn. Lillian, please go ahead.

Good morning, everyone, and welcome to the LCI Industries First Quarter 2023 Conference Call. I am joined on the call today by Jason Lippert, President, CEO, and Director; and Brian Hall, Executive Vice President. 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 securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which would cause actual 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 the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Thanks, Lillian. Good morning, everyone, and welcome to LCI's first quarter 2023 earnings call. Before I begin, I want to take a moment to welcome Lillian to the Lippert team as our new Chief Financial Officer. Her financial acumen, combined with deep industrial and manufacturing expertise, makes her an excellent addition to Lippert as we focus on delivering our next chapter of growth. We are excited to have her join our family, and look forward to working together to drive our business forward for years to come. With that said, let's turn to our first quarter results. Coming off a record year and considering we are navigating a challenging RV environment, we started 2023 with solid results, delivering robust content growth and sequential margin expansion. Through our focus on operational discipline and flexibility, execution on diversification and company-wide commitment to innovation, we've been able to manage through declines in North American RV OEM production to support the profitability of our business. We delivered $973 million in revenues in the first quarter, down 41% compared to record results in the prior year, but up $79 million from the prior quarter. Net sales from acquisitions completed in 2023 and 2022 contributed approximately $28.5 million in the first quarter. Our Aftermarket, Marine, International, and other adjacent businesses are performing much better then RV, and made up a combined 63% of overall revenues in the quarter. As I've noted before, Lippert has never been more diversified in downcycle, moving from manufacturing almost only RV products to building content for a wide variety of markets, including Marine, International, automotive, Aftermarket, and mass transportation. I am confident that continued execution on this strategy will keep us on the path of outperformance and consistent profitable growth over the long-term. We are also seeing the benefits of the improvements implemented throughout our operations in recent years under the guidance of our seasoned leadership team. As RV industry production has declined, we've been able to adjust manufacturing costs quickly to align capacity while also making meaningful reductions to our overall cost structure, totaling $300 million in the past 10 months. Additionally, through solid working capital management, we significantly reduced our inventories during the quarter by $120 million, enhancing cash generation and strengthening our overall financial position. Moving into RV OEM, sales decreased 62% during the first quarter of 2023 compared to 2022, largely due to decreased wholesale shipments mentioned earlier. As expected, OEMs are continuing to adjust production schedules to better align with moderating retail demand and keeping dealer inventories at appropriate levels. Despite near-term declines, retail demand has remained similar to pre-pandemic levels. And early indicators from winter and spring retail point to healthy consumer interest. Secular trends, such as the growing Gen

