Tyler Deur – Investor Relations, Lambert, Edwards Jason Lippert – Chief Executive Officer and Director Brian Hall – Chief Financial Officer Scott Mereness – President.

Kathryn Thompson – Thompson Research Group Scott Stember – CL King Craig Kennison – Baird Daniel Moore – CJS Securities Steve O’Hara – Sidoti & Company Seth Woolf – Northcoast Research.

Good day, ladies and gentlemen, and welcome to the First Quarter 2018 LCI Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program is being recorded.

I would now like to introduce your host for today’s program, Tyler Deur, Lambert, Edwards Investor Relations. Please go ahead..

Thanks, Jonathan. Good morning, everyone, and welcome to the LCI Industries 2018 first quarter conference call. I’m Tyler Deur with Lambert, Edwards, LCI’s Investor Relations firm, and I’m joined on the call today by members of LCI’s management team, including Jason Lippert, CEO and Director; Scott Mereness, President; and Brian Hall, CFO.

Management will be discussing the first quarter results in just a moment, but first, they’ve asked me 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 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 the Company’s earnings release, and its Annual Report on Form 10-K and its 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 Lippert.

Jason?.

Thank you, Tyler. Good morning, everyone, and welcome to LCI’s first earnings call of 2018. We’re happy to announce another record quarter with Q1 revenues reaching $650 million, up from $498 million or 31% up from the same quarter last year.

Our OEM segment grew to approximately $600 million in sales for quarter one up from $462 million or 30% from the same quarter last year. Our aftermarket segment grew to $50 million, up from $36 million or 39% from the same quarter last year. Diluted earnings per share grew from $1.71 per share to $1.86 per share during the same period.

We’re happy to announce continued sales growth into Q2, as April sales totaled nearly $245 million or a 47% increase over April last year. Over the past two quarters, it is an understatement to say we’ve had a challenging commodities environment.

While we believe the administration had good intentions around the terrace by adding more steel and aluminum manufacturing jobs and attempting to even in the playing field between the U.S. and foreign steel and aluminum producers. This policy certainly has some adverse effects.

Since September of last year, aluminum cost have risen 30% and steel has risen approximately 35%. LCI currently purchase of approximately 300,000 tons of steel and 50,000 tons of aluminum every year, and almost 100% of these purchases up from domestic sources.

In of our conversations with steel industry experts, they claim that steel manufacturers are now able to recoup some of the cost they haven’t been able to pass along over the past few years due to step foreign competition. Our steel has gone up in the last couple of quarters, the terrace and the rising tide impact created more margin pressures in Q1.

We’ve recently initiated a significant price increase to address the impact of steel tariffs and expect to see that impact at late Q2 and early Q3 of this year. It’s always difficult to pass along the increases of this magnitude, our customers understand that this tariff related increase is largely has been out of LCI’s control.

We plan on getting creative and finding alternative ways to help our customers and our business units to offset some of these increased costs.

Our customers are currently in the process of passing some of these increases to their dealers as well as mitigating some of the increases they’re receiving through recontending their product lines, so ultimately retail consumers of RVs feel a little inflationary impact as possible.

We continue to focus on making improvements in the business through lean initiatives, reducing iteration through leadership and culture improvements, and implementing other continuous improvement activities. In 2018, we’re working towards estimated savings of $16 million in annual run rate, with our lean automation initiatives.

We estimate over 2,000 additional team members, completed our lean training in 2017. We believe this will continue to help offset some of the increased costs and business as we move more and more toward a complete culture around continuous improvement.

To further sets our lean initiatives, we broke on a $30 million fully automated chassis processing facility that will revolutionize the way we manufacture RV chassis, LCI’s largest product line.

We expect to recoup on investment over a four-year period, but more importantly, significantly improved the quality of the chassis and provided greater safety to our teams. This is one of the many automations robotics programs we have in the works at LCI.

LCI has continuing to focus on markets outside the RV industry as we develop more as an engineering products company, serving the leisure and mobile transportation industries.

Prior to 2010, we are focused squarely in the RV components supply space, where as today we have a large suite of highly engineered products that have IP, value-added design, coupled with a distinct focus on staying away from any products that would be classified as a commodity.

We are nearing $1 billion in annualized revenues and markets outside towable RV OEM. In fact, 90% of the last $275 million in revenues acquired were non-RV related.

Our vision is to be an engineer products company with high value-added product lines and growing these product lines organically as well as strategic acquisitions in order to lessen the dependence on historical products.

If you think back to 10 years ago, we were a $600 million company that manufactured primarily only steel and glass products in 25 divisions, serving predominantly one industry.

Today, we have grown into a company that has just under 70 manufacturing divisions in various countries, serving multiple industries around leisure and mobile transportation, with many product lines and almost $1 billion in revenues outside the RV business -- of towable RV OEM.

Our future will continue to trend towards more products and businesses outside our traditional markets by utilizing the processes and manufacturing in our skill sets, steel, aluminum, fabric and upholstery, glass, electric motors, motion systems, hydraulic power systems and electronics manufacturing.

We utilized many of the major raw materials using manufacturing and with a robust R&D center, there is a much we feel we can’t do. We consider marine, cargo and equipment trailers, buses, heavy trucking and commercial vehicles as adjacent markets to RV.

We have put a great deal of resources on our operational, engineering, research and development, sales and automation to bring new products to these newer markets. In Q1 2018, our adjacent OEM sales rose to $142 million, up 50% from the same quarter last year.

Aftermarket sales jump to approximately $50 million for quarter one, up 39% for the same quarter last year, with operating profit increasing 24% in that same period. We’ve allocated meaningful resources to our aftermarket businesses and the growth and margin opportunity are significant here.

