This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of Part 1 of this report, as well as the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .LCI Industries ("LCII" and collectively with its subsidiaries, the "Company," "we," "us," or "our"), through its wholly-owned subsidiary,Lippert Components, Inc. and its subsidiaries (collectively, "Lippert Components," "LCI," or "Lippert"), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers ("OEMs") in the recreation and transportation product markets, consisting primarily of recreational vehicles ("RVs") and adjacent industries, including buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; boats; trains; manufactured homes; and modular housing. We also supply engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers. We have two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. AtMarch 31, 2022 , we operated over 120 manufacturing and distribution facilities located throughoutNorth America andEurope . See Note 14 of the Notes to Condensed Consolidated Financial Statements for further information regarding our segments. Our OEM Segment manufactures or distributes a broad array of engineered components for the leading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. Approximately 65 percent of our OEM Segment net sales for the twelve months endedMarch 31, 2022 were of components for travel trailer and fifth-wheel RVs, including: ? Steel chassis and related components ? Electric and manual entry steps ? Axles and suspension solutions ? Awnings and awning
accessories
? Slide-out mechanisms and solutions ? Electronic components
? Thermoformed bath, kitchen, and other products ? Appliances
? Vinyl, aluminum, and frameless windows
? Air conditioners
? Manual, electric, and hydraulic stabilizer and ? Televisions and sound systems
leveling systems ? Entry, luggage, patio, and ramp doors ? Other accessories
? Furniture and mattresses
The Aftermarket Segment supplies many of these engineered components to the
related aftermarket channels of the recreation and transportation product
markets, primarily to retail dealers, wholesale distributors, and service
centers, as well as direct to retail customers via the Internet. The Aftermarket
Segment also includes biminis, covers, buoys, fenders to the marine industry,
towing products, truck accessories, appliances, air conditioners, sound systems,
and the sale of replacement glass and awnings to fulfill insurance claims.
Most industries where we sell products or where our products are used
historically have been seasonal and are generally at the highest levels when the
weather is moderate. Accordingly, our sales and profits have generally been the
highest in the second quarter and lowest in the fourth quarter. However, current
and future seasonal industry trends have been, and may in the future be,
different than in prior years due to various factors, including fluctuations in
dealer inventories and the timing of dealer orders, the impact of international,
national, and regional economic conditions and consumer confidence on retail
sales of RVs and other products for which the Company sells its components, the
impact of severe weather conditions on the timing of industry-wide shipments
from time to time, as well as the coronavirus ("COVID-19") pandemic and related
impacts. Additionally, many of the optional upgrades and non-critical
replacement parts for RVs are purchased outside the normal product selling
season, thereby causing Aftermarket Segment sales to be counter-seasonal, but
this has been, and may in the future be, different as a result of the COVID-19
pandemic and related impact.
COVID-19 AND
The ongoing COVID-19 pandemic has caused significant uncertainty and disruption
in the global economy and financial markets since early 2020. With RV retail
demand at record levels throughout 2021, the industry faced challenges with
supply chain constraints, rising material and freight costs, and increases in
direct labor costs due to higher production volumes
24
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LCI INDUSTRIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
and a tightened labor market, especially in Northern Indiana . These trends have
continued through the first quarter of 2022, and, with regard to supply chain
constraints and freight costs, have also been impacted by the conflict between
Russia and Ukraine (the "Russia-Ukraine War"). To address these challenges, we
have continued to strategically manage working capital, including carrying
elevated levels of certain inventory items to avoid future shortages. We
continue to focus on our culture and leadership development programs to focus on
team member retention. We continue to closely monitor the impact of COVID-19 and
the Russia-Ukraine War on all aspects of our business. The extent to which
COVID-19 and/or the Russia-Ukraine War may impact our liquidity, financial
condition, and results of operations in the future remains uncertain.