Thank you, Jason. Our consolidated net sales for the first quarter decreased 41% to $973 million compared to the prior year period, primarily impacted by a reduction in RV production. For the month of April, sales were down 37% to $338 million versus April 2022 primarily due to the decline in wholesale RV shipments. As Jason noted, we are seeing effectiveness of our diversification strategy on the results this quarter, while sales to North American RV OEMs declined 64%, sales in our success with growth in adjacent market. Aftermarket and international businesses only declined 5%. This significantly lessened the impact of the year-over-year decline in the RV industry production. The decline in Q1 2023 sales to North America RV OEMs was again driven by a decrease in wholesale shipments partially offset by double digit content expansion in towable and motor homes. Content for towable RV unit increased 21% to $5,881 while content per motorized unit increased 27% to $3,985 compared to the prior year period. Towable content growth can be attributed to organic market share gains of 15% while acquired revenues contributed 7% of the year-over-year growth. Sales to Adjacent Industries grew 1% versus the prior year period, offsetting some of the reduction in RV sales. Sales growth was primarily from acquisitions and pricing adjustments to our transportation product, offset by lower sales in North America Marine OEM and manufactured housing. Marine content per powerboat decreased 3% to $1,608, primarily due price decreases associated with year-over-year declining input cost and changes in product mix. Q1 2023 sales to the Aftermarket decreased 13% compared to the prior year period, driven by a decline in automotive aftermarket sales. International sales decreased 1% year-over-year, representing 11% of our total company revenue, as exchange rates negatively impact results by approximately 4% due to the strength of the dollar compared to the euro and British pound. Excluding the exchange impact, organic growth would have been 3%, led by the strength seen in our rail markets. Gross margins were 19.1% compared to 28.2% in the prior year period due to elevated input costs and the impact of fixed production cost on lower sales volume. We continue to expect reduced margin pressure in the second-half of 2023 due to increased production, supporting enhanced profitability as we move through the year. Operating margins decreased compared to the prior year period in line with expectations as we absorbed fixed costs on a lower sales base. GAAP net income in Q1 of 2023 was $7.3 million or $0.29 per diluted share compared to $196.2 million or $7.71 per diluted share in Q1 of 2022. And this is due primarily to the lower RV demand. EBITDA decreased 83% to $52.5 million for the first quarter compared to the prior year period. Non-cash depreciation and amortization was $132.5 million for the 3 months ended March 31st 2023 while non-cash stock-based compensation expense was $4.7 million for the same period. We anticipate depreciation and amortization in the range of $130 million to $140 million during full year 2023, primarily due to the increases in capital investments to enhance production capacity and ensure further manufacturing efficiencies. For the 3 months ended March 31st 2023, cash generated from operating activities was $75 million, with $17 million used for capital expenditures, $6 million used for business acquisitions, and $27 million returned to shareholders in the form of dividends. Operating cash flows were negatively impacted by lower sales and partially offset by the positive changes in working capital net of acquired businesses as it generated $130.7 million more cash in the first 3 months of 2023 compared to the same period in 2022. As inventories continue to normalize, we expect further improvements to working capital and positive impact to cash flow. At the end of the first quarter, we had an outstanding net debt position of $1.1 billion, 2.3 times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses and the impact of other non-cash items. As we look forward, we are focused on continuing to maintain a strong balance sheet and targeting longer term leverage of 1.5 times net debt to EBITDA. In the near-term, we are working to integrate recently completed acquisitions which we expect to positively impact our operating cash flows in the coming quarters. For the full year 2023, capital expenditures are anticipated in the range of $80 million to $100 million. We continue to expect that RV production levels will remain volatile in the short term. As a result, we estimate the April consolidated sales results of down 37% to be indicative of full Q2 2023 results, as RV OEM production remains suppressed while the dealer base seeks the right inventory levels for expected demand. The sales decline is primarily driven by the reduction in RV production as we anticipate Q2 2023 RV shipments between 75,000 and 85,000 units. Looking forward to Q2 and beyond, we are anticipating RV shipments to improve to more in line with those experienced in the back-half of 2019, which results in an estimated RV shipment range of 310,000 to 330,000 units for the full year 2023. As we continue to reduce our cost structure and material cost headwinds, profitability will be limited through the second quarter. And, we anticipate operating profit margins to return to mid- to high-single digits in the second-half of 2023. That is the end of our prepared remarks. Operator, we're ready to take questions. Thank you.

Absolutely. [Operator Instructions] Our first question comes from the line of Kathryn Thompson with Thompson Research Group. Kathryn, your line is now open.

Hey, good morning. This is actually Brian Biros on for Kathryn. Thank you for taking our questions. First, I wanted to ask you about the OEM production rates, you guys touched on in the prepared commentary, and really just to see if the production levels are coming back at the rate that you previously expected, I guess at Q1, or at when we talked earlier? We've heard chatters about taking it a little bit longer to give dealers little bit more time to adjust their inventory levels of '22 units, add up the model year '24 is next to ship, so maybe they're taking a little bit longer to bring production levels back. I'm just curious to see how that squares with previous expectation you guys had.

Sure, this is Jason. Yes, first off, I think we saw some units being pulled forward based on the significant discounting that we were aware of over the course of almost the entire first quarter. And that's a lot of the dealers trying to get rid of the 2022 units. And then I think what we're seeing coming into Q2 is that there's more of this -- approximately 35% of the total inventory out there in the field that we've heard of from our dealer touch points, our 2022 units. So, there'll be continued movement of those. And I think what's going to slowdown and we're already seeing some of this. Well, what's going to slow down some production on wholesale for our Q2 is the fact that they just don't want to build a bunch of '23s and put them out there as '24s get released here in the next couple of months. So, I think we're going to see a slowdown in wholesale a little bit, maybe to mirror what we saw in Q1, as around 77,000 units. Based on the fact, not that there is not demand for units to replenish inventory, but they just don't want to start loading newer lots up with '24 units when there's still plenty of '23s and '22s out there. So, we expect the wholesale to pick up in Q3 as the lots get depleted. So, that'd be how I'd answer that.

Got it, that's helpful. Yes, thank you. And a follow-up, I guess, just on the -- kind of plays into the same question, just on the higher inventory costs flowing through, I think you guys previously called out maybe a 400 to 500 basis point headwind from the higher priced inventory, having to sell it through during the lower-volume quarters here in Q4, Q1, I guess maybe a little bit in Q2. So, I guess, just given the current run rates and outlook as we sit today, I guess, what does that higher-cost inventory flow-through rate look like now? Thank you.

