LCII - NYSE

Hello, everyone, and thank you for joining the LCI Industries First Quarter 2025 Conference Call. My name is Lucy, and I will be coordinating your call today. [Operator Instructions]. I will now hand over to your host, Lillian Etzkorn, CFO of LCI to begin. Please go ahead.

Good morning, everyone, and welcome to the LCI Industries first quarter 2025 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 could 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 in 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.

Thanks, Lillian, and good morning, everyone. I'd like to welcome you all to LCI Industries' first quarter 2025 earnings call. We started the year strong delivering over $1 billion in sales during the quarter, up 8% year-over-year, our highest quarterly growth since June of 2022. These strong results are due in part to the resilience of our strong leadership teams, diverse markets and products and the power of the competitive moat we've built over the years. We plan to continue to leverage our deep presence across these markets with our customer first mentality and relentless focus on growth and innovation to drive our performance and remain on track to deliver $5 billion in revenue in 2027. Our disciplined manufacturing execution also helped enable us to increase operating margin by nearly 200 basis points this past quarter. Our scalable production supported dealer inventory rebuilding along with aggressive cost actions drove structural improvement as the wholesale environment expanded almost 14% over last year's first quarter. We continue to consolidate facilities having taken decisive action in our Rialto, California and Chesaning Michigan facilities, which combined will drive a 230,000 square foot reduction to our footprint. Additionally, we executed on supply chain efficiencies, lower indirect spend and reduced salary labor as we made strong operational headway toward our 85 basis point overhead and G&A reduction target for calendar year 2025. We also resumed our time tested M&A strategy with the acquisitions of Freedman Seating and Trans/Air, which have helped strengthen our position in the bus market, which we have found to be largely insulated from general economic and consumer demand cycles. We completed these acquisitions while strengthening our financial positioning with a series of financing activities that help derisk our balance sheet, all while continuing to return meaningful cash to our shareholders. I'll now move on to our results by business. RV OEM net sales totaled $531 million for the first quarter, up 15% versus the prior year. This increase was largely due to the double-digit rise in North American RV wholesale shipments as retail dealers restocked inventories for the 2025 selling season. Secular trends supporting the outdoor lifestyle remained firmly in place, which helped create a firm foundation for our future growth. According to KOA's 2025 Camping & Outdoor hospitality report, more than 11 million new households have entered the camping market, since 2019. The appeal of outdoor recreation continues to grow with consumers increasingly prioritizing experiences like camping, RVing and outdoor travel. Additionally, the survey reported that 72 million Americans plan to take an RV trip this year. Also in the quarter, we continue to focus on growing market share across our top five product categories: appliances, axles and suspensions, chassis, furniture and windows. Appliances have been the biggest quarterly category winner with combined OEM and aftermarket sales growing 42% over 2023's first quarter. More recent innovations like the Chill Cube AC, Anti-Lock Braking Systems, 4K Window Series and TCS suspension led to some of our most impactful market share gains as the recognized advantages continue to drive adoption by our OEM customers. We believe these innovations combined with our strong OEM relationships, continued focus on customer service and quality, geographically strategic footprint, scale-based purchasing leverage and low cost production make our offering the clear choice for partners evaluating competing products. These share gains were evident as our organic content per travel trailer and fifth wheel content rose 3% year-over-year. This marks another quarter of content expansion as we continue to achieve growth despite an ongoing shift towards smaller single axle trailers, supporting our belief that we have products that consumers want and need at all price points. Looking ahead, we're confident we can capture additional content opportunities. We continue to anticipate that organic content growth should be 3% to 5% annually. April sales increased 3% year-over-year as wholesale shipments and product mix normalized and we now project 320,000 to 350,000 wholesale shipments in 2025 as a result of tariff uncertainties. Turning to the aftermarket, net sales were $222 million for the first quarter, up 6% year-over-year driven by higher volumes in the RV and marine aftermarket as well as market share gains in the automotive aftermarket. We've worked hard the last several years to diversify this segment and the dynamics this quarter continue to reflect resilience of our aftermarket products. The Curt and Ranch Hand acquisitions continue to build momentum and were important contributors to the performance this quarter. Our