LCI (LCII) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, May 5, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Jason Lippert
• Executive Vice President & Chief Financial Officer — Lillian Etzkorn

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TAKEAWAYS

• Revenue -- $1.1 billion, up 4% year over year, reflecting growth across both OEM and Aftermarket segments despite a challenging industry environment.
• Adjusted EBITDA -- $125 million, rising 13% year over year, with margin expanding 90 basis points to 11.5% in Q1 2026.
• Adjusted Diluted EPS -- $2.59, including a $0.06 dilution adjustment relating to the 2030 convertible notes.
• GAAP Net Income -- $63 million, up 27% compared to the prior year.
• Operating Margin -- 8.7%, up from 7.8% last year, attributed to efficiency, better product mix, plant optimization, and G&A cost control.
• OEM Net Sales -- $853 million, a 4% increase, driven by 17% growth in Adjacent Industry OEM sales and offset by a 4% decline in RV OEM revenue.
• Aftermarket Net Sales -- $238 million, increasing 7% year over year, supported by both price increases and strategic investments.
• Content per Towable RV Unit -- Reached $5,826, a 13% rise year over year and 3% sequentially, marking the largest historical annual increase.
• Content per Motorized RV Unit -- $3,970, up 6% year over year.
• Annualized Revenue Run Rate from New Products -- Over $270 million contributed by the five most recent launches, with an additional $140 million expected from new product placements in the model year change and RV market share expansion.
• Aftermarket Automotive Revenue Trend, Q2 -- Up in the high teens (percentage) year over year, supported by share gains following the exit of First Brands from the market.
• Capital Expenditures -- Just under $10 million for the quarter, with full-year guidance at $55 million to $75 million, focused on business investment and innovation.
• Liquidity -- Total liquidity exceeded $700 million, with $142 million in cash and cash equivalents, and nearly $600 million available on the revolver.
• Net Debt to Adjusted EBITDA -- 1.9x, maintaining the company's target range of 1.5x to 2x.
• Operating Profit -- $95 million, representing a 17% year-over-year increase, led by OEM margin expansion and cost structure enhancements.
• Dividends and Share Repurchases -- Quarterly dividend maintained at $1.15 per share ($28 million paid this quarter); buybacks remain active under the $300 million repurchase program.
• Guidance for RV Wholesale Shipments -- Now projected at 315,000 to 330,000 units for the year, reflecting a 20,000 unit reduction on both upper and lower guidance limits.
• Full-Year Revenue Outlook -- Maintained at $4.2 billion to $4.3 billion, with an operating margin of 7.5%-8% and adjusted EPS expected in the range of $8.75 to $9.25.
• Facility Optimization -- Plan to address eight to ten facilities in 2026 to support ongoing cost and efficiency improvements, following 80 basis points of cost-driven margin improvement realized already.
• M&A Activity -- 77 acquisitions completed over 25 years, continued pipeline of active tuck-in opportunities, with Freedman Seating and Trans/Air integrations meeting expectations.
• Dividend Yield -- Exceeded 3.5%, supporting shareholder returns alongside opportunistic repurchases.
• Board Decision Regarding Patrick -- "our Board has determined that the best path forward is to continue executing our strategy as a stand-alone company."

SUMMARY

LCI Industries (NYSE:LCII) delivered robust margin expansion and earnings growth, driven substantially by cost optimization efforts and higher content per unit, despite soft industry volumes and reduced RV shipment guidance. Management maintained its full-year revenue, margin, and adjusted EPS outlook, citing resilience from diversification, innovation-led product placements, and Aftermarket strength, with significant automotive Aftermarket share gains as a near-term catalyst. The company emphasized ongoing footprint optimization, a disciplined approach to capital allocation, and further margin accretion from structural initiatives expected to continue well into 2027.

• Jason Lippert attributed 80 basis points of realized margin improvement mainly to facility consolidations already executed, with incremental efficiencies expected as more consolidations conclude in the second half.
• Seasonal commentary indicated expectations for the second quarter to be the strongest of the year both sequentially and year over year, followed by a typical industry slowdown in the third and fourth quarters.
• Lillian Etzkorn said, "adjusted EPS range, representing up to 24% annual growth at the high end is supported by continued margin expansion."
• OEM Adjacent Industry growth was powered by both strategic investments and a $47 million revenue contribution from recent acquisitions, particularly Freedman Seating and Trans/Air.
• The innovation pipeline includes a next-generation leveling and stabilization system with a $100 million total addressable market, launching as standard on all Brinkley travel trailers for the upcoming model year.
• Automotive Aftermarket momentum was attributed to share gains from First Brands' bankruptcy, with management estimating a $70 million incremental annual revenue opportunity from displaced demand.
• LCI operates service centers performing more than 200 weekly appointments, has expanded distribution with a new 600,000 square foot center, and expects to complete a 400,000 square foot Texas facility to consolidate manufacturing and improve labor market access.
• Positive cash flow and disciplined net leverage underpin a continuation of the company’s M&A strategy, with several tuck-in deals under active discussion.
• Awarded product placements for the 2027 RV model year are expected to drive further annualized gains beginning this summer, with management highlighting a goal for new launches to penetrate 50% of their market over three to five years.
• European segment profitability improved due to 18 months of restructuring and decentralization, not from underlying market growth, per Jason Lippert's remarks.