Hey, Brian, this is Brian. Yes, it's playing out about what we anticipated. We certainly have been consuming some higher cost, I would say, probably the more meaningful product category for us now is a lot of any imported product and a lot of the higher container costs. So, freight, we're still pulling a lot of that through. Steel and aluminum have balanced out for the most part. It's a volatile market, so it'll continue to move up and down, but probably not as meaningful as what it was historically. So, we picked up sequentially a little bit of margin from what we anticipated in getting to some cheaper inventory layers, and would expect that to continue to play out through the second quarter, assuming materials stay pretty stable, the back-half of the year is where we start to see more of that benefit. So, it's playing out pretty consistent with what we anticipated.

Thank you. The next question is from the line of Fred Wightman with Wolfe Research. Fred, your line is now open.

Hey, guys, good morning. I was just wondering what retail number you have baked into that 310,000 to 330,000 wholesale outlook?

Yes. So we're planning right now on 340,000 to 360,000, and that's based on significant level of dealer touches. A lot of the big dealers have weighed in on that. And 340,000 to 360,000 is about the consensus out there, which we agree with.

Perfect. And then, all super helpful. And then, Jason, you made a comment about some recent softness in Marine. I think you also said recent softness in manufactured housing. But can you just sort of walk through what exactly you were referring to if there's sort of a downtick in production rates on the Marine side, if that's something to be worried about or any other color there would be helpful?

Just to start with Marine, we're starting to see rates get pulled back a little bit because dealers are relatively full there. I think they're expecting a good retail season. But to that, our production rates are down 15-ish so percent for the next quarter, and that really just started here in late-April. So, it's pretty refreshing on the housing side. They had some down production or lower production in Q4 coming into Q1, but with some of the touch points we've had with our housing customers, they're expecting a good run the rest of the year, so.

And Fred, this is Brain. I don't think that's changed much from what we had been communicating previously. We thought that pontoon would run at least in tail end of the second quarter. It made it just to the beginning in the second quarter, and it started to slow some. But I think it really depends on the category of boat. Some of the fiberglass stuff seems to be doing a little bit better, and maybe not inventories at the level of pontoon. But everything seems to be slowing in line with what we had previously thought.

Makes sense. And just a clarification, the down 15%, is that a sequential comment, a year-over-year comment, what exactly is that?

That's just based on rates last quarter. And we don't have production schedules out past another month or so. So, it's just near-term, and I think that the Marine dealers and OEMs are just being very cautious given the environment. And dealers' inventory isn't bloated, but they're just being cautious with how they proceed, and if retail is really strong this summer, then they'll need to reload a lot quicker than the RV guys did.

Makes sense. Thank you.

Thanks, Fred.

The next question is from the line of Dan Moore with CJS Securities. Dan, please go ahead.

Thank you, good morning. Brian, thanks for all your help, best of luck. And Lillian, welcome. Look forward to meeting you. Thanks for the update on the wholesale and retail outlook for the year. Jason, look, when you think about RV demand, given all of the surge in new buyers that we've had over the last few years, where would you peg kind of a normalized view once we get through recessionary fears, et cetera? What's sort of the new normal in terms of retail demand for RV in your mind?

Hey, Dan, good question. I think how I'd put that is we're going to have to slow roll back into a normalized number. So, I don't know if that new normal sit -- we find that next year, whether that's in '24 or '25. But I think a good number for the industry is 450,000 to 500,000. The demographics are just -- they're great for our business and our industry, and more and more new buyers are coming in, and there's just more places for people to find RVs. And ultimately 400,000 to 500,000 units isn't a big number on the total population of North America. So, we feel good about that number, and I feel as soon as get through some of the heavy inventories and some of the economic struggles we've got out there with inflation and interest, specifically, we get back to that number. And I think most people in the industry feel similar. Doesn't mean we can't go bigger.

Got it. Just switching gears to Aftermarket. If you gave this, I apologize. Just price versus quantity in the 13% decline year-over-year, and what's your outlook for Q2 and the remainder of the year?