Equally as important, as what we believe to be the most advanced customer service and call center organization in our industry. We believe great after care services is the key to staying relevant in the long-term and this is why we’ve added significant resources to these areas.

LCI manufacturers and sales $1.5 billion and serviceable RV parts in the new vehicles every year. And the market for these replacement parts continues to grow as we assist thousands of aftermarket customers every month buying replacement parts and service part for used RVs in the field.

We believe that this coupled with a strong aftermarket product pipeline and the customer service to support big growth will continue to make for an incredibly bright future at our aftermarket division. RVIA shipment numbers for the first three months are up 13% over 2017 and still pointing in a positive direction.

The industry wholesale shipments totaled about 505,000 units since 2017, and in 2018 the industry association estimates approximately 540,000 units, which will be a 10-year run of increased wholesale shipments. Though recently reported a backlog of $2.8 billion and many others are continuing to add more production capacity.

We believe that the most encouraging factor and keeping this run growing other retails sales number. Retail has continued to trend upwards with an estimated 10% year-to-date increase from 2017, despite some of the weather challenges we’ve had in the Midwest.

Other important factors for our business are high consumer confidence, good availability of credit as well as the fact that younger buyers continue to enter the mobile lifestyle on record numbers.

In five years, the millennial generation will be nearing age 40, and this demographic is larger than the baby boomers generation, which have been the industry’s biggest buyers over the last decade. [Indiscernible] of America’s recent study shows that 40% of all 77 million campers on millennial’s or 75% of millennial and GenX.

Others interesting facts in the KOA report were significant increase in diversity and camping. And also that 4 in 10 RVIA do not own their own camper. The option to rent, we feel will create more buyers into our market as more people are able to experience the RV lifestyle through renting. KOA also reported a 61% of all U.S.

households camp and this statistic alone is the best thing the RV industry has been going for it.

LCI alongside our OEM customers will continue to develop new products that appeal to this younger demographic through new innovative features and floor plans, enhancing the already attractive RV lifestyle that centers around family, friends, outdoors and fun.

The economy is still going strong, and all these factors lead us to believe that the industry will continue it’s momentum through 2018. As we have for every year over the last decade, LCI continues to increase RV content through innovation and existing product evolution.

And this is especially encouraging in a market in which entry-level units are fueling this growth, and should yield smaller content results. In fact, our content increase on towable’s was $259 per unit in the last period. And we feel this point directly to the success of our new product development through R&D.

We have made significant investments in R&D every year and we believe it’s a distinct advantage we’ve over our competition. We have over 50 professionals, dedicated to research and development and our new product pipeline is larger than ever.

It’s also very important to note that many of our products in the development are outside of our traditional core market of RV. It’s great to look at our project list and see new and exciting products for marine, European caravan, bus and other adjacent markets.

In the coming months, we will unveil several of these engineered product solutions that will support these other industries. Probably most exciting in the world of R&D, a new product development is the introduction of our Furrion line of refrigerators, air conditioners and hot water heaters.

These brands product lines represent more than $800 million in organic market opportunity for the OEM and aftermarkets. Last week, we had most of our customers through our Furrion showroom to review the launch of these exciting new products and based on the feedback we’ve received our customers were extatic about the opportunities.

And we already have customer commitments that we’ll start shipping in Q3 for these new product lines. On the last earnings call, we spoke just a little bit about the Taylor Made acquisition, our largest in company history.

Taylor Made was founded 110 years ago and is primarily known for designing, engineering and manufacturing window and glass products in North American and European OEM marine markets where it supplies windshield and data solutions for all types of boats. It is also well-known for it’s a month to aftermarket product line presence in the marine sector.

Another significant part of Taylor Made is the supply of engineer glass product solutions to the industrial equipment manufacturers as well as window and glass solutions for the UTB market. We anticipated many synergies in a way of cross-selling, cross branding and material savings.

And because Taylor Made strong leadership team, we are realizing these synergies quickly.

We anticipate Taylor Made contributing over $155 million in revenue this year and with incredibly strong brand and talented leadership team, the Taylor Made name gives instant credibility to any of our products in the marine market and we intend to leverage that brand as much as possible with all our marine products.

In addition to Taylor Made in Q1, we also acquired the window and glass business of Hehr International. Hehr has been supplying glass products for over 70 years and provides LCI with continued growth in the RV, bus, conversion van trailer and heavy trucking industries.

With approximate 12-month trailing sales of $55 million at the time of the purchase, we expect to hear to have an immediate impact to the bottom line of our business.

We welcome all the Hehr and Taylor Made team members to the LCI family and look forward to growing this business as LCI strives to become one of the preeminent suppliers of engineered window products in North America.

In closing, I want to thank all of the teams at LCI for the great quarter through all the challenges our teams continually rise to the occasion and we greatly appreciate our LCI teams for that. To our customers, we thank them for their loyalty and continued support.

I will now turn to Brian Hall, our CFO to discuss in more detail our Q1 financial results. And then will follow with questions..

Thanks, Jason. And good morning everyone. Over the next few minutes, I will provide some additional color regarding the financial results. Our consolidated net sales for the first quarter of 2018 increased approximately 31% to $650 million.

It is important to note that our organic sales growth rate was 20%, reflecting strong industry growth and continued market share gains in the industries we serve. The remainder of the year-over-year growth is attributable to acquisitions, which accounted for just under $53 million of the $152 million increase in sales.

Net sales to original equipment manufacturers of RVs, boats, manufactured homes and school buses to name just a few, increased 30% to just over $600 million. Sales to RV OEM’s our largest customer base grew at 25% compared to the first quarter of 2017.