INDUSTRY GLOSSARY

• Total Addressable Market (TAM): The maximum estimated annual revenue opportunity available for a product or service within its defined market.
• Content per Unit: The average dollar value of components supplied by LCI in each RV or vehicle unit produced by its OEM customers.
• Facility Consolidation: The process of merging and optimizing multiple manufacturing or distribution locations to improve efficiency and lower cost structure.
• Aftermarket: LCI’s sales of replacement parts and upgrade solutions for previously sold RVs, automobiles, or marine products through retail, service, or distribution channels.
• OEM (Original Equipment Manufacturer) Segment: Business division supplying parts directly to RV and adjacent industry manufacturers for integration during initial vehicle or equipment assembly.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, and other specified non-recurring adjustments.
• Run Rate: An extrapolation of a current revenue or profit level to estimate future annualized results, assuming current performance persists.

Full Conference Call Transcript

Jason Lippert: Hello, and thank you to everyone for joining us on our Q1 2026 earnings call. We are energized by the momentum we have built in recent quarters as well as by the current strength of our performance in 2026 as we begin the new year with solid results despite continued sluggishness across both retail and wholesale leisure markets. Before diving into the details, I want to recognize the exceptional work our teams have done over the past decade to diversify our business. Against a very challenging industry backdrop, the diversification has clearly proven its value. Our well-balanced portfolio continues to deliver strong results even in cyclical markets like RV experience volume pressure.

Achieving this balance has taken time, discipline and continuous refinement of both our teams and our strategy. Our European operations delivered the strongest quarterly results we have seen since building that platform. And our transportation business continues to perform very well as we integrate Freedman Seating and Trans/Air climate control systems. Altogether, our diversified performance meaningfully contributed to LCI achieving an 11.5% EBITDA margin in our Q1 in what we call a pretty turbulent quarter. For the first quarter of 2026, revenue grew 4% year-over-year to $1.1 billion. We expanded profit margins by nearly 100 basis points and grew adjusted diluted EPS by a robust 18%.

This outperformance reflects our ongoing investments and the strong execution of our teams as we continue to focus on operational excellence, manufacturing optimization and self-help initiatives. These efforts include significant plant optimizations, disciplined G&A cost reductions and continued volume gains across the increasingly diverse end markets we serve, all while maintaining a strong focus on innovation and customer service, which remain core pillars of our success. Looking at performance by segment, OEM net sales increased 4% to $853 million. RV OEM revenue declined 4% due to lower North American travel trailer and fifth-wheel shipments, which is a strong outcome considering RV wholesale shipments are down more than 12% through the first quarter.

At the same time, we grew our Adjacent Industry OEM sales by 17%, driven primarily by higher demand from North American marine OEMs as well as from bus and utility trailer OEM share growth. In addition, Freedman Seating and Trans/Air continue to outperform plan on both integration and synergy realization. As I previously mentioned, our European business also contributed meaningfully following extensive restructuring efforts over the last 18 months that have positioned the region for improved bottom line performance. In housing, sales were flat year-over-year, outperforming a down market due to continued strength in our residential windows, which helped offset lower manufactured housing demand.

As we move through 2026, we expect to further accelerate content gains and expand across our 4 OEM markets while continuing to outperform the broader RV industry. We now expect RV wholesale shipments to be in the range of 315,000 to 330,000 units, which reflects a reduction of 20,000 units at both the high and the low end of prior expectations. For the marine industry, we continue to anticipate flat to low single-digit OEM growth this year. Innovation remains a cornerstone of LCI's long-term success and has driven a significant increase in towable content of 73% since 2020.

Recent product introductions, including anti-lock braking systems, Touring Coil Suspensions, SunDecks, Chill Cubes, and our 4000 series windows continue to gain traction as customers look to enhance the end user experience. Towable RV content increased 13% over the past year to $5,826 per unit, representing the largest year-over-year increase in our history as we close on the $6,000 content per unit mark. Our 5 most recently launched products are now generating an annualized revenue run rate exceeding $270 million. Looking ahead, we expect approximately $140 million in incremental annualized run rate gains from new product placements during this 2027 model change as well as from market share expansion in the RV space.

Our newest product launch is the next-generation leveling and stabilization system for travel trailers that will be more affordable than past generations. It will also be featured as standard equipment across all Brinkley travel trailers at this year's model change. Brinkley's Model I trailers rank among the industry's top 5 trailer brands, which will provide strong visibility for this product. We believe this launch represents a $100 million total addressable market opportunity for LCI and a natural for customers as we are the standout leader in leveling systems for towables and motorhomes. This ongoing innovation, combined with our scale advantages, advanced manufacturing technologies and deep expertise in complex mission-critical components has created customer loyalty that continues to differentiate LCI.