Curt family of products including hitches, towing solutions and truck accessories delivered 4% growth year-over-year in Q1. We also saw strong performance from Furrion suite of appliances, particularly on air conditioning, where our innovative Chill Cube continues to gain share as one of the quietest and most powerful AC units available for recreational vehicles. And as we continue to drive OEM content expansion in appliances, the growing replacement opportunities for appliances promises to unlock meaningful demand here in the near future. And we believe Furrion is well positioned to benefit as more RVs come out of their warranty periods. Our partnership with Camping World also remains a key growth driver for our aftermarket results. Product sales at Camping World stores grew over 60% sequentially in the first quarter, building on the 57% growth achieved last year. We continue to work closely with the Camping World team to bring more of our products into their stores and online platforms. We plan to outfit approximately 50 additional locations this year on top of the 14 completed in 2024. Further strengthening our retail presence with the largest RV dealer in the world. We're also investing heavily in the long-term growth of our aftermarket by building on our service and training functions. Our dealer tech training programs are helping us ensure that our products are supported correctly after the sale to retail, which should strengthen our pull through with dealer service centers. Last year alone, our service ecosystem had 1.6 million views of Lippert branded tech support seminars, 55,000 individual completions of technical training classes and over 2.1 million visits to our Lippert branded technical service pages. We're proud of this momentum as customer service and experience remains a key strategic pillar for us. We believe and dealers are affirming that our company is doing more in the way of our customer and dealer support than anyone else in the industry. Turning to adjacent industries, sales decreased 2% to $293 million for the first quarter versus the prior year, driven primarily by continued softness in marine as dealers remain focused on inventory rebalancing. We expect marine dealers to be back to more of a normal ordering cycle sometime in the back half of the year. Utility trailers content continues to be a bright spot and we expect that to continue with approximately 600,000 utility and cargo trailers built annually, we view this as a meaningful opportunity for long-term content growth. We've continued to leverage our actual manufacturing expertise to serve leading brands like PJ Trailers, Diamond C, Nove and Big Tex Trailers and our strategy is to continue to introduce advanced suspension system enhancements such as analog braking systems, touring coil spring suspension and tire pressure management systems to elevate trailer safety and performance. Our axle expertise remains a key driver of our success in this market as axles and suspension components are the largest single content item on these products. In building products, we continue to grow our residential window business, which increased 26% in the quarter. As more distributors and builders recognize the quality and consistency of our new entry level vinyl windows. In transportation, our windows and glass products are increasingly contributing to content growth across on highway and off-highway vehicles, school buses and transit buses. In buses alone approximately 70,000 units are produced annually. And as we mentioned earlier, buses are proving to be much less susceptible to consumer demand and macroeconomic issues. Mass transit is growing and states should continue to need new and replacement vehicles for their municipalities. As noted previously, we are happy to announce that we have resumed our time tested M&A strategy during the quarter by going deeper into the bus end markets, acquiring Freedman Seating and Trans/Air. Freedman Seating, which is a 100-year old business with a great name in the market, manufactures a variety of seats and seating related products for many different bus types, while Trans/Air manufactures a full line of climate control systems for school, transit, and commercial buses. We believe these companies together further our exposure and deepen our importance, presence, and content in the bus markets. Turning to our financial discipline, we continue to operate with financial prudence and situational awareness, which has helped us navigate and gain share in a challenging economic backdrop. As I stated earlier, our 85 basis point cost reduction goal for 2025 focused on overhead and G&A remains within reach. These are structural improvements and we continue to take deliberate action to tighten indirect costs through targeted facility consolidations, new sourcing strategies and ongoing improvements in product quality that should drive warranty costs down. Regarding capital allocation, our balance sheet remains strong bolstered by our proactive refinancing activity during the quarter to significantly derisk our near term position in a challenging credit market. We successfully refinanced our 2026 convertible notes, repurchased shares and issued new 2030 notes, while taking steps that reduce risk, limit dilution and preserve flexibility. Cash performance was also strong as we