The industry continued to show strong growth, as the wholesale shipments of towable and motorized RVs increased 15% and 7%, respectively. Organic sales growth of RV OEMs was just over 21%, with the acquisitions making up the remainder.

Sales to adjacent OEMs grew over 50% to $142 million for the quarter, with acquired revenues contributing $35 million of the $48 million in growth. The Aftermarket Segment increased sales 39% to just over $50 million for the quarter.

Motorized RV content per unit for the 12-months ended March 31, 2018, increased over $300 to $2,328 per unit, while towable RV content per unit increased $259 to $3,317 per unit. It is important to note that year-over-year increase in towable content per unit is the greatest that it’s been in over five years.

And motorized content growth was the second largest increase in six years. Growth, in furniture, awnings, Furrion and leveling were key contributors to the increase. Partially, offset by the continued shift towards more entry-level products, which tend to carry less content per unit.

Sales of Furrion products have increased over 80%, and now account for almost $177 of our content per unit and have more than tripled in the first three years of our program. International sales were almost $23 million for the quarter, an increase of 158%.

Our international sales are described in more detail within our quarter report on Form 10-Q and are excluded from our computations of content per unit. Turning to profits. Our gross profit margins increased to 21.6% for the quarter. Material costs, primarily steel, aluminum and foam have increased significantly over the past 18 months.

And we experience even higher increases for the first quarter from the new tariffs on steel and aluminum. Aluminum costs have increased over 25% since Q3 of 2017 and is the Company’s second largest source commodity. Steel costs have increased over 30% since Q3 of 2017 as well.

While several cost based pricing initiatives have been implemented, the further increases in commodity inflation have more than offset the gains. Additional price adjustments will go onto effect April 1, and June 1. The timing of the adjustments have had a negative impact on our short-term results.

In addition, we have incurred start-up costs in facility moves relating to school – new school bus and train window business as well as relocating certain chassis business to handle continued sales growth. These costs have affected profit margins by over 70 basis points year-over-year.

Operating expenses as a percentage of sales decreased from 13% in the first quarter of 2017 to 12.4% in the first quarter of 2018. Our SG&A profile has been somewhat negatively impacted by certain acquisitions completed in 2018, including transaction related cost and higher – and a higher expense profile.

However, they were more than offset by the operating leverage gain during the quarter. Q1 diluted earnings per share increased to $1.86 per share compared to $1.71 per share in Q1 2017. The increase in profit resulted from the incremental sales, partially offset by the increases in labor material and other cost as previously mentioned.

Non-cash depreciation and amortization increased over $3 million for the first quarter of 2018, while non-cash stock-based compensation increased over $1.6 million when compared to the first quarter of the prior year. Our effective income tax rate was 19.4%, benefiting from the Tax Cuts and Jobs Act.

The rate was favorably impacted by excess tax benefits from equity-based composition, although, the benefit was not as favorable when compared to 2017, due to the depressed market valuation of the stock and the impact of the new Tax Law. We are estimating the 2018 full year effective tax rate to be 22% to 24% for the full year.

The company’s financial position and cash flow remain strong. We continue to focus on putting our capital to work through disciplined strategic investments. While using $139 million of – in cash for our business acquisitions, $26 million for capital expenditures and returning $14 million to our shareholder in the form of dividend.

We ended the quarter with a net debt position of $221 million at March 31. Our current leverage position relative to EBITDA was only 0.8 times, and provides an – provides us ample flexibility for future investments. That is the end of our prepared remarks. Jonathan, we are ready to entertain questions. Thank you..

Certainly. [Operator Instructions] Our first question comes from the line of Kathryn Thompson from Thompson Research Group. Your question please..

Hi, thank you for taking my questions today. Just the first following up on inflation, very much appreciated the color you gave on prepared – on your prepared commentary. But pulling the string a little bit further on to steel and aluminum.

We would like to get a little bit more clarity on is a way to frame the impact of steel and aluminum inflation to overall cost of goods sold, it’s not for the quarter perhaps for the full year? Maybe that’s the way looking at, could you quantify the average annual spend? Or even putting in a rough bucket, what those two materials are of your total raw material spend? Thank you..

Hi, Kathryn. This is Brian. I’ll start. We haven’t typically provided those – that detailed numbers. I mean, I would estimate steel and aluminum to be roughly, I would say 30% – over 30% of our material spend..

So annually in dollars its close to $400 million based on that tonnage that Jason provided on the call. So we’re talking about a $400 million spent between those two commodities, roughly.

So when you look at the inflation, you can take the tonnage and you can look at the delta and calculate the impact that those cost – those input cost have on our P&L..

Okay. In terms of the – so you made two acquisitions this year. You’ve been able to outline what the contribution is going to be for calendar 2018 and for the next 12 months.

But if you could just give a little bit more color on integration and the opportunity over the next few years? Because there have been some acquisitions like Furrion, which is really more JV that have been contributed more than that, but maybe you help us underframe it in terms of what the opportunity is for these two separate acquisitions?.

Well, I’ll start. Kathryn, it’s Jason. Two totally different companies. Taylor Made, start with and they were a really solid standalone company, with a very strong management team.

We’ve more or less let them operate as a standalone, as we’ve added some manufacturing resources and other support resources to their business that will help capture the synergies. But with the Hehr acquisition, they had good management team at the plant levels but not a robust overarching structure for manufacturing.

So – in that case, we’re looking at integrating some of the facilities that they have around ours. And we’ve got four or five total consolidations – plant consolidations going on right now, one of those is with Hehr. So the – we bought businesses and it needs a lot of cleanup and a lot of work in the past.