Our customers consistently look to us to help them stand out in their respective brands. Turning to Aftermarket. The same customer loyalty continues to drive consistent outperformance. Auring the quarter, Aftermarket net sales grew 7% in a down retail environment for both automotive and RV. Over the past decade, we have embedded more than $15 billion of replaceable content into RVs that will ultimately enter the service and repair cycles. Over the next 3 years, approximately 1.5 million of these RVs are expected to do so, each requiring LCI parts and service solutions across key categories, including chassis, leveling systems, slide-out systems, awnings, suspensions, windows, furniture, doors and appliances, all of which are critical components.

Our RV and Marine Aftermarket Care Center and technical teams, now more than 400 team members strong, has been built from the ground up over the past decade. Today, our team support thousands of dealer service and repair locations nationwide and manage more than 2 million customer interactions annually. As a result, LCI remains one of the most visible and trusted brands in the RV aftermarket. A recent milestone in our growth is the launch of our first in-store Lippert product setup within Blue Compass RV, the second largest RV dealer in the country. As we expand these in-store concepts, we create incremental sales opportunities for both LCI and our great dealer partners.

The Lippert upgrade experience delivered through our brand-new Lippert factory service centers continues to gain traction by providing consumers and dealers direct access to advanced upgrades such as Touring Coil Suspension, anti-lock braking systems and other advanced Lippert products. As for mobile service and in-factory upgrades, we are now performing more than 200 service appointments each week, and we expect this initiative to become increasingly impactful as it continues to scale. Our automotive aftermarket business is benefiting from a market disruption as First Brands, previously our largest competitor in the hitch and towing space, moved through bankruptcy. We are actively working to capture displaced OEM and Aftermarket demand, representing an estimated $70 million incremental annual revenue opportunity.

Our automotive aftermarket business is currently trending up high teens year-over-year in the second quarter of 2026, reflecting early success in capturing this share as well as great incremental growth in this category given where retail demand is. We are also expanding our Aftermarket infrastructure with the addition of 2 major facilities that we've mentioned on previous calls. Our new 600,000 square foot distribution center in South Bend came online last quarter, significantly increasing our national distribution capacity.

And the second facility, approximately 400,000 square feet is expected to be completed by year-end and will consolidate several less efficient manufacturing operations that support Ranch Hand-branded products in Texas while also positioning us in a more favorable labor market in Seguin, Texas. Profitability remains a key highlight. Operating margin improved to 8.7% from 7.8% a year ago, driven by efficiency, improved product mix, plant optimization and continued G&A discipline. We continue to evaluate divestiture opportunities for select lower-margin businesses. As a result, we continue to target 70 basis points to 120 basis points of operating margin improvement in 2026 as we progress toward our long-term goal of achieving double-digit margins.

Our balance sheet remains very strong, supported by more than $250 million of operating cash flow over the last 12 months and total liquidity exceeding $700 million at quarter end. We remain disciplined in our capital allocation, prioritizing investment in operational excellence, innovation-driven diversification and complementary M&A. Over the past 25 years, we have completed 77 acquisitions and our pipeline of smaller tuck-in opportunities remains active. Most importantly, returning capital to shareholders remains an important priority, which has been supported by a dividend yield above 3.5% and opportunistic share repurchases.

With regards to the discussions with Patrick, our Board has determined that the best path forward is to continue executing our strategy as a stand-alone company, a strategy we feel has and will continue to position us and our stakeholders well into the future. In summary, we are confident in our ability to perform through a wide range of macro environments. Our innovation-driven content growth, higher-margin Aftermarket platform, expanding presence across adjacent OEM markets and disciplined execution continue to strengthen our competitive position. Most importantly, none of this will be possible without the dedication and talent of the incredible people of LCI who continue to drive our long-term success.

With that, I will turn it over to Lillian to walk through our financial results in more detail.

Lillian Etzkorn: Thank you, Jason, and thank you all for joining us. We're off to a strong start in 2026. In the first quarter, LCI delivered revenue growth, margin expansion and significantly higher earnings per share. This performance comes despite weaker industry fundamentals and a full year RV unit outlook that has deteriorated in recent months. Our results reflect the strength of our operating model and the tremendous efforts of the LCI team as we continue to execute on our strategic initiatives to drive growth and profitability. Taking a closer look at quarterly results, consolidated net sales grew 4% year-over-year to $1.1 billion. OEM net sales also grew 4%, driven by a 17% increase in Adjacent Industries OEM.