Yes, hey, Dan, it's Brian. I would tell you it's not driven a lot by price. Really, the automotive side of the business had some channel issues, a lot of inventory out there, so we saw some slowness, some volatility in orders. I think that we've gotten through a lot of that. A lot of the wholesale distributors, I think, are right-sized in their inventories today. We're starting to see some orders pick up here over the last month or two and expecting that to continue as they enter into their busy season as well, here for the spring/summertime. So, I think that we're past what at least appear to be some of the worst of what we saw in Aftermarket, and expect that to continue to, at least, flatline, and then start to grow from here in the short-term.

And a couple other comments I'd make, Dan, on that is we said automotive was responsible for the decline in Aftermarket sales, but RV is holding strong. And I think the important thing about RVs is that we've been peeling away at inventory, dealer inventories and our own inventory, since June of last year, when the volume really started dropping off. So, we're almost a year in to working through this. And as you know, a lot of these cycles that we have in this industry don't last longer than 14 to 18 months. So, we're almost a year through getting through some of that, but our RV business is remaining strong. The automotive stuff, while it's been down the last couple quarters, it's starting to come back. We've seen some nice orders the last few weeks, so.

Very helpful. Last for me is on cash flow. Sounds like we're still targeting another release of the $180 million in inventories this year, is that correct? And AR has jumped a bit, maybe part of it was the acquisition, but that offset a little bit of the inventory benefit in Q1. So, just how do we think about AR as progressing for the remainder of the year, and what maybe operating cash flow could look like for '23? Thanks again.

Hey, Dan, it's Lillian. Good morning, and good to meet you. So, I think we're still anticipating the benefit from the inventory pulling through and benefiting the operating cash flow. There has been a little bit of lumpiness with some of the other working capital that we'll work through. But I'd say, overall for the year, we're expecting still to have very strong cash generation for the business.

And Dan, to add to that, seasonally, our receivables are at a low point in the fourth quarter. So, you would typically, as that builds back up in the first quarter, you would see that negative impact on cash. But that's pretty normal, and I would expect that to be pretty consistent the rest of the year, until we get to the fourth quarter, which is when we then tend to pull a lot of that cash in. But certainly feel really good about the inventory reductions. I mean through April now we're cumulatively for the down $150 million in inventory. So, certainly I would say exceeded my expectations from how quickly we've been able to generate the cash out of it. So, feel pretty good about our target for the full-year.

I would also say with the inventory, that's something that the team is very laser-focused on, and actively is monitoring and measuring how we're progressing on those targets.

Thank you. The next question is from the line of Craig Kennison with Baird. Craig, your line is now open.

Hey, good morning. Thanks for taking my questions, and congratulations, Brian and Lillian. Question on content per unit, how do you see your content per unit trending in your key segments as the year unfolds?

Yes, Craig, from a content perspective, we finally -- this is the first quarter we haven't really talked about price creating a lot of noise in that content. So, on a year-over-year basis, price is a bit consistent. So, everything's been organic growth and acquired growth. So, that's the first clean number we've had for a while. I do think there is a little bit of price left. I mean, obviously, as costs continue to come down we'll continue to provide some price give-backs to our customers as well. So, there's a little bit more to go there. But it's not to the tune of what we were talking about over the past 12 to 18 months or so. So, definitely good traction there, I know we've got a good model changeover on the RV side coming up here in a few months, so anticipating a lot of new business to come through the RV side. Definitely in a lot of our younger markets, we're still looking at good, solid mid-to-high single-digit, and sometimes double-digit-type content gains in some of those categories. I think a little bit of the noise you're seeing on the Marine side and the content number that we just communicated, it's down a little bit. A lot of that's price. That has seen some price give-backs in that category, as well as, I think, some mix changes in the marketplace. So, just looking at the mix in the powerboat segment as it shifts more away from pontoons, that certainly impacts our content opportunity a little bit. So, I think you're seeing a little bit of that in the down 3% number that we turned in.

And Craig, we've never had more of a robust launch on innovation that we've had in the last couple quarters. So, we mentioned ABS, that's a $300 to $400 [adder] (ph) to every single axle out there on probably 100,000 axles. There's the new window products with integrated shades, the OneControl additions, we continue to gain more market share there. We've been talking for a couple decades now about just a continually rising target on content because of all the product introductions and refreshes on existing product that happen continually.

Thank you. And then Jason, maybe a question on your Aftermarket business, I'm curious how you would define your sweet spot for your automotive and your RV Aftermarket? Is it typically in year-one, after the RV is purchased by a consumer or does the peak in Aftermarket revenue at a later period?