generated $43 million of operating cash flow in the quarter, up significantly from the prior year, which was the cash use of $8 million. We effectively improved our working capital discipline while delivering enhanced earnings. These results continue to position us well, providing us with the financial capacity to continue investing in innovation and growth, while remaining committed to returning capital to our shareholders. In addition, during the quarter, we continued to deliver a strong dividend with over a 5% yield and executed $28.3 million of share repurchases. Lastly, our net debt position at around 2x EBITDA provides ample financial flexibility to be opportunistic and pursue more of our robust M&A pipeline. Regarding tariffs, we know this is top of mind for all of our stakeholders and it's top of mind for us as well. Over the past several years, we've taken a fresh look at our global sourcing strategy to help further insulate the business with much more of a diverse supply chain. In fiscal year 2024, approximately 35% of raw materials and components came from producers outside the United States of which approximately two-thirds were from China. By the end of this year, we expect that number to be reduced to approximately one third of our imported raw materials and components as we transition production into more strategically favorable regions. The most important point to note is that we have navigated tariffs and other impactful challenges before and we have the experienced leadership team in place to do it again with a successful result. In the meantime, we're moving quickly, engaging in supplier negotiations and supplier repositioning to continue to diversify our supply chain and manage inventory timing, while also leveraging some excess inventory and pass through pricing mechanisms on key commodities where appropriate to our customers. Moving to culture, although intangible, I believe it's one of the most powerful drivers of our success. We remain fully committed to building a workplace grounded in strong values and certain leadership because we believe that when people feel supported and inspired, they stay with the business, grow and perform better every year. That's why we continue to see lower turnover compared to the industry averages, which helps create consistency and momentum in our manufacturing quality and output. We are continuing to demonstrate how business can be a force for good as we serve our communities through a wide range of volunteer efforts, building on the over 100,000 hours our team members give each year. Projects this quarter included park cleanups in South Dakota, hosting a community dinner in Alabama and a plug drive in Juarez, Mexico, just to name a few. These projects reinforce the idea that when people come together around a common purpose, the impact goes far beyond the bottom line. Just two weeks ago, 1,600 team members in Northern Indiana got together over three evenings for our Annual Company Pack-Out event, structured to purchase and pack supplies for the Food Bank of Northern Indiana, which serves over 70 food pantries throughout six local counties. Team members packed 108,000 food items into 5,400 boxes, which will be distributed to the Food Bank's mobile food drop program, providing food assistance to those in need in our surrounding communities. As we look ahead in the second and third quarters, we remain cautiously confident with a realistic view of the road ahead as inflationary pressures and market volatility and elevated interest rates continue to weigh on the consumer. RV dealers are taking a cautious view of reordering products given the current tariff uncertainty. We're also closely monitoring tariff risk and the resulting broader uncertainty that may reshape overall buying patterns. As always, we'll continue to align our cost structure, capital deployment and production cadence with real time market signals. We believe our ability to adapt quickly and execute with discipline has always been a great strength of ours, giving us confidence in our capability to deliver for our customers and shareholders no matter what the operating environment. In closing, we believe this quarter reinforced everything we've been saying over the past couple of years of industry turbulence. We have a diversified and durable business, a culture rooted in servant leadership, operational discipline and great execution by our experienced leadership teams as well as strategic clarity and passion to win in both good and bad times. While the broader environment may remain volatile, our playbook hasn't changed. We've been through cycles like this before and we know what it takes to perform. We're confident that our competitive moat continues to set us apart and is even more of a strength at tougher times. By utilizing the advantages that I've mentioned, we believe that we are positioned well to continue to drive market share gains and growth across our business over the coming quarters. And as always, none of this will be possible without the incredible people and leaders behind it all. Our team's commitment, creativity and heart continue to push Lippert forward. And I couldn't be prouder of what we're building together or more excited about where we're headed. I'll now turn it over to Lillian, who will provide more detail on our financial results.