This growth was fueled by strategic investments and stronger sales to North American Adjacent Industries OEMs. These gains more than offset a 4% decline in RV OEM net sales. The RV OEM performance reflects lower North American travel trailer and fifth-wheel shipments, partially offset by price increases to cover increased material costs, a change in our RV sales mix towards higher content fifth-wheel units, growth in our North American motorhome RV unit shipments and progress in our ongoing efforts to take market share. Content per towable RV unit remains a tailwind for us, increasing to $5,826, which was up 13% year-over-year and 3% sequentially.

This year-over-year increase was driven by approximately 3% organic growth from innovation and recent product launches, an improved mix of higher content fifth-wheel units and increases in selling prices to cover increased material costs. Content per motorized unit increased 6% to $3,970. In our Aftermarket business, net sales increased 7% year-over-year to $238 million. Growth was driven by price increases to cover higher material costs as well as contributions from strategic investments. Consolidated operating profit totaled $95 million, up a robust 17% over the prior year period with operating margin expanding 90 basis points to 8.7%. OEM operating profit margin expanded 150 basis points to 9%.

This improvement was driven by higher prices on targeted products to cover increased material costs as well as our ongoing efforts to enhance operating efficiencies through footprint optimization, material sourcing strategies and other operating initiatives. Aftermarket operating profit margin was 7.8% compared to 8.7% in the prior year period, primarily reflecting higher material costs related to tariffs and steel as well as investments in capacity and distribution to support continued growth in the Aftermarket segment. We were able to partially offset these factors by raising prices for targeted products in response to a higher material cost, along with sourcing initiatives and favorable sales mix.

Adjusted EBITDA for the quarter was $125 million, up 13% year-over-year with the margin expanding 90 basis points to 11.5%. GAAP net income increased 27% to $63 million, resulting in GAAP EPS of $2.53. Adjusted diluted EPS was $2.59, reflecting a $0.06 accounting adjustment for dilution related to our 2030 convertible notes. We remain very well positioned from a balance sheet perspective. Cash and cash equivalents of $142 million at quarter end. Revolver availability was nearly $600 million and total liquidity exceeded $700 million. Net debt to adjusted EBITDA was 1.9x, within our targeted range of 1.5 to 2x and reflecting a quarter end outstanding net debt of just over $800 million.

Our approach to capital allocation remains balanced and disciplined. First quarter capital expenditures totaled just under $10 million, in line with the prior year. We also look to opportunistically buy back shares under our $300 million repurchase program, and we maintained our quarterly dividend of $1.15 per share with $28 million paid during the quarter. Finally, we continue to seek thoughtful and complementary investments as part of our balanced capital allocation strategy. Turning to our updated full year outlook. RV wholesale shipments are now expected to be 315,000 to 330,000, as Jason mentioned. Marine industry deliveries are still expected to be flat to up low single digits.

Despite the subdued industry backdrop, driven by our self-help initiatives and growth platforms, we continue to expect full year revenue of $4.2 billion to $4.3 billion and an operating profit margin in the range of 7.5% to 8%. Reflecting our strong first quarter performance, we are tightening our full year guidance and now expect 2026 adjusted EPS of $8.75 to $9.25. Looking ahead, some of the key growth drivers include continued innovation and increasing content per unit, Aftermarket growth that's benefiting from the growing number of RVs entering the repair and replacement cycle, housing growth benefiting from our growing number of residential window products and increased automotive aftermarket demand.

Our adjusted EPS range, representing up to 24% annual growth at the high end is supported by continued margin expansion. We expect to continue our footprint optimization and address another 8 to 10 facilities this year, alongside ongoing efficiency and cost containment initiatives. Rounding out our updated full year outlook, we expect capital expenditures to be $55 million to $75 million for the year, focused primarily on business investment and innovation. In closing, we are off to a strong start in 2026 with our team focused on executing strategies that drive growth, profitability and enhance shareholder value. With that, operator, we'd be happy to take questions if you could please open up the line.

Operator: [Operator Instructions] Our first question comes from Nathan Jones from Stifel.

Nathan Jones: I guess I'll start with my first question on the Adjacent Industries OEM growth at 17%. Maybe you can give us a little bit more color on where you saw the strength and weaknesses in that segment given that the growth there was so strong?

Jason Lippert: I think a big piece of that came from the -- we haven't lapsed the Freedman and Trans/Air acquisitions completely yet. That's part of it. All the adjacent markets are growing a little bit, but that lapse created some additional increase.

Lillian Etzkorn: Yes. Nathan, specifically, the revenue from the acquisitions was $47 million in the quarter. So that contains a good chunk of it.

Nathan Jones: Fair enough. I guess second question then on the margin performance. It was obviously also very strong. Can you talk about some of the contributors to that? I know you had -- you obviously had some inflation going through the business this quarter and pricing going through it was price cost positive to that or neutral to that? Just any color you can give us on the contributors to the margin expansion.