And we kind of drove the line in the San a couple of years ago, and we just focus on companies that are going to take a lot of integration work. But certainly opportunities with both companies, especially our materials, no synergies, we really, usually pull together in the first six months. So Scott can provide some additional color..

Kathryn, so I had the opportunity to visit a decent amount of Taylor Made customers over the last few months at the development plants, including the two plants in Europe, prior to the acquisition. And one of the things I can tell you that the cross-selling opportunities are abundant.

I think that from the canvas, when you look at market shares on canvas, that they have, first and foremost, that’s a low market share with a high market potential.

Secondly, when you look at our furniture product line as far as the fine tune furniture product line, there is other both segment that we’ve gotten some very positive feedback that they would be interested, just to due to the health and strength with the marine industry, that they would like us to at least explore the opportunity of possibly building either all the furniture or portion of the furniture.

So I would tell you that canvas and furniture would be two exciting cross-selling opportunities that we’re really exploring. And then from the Furrion standpoint, there are some products additional new products that will be coming into the market that Furrion will allow us to sell into the Marine market. But that’s a little bit further down the road..

And I’d add one other thing that, the Taylor Made group, very strong in the aftermarket. I think they are over 20% of their total sales and the aftermarket business with marine. So they’re they going to help us expedite and turbocharge some of our products into their aftermarket, they’re well-established in..

Okay. And final question is really more on the RV industry in terms of just industry inventory levels. Glad that there’s been a lot of focus on that as last year came to close early into 2018. Could you at least give your perspective on matching demand with current production levels? Thank you..

Well, it’s probably sound like a little bit of a broken record with what everybody else is saying, but there has obviously been a little bit of an overselling over the early part of the year. As many OEMs have come out and said as much. But the key is that retails is strong in the high single digit.

And I think the key question for all the OEMs and dealers to answer and most of them have given us their feedback is that what’s the likelihood of the retail sales on the RV side of the business stays high.

And they all feel like high single-digits is very manageable, given the feedback they’re getting from the dealers, based on the camping statistics out there, which are very favorable, products at lower cost and entry-level products being available financing and credit, all the key indicators along with their GDP that’s looks like 3% this year.

There is a lot of green lights with respect to how things look going forward. But there will be – they’re trying to determine how quick retail will catch and eat up some of that excess wholesale inventory, whether that’s 30 days or 60 days or 90 days is a short-term..

Thank you very much..

Kathryn, one other quick note there, when you look at wholesale numbers, we’re just looking at March to March. So March of 2018 through March of 2017, a 12-month period, 510,000 units for wholesale. So if that gives you a little bit of color on at least the trailing 12-months on wholesale..

Okay, thank you..

Thank you. Our next question comes from the line of Scott Stember from CL King. Your question please..

Good morning, guys. Thanks for taking my questions. Jason, you talked about in your interaction with the OEMs from a price perspective. And obviously, how difficult it is to try to put through a very large increase when you’re talking about tariff some things like that.

Could you also talking about working with the OEMs as far as whether it’s decontenting or looking for ways to strip cost out of the product? Can you maybe just talk about at the end of the day, how that affects you? Whether this is a net negative for LCI? Or are there other ways that you could be compensated, whether it’s through share gains on the top line with these same customers? Thanks..

Yes, the pricing increase have been very tough. But like I said in my opening remarks, I mean, the OEMs understand, they don’t like it, but they understand that we didn’t create this environment of increasing cost around steel and aluminum. But they’re being very reasonable. I mean, there’s a lag and a lot of the pricing increases that we give.

So we try not to sting our customers with it right away, and we work out a reasonable implementation period. And we worked through that with all of our key customers, with all of our customers over the last month or so around all the steel and aluminum.

But when it comes to the contenting, I tell you that, the good thing for LCI is, we make a lot of exciting products. We make a lot of exciting products that help drive features and benefits and in some cases like leveling of the reasons people are buying certain trailers. Where the OEMs are going to the decontent is the stuff that they can’t sell.

They can sell leveling system, they can sell special features around an entry door window or nodding, that they can point to and get the customer excited about. They can sell a one control system. But again, what they’re going to decontent is the staff you can’t see is the stuff that customers aren’t going to get excited about.

And fortunately for us, we don’t make a lot of those products. So we might get creative around engineering around some of her existing products that we supply and reengineer to help engineer cost out of products with customers. And we’re doing some of that with some of our key partners right now.

So it entails a lot of things, but I think when customers look at pulling things out that a customer RV retail consumers not going to notice, it might be changing stuff that commodity type products that we don’t supply moving from a high cost commodity item to a lower cost commodity item and we just don’t supply a lot of commodity items.

I hope that helps..

Yeah, yeah, I’m just trying to get a sense. I know there’s a lot of moving pieces and giving price increases. You’re obviously going to lose some on the way up given the movement of prices and how fast it’s going, but….

Well, let me add to that – sorry to interrupted you, but let me add that the commodities have been kind of going a little bit of – have been going up since last September. So the OEMs have been looking at the contending scenarios over the last six to eight months and you look at our content numbers and where we’re up.

I think it’s just a good sign similar to what I just got on talking about that we offer exciting features, features and benefits that are going to help sell trailers. And that’s the important thing looking at how the contenting might affect us..

And Scott one more quick comment in terms of Jason – Jason talked about the non-towable revenue growth that we’ve had in all of our different markets, but just one more product for the towable side, again we already said this, but the biggest number in five years in terms of content growth on towable, second biggest content growth in six years on motorhomes and those numbers are close to almost two times what our 15 year average has been in terms of content growth.