Thank you, Jason. During the quarter, Lippert's industry leading innovations and strong competitive advantages drove strong net sales growth, while our ability to scale operations effectively along with sustainable cost improvements continue to support margin expansion. Our consolidated net sales for the first quarter were $1 billion, an increase of 8% from the first quarter of 2024. OEM net sales for the first quarter of 2025 were $824 million, up 9% from the same period of '24. RV OEM net sales for the first quarter of 2025 were $531 million, up 15% compared to the prior year period driven by an 18% increase in North American travel trailer and fifth wheel wholesale shipments as well as overall market share gains. These results were partially offset by an 11% decrease in motor home wholesale shipments and the continued shift in unit mix towards lower content single axle travel trailers. Single axle trailers do remain an atypical portion of production, but we expect this trend to normalize once consumer demand recovers. Content per towable RV unit was $5,164 up 1% compared to the prior year period, while content for motorized unit was up 3% to $3,750. Towable RV organic content grew 1% sequentially and 3% year-over-year, supported by the share gains we delivered in the top product categories we supply to RV OEMs. Appliances, axles and suspension, chassis, furniture and windows as well as the continued adoption of recent innovations like our ABS, TCS, and best-in-class appliances. This growth significantly offset the impact from the continued shift to smaller single axle trailers. Adjacent industries OEM net sales for the first quarter of 2025 were $293 million, down 2% year-over-year primarily due to lower sales to North America Marine and Powersports OEMs, partially offset by higher sales to utility trailer OEMs. Marine sales were down 15% due to the impact of inflation and still high interest rates on retail demand and based on current visibility, we expect the softness to continue. Aftermarket net sales for the first quarter of 2025 were $222 million, an increase of 6% compared to the same period in 2024, primarily driven by higher volumes within the RV and marine aftermarket and market share gains in the automotive aftermarket. Gross margins for the first quarter of 2025 were 24.1% compared to 23.1% for the prior year period. The cost of steel consumed in certain manufactured components decreased in the first quarter compared to the same period of 2024. Additionally, lower inbound freight costs and the impact of material sourcing strategies we've implemented to lower input costs also benefited gross margins. Consolidated operating profit during the first quarter was $81 million or 7.8%, a 180 basis point improvement over the prior year period. Operating margin expansion was supported by our ability to scale operations effectively and further cost improvement actions such as facility consolidations and overhead reductions marking progress towards our 85 basis point stretch target. The operating profit margin of the OEM segment increased to 7.5% in the first quarter of 2025 compared to 4.3% for the same period of 2024. This was primarily driven by the impact of fixed production overhead and SG&A costs spread over increased sales, decreases in material costs and increases in production labor efficiencies, which were partially offset by decreases in selling prices. The Aftermarket segment delivered 8.7% operating profit margin, down from 11.8% in the prior year period, which was negatively impacted by the mix and investments in capacity and distribution processes to support growth for the Aftermarket segment. GAAP net income in the first quarter was $49 million or $1.94 earnings per diluted share compared to a net earnings of $37 million or $1.44 earnings per diluted share in the prior year period. Adjusted net income in the first quarter of 2025 was $56 million or $2.19 per diluted share, excluding the loss on extinguishment of debt net of tax effect during the quarter. Adjusted EBITDA in the first quarter was $111 million, a 23% increase from the prior year period driven by higher earnings. Non-cash depreciation and amortization was $29.5 million for the three months ended March 31, 2025, while non-cash stock based compensation expense was $4.9 million for the same period. We continue to anticipate depreciation and amortization in the range of $115 million to $125 million during the full-year 2025. At March 31, 2025, our company's cash and cash equivalents balance was $231 million compared to $166 million at December 31, 2024. For the three months ended March 31, 2025 cash provided by operating activities was $43 million, up $50 million from the first quarter of 2024. Investing cash flows included $9 million used for capital expenditures and $30 million used for the acquisition of Trans/Air. During the quarter, we also strengthened our balance sheet with refinancings that pushed out near term maturities and provided additional runway to execute our long-term strategy. These actions included successfully pricing a $460 million private placement of 3% convertible senior notes due 2030. The proceeds, net of fees and transactions costs were used to repurchase $368 million of our 1.125% convertible notes due 2026 and approximately 300,000 shares of our common stock. We also entered into a hedge and warrant transaction to manage dilution and maintain flexibility. Following the convertible note issuance, we refinanced our credit agreement with a $600 million revolving credit facility and a new $400 million seven year term loan B. We used a portion of the term loan proceeds to repay the outstanding balance of our previous term loan of $280 million. In addition to the 28 million share repurchase made in connection with the convertible note issuance, we returned an additional $29 million to shareholders through a quarterly dividend of $1.15 per share, further reflecting our ongoing commitment to return capital to shareholders. As of March 31, 2025 our net inventory balance was $717 million down from $737 million at December 31, 2024. At the end of the first quarter, we had outstanding net debt of $707 million, 1.9x pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses and the impact of non-cash and other items as defined in our credit agreement. For the month of April, sales were up 3% versus April 2024 with other adjacent sales up 9%, primarily reflecting the benefit of the Trans/Air acquisition and RV sales were up 7% offset by softness in international. We are now anticipating an estimated full-year wholesale shipments range of 320,000 to 350,000 units as consumer demand headwinds and overall economic uncertainty continue. As we think about Q2, we expect overall revenue to be about flat year-over-year. We also expect RV OEM sales to be up about 5% and we expect continued softness in marine and several of our other adjacent markets. We expect to maintain solid operating margins consistent with Q1 of 2025 despite the headwinds as we continue to focus on operating efficiency and through optimizing infrastructure. Regarding potential tariffs, as Jason indicated, we have been focused over the past several years to look at our overall global sourcing strategy and diversify the supply chain. There are three key elements to mitigating our exposure to tariffs. Diversifying the supply chain by transitioning sourcing into more strategically favorable regions, negotiating with our vendors to share the cost of the tariffs, and finally passing through pricing to customers for the tariff impact. Looking to capital allocation for the full-year 2025, capital expenditures are anticipated to be in the range of $50 million to $70 million as we continue to focus on investing into the business and innovation. We continue our aim to utilize our balance sheet to pursue strategic opportunities that help us capture profitable growth and deliver shareholder value, while maintaining a long term leverage target of 1.5x to 2x net debt to EBITDA and maintain our commitment to returning cash to shareholders. And as Jason mentioned earlier, based on what we see today, we remain on track to organically achieve our $5 billion revenue target in 2027. In closing, our operational flexibility, strategic diversification and effective cost management, along with a strong balance sheet enables us to deliver sustainable and measurable shareholder value. That is the end of our prepared remarks. Operator, we are ready to take questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from Daniel Moore of CJS Securities. Daniel, your line is now open. Please go ahead.