Jason Lippert: Well, I think the biggest piece of the 100 bps or near 100 bps there is the -- all the self-help we're doing with the G&A improvements, all the facility consolidations and things we're doing there. And that's obviously going to continue on through this year. When we talked about the 8 to 10 facility consolidations we have this year, there's some big ones wrapped up in there. We'll be able to give more color at second quarter because really, we're waiting for July shutdown. There's usually a decent time shutdown during the 4th of July, where we can take the time and shut some of these facilities down and consolidate them with others that are still standing.

Nathan Jones: And on the price cost equation, are you able to fully offset the inflationary costs, tariff costs with price? Or is there a lag to that? And then I guess just the last one, the changes in tariffs, any incremental impact from those? And I'll leave it there.

Jason Lippert: Yes, there's a lot of puts and takes happening at the moment, obviously. I mean, with the new tariff stack after the Supreme Court struck down the old tariffs, there's a little bit of a stack on top of where we were before. We'll be dealing with that over the next months. But our assumption is we're not going to have any different approach or results to dealing with the tariffs that we did in the last few years that we've been dealing with it. So same strategy, going to continue to work on our strategic sourcing, make sure that we're buying from places and buying from countries strategically so that we're not overpaying on tariffs.

And if we've got to pass some things along, we're going to do that and do that carefully with our customers. And there will be -- there always is just a little bit of lag as we sort these things out, but it's not meaningful.

Operator: Our next question comes from Daniel Moore from CJS Securities.

Dan Moore: Looking at the revenue guide unchanged despite obviously a softer RV outlook. Just in terms of where you see the opportunity to make it up. It sounds like you raised the Aftermarket opportunity for First Brands. Are there other things that are trending stronger, be it pricing, content, adjacent markets? Where is the kind of the makeup there?

Jason Lippert: Yes. So First Brands and the Aftermarket piece is a piece of it, obviously. We mentioned in the prepared remarks that revenues for our automotive aftermarket division are mid-teens for the second quarter. We've obviously got good visibility in April and May. So we feel comfortable about that. I think the other big piece is the product placement that we've done on the RV side and the marine side for model year change that's coming up here in June. For just the RV piece alone, it was $140 million of new product placement. So that's new products that we've launched and put in the model year change cycles and also some market share improvements in different areas in the business.

And we're winning in some of the other diversified adjacent businesses, but the $140 million piece from June forward annualized is probably the other big piece to offset any kind of softness in RV. So...

Dan Moore: Yes, really helpful. You mentioned the obvious momentum in Aftermarket. April revenue as a whole down 4%. Just talk about the cadence of revenue entering May and expectations for Q2 more generally that's kind of embedded in your '26 revenue guide.

Lillian Etzkorn: Sure. So, as you know, Q2 historically is probably the strongest quarter for us in any given year, and that is what we're expecting for this year as well. So despite April being a little bit softer, we are expecting sequentially to be up and also to be up year-over-year for the second quarter. And then I would say really just normal seasonality as we move through the balance of the year. Third quarter, we tend to have more of the shutdowns, Europe has shutdowns and then fourth quarter, we taper off. But yes, second quarter, we're expecting it to be nice and strong.

Dan Moore: Really helpful, Lillian. Last one for me, a little long-winded, I apologize, but you're clearly incurring incremental costs from tariffs, from steel, aluminum, still maintaining 7.5% to 8% margin for the year. Given that a lot of these will likely be passed on with a little bit of a lag and the ongoing facility consolidations throughout the year and lower fixed cost absorption, let's say, we entered the year -- ended the year at kind of that midpoint, 7.75%, what would that imply on a run rate basis entering fiscal '27, assuming inflationary pressures start to level off?

Lillian Etzkorn: Yes. So with that, again, kind of from the seasonality perspective, the fourth quarter in terms of a jump point in absolute terms is always going to be the lightest quarter. So I wouldn't necessarily use the fourth quarter as the run rate into next year just because that is the low point. What I would say, and I think it's reasonable to assume is, as you're seeing the year-over-year improvement in margin by quarter to continue to see that improvement kind of as that delta year-to-year as your start point for the following year, I think, is reasonable.

And I think the other thing to point out, just in terms of the self-help, yes, it's a lot of the cost activities that Jason is highlighting. But I would also say just from efficiencies and how we're operating within our facilities, the team has done a really nice job of executing on that in some really difficult environments right now from an industry perspective.

Jason Lippert: We feel there's a lot of pent-up demand out there. We're obviously not seeing it in the beginning part of the year here on the retail side, although used seems to be up pretty heavy, much bigger than what new is. New seems -- obviously, it's flat to down in most places, but used is up anywhere from high singles to mid-teens on most counts where we're taking those points and talking to dealers.

So, yes, I think it really depends a lot on where retail falls and if we can get new going again, we're certainly going to be working with our customers to make sure that we're giving them every opportunity to get at affordability because that's the biggest headache out there when it comes to some of the sluggishness on the new purchases.

Dan Moore: Yes. I guess my thought was given the lag in some of the pricing and some of the initiatives, you'd probably be entering '27 at an even higher level on an annualized basis, but I'll take the rest offline.