And so we feel like we have been talking about the market, the addressable market opportunity that we have created with not only Furrion but travel trailer leveling in our one controlled products and they’re finally starting to take traction and these numbers that we put up the last couple of quarters are huge.

We feel like we have a ton of runny way left over the next three to five years. And that regardless of what the industry does short-term in terms of whole sale versus retail that that strategy is going to continue to playout for us regardless of what the industry numbers are going to do.

So it’s going to be a very good positive over the next several years. So….

And look at some of the Furrion content we’re launching, I mean over $0.5 billion in content and big items like refrigerators and air conditioners and water heaters and other products that they’re launching, I named a few of the big ones, but that’s pretty a good stuff..

Got it. That’s very helpful. And on the labor front, I mean a lot has been made of when you guys are running hot and heavy, how hard it is to find labor. If things do moderate somewhat albeit still up nicely, maybe just talk about the positive benefits that will have to you guys from a labor perspective..

Say again.

Would you say positive benefits of what, Scott?.

I was talking about if the production levels, while they still might be – do moderate a little bit. How that – it basically, gives you guys a chance to catch your breath from a productivity standpoint as well from….

Sure, yeah, we’re obviously – our first lever to poll when volumes flows up or the breaks are tapped or over time hours comes down, so that has an exponential impact on our margins. I would tell you to that you know as much as complaining about – as much as people are complaining about labor in our area being around 2% unemployment.

Our focus on culture over the last three years has lined people up at our doors. There is a lot of people out there that are not loving whether working because they’re just not getting treated well and we’re just small little fish bowl [indiscernible] county with almost 40 facilities here and over 7,000 people.

So the world gets around fast when we’re doing the right things at work. So people are getting burn on either – at other places and come into our place. And we haven’t experienced that toughness in finding labor that that I think a lot of the other businesses has..

All right, just one last quick one, the number for April being up 46%, very impressive and obviously there is Taylor Made and Hehr. May be just give us a framework of what the organic number looks like for April? It seems to be more than the 20% that you did for the quarter..

Hey, Scott. This is Brian. Yeah, I mean, it’s roughly a little bit, well, your numbers are accurate. It’s close to what it was for the first quarter. The one thing to think about for the first quarter is Taylor Made and Hare are not all in that quarter. So you probably have a little bit of pick up from that as there would be all in, in the April number.

But it’s roughly the low-20% numbers, low to mid, for organic for the month of April..

Low to mid organic, got it. That’s all I have. Thanks for taking my questions..

Thanks Scott..

Thank you. Our next question comes from the line of Craig Kennison from Baird. Your question please..

Thanks for taking my questions as well. Brian, I wanted to start with you.

I guess, what kind of margin guidance are you willing to share for 2018 with, I guess, the low end of your prior target seemingly out of the reach? And really, I’m just wondering if you think you could hold the 10% EBIT margin you posted in 2017? And relative to that, how do you feel about margin growth?.

Thanks, Craig. As you know, we traditionally, don’t give guidance. But I think your expectations are reasonable. I think that we can show some improvement, especially when you get to the back half of the year, albeit we’re looking at forward curves on steel and aluminum and what we think we’re going to do in the back half.

And then, once the price increases start to pick up there. But – so we think the back half can be good and gets back into the that range comparable to maybe, even a little better than 2017.

But certainly, to your point, it would be difficult to get into our long-term profitability ranges that we target, just given how steep the commodity inflation’s been here in the first half..

And then as you pursue an offsetting price increase, is it easier to raise price in the aftermarket than on your OEM customers, and is there any dynamic there that plays a role in your margin?.

So, Craig, this is Scott. It’s always difficult to pass through price increases. I mean, this type of environment, nobody likes to take a price increase.

But fortunately, we have customers that understand what we – what we are faced with and what the predict-min is, and are willing to sit down and listen and work out a solution that works for both of us from a timing and quantity standpoint. So I don’t think people’s personalities are whole a lot different from the OEM segment versus aftermarket.

But that being said, I think they’re – even the margin profile within aftermarket is a little bit higher. So I think there might be a little bit more relaxed point of view from the aftermarket situation..

I’d add that in the aftermarket business that’s more of a timing thing where prices reviewed every year at a certain time. And that’s generally the opportunity to make a change on pricing. But that’s all I really add there.

It’s been a challenging period, because it’s just not – we didn’t come into Q1 expecting the materials we’re going to go up as much as they did.

But I’m confident that our industry will figure out how to creatively price products and whether it’s a mix of the contenting and price increases, back to the dealers and retail customers that will create a product price point that isn’t too inflationary whether customers are going to really notice it on the payment..

Thanks. And then shifting to the content per unit growth here. That was certainly a bright spot in the quarter for both motorhomes and towables.

I guess first, to what extent did acquisitions play a role in those figures? And then second, I know you’ve been facing a broader decline in ASPs as more young people enter the market, thereby entry-level units and that’s put down more pressure on I guess the average selling price of a unit.

And yet, in that context you’ve been able to grow your content per unit.

The question would be, is there any evidence that maybe we’re seeing a bottom in the decline and in industry ASPs, as maybe people buy their second union? Are you still facing headwinds related to kind of a decline in those prices?.

So I’ll take, this is Scott. I’ll take the first part of the question. So with the exception of some motorized furniture revenue that we had in relation to the Lexington acquisition, the majority of everything else as far as the content numbers both on the towable side and the motorhomes side would be organic.

And then the second part of your question, can you kind of go back to that real quick?.

Sorry. I know you’ve facing a broader decline in average selling prices, because young people are buying entry-level units. So it’s hard for you to grow content per unit when the average price of unit is actually going down.