I think you got a little bit of both. I mean the way we look at a lot of the Aftermarket revenues for RV are just in the terms of upgrades and repairs and services. So, I would say the repairs and services is probably a little bit heavier. And that's generally occurring probably years two, to three, to four, based on various data that we have. But there's certainly upgrades that happen upfront. The vehicles out there today come equipped with a lot of our prep opportunities. So, we'll prep a vehicle for our cameras or for slide-toppers or for something like that that the consumer might want, and they have the part to attach it with on the unit, and then they have to buy the actual physical piece in the aftermarket. But I'd say it's more heavily weighted toward a few years into the ownership with repairs and services. And then the automotive side, it's a lot of hitches, and towing, and storages, and truck accessories, and things like that, that are generally bought upfront with a vehicle.

Perfect, thank you.

Thank you.

The next question is from the line of Bret Jordan with Jefferies. Bret, please go ahead.

Good morning, guys.

Morning.

Hey, good morning. The feedback you're getting, I guess you talked about the recent color from the Marine channel, and obviously a lot of RV channel checks to come up with your retail estimate. Are you getting any color as far as the cadence of retail sales traction? You talked about strong show and trust, but are we seeing any pickup in buying as we get into the summer months?

It's kind of a wait-and-see. I mean, summer purchasing and summer activity is really just starting to happen now. So, I think we'll have a really good view of that over the next couple months. Obviously, wholesale production is way down, and we've kind of matched almost unit for unit on wholesale to retail the first quarter. But this is when the heavy retail really starts. So, I think we're optimistic. And dealers are expanding, they're making acquisitions, they're trying to get better. They're anticipating a decent retail selling season. So, we have no reason to anticipate that there's not going to be a lot of buying out there. And again, some of the early activity we've heard is there's a lot of interest, and there is purchasing. Again, we're not that far off of 2019's number so far this year, and it was 460,000-unit retail year. And we're estimating 340,000 to 360,000 as we said earlier. So, we're 15% or so off '19's 460,000 number right now. And I think that it might stay that way, which gets us to that high end of that 340,000 to 360,000 range. So, we're optimistic.

Yes, Bret, something I was going to add there. I think that, early on, you saw retail pretty strong. Actually, if you look back over the last six months, I think the comp to 2019 has been really favorable, and less than 5% off of that. March is really the first retail month we've seen that slipped meaningfully beyond that. But I think weather -- I mean, I hate to always tout weather because that's something that, this time of year, we're always watching closely. But I think that retail slowed some. Some of that could be attributed to weather because I, through a couple of my touch points, was hearing that online were performing really, really well at many of the dealers. So, folks just weren't getting out due to weather, but they were at least ordering online. So, I think there's some positivity out there, and we'll wait and see what these meaningful months of retail really look like. I think I've been saying you really got to wait and see what April-May retail is. It's tough to gauge off of the lowest retail months we have in the year, which are through the winter months. So, these next couple months will be important to watch.

And one other real positive there is that our industry, better than most, I think the OEMs and dealer body collaborate really well when they've got to move product, and participate in discounts, and to try to do what they can to move units. And we're seeing a lot of that out there right now. I mean, there's some heavily discounted product going out there, either to the OEMs, to the dealers, to the retail consumers, or just from the dealers to the retail consumers. And ultimately, that's good for the consumer, that gives some of them more of a reason to buy and not have inflation as a big reason not to buy if there's some significant discounting out there. And as you know, there has not been really any discounting prior to last year for the prior three years. So, I think it's good news for the consumer, and the consumer is pretty healthy right now. So, I think it's -- we'll see in the next couple months.

Okay. And then a question on the balance sheet, I think you'd said Q2 might look a lot like April, down 37. Dropping a good EBITDA quarter, prior-year Q2, does that creating the leverage ratio issues in the short-term or is your inventory liquidation going to de-lever and keep the covenants okay?

No, we're pretty comfortable with how things are progressing as we're looking at the movement through this year with the inventory depletion that we're anticipating that we feel pretty good about our position.

[Multiple speakers] second-half, right?

Yes.

Yes, exactly.

Except we have those quarters fall off. And certainly we will beat our expectations here in the first part of the year with the inventory reductions. And, I think now that as we were talking earlier, receivables stabilized. We will be able to drop even more of the inventory benefit to the cash line.

Okay, great. Thank you.

Thank you.

Thank you, Bret. The next question is from the line of Brandon Rolle with D.A. Davidson. Brandon, your line is now open.

Good morning. Thank you for taking my question. First, just a clarification, I think you said model year '22 inventory about 35% of the new inventory, and the market is model year '22. I guess I am thinking as model year '24 is coming out, could you speak to how much model year '23 inventory is the channel right now? And maybe how '24s trickling could impact sales of those units and potentially have another kind of model year '22 situation but maybe not to the same extent?