Operator: Our next question comes from Joe Altobello from Raymond James.

Joseph Altobello: I want to just follow-up on that line of question along operating margin and the improvement you're seeing this year. Obviously, it sounds like most of that is not volume dependent and it's largely in your control. You're talking about 8 to 10 facilities closures this year. How much runway do you see into '27 on that self-help side?

Jason Lippert: Yes. So, obviously, we've got flow-through from all the changes we made last year that are kind of happening throughout this year, and we've got some carryover from that. And then like I said, these 8 to 10, we're literally just getting ready to start making these moves and changes and consolidations in July. So you can anticipate the benefits from all those moves to impact our P&Ls from July of this year through July of next year. And then we've got more self-help initiatives and some other facility consolidations on tap for next year already lined up.

So the way I'd categorize what we've done here is, we started thinking really hot and heavy about this in the middle of '24 and started making changes just in the event that things didn't get better and the environment didn't improve. I'm glad we did that. I think a lot of people were thinking that they come into '26 and that volume would have to get better because it's been such a long depressed period of low retail and wholesale activity. But as we've dug into these self-help initiatives and around G&A specifically and around our plant consolidations and optimization specifically, we just continue to find more and more things.

I mean the low-hanging fruit, we're kind of taking care of this year, but there's still some things we can do next year, and that will continue to benefit us through '27 and maybe even into '28.

Joseph Altobello: Well, that's sort of what I was getting at, which is, if the industry looks next year like it does this year, you still see some pretty good margin expansion.

Jason Lippert: Yes.

Lillian Etzkorn: Yes, I think that's reasonable. I mean, Joe, as we've talked before, we've put out there the target of double-digit EBIT margins and really a lot of the self-help that we're doing puts us on a nice glide path towards that. Obviously, as we've spoken before, we do need to see some industry recoveries for the markets that we participate in. But we feel real good with the actions that we can take independent of the industry movements to put us on continued progression from the margin aspect.

Jason Lippert: And I think the self-help and the consolidations and optimizations are helping a lot more than what we thought. We've had to rip the Band-Aid off in some spots and get uncomfortable. But at the end of the day, we're starting to scratch double digits without the improvement in the market right now. So I think that's a good sign.

Joseph Altobello: Got it. And maybe last one for me. Jason, I'm not sure how much you want to comment on the discussions with Patrick, but maybe talk about what initially attracted you to the deal. And I don't know if you want to talk about why it ultimately fell apart.

Jason Lippert: I mean, as you know, I mean, we've done, as we said in the prepared remarks, 77 acquisitions over the course of at least my last 20 years or so in the seat. And we're looking at stuff all the time. And our Board is always challenging us to look at everything from small tuck-ins to large transformational deals. And this just happened to be one that you heard about that got into discussions. But at the end of the day, I mean, of the 77 we've done, we probably talked to 400 people, and there's been 300 that haven't gotten done.

So we're always looking at these things, and we're always looking to -- whether it's transformational or small tuck-ins, these things pop up, you just don't necessarily hear about all of them. So that's about all we're willing to comment on, Joe.

Operator: Our next question comes from Patrick Buckley from Jefferies.

Patrick Buckley: I think you called out strong European results in your prepared remarks. What's driving that improvement over there? Is the broader consumer environment showing signs of improvement from what you're seeing?

Jason Lippert: So I would tell you that we've been over there since 2016, starting to accumulate a platform over there. We bought several businesses and put them together to create a little consolidated supply business over there. Since we've been over there, the market doesn't ever grow big or drop fast. It's pretty consistent. So I wouldn't say it's market conditions. About 18 months ago, we decided to completely restructure the business over there, really decentralize it and took away a bunch of a corporate structure we had put together.

And then, again, done some of the same self-help initiatives and plant consolidations and optimizations over there that we've done here in the last 18 months and are starting to show through on results really nice.

Patrick Buckley: Got it. And then on the Lippert factory service, could you talk a bit more about the size of that today and what you view as the ultimate size and growth potential of that opportunity and maybe the time line there?

Jason Lippert: Yes. So it was more of a thought we had last year. We kind of implemented this concept last year to say, "Hey, look, there's just -- as long as we've been in the business, service continues to be a pain point for the consumer." So we decided to put a few of our own up. We have had one here in Goshen for a long time, but we moved out to Howe right off the toll road, bought a bigger facility with some camping spots and things like that. So it's just more of a destination for people to come to. And we've added 2 more facilities at the beginning of this year, tail end of last year.

So it's small today. It's not bigger than $10 million, but we've got, like I said, 200 appointments per week right now, and that's continuing to grow as we get the word out and advertised about this, and we're really taking really good care of consumers that come. So our hope is that over the next several years, we can grow this into a bigger platform that's more meaningful, and we'll continue to give you updates as we move along quarter-to-quarter.

Operator: Our next question comes from Scott Stember from ROTH Capital.