I’m wondering, at what point will you see the average price of a unit turn positive? And that would give you more of a tailwind rather than a headwind as you look at content per unit?.

Well, I think, because volumes run up so much in our industry as a result of finding some new entry level price points that the OEMs have found for the dealers and ultimately the retail consumers. I think there’s going to be a continue press to keep price points relatively low and find new opening there.

But again, I’d go back to some of the product launches we’ve got coming through our organic R&D and Furrion through refrigerators and air conditioners, some big ticket stuff like that, we feel our content has a really – it has a lot of runway left..

I guess when you look at it, pure demographics, when you say yourself that yes, we still have a younger set of millennials that would be in their 20s, but you have to stay between millennials and Gen X, Gen Y, that with every year, that they increase in age, that their income profile, you would maybe making an assumptions that their income profile would go up.

And therefore, they would be attracted to more expensive units. So you have to look at the demographics right now and say, there’s a lot of runway in the future that says that a lot of young and first-time buyers will continue to be in the market. And they get older and have more pricing income and pricing power themselves.

I think that bodes well for a long-term content growth situation..

And just to give a quick add on the content, you take – you keep going back to Furrion because that’s such a big opportunity. But you look at our last appliance launch of ovens, we’ve gone in and taken over substantial part of the market in a relatively short time on the ovens, nearly 50%.

So we can go in and do the same thing with some of these other product lines, which provides a lot of runway.

And then you look at the some of the other products we’re building and launching, continued versions of the OneControl, which is a technology product that every customer is going to have Bluetooth or every retailer unit is going to have Bluetooth capability at some point that the consumers are demanding at.

Travel to their leveling and things like that. I mean that are things that customers want and they’re only going to grow..

Hey that helps. Thank you..

Thanks, Craig..

Thank you. Our next question comes from the line of Daniel Moore from CJS Securities. Your question please..

Good morning. I think Brian, I heard you say that startup cost impacted margins to 70 bps in the quarter, did I hear that right? Can you elaborate a little bit? And are those discreet in the quarter? Or should we think about those – some of those lingering into Q2..

Hey, Dan. Yes, 70 basis points was the impact that impacted the quarter. I would – we’ve been dealing with some of those for more than just this quarter. When you look at – once we got into the train window business, which was primarily in Europe, we launched that over here in the U.S.

And that’s a new business for us that has taken some time to build the infrastructure needed to be able to – A, make the bids and then execute on the contracts. So some of them are more ongoing, but that would be one example, train windows, school bus windows as we’ve continue to gain market share there.

So a lot of new business that we had to deal with. And of course, have the initial startup cost and then it just takes a little bit of time to gain the efficiencies overtime. Then the – a little drag and chassis the same as the industry continue to grow, we’ve taken some products and taken them out of facilities and moved them into facilities.

It takes a lot of to work through and gain the efficiencies. So those are – well, that’s what impacted 70 basis points and then there is few others there as well. We’re certainly focused on all of those and we’d anticipate those to continue to decline as the year continues on..

Okay. That’s helpful. And then maybe just touch base on the aftermarket. Your outlook over the next few years, regardless of what gross in wholesale shipments looks like. And I think you have a big chart in the presentation of total market opportunity.

But maybe bring that into the next, call it one to three years, what can aftermarket look like for you? And one quick follow-up..

Yes, Yes, right now we -- on our growth potential chart we show aftermarket being $440 million market opportunity. That will be updated to include the marine market opportunity, which those two acquisitions happen inside the quarter. So we haven’t yet updated that, but that was at the end of last year.

That being said, that does not include other aftermarket opportunities of -- we’ve talked about that slide that’s has been very conservative than that, it’s who we sell to today, and who we -- customers and products that we have today that doesn’t include any fringe products that we might be looking at our industries or other adjacent industries.

So I think the average investor should expect that number to continue to go up as we do more and more adjacent acquisitions. We’re going to build it organically, and we’re going to build it through finding new adjacent industries that also has a heavy aftermarket content. So I think the $440 million is what we have today.

But the good news is, that it’s going to continue to be a lot bigger number in the future..

Yes, Jason has mentioned reapers and AC units that would be a significant impact on aftermarket opportunity in those product lines as well, just to name a couple more..

And I think different from the OEMs business, this is Jason – I think difference in the OEM business, the aftermarket customers are very, very willing to put more their eggs in one basket.

They like the one shop stop opportunity, because they’re buying, thousands and thousands of components for new RVs and used RVS, and parts are not made anymore, and they have got to deal with the service shop.

So we’re really becoming a reliable source for everybody in the aftermarket channels, and the runway seems higher, our sales for April are really good, obviously, in that area. And we don’t – it’s hard to project out three years. But it feels like there’s a lot of runway left..

It’s helpful.

The price increases that are going in June, do those encapsulate the further inflation that we’ve seen so far in Q2? Or is that more based on sort of where we were at 331?.

Yes, we’re trying to recover as much costs as we can. We don’t – some of that indexed, and some of our steel products, so we just have a – just the flat three month lag that captured whatever cost have gone up. And I remember that, like in 2016, when things started going back up, we don’t give it away, quick either.

So – and we had that impact in 2016, where we saw some margin inflation, because we take it on the way down. And then in the way back when pricing starts to normalize, we don’t give it away. We don’t give it back right away. So we’ll have that impact at some time, the prices aren’t going to stay as high as where they are today.

But we’re trying to capture as much of the cost as we can that’s reasonable. And that’s what getting passed along in June and July. So – we feel good about where we are at. It’s just not tough three months trying to get everybody’s head around it..