Yes, I think just strictly because of the low production of '23, there is just not a lot out there. We don't have a really good check for that. And there is just not a lot of good field inventory consolidated numbers for us to look at. People have been paying a close attention to the '22s and that's why I think we have a better number. I don't think '23 is a concern. I haven't -- we have got a lot of check points with dealers and OEMs. And nobody is really talking about that, or talking about there is a possible issue. If anything, they are just saying, hey, look, part of the reason we are taking some time off in the coming weeks rolling into the fourth holiday -- July 4th holiday is just limit the amount of '23 you could stack on the '22 that's early out there so. I think the OEMs are being really disciplined. I mean we've obviously had this type of situation pop up over the last couple of decades I have been here. And I have not seen the OEMs be as disciplined and act as quickly as they have to really make some of these decisions that are going to be better for the industry and the dealers in the longer term here.

And Brandon, I would add that we talk to a couple of the larger financial institutions in the space. And, we haven't seen inventory age over 365 days since, I think, back to 2018 in any kind of meaningful way, but as you know back then, it was typical to have some units age to that point, but we have just now for the first time since 2018 had some products start to age out. But it's at pretty normal levels compared to what the industry seen historically. Three or four planning at pretty low number as well, so…

Okay, great. And just one last follow-up, just on pricing and affordability of new RVs right now, do you feel like we have reached a new baseline for price of the new RV? Or, do you feel like over the next couple of years, pricing could come down meaningfully?

Yes, I think you are going to see some -- I don't know about meaningfully because you are going to see some of cost of building business and certainly labor inflation is likely not going away. But there was certainly a period over '21 to '22 where the material costs were significantly inflated above normal -- above levels that we feel are abnormal. So, our thoughts on that is that probably some price will come out of it. We have already seen some of that in our product pricing to our customers over the last couple of months with our index agreements specifically on aluminum and steel. So, some of that will come out, but, a lot of it will stay. And like I said over the course, the next few quarters probably there will be some discounted units back to the consumers that give them maybe a much lower price on product than what they would have got six months ago.

Great, thank you.

Thank you. Our last question today is from the line of Tristan Thomas-Martin with BMO Capital Markets. Tristan, please go ahead.

Good morning.

Good morning.

Can we maybe go into a little more detail of kind of which inventory levels at the dealership chains whereas some of the moms-and-pops have positioned on a relative basis?

Yes, I think that outside of having more '22s, there is more of a -- I think the mix of product they have with the dealerships or probably what they dislike the most. But I don't think inventory levels and number of units on the dealer lots are the big concern. So, we get rid some of the 22s. And I think that again with the low amount of wholesale production that's planned over the next couple of months, going into the July 4th holiday and the shutdown there that that all really help get rid some of the '22s. And we feel that the dealers are going to have inventories that they are going to need reload that in Q3, Q4 if they want to have ample products for the next season. That's how we talk about that.

Okay. I was just curious some of the larger chains may be a little bit leaner than some the smaller chain?

I would say the larger chains are probably the best at balancing their inventory because they can -- they are good at getting their rid product quickly. And they are good at getting product quickly when they need it because they have got the order size to be able to do it.

Okay, got it. I think Camping World called out they are seeing multiples coming on their dealership prospects. What do you guys think for your M&A multiples that you are looking at?

I think certainly for everybody in our industry that the multiples are they are going to be lower for a period than what they were at the peak of COVID and even in some cases pre-COVID, but yes, we are hearing a lot especially on the dealer side where multiples are coming back to a more reasonable level. Obviously, we are not -- we are looking and continuing to stay active in M&A. We are just not making a lot of meaningful acquisitions right now, just be intelligent or cash preservation on balance sheet. But the small deals that we have done have been very reasonable multiples.

Okay, thank you.

Thanks, Tristan.

Thank you, Tristan. That concludes our Q&A session for today's call. I'll now turn the call back over to Jason for any concluding or additional remarks.

Yes. So, everybody thanks for jumping in the call today. And while the RV industry remains challenged, just remember that we are almost a year in. So, we have dealt with a lot of big hurdles already. We are really excited about diversification opportunities and progress. I think that's helped us hold up things really well. Our diversified categories are really performing well, and we knew they'll perform in a time like this. So, we try to present progress at next quarter's meeting. We will see you then. Thanks. Bye-bye.