Great. Good morning Jason, Lillian. Thank you for taking the questions. I'd love to start and just maybe dig into the two most recent acquisitions. First, Trans/Air, what's your sort of pro forma annualized revenue in climate control systems? And how do we think about the TAM and opportunity to increase penetration going forward in those markets? And kind of a similar question for Freedman Seating as it relates to the bus transit seating?

Can you take the financial piece first?

Sure. So good morning, Dan. So for the both combined entities is how I would characterize it. We're looking at probably about $200 million of annualized revenue opportunity. Very and Jason will talk more about the acquisitions themselves, but very strong businesses, very pleased to have them as part of our portfolio on a go forward basis, and they'll be accretive to the results for the company as we move through these subsequent quarters.

So yes, Dan, on the businesses -- both strong businesses. I think what attracted us most to these were one geography. Excuse me -- the largest customers are right in our backyard here in Elkhart County. We obviously supply a lot of these bus manufacturers with window product already. So both the Climate Control Systems and the Seating businesses that we acquired strengthen our bus portfolio. And I feel like we said in our opening comments that they're a little bit immune to some of the consumer sentiment and competence issues that might pop up here and there because it's mostly selling to -- into municipalities through a dealer network. But Freedman, as we mentioned is a 100-year old business, very, very strong leadership team. We're going to just take both of these businesses and try to make one plus one equal 100. There's significant material synergies and purchasing synergies there, significant manufacturing opportunities and then some footprint optimization opportunities as well. So we'll be divulging all that in the quarters to come as we work through the integration.

Very helpful. Switching gears, just obviously, RV dealers are pulling back following period of restock here, and marine dealers remain cautious. What's been kind of the measurable impact in real time in terms of tariffs on retail demand across both end markets that we've been able to glean or measure over the last, say, four, six, eight weeks?

Yes. I don't think much, Dan. I mean, if you look at the price of boats and RVs on dealer lots, there's not been much movement yet. That will all change this summer with model year change pricing and some of the tariff impact they will and depending on what the amounts end up being will translate to the retail prices this summer. But right now, if you go on a dealer lot, you're likely going to see similar prices today on some of those products that you did two or three months ago. But that will start changing come model change in June and July.

Makes sense. And lastly, just confirming, Lillian, if I heard correctly, for Q2, looking at kind of flattish revenue year-over-year and operating margins consistent with Q1, I assume on an adjusted basis. Am I hearing that correctly?

Q1 of 2025, correct. Correct, Dan.

Right. Sequentially, essentially, flattish in terms of operating margins is what we're looking at, at least at the moment.

Yes.

Okay. I'll jump back. Let me follow-ups. Thank you.

Thanks Dan.

Our next question is from Joe Altobello of Raymond James. Joe, your line is now open. Please go ahead.

Thanks. Hey, guys. Good morning. Wanted to talk about tariffs a little bit. It looks like you're estimating about 180 basis points potential margin impact for this year. I guess my first question there, is that effectively a half year number? So is it safe to assume a full-year impact would be north of 300 basis points?

Yes. So a couple of things match. So the 180 basis points is potential tariff. And just to be clear, assuming that we're not able to mitigate any of those impacts, which is, as we discussed, we are very focused on mitigating it and are working towards that. Yes, it is a partial year. So as we would look to 2026, if it were to continue in the same situation, it would be higher for 2026 because you have a full-year impact. But again, we're working to mitigate the impact back from that.

And I would say on the -- what we know on the 180 basis points, Joe, that through the comments we made in the opening remarks, how we're mitigating, we've got most of that taken care of. So it's the impact that will come with higher tariffs that would be what we have to work on next and what we're continuing to work on. So just know that the 180 bps is we feel we have pretty well taken care of with the mitigation efforts we've taken so far.