It’s helpful and last – yeah, go ahead, I’m sorry..

I was just going to make a comment. I would say that, just if you look at steel prices since the start of the second quarter, they’ve been relatively stable as compared to rapidly escalating throughout the first quarter.

So if you use some of those data points, just as way to better answer the question, I would say that the majority of the increases that we have going on in fact in June would cover at least what we’ve seen just because of the fact that there’s been a softening of the increases.

There still have gone up, but still I believe has been flatter than aluminum..

Got it. And then lastly. Just on the automation efforts, obviously, you got the new chassis facility going in, using a bit more robotics kind of the early start of the RV industry is being a little bit more labor-intensive.

Are there other opportunities as you look along across the products and your manufacturing to continue to supply labor and perhaps drive margins with automation overtime? Thanks for the color..

There’s lots of opportunities all over the place. And just remember as we continue to make acquisitions, firstly, some of the bigger ones we’ve made recently, the company that we’re buying traditionally don’t have any lean or continuous improvement activity or automation in motion when we acquired. So those are all good opportunities for us.

So that’s happening at some of the newer acquisitions. And we still have a lot of opportunities with existing facilities. As technology continues to change and we use a lot of outside input on having people come into your facilities and show us what are industries are doing.

You might be surprised by the fact that, Elkhart County per capita has more robust and than any other county in the country, not the most robots, but there’s a lot of automation, especially on the supply side, not so much on the OEM side.

But we’re going to continue to where we can get good return on investment and investing in these projects, we’re to keep moving them forward. We are trying to get some really good experience..

I think one other important comment there. There’s probably when we look at our internal list of projects that might be within that size and scope. There might be five to 10 that we might be able to pick from the issue really comes down to -- what -- how many do we want to buy of at one particular buy of at one particular time in a calendar year.

And so, I think that we’re going to be mindful of doing it, making sure that we do it successfully, when we take on those big projects. So I think you could expect that we’ll be able to do a few of those for several years to come.

But we are focused on making sure that we’re doing right, not necessarily trying to throw tons at the while and get those kicked off..

Does that answer your question?.

Yes, it does. Appreciated thank you..

[Operator Instructions] Our next question comes from the line of Steve O’Hara from Sidoti & Company. Your question please..

Hi, good morning..

Hi, Steve..

I just have question about the way steel flows through. I mean is there any effort to maybe better index the price increases and price decreases going forward? I mean, I assume for some of the parts it’s maybe a little tougher to calculate the exact or maybe for the -- your buyer to calculate the exact cost of steel.

But I would think for chassis things like that, it would be much easier.

I mean is there any effort to make it more of a passthrough cost where you’re paying x for your engineering and labor et cetera, but the steel has got a more the price is what we pay for it’s a higher or lower?.

I think, Steve, the real thing would be helpful in answering the question, is just knowing that these aren’t small parts. It was just a small little steel product that was going to impact the customer’s bill a couple of bucks, that’s one thing.

But when you talk about chassis that waves a couple of thousand pounds, and you’re talking about really moving the needle on cost, they don’t want to get surprised in 30 days. And then have to work through their dealer network to figure out how to get price on their end.

They need a little bit more time I think with considering the size of some of the products we sell, and they scope with some of the products we sell. So I think that’s what drives some of the timing there..

I think one other comment, Steve, this is like a 15 to 20 year type commodity situation. And to – we certainly have been moving in the direction of having some of our products index. But try to formulate a game plan on pricing, again, say 15 to 20 year pricing type situation is probably not the right way to look at it.

I think that it’s – it need to be dealt with on a one-off basis this time around. But the longer term goal would be to – given the slight up and down that the commodity market that we usually see, that we have pricing mechanisms that time in market appropriately..

The key is, we’ve got to get the – we’ve got get price when we needed. And we’ve got great relationship with our customers. And when we needed, there is a trusting relationship their what they understand and we’re focused on the long-term.

I mean we’re not – we’ve got to let the customers run the process a little bit, because they really drive our business, so they got majority part of the say-so. Like we feel what we do a good job there..

Okay.

And then just maybe, you talked about you get hurt in the short term, I guess when commodity cost rise and then you make it up, and don’t give a roll back right away when they fall, I mean historically have customers been as willing to let you kind of take the benefit as they’re willing to let you take the pain on the way up?.

Absolutely, yeah. I think when you look at our historical results and it shows that I think we have moved towards more engineered products over the years. But if you look at historical EBIT margins, we’re right around 8%. And the last few years, we’ve done a little bit better than that.

So, we’re going to continue to engineered grade products for all the industries we serve and continue to fight for better margins. And when we have these types of challenging pricing situations, we’re going to try to work it to our customers’ favor and our favor the best we can..

Okay, thank you.

And then just on the Taylor Made, did you say the revenue for Taylor Made this year, I thought you said $155 million, but maybe that’s wrong?.

Yeah, yeah. That’s….

Okay. And just I mean….

That was the projection for this area..

Okay.

I think that you did $150 million last year, right?.

Yeah. And so when you look at not only the current calendar number when you look going forward as far as like a run rate standpoint, it’s even higher than that. Brian I think $160 million to kind of a $160 million to $170 million range..

Okay, all right. Okay.

So you’re talking about your ownership period rather than calendar 2018?.

Correct, correct..

Okay, okay. I’m sorry. Okay. perfect, all right. Thank you very much..

You bet..

Thank you. Our next question comes from the line of Seth Woolf from Northcoast Research. Your question please..

Hey guys. Thanks for taking my questions. I appreciate it..

Hey, Seth..