Scott Stember: A lot of facility consolidation going on over the last 6 to 9 months. I know that there was a bunch that took place in 4Q and another 8 to 10 for this year. Can you maybe size up the actual benefit that we'll see down to the bottom line this year just from that because that's a huge part of the story for your results this year?

Lillian Etzkorn: Yes. No, that is a key part of the story for the results. And you're seeing it in the first quarter, and we had 80 basis points improvement from cost enhancements. So a good portion of that is going to be from the consolidations that we've done. And like Jason was saying, we expect that to continue as we progress through this year in the second half, similar to last year. Second half is really where you'll see more of the consolidation activity and the benefits starting to realize, call it, towards the end of this year and more so materially as we get into 2027 is where you'll see the greater impact from our actions in 2026.

Scott Stember: Got it. And then, Jason, you made some comments about -- I jumped on the call late, so I'm not sure if I heard everything, but some comments about how the Aftermarket is trending currently for you, I think, in April and May. Can you maybe just talk about that again? And then also with used RVs outperforming new, could you maybe just remind us of how much of a benefit that could be for LCI in the Aftermarket with refurbishing, reconditioning units?

Jason Lippert: Yes. So first, what I mentioned earlier was that the auto Aftermarket is trending revenue, Q2 up mid-teens from last year. And as you know, we've got 2 key components to our Aftermarket business. We've got the automotive Aftermarket, which is roughly half of our Aftermarket business, and then we have the RV and marine piece, which RV is a big piece of that. I would say the RV side is still -- it kind of follows new units. So if there's less used units, there's a little bit of sluggishness on the Aftermarket side for RV.

But with respect to the used units, and Wagner says it best, I mean, every time they sell a lot of used units, they're always refurbishing and creating more value in those used RVs by whether it's repairing and fixing things or just upgrading some things. So there is a little bit of that. It's just hard to quantify because it's just really hard to track. But used units, new units going up, it's good for our Aftermarket business, and we'll continue to see benefit from that as this goes along.

But I think the big piece as we keep talking about is, these COVID units that are going to continue to need repair and replacement over the next several years. I mean there is a slug of those, obviously, to the tune of 1.5 million units. And as those start coming in for repair and replacement parts, a lot of that business is going to come our way.

Scott Stember: And on the auto side of the Aftermarket, what is driving that demand? And do you think that's sustainable for the balance of the year?

Jason Lippert: Yes. Yes, for sure. I mean the big piece, as we keep mentioning is the First Brands kind of that whole bankruptcy that's creating issues. I mean they have not solved the problem. They've not moved any of those businesses to other businesses that have bought those. So the people that were buying First Brands hitches and towing products basically had to go find new suppliers over the last few months. So this is kind of broke loose. And as the second -- is really the largest player in that space, we're the beneficiary of a lot of that new business.

So we're trying to take on as much as we can, given our -- given what capacity we have, and we expect that to continue through the long term because there's -- it doesn't appear that there's anything going to happen with First Brands.

Operator: Our next question comes from Tristan Thomas from BMO Capital.

Tristan Thomas-Martin: Jason, could you update your retail assumption for the year?

Jason Lippert: Yes. I'd say we're kind of -- yes, down mid-single digits probably is probably where we're at, somewhere in there. It's hard to say. I think we'll have a really good feel in a few months after we get through the summer selling season here, obviously, but that's our best guess right now.

Tristan Thomas-Martin: Okay. And then just looking at Slide 21, your mix of single axle versus multi-axle fifth-wheels, flat year-over-year in the quarter. Do you expect -- is that surprising? I'm curious if you expected that to maybe be a little bit richer.

Jason Lippert: Yes. Yes, it is a little surprising. I mean we obviously talk to a lot of dealers. We talked to a lot of the OEMs. Their commentary to us on the single-axle units is they fully expect that to start trending downward at some point in the near future. They said that there's just too much inventory out there. The good news is it slowed down. I mean, for the last several years, it's been going up. So we've seen it flatten out and peak at this point in time, and we expect it to go down on the flip side.

We've seen fifth-wheels -- as you know, we build a lot of chassis, and we get to see a lot of these ratios, 1 for 1 and fifth-wheels are up a little bit right now, which is a good sign. We obviously put a lot more content into fifth-wheel units than we do tandem or single-axle travel trailers. So that's kind of what we're seeing right now.

Tristan Thomas-Martin: Okay. And then I'm going to sneak in one more. Just how do we -- from kind of a modeling standpoint, I think you called out $140 million from new model year '27 kind of share gains. Does that include the $100 million opportunity from the travel trailer leveling and stabilization system, the one you called out for Brinkley? And then also kind of the $140 million, how much of that falls in calendar '26 versus calendar year '27?

Jason Lippert: Yes. It's not a big piece of that. Tristan, the $100 million is a TAM, is the total addressable market for leveling systems of that type. So we're just launching that, and we expect that once Brinkley gets it out there and people start seeing it that they'll want to get a piece of that, at least we're trying to find leveling systems that fit into the lower price point trailers, some of the lower price point trailers. We've already got leveling systems for trailers, for travel trailers that are a little bit more expensive.