Got it. And just to follow-up on that, I mean, it sounds like pricing is going to be part of those mitigation efforts. I mean, any sense for what sort of price increases you guys are pushing through to offset that?

Well, I think if you look at what some of the other disclosures have been so far from some of the RV -- public RV businesses in that 3% to 9% range to the consumer is probably reasonable at this point in time. It just depends on the make and model and the content in the unit, things like that. So -- and we're -- one of the other things we're doing with the OEMs on our end is making sure that we're working through some excess and obsolete inventory to help them maybe make some substitutions in the near term that will help their cost structures, avoid some of the tariffs. These OEMs will continue to maybe look at some de-contending opportunities to mitigate that 3% to 9%. So who knows what it will end up being in June, July once some of this model change pricing takes effect. But at the end of the day, there's several levers that the suppliers, the OEMs and the dealers can pull including just taking some peeling back on some margin to the consumer to mitigate some of those price increases as well. Is that helpful?

Great. Yes, very much so. Thank you.

Our next question is from Mike Swartz of Truist. Mike, your line is now open. Please go ahead.

Hey, guys. Good morning. Maybe just following up on tariffs. A couple of questions there. Just I think you've kind of handicapped the numbers around 20% Chinese tariffs, 10% rest of the world. Is there any way to think about what that would be given or based on the rates that are currently out there? Do they meaning the 145 in China? Any sense of what that would look like?

Well, I think you can just extrapolate the number forward based on the 20% we've already given you. But I would say that most businesses, including us are sitting here saying it's not going to be 145. It's kind of almost silly to think about what 145 would look like if you extrapolate that over a year, because if that's the case, most of us are just going to get out of China 100%. And we're working towards that and we've provided some visuals in our materials to be able to show you kind of how we're moving either back to the U.S. or rest of world on our supply chain diversification. But nobody is expecting that 145 and the President was out this week saying that it's got to come down, because nobody would buy from China if it stayed at 145. So I think everybody is waiting patiently to see how that ends up. But at the end of the day, I don't think doing a model for 145 makes sense for a lot of different reasons. Is that helpful?

Okay. Yes, that's great. And then just the -- I know part of the mitigation strategy is just moving some stuff out of China, but the 180 basis points, I just want to understand, is that based on the 2024 China exposure? Does that assume that you have the lower exposure for the full-year in '25 or kind of a partial year benefit of moving some stuff around? I'm just trying to understand the moving pieces there?

Yes. So with that, Mike, it's kind of the ongoing rolling impact as we're moving the product out of China. We showed the benchmark of where we expect to be by the end of this year, which is significantly lower than last year. We ended 2024 with about 24% of our imports from China and expect that to be down to 10% this year, and we'll continue to reduce that as we move into 2026. So as you're stating, it's a gradual exit from China. We're mitigating it as we're moving through the year, while also taking mitigation actions to ensure that it's not as impactful on overall profit performance for the company.

Yes. So the 180 gets reduced simply as we continue to make all these mitigation efforts, whether it's pricing pass throughs, pass throughs whether it's moving product out of China to the rest of the world, all the other things we discussed.

Okay. That's helpful. Thanks, guys.

Yep. Thanks.

Our next question is from Scott Stember of ROTH Capital. Scott, your line is now open. Please go ahead.

Hey, guys. Good morning. This is Jack on for Scott. I just kind of want to dive deeper into, specifically how you're diversifying your supply chain out of China. What sort of categories can you move out of China? Which ones can't be moved? I guess another way to ask it is, like, what sort of categories are impacted the most and which ones aren't really impacted at all? Thank you.

Yes. Good question. So if you look at the categories impacted the most, it's appliances and furniture and axles and suspension products. So you look at windows and chassis, which would be other two of our top five categories, most of that's in the U.S. and not impacted. But those would be the three categories that are impacted, but really, there's nothing we can't move out. I mean, when the tariffs started really rolling in 2017, we started initiatives to move product out of China and diversify our supply chain pretty significantly. 2020, we were forced to do the same thing obviously as supply chain just got constricted. I mean, obviously, we're in a lot of different places now that we weren't five, six years ago, including Malaysia, Turkey, India, Cambodia, Vietnam's big. So we've diversified our supply chain significantly since 2020 and set up all these suppliers to duplicate production for some of the manufacturing we've got in China. And we're just going to start moving more to those manufacturers that are already building that we started building products five years ago. So it's not like we're having to really set up a lot of new vendors. It's moving more of our China product to existing vendors in the rest of the world. Does that help?