Hey. I’m just curious, I wanted to start off there is the retail sales number that you guys provide your estimate from March that it hasn’t been released yet. Are you making any assumption for future revisions through January and February? Or does that just include your estimates for March? Just a methodology I was just curious..

No. we’re not making any adjustments in that number, and I’d tell you that we look at retail in a couple of different ways. We obviously get the same measurings that you do through statistical surveys. But our customers on the OEM side, they get their retail feedback daily.

So as we’re going to be in touch with these guys on a daily basis, we don’t have that 45-day lag like you typically see them in stat surveys. I mean we’re asking them every day and we’re seeing some pretty consistent results with what we saw the first two months.

So they get their registrations in every day and we’re on and making sure that that trend feels consistent with what we saw in the first couple of months. And it’s a good feedback so far..

Okay, very good. I guess more recently, it has been a little bit of concern over retail momentum in the month of April.

Have you guys seen anything different from your – these conversations? Or is it still the same solid momentum more or less based on what you have seen?.

Yeah. It seems like mid-to-high single digits is what everybody is saying [indiscernible] there is a note and then the other day talking about their confidence and seeing that retail on a high single-digit number. So all evidence we’ve got right now points to that range..

Okay, excellent. All right. I guess just moving on to pricing, I know it’s a big topic.

I was wondering if you could talk about how much, there’s really strong content for unit growth, but if we look at, I guess as a percentage of the organic sales or what – how much of their organic sales were driven by price increases this quarter?.

Thanks, Seth. This is Brian. I would estimate the price increases on towables, our significant market was approximately – less than $30 of the $259 of growth..

Okay, great. That helps, that helps. Yeah, that’s great. That’s really helpful.

Any sense for how much the future price increases of these at April 1 and June 1 or it could add to that?.

Not at this time..

Okay. That’s helpful. So, I guess then just on the pricing, so you guys talked a lot about how you’re meeting, you’re sitting down with your customers and you’re trying to create ways to maybe, decontent the vehicles in a way that would minimize the retail impact.

So aside from the price increases that you’ve already got in the hopper, have you done any work to try to figure out what’s the price of retail – what price increase the retail consumer may see as a result of the commodity inflation when you net out your price increases and the decontenting?.

I can’t tell you specifically, because there’s all sorts of different ranges with all the different price points, but I’ve heard or the some of the OEM customers talk about 10% or 8% unadjusted type increase to the consumer.

That doesn’t include some of the decontenting that they’ll for sure engage in over the coming months, as we get closer to open house and all the new models were released. So that would just be a quick point there probably..

Okay, great. And then the last one from me just kind of thinking ahead a little bit. So fantastic number for April, stronger than I think a lot of people were looking to see. So you said low-to-mid 20% organic growth.

Wondering, if you could desegregate that a little bit more? How much of that is being driven by the April 1st price increase? And then do you think is there any prebuying going on, I think it’s probably difficult with the chassis, but with some of the other products you make, is there any other prebuying that’s occurring to try to get ahead of that June 1st price increase? That’s the first part..

I’d tell you that our customers don’t – we don’t have customers that prebuy on that point. And Brian can answer kind of the mixed question..

I mean at the top of my head, I don’t have enough price impact on April. certainly, it is a part of it. But I would still look at it is very similar to first quarter that most of it’s all driven on that content growth and then the industry..

Seth, one follow-up to what Jason has said. our customers keep adhered to what the Lippert products on the ground typically when you look at that. So you can’t look at our revenue and think that they don’t have the room or they don’t have the process to be able to do anything like that. So there’s never a situation like that with our stuff..

Okay. Yeah, just curious, because these have been have been some violent swings on the commodity costs.

So just the last question for me on April – on the outlook, so we talked about RVIA still feel good about that shipment, it implies plus 4% growth, it is moderation, there has been some talk, I think you guys referenced to stuff, there is a little overbuilding in the wintertime.

I guess the question I had is, we sit back and we think about the rest of the year, is it possible even if retail comes in at the high single low double digits that when the dealers go to open house, they tell your OEM customers there wasn’t a problem with availability this year and with the capacity lead times are shorter.

And just the comps get noisy as that ordering pattern kind of reverse the seasonal norms, like historical seasonality, and so we could see shipments come in lower in the back half of the year? Does that make sense?.

Yeah. Certainly, it’s like – yeah, it’s always a possible scenario. But the dealers’ buying habits are – these things performed over a long period of time. So whether they make really start different approach to fall buying is, I guess up in the air at this point in time.

But I’d look and point to a lot of things that we’re underestimating, not talking about our 6 million new campers in the market in the last three years, 51% are households that camp. These are our move-up opportunities that are looking at RVs and the diversity that’s coming to campaign.

So there’s a lot of positive statistics between the campaign population and a popularity of RV and RV lifestyle along with just the entry level floor plan growth and the opportunities at affordable price points. So just a lot of good upside out there, passed maybe some of the buying habits and things like that.

I think there’s – we keep talking about retail and retail – if retail is strong, I think that tells the story for the rest of the year. But we just got to watch those numbers, and then we’ll probably make some more educated assumptions after that..

I think one other quick comment there would be, we heard that’s a little bit last week on Patrick’s call. But the back half, certainly the comp feel like they’re going to become a little more difficult when you look at the back half in the situation.

So when you’re looking at specifically comps I think the – we agree that probably, it’s a little bit more difficult to see to those comps look favorable..

Okay, yeah. We’ll keep an eye on it. Thank you, guys. And I look forward to [indiscernible]..

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Jason Lippert for any further remarks..

Just want to thank everybody for joining us on the call today. And we will see you in next quarter’s conference call. Thank you..

Thank you, ladies gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day..