So our plan is over like any product launch and innovation, we -- 3 to 5 years, we want to penetrate at least 50% of the market. That's kind of our gold standard for product launches. So we've got -- we're off to the races with a really good customer and brand, and we'll get some good visibility, and then we'll see what happens as it makes its way into the market. But a lot of that $140 million is all sorts of products. Obviously, we've been talking a lot about our Chill Cube and our AC movement. I mean, 3 years ago, we were 15% of the AC market. Today, we're close to 60%.

We're making a lot of headway with appliances and our TCS, our Touring Coil Suspensions and our ABS suspension products. So suspension appliances, air conditioners are getting a big piece of that $140 million. But we're also making progress with windows and furniture and chassis and some of our other core products.

Operator: Our next question comes from Brandon Rolle from Loop Capital.

Brandon Roll?: Just first, just digging in on the second quarter, are you expecting operating margin -- sequential operating margin expansion versus that 8.7% you had in the first quarter?

Lillian Etzkorn: Yes. Again, the way I probably think about is think of the year-over-year improvement. Second quarter, again, tends to be a pretty strong quarter for us, just given the seasonality. So typically, you would expect to see that sequential improvement and that year-over-year improvement continuing as well.

Brandon Roll?: Okay. Great. And then just on the overall industry recovery for the RVs. Clearly, retail is underwhelmed year-to-date. Is there a scenario where you potentially have to start absorbing some of the raw material price increases because the prices are too much to the end consumer or OEMs just begin to push back a little bit there? Or do you feel comfortable you'll be able to push through price regardless of industry fundamentals?

Jason Lippert: Yes, absolutely. I mean there's a couple of strategies. One is, obviously, good, better, best. So we're working with our customers all the time on good, better, best products. So trying to find the most affordable options for people to still offer the consumers the best possible RV they can offer them, even if they've got to go from a good product or a better product to a good product or from a best product to a better product. So that's obviously part of the strategy, and we're always having those conversations and making -- running changes with our customers on those types of things.

And then the second thing is, we are working with our customers right now on special floor plans and doing some special deals so that we can get some more affordable product into the marketplace on really popular floor plans. So there's not a single large OEM that we're not having those conversations with right now. And we'll continue to work with them as we get through this retail season and see how things are going. But we've got some -- as you know, we've got a little bit of tariff refunds hopefully coming. We don't have visibility on that yet.

But if that does flow through and the refunds come through as the government has promised, then we'll be giving back to the large OEMs what they -- what we had to increase them back when those things first came out. So that will give some additional relief, hopefully. But affordability is the key issue right now, and we need to do everything we can as a supplier in the OEM community to give the dealers products that are priced right for the consumers.

Operator: Our next question comes from Alice Wycklendt from Baird.

Alice Wycklendt: Just want to circle back on the content per unit. Obviously, really strong organic growth of that up 3%, but the other bucket is a big contributor. I think the bulk of that is the index price adjustments. Can you provide a little bit more detail there? And I'm curious on what was the timing of some of those increases and the expected duration of that tailwind for content per unit?

Lillian Etzkorn: So yes, so again, just in terms of the breakout for the content improvement, 3% was organic growth, really driven by the innovative products continuing to get traction in the marketplace. And then as we look at that other, it's a combination of the mix. So as we've had greater fifth-wheel units coming into play, that's benefited us. And then probably proportionately as well are those sales price increases to cover the material costs. And really, those started coming into play, I'd say, last year, call it, into Q2, Q3-ish really around the summertime is when we started to see that. So those impacts will continue to benefit on that content unit as we're moving forward.

But the unit mix was also an important part of that increase as well just because we have more content on those larger, better equipped units.

Alice Wycklendt: And then just maybe want to take a step back. It sounds like integration of Freedman and Trans/Air is going well. But what does the M&A pipeline look like today? And maybe what are you focused on?

Jason Lippert: Yes. As always, we've got a lot of names on the list, Alice. And we're -- at any given point in time, we're talking to 4 or 5 different tuck-in opportunities, and those range anywhere from early discussions to LOIs, and we're -- we'll just keep you posted as we get close to getting these done, but the pipeline and multiples really haven't changed much in the last couple of years since we started looking at M&A again.

Operator: We currently have no further questions. I'd like to hand back to Jason for some closing remarks.

Jason Lippert: Yes. Well, I think the headlines are -- a lot of the self-help that we've been doing is starting to come into play and have a great impact on the results. And after 10 years of really focusing on diversifying the business in all these different areas, all the acquisitions and organic growth we've done there is really starting to play into our results as well, and we're excited to update you on our Q2 results in a few months. Thanks, everybody, for tuning in.

Operator: This concludes today's call. We thank you for joining. You may now disconnect your lines.

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