INDUSTRY BACKGROUND
OEM Segment
North American Recreational Vehicle Industry
An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers, and truck campers). The annual sales cycle for the RV industry generally starts in October after the "Open House" inElkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. Due to the COVID-19 pandemic, the 2021 and 2020 Open Houses were canceled. The seasonality of the RV industry has been, and will likely continue to be, impacted by the COVID-19 pandemic, and the timing of a return to historical seasonality is not possible to predict at this time. According to theRecreation Vehicle Industry Association ("RVIA"), industry-wide wholesale shipments fromthe United States of travel trailer and fifth-wheel RVs in the first three months of 2022, our primary RV market, increased 16 percent to 152,200 units, compared to the first three months of 2021, primarily due to dealers rebuilding inventory levels partially offset by a decrease in retail demand. Retail demand for travel trailer and fifth-wheel RVs decreased 18 percent in the first three months of 2022 compared to the same period in 2021. Retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations. While we measure our OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported byStatistical Surveys, Inc. , as well as the resulting estimated change in dealer inventories, for boththe United States andCanada , is as follows: Estimated Wholesale Retail Unit Impact on Units Change Units Change Dealer Inventories Quarter ended March 31, 2022 152,200 16% 93,800 (18)% 58,400 Quarter ended December 31, 2021 130,400 13% 76,300 (15)% 54,100 Quarter ended September 30, 2021 136,000 24% 130,800 (18)% 5,200 Quarter ended June 30, 2021 133,800 100% 180,400 36% (46,600) Twelve months ended March 31, 2022 552,400 30% 481,300 (3)% 71,100 25 --------------------------------------------------------------------------------
LCI INDUSTRIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Estimated
Wholesale Retail Unit Impact on
Units Change Units Change Dealer Inventories
Quarter ended March 31, 2021 131,200 14% 114,500 52% 16,700
Quarter ended December 31, 2020 115,200 5% 89,400 40% 25,800
Quarter ended September 30, 2020 110,100 65% 159,100 35% (49,000)
Quarter ended June 30, 2020 66,800 (24)% 132,500 (5)% (65,700)
Twelve months ended March 31, 2021 423,300 20% 495,500 25% (72,200)
According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the
first three months of 2022 increased 10 percent to 15,800 units compared to the
first three months of 2021, primarily due to dealers rebuilding inventory levels
and increased retail demand. Retail demand for motorhome RVs increased two
percent year-over-year in the first three months of 2022, compared to a 27
percent year-over-year increase in retail demand in the same period of 2021.
Our portfolio of products used in RVs can also be used in other applications, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing (collectively, "Adjacent Industries "). In many cases, OEM customers of theAdjacent Industries are affiliated with RV OEMs through related subsidiaries. We believe there are significant opportunities in theseAdjacent Industries .
Aftermarket Segment
Many of our OEM Segment products are also sold through various aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. This includes discretionary accessories and replacement service parts. We have teams dedicated to product, technical, and installation training as well as marketing support for our Aftermarket Segment customers. We also support multiple call centers to provide responses to customers for product, delivery, and technical support. This support is designed for a rapid response to critical repairs, so customer downtime is minimal. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, and the sale of replacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements for RVs are purchased outside the normal product selling seasons, thereby causing certain Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future be, different as a result of the COVID-19 pandemic and related impacts. According to Go RVing, estimated RV ownership inthe United States as of 2020 had increased to over 11 million households. This vibrant market is a key driver for aftermarket sales, as we anticipate owners will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear. RESULTS OF OPERATIONS Consolidated Highlights •Consolidated net sales in the first quarter of 2022 were$1.6 billion , 64 percent higher than consolidated net sales for the same period of 2021 of$1.0 billion . The increase was primarily driven by record wholesale shipments, price increases, and Aftermarket Segment sales growth. Net sales from acquisitions completed in 2021 and the first three months of 2022, primarilyFurrion Holdings Limited ("Furrion"), contributed approximately$79.0 million in the first quarter of 2022. •Net income for the first quarter of 2022 was$196.2 million , or$7.71 per diluted share, compared to net income of$74.1 million , or$2.93 per diluted share, for the same period of 2021. •Consolidated operating