Yes, that was great. Thank you. And just a follow-up, are you seeing any pull forward effect from the OEMs to kind of stay ahead of tariffs there? And how much of a one half or first half benefit kind of would that have?

Yes. So I'm not hearing that. I'm sure a little bit of that happening. I mean, I've talked to several of the dealers. It doesn't feel like, it would feel like if they're going to -- if that decision is going to be made, it would be made by the dealers. And I don't hear from a lot of dealers that's what they're trying to do. It seems like they're kind of spring loading up of inventories is pretty normal for the inventories that they have and it's not overloading. So I would say that's not what I'm hearing right now.

Awesome. Thank you.

So I would feel the impact. It's probably pretty minimal there.

Thank you. Our next question comes from Bret Jordan of Jefferies. Bret, your line is now open. Please go ahead.

Hey, good morning guys. Just on the last topic, I think you were talking about rest of the world and you said Vietnam is big. And I guess how does the rest of the world, that 23% at year-end sort of mix out because obviously they were talking about a big reciprocal in Vietnam as well, but who knows. Where are the big buckets you've gone to outside of China?

Yes, I think I named them. I mean, it's Cambodia, Vietnam, India has been pretty significant for us. Turkey has been pretty significant. Those would be some of the bigger, Malaysia. Those would be some of the bigger buckets. We don't break out by country. We might get -- it might get to the point down the road where we start doing that. But as of now, we're not breaking that out.

Okay. And then on your the wholesale volume expectations for the year, I think you're still in that 320, 350. Is there anything I guess to read into, I guess it seems like Thor was doing some layoffs recently sort of early season production. Is that just sort of moving production around to make their business more efficient on a smaller scale? Or is that indicating that maybe we're looking at the lower end of that wholesale shipment range for '25 just given the consumer uncertainty?

Yes. I think they're obviously trying to get efficient and optimize their footprint as well. I mean, it's no secret that this industry in general has a lot of brands and there's probably a lot of good moves, a lot of OEMs could make there. But there's brands that are winning everywhere. Well, there's brands that are some brands that are losing, but Brinkley and Alliance are doing really well for us right now, Forest Service is doing well. Certainly the Jayco and Keystone brands that Thor are doing very well. So there's always winning and losing brands. But at the end of the day, the good thing about LCI is a top supplier as we sell everybody a lot of different products.

Okay. And then just one, I guess question about the $5 billion organic. Does that include the Trans/Air and Freedman? Or are those incremental, I guess, how are we defining organic?

No, the $5 billion, if you're talking about the $5 billion for 2027 target that we put out, that does not include acquisition.

Okay, great. Thank you.

Our next question comes from Craig Kennison of Baird. Craig, your line is now open. Please go ahead.

Hey, good morning. Thanks for taking my questions. Mostly just follow-ups, starting with Slide 13. Can you share the dollar cost of raw materials and components? We're just trying to run that math, and I don't want to make a mistake based on the basis points that you've provided?

Yes. Craig, we don't break out the material cost. So I think you can probably extrapolate them back into it from the various data points that we've put out there, but we don't actually break out material costs.

Yes. No problem. We'll back into it. I just think there's more room for error when that's going to happen. And then on Slide 14, can you just remind us of what the 2024 base year operating margin that you're using as the base for this 85 basis points of margin expansion? I just want to make sure we get that correct.

Yes. So it's coming off of the operating income percent for 2024. I'm trying to the full-year. I have lots of quarterly data.

I mean, 5.8 is the number. I just want to make sure we do it right.

Yes. So it's off of that, and it's incremental, that we're working towards. What I would caveat with that is to the extent that there are tariffs that we're not able to mitigate. That obviously would be a headwind. We're confident that we're going to be able to mitigate it. But the 85 basis point is incremental to the 5.8% OI from last year. And just in terms of how we're progressing with that, we feel very good in terms of the progress that we're making towards that cost reduction. Areas that we've been successful already this year in cost reduction achievements include health care. We've continued to optimize the footprint, and we've closed down a few of our facilities. Jason mentioned a couple in his prepared remarks. We've also nothing I wouldn't say significant in terms of big numbers, but in terms of, I'd say, continuing to right size the business from an FTE perspective, we've continued to make improvements there and enhancements. And I would say just general efficiencies in our indirect spend, we've been putting out pretty focused RFPs in the system. So overall, feel very good that there's tangible progress on improving our cost structure.