profit during the first quarter of 2022 was$269.7 million compared to$101.4 million in the same period of 2021. Operating profit margin was 16.4 percent in the first quarter of 2022 compared to 10.1 percent in the same period of 2021. The increase was primarily a result of increased selling prices which are 26 --------------------------------------------------------------------------------LCI INDUSTRIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) indexed to select commodities, pricing changes to targeted products, and leveraging fixed costs over higher sales volumes, partially offset by increased raw material and freight costs. •The cost of aluminum and steel used in certain of our manufactured components increased in the first quarter of 2022 compared to the same period of 2021. Raw material costs are subject to continued fluctuation and are being offset by contractual selling prices which are indexed to select commodities. •The$54.2 million increase in selling, general and administrative costs in the first quarter of 2022 was primarily driven by increases in personnel costs of$20.3 million , increases in transportation costs of$13.1 million due to higher volumes and rising freight costs, incremental costs from recent acquisitions of$7.7 million , and incremental amortization of intangible assets from acquired businesses of$4.1 million . •The effective tax rate of 25.5 percent for the three months endedMarch 31, 2022 was higher than the comparable prior year period of 24.9 percent, primarily due to a decrease in the excess tax benefit related to the vesting of equity-based compensation awards and the cash surrender value of life insurance, as discussed below under "Income Taxes." •InMarch 2022 , we paid a quarterly dividend of$0.90 per share, aggregating to$22.9 million . OEM Segment - First Quarter
Net sales of the OEM Segment in the first quarter of 2022 increased
million
following OEMs markets for the three months ended
(In thousands)
2022 2021 Change RV OEMs: Travel trailers and fifth-wheels$ 953,226 $ 503,016 90 % Motorhomes 87,254 62,593 39 % Adjacent Industries OEMs 356,102 250,641 42 % Total OEM Segment net sales$ 1,396,582 $ 816,250 71 %
According to the RVIA, industry-wide wholesale unit shipments for the three
months ended
2022 2021 Change
Travel trailer and fifth-wheel RVs 152,200 131,200 16 %
Motorhomes
15,800 14,300 10 % The trend in our average product content per RV produced is an indicator of our overall market share of components for new RVs. Our average product content per type of RV, calculated based upon our net sales of components to domestic RV OEMs for the different types of RVs produced for the twelve months endedMarch 31 , divided by the industry-wide wholesale shipments of the different product mix of RVs for the same period, was: Content per: 2022 2021 Change
Travel trailer and fifth-wheel RV
Motorhome
$ 3,144 $ 2,525 25 %
Our average product content per type of RV excludes international sales and
sales to the
impacted by changes in selling prices for our products, market share gains, and
acquisitions.
Our increase in net sales to RV OEMs of travel trailers, fifth-wheel, and
motorhome components during the first quarter of 2022 was driven by content
gains and price increases, market share gains, wholesale production growth, and
acquisitions during the first quarter of 2022.
Our increase in net sales to OEMs in
quarter of 2022 was driven by content gains and price increases, market share
gains, and wholesale production growth.
27
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LCI INDUSTRIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating profit of the OEM Segment was $245.4 million in the first quarter of
2022, an increase of $166.1 million compared to the same period of 2021. The
operating profit margin of the OEM Segment in the first quarter of 2022
increased to 17.6 percent compared to 9.7 percent for the same period of 2021
and was positively impacted by:
•Selling prices contractually tied to indices of select commodities increased,
resulting in an increase in operating profit of $142.0 million compared to the
same period of 2021.
•Pricing changes to targeted products, resulting in an increase in operating
profit of
•Leveraging of fixed costs over a larger sales base, which increased operating profit by$15.4 million related to fixed selling, general, and administrative costs and$6.6 million related to fixed overhead costs.
Partially offset by:
•Increases in material commodity pricing, which negatively impacted operating
profit by
costs.
•Sales mix increase of lower margin products from the acquisition of Furrion,
which negatively impacted operating profit by
•Additional amortization related to intangible assets from acquisitions
completed in 2021, which reduced operating profit by
Amortization expense on intangible assets for the OEM Segment was$10.1 million in the first quarter of 2022, compared to$6.5 million in the same period in 2021. Depreciation expense on fixed assets for the OEM Segment was$14.5 million in the first quarter of 2022, compared to$12.2 million in the same period of 2021.
Aftermarket Segment – First Quarter
Net sales of the Aftermarket Segment in the first quarter of 2022 increased 35 percent, or$64.0 million , compared to the same period of 2021. Net sales of components in the Aftermarket Segment were as follows for the three months endedMarch 31 : (In thousands) 2022 2021
Change
Total Aftermarket Segment net sales
Our net sales to the Aftermarket Segment increased during the first quarter of 2022, primarily due to increased consumer demand in the outdoor recreational and transportation market and our distributor customers rebuilding their inventory levels. Operating profit of the Aftermarket Segment was$24.3 million in the first quarter of 2022, an increase of$2.2 million compared to the same period of 2021. The operating profit margin of the Aftermarket Segment was 9.8 percent in the first quarter of 2022, compared to 12.0 percent in the same period in 2021, and was negatively impacted by:
•Increases in material commodity pricing, which negatively impacted operating
profit by
costs.
•Increases in transportation costs, primarily for third party freight, which
reduced operating profit by
•Sales mix increase of lower margin products from the acquisition of
which negatively impacted operating profit by
•Increases in direct labor costs due to higher production volumes and a tight
labor market, which reduced operating profit by
•Investments in marketing and administrative wages of
•Increases in production facilities and equipment costs in order to meet growing
sales demands, which negatively impacted operating profit by
28
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LCI INDUSTRIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Partially offset by:
•Pricing changes to targeted products, resulting in an increase in operating
profit of
•Sales mix increase of higher margin products from the acquisition of Furrion,
which positively impacted operating profit by
•Leveraging of fixed costs over a larger sales base, which increased operating profit by$1.7 million related to fixed selling, general, and administrative costs and$0.9 million related to fixed overhead costs. Amortization expense on intangible assets for the Aftermarket Segment was$3.7 million in the first quarter of 2022, compared to$2.9 million in the same period of 2021. Depreciation expense on fixed assets for the Aftermarket Segment was$3.5 million in the first quarter of 2022, compared to$3.0 million in the same period of 2021. Income Taxes The effective tax rates for the three months endedMarch 31, 2022 and 2021 were 25.5 percent and 24.9 percent, respectively. The effective tax rate for the three months endedMarch 31, 2022 differed from the Federal statutory rate primarily due to state taxes, foreign taxes, and non-deductible expenses, partially offset by the recognition of excess tax benefits as a component of the provision for income taxes, and Federal andIndiana research and development credits. The increase in the effective tax rate for the three months endedMarch 31, 2022 as compared to the same period in 2021 was primarily due to a decrease in the excess tax benefit related to the vesting of equity-based compensation awards and the cash surrender value of life insurance.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As ofMarch 31, 2022 , we had$55.4 million in cash and cash equivalents, and$129.8 million of availability under our revolving credit facility under the Credit Agreement. We paid off the full outstanding$50.0 million balance of our Shelf-Loan Facility inMarch 2022 . See Note 9 of the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities. We maintain a level of liquidity sufficient to allow us to meet our cash needs in the short term. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial condition, and maintain flexibility for our future strategic investments. We continuously assess our capital requirements, working capital needs, debt and leverage levels, debt and lease maturity schedules, capital expenditure requirements, dividends, future investments or acquisitions, and potential share repurchases. With elevated demand continuing into the first three months of 2022, the industry has faced challenges with supply chain constraints, rising material costs, and a tightened labor market, especially in northernIndiana . To address these challenges, we have strategically managed working capital, including intentionally building up levels of certain inventory items to avoid future shortages, and have expanded our production capacity. As we build inventory levels and invest in additional production capacity, we also closely monitor our liquidity. In the event additional needs for cash arise, or if we refinance our existing debt, we may raise additional funds from a combination of sources, including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all. We believe the availability under the revolving credit facility under the Credit Agreement, along with our cash flows from operations, are adequate to finance our anticipated cash requirements for the next twelve months.
The Condensed Consolidated Statements of Cash Flows reflect the following for
the three months ended
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