Thanks. And then I don't know if this applies to you, but I know the RV industry pushed for a de minimis loophole to be closed, which was kind of sourcing components from China that were under $800 in shipping. I don't know, does that impact your aftermarket business at all? And is that something that you see as a win for your company?

No. It's a minimal impact, Craig. I think the biggest opportunities for us is just continuing to diversify our supply chain and working with our customers to whether it's use some of this substitute and use some of these other materials that we have that are sitting here that could push any tariff impact out a ways, but also continuing to work with our customers on our good, better, best strategies on all the different products we have, going from a better to a good or a best to a better gives our OEMs the opportunity to impact their BOMs favorably to mitigate some of this. I think that's one of the biggest areas or opportunities our industry has on top of maybe some de-contenting or some things like that, which we've always talked about doesn't impact us significantly because our products are all pretty supercritical. They need slide outs and axles and chassis and things like that. They're not going to take those off and substitute them.

Yes. And then maybe one more, if I could, Lillian. That's put you on the spot here for Q2, but I think you basically said revenue is flat. I'm not sure what the contribution was from acquisitions, but it doesn't imply that you're seeing like organic declines in revenue in the second quarter as maybe the RV industry or marine industry adjusts production?

Not necessarily. At least from an RV perspective, for the second quarter, we'd expect that to continue to be up year-over-year about 5%. Some of the adjacent markets, such as marine, continues to be soft. But from the RV OEM perspective, I would expect that would continue to be up modestly year-over-year.

And that's organic?

That's organic, yes.

Got it. Thank you.

Thanks, Craig.

Thanks.

Our last question comes from Tristan Thomas-Martin of BMO Capital. Tristan, your line is now open. Please go ahead.

Good morning.

Good morning.

Can I just follow-up on a question? RV OEM sales modestly up in 2Q, but is overall organic revenue flat or is that down a little bit adjusting for those acquisitions?

So only breaking out the RV at this point. So RV is up 5%. Probably in total, net-net organic is probably pretty flattish when I consider some of the other adjacent markets that we're in.

And I'd just say with the caveat, Tristan, that if tariff news doesn't improve, then rates could deteriorate and that could impact things negatively, but we just don't know.

Okay. And then appreciate kind of the initial kind of guidance on tariffs of 10% to 20%, but rates are much higher than that. Is there kind of a rule of thumb you can give us on, let's say, there's an incremental 34% on China? How much of that do you think you can offset? And then what would the net kind of impact, call it, for every 10% of incremental tariffs be?

Yes. I think again, it's a difficult question to answer because we're just guessing. But if it does if it got to 30% or 35%, I think that the industry is pretty creative. We're pretty resilient. There's lots of levers to pull for both OEMs, all OEMs, dealers and suppliers. And we've talked pretty thoroughly through the levers that we would pull, but certainly there'd be some level of pass through to mitigate this. So I think between the pass through and the good, better, best strategies, using really pushing the OEMs to utilize some of the excess inventory that we've got sitting around that can help push some of these tariffs off, de-contenting and re-contenting units by the OEMs, margin sacrificed by the dealers and OEMs. There's several levers to pull where I think we can mitigate a lot of this, but certainly the higher you get up on the tariff number. And again, some of that depends on how much we get out of China. We probably will decide to continue to move things out if things remain elevated above 30%. We just would have to. But as soon as you tell me where the China tariffs are going to be, I can tell you -- I can tell you how mitigation and pricing will look to the consumer.

That would be pretty cool if I could tell you that. One more question. The China 10% exiting 2025, how much of that is the result of permanent kind of production shifts or are there some maybe some paused production kind of embedded in the 2025 estimate?

Well, I'd say there's some pretty permanent production shifts baked into those numbers. So again, we're not going to fully pull out until we know what the situation is. I think that they're going to come up with something that would allow us to, China needs us. We need China, I think in a lot of respects. So I think that they're going to come up with a solution that's good for both sides or best opportunity for both sides. So I don't see us completely exiting. But if we have to, we've got a line of sight to vendors in the rest of the world that can produce the products that we need, including some of our own factories.

Okay. Thank you.

Thank you.

We currently have no further questions. So I'll hand back to Jason Lippert, CEO for closing remarks.

Thank you everybody for tuning into the call. It's certainly been an interesting couple of last months, but we hope to have a lot more clarity on tariffs over the next couple of months and look forward to the next quarter update for you all. Thank you.