Q4 2023 LCI Industries Earnings Call

Participants

Scott Lewis Stember; Analyst; ROTH MKM Partners, LLC, Research Division

Frederick Charles Wightman-; Analyst; Wolfe Research, LLC

Daniel Joseph Moore; Analyst; CJS Securities, Inc.

Michael Arlington Swartz; Analyst; Truist Securities, Inc., Research Division

Craig Kennison; Analyst; Robert W Baird & Co. Incorporated, Research Division

Bret David Jordan; Analyst; Jefferies LLC, Research Division

Brandon Rollé; Analyst; D.A. Davidson & Co., Research Division

Tristan M. Thomas-Martin; Analyst; BMO Capital Markets Equity Research

Presentation

Operator

Hello, everyone, and welcome to the LCI Q4 2023 earnings call. My name is Emily, (Operator instructions) I will now turn the call over to our host, Lillian Etzkorn. Please go ahead.

Good morning, everyone, and welcome to the LCI Industries Fourth Quarter and Full Year 2023 conference call. I am joined on the call today by Jason Lippert, President and CEO; and Kip Amitiza, VP of Finance and Treasurer.
We will discuss the results for the quarter in just a moment. But first, I would like to inform you that certain statements made in today's conference call regarding LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties.
As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements.
These factors are discussed in our earnings release and in our Form 10 K and other filings with the SEC. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements except as required by law.
So with that, I would like to turn the call over to Jason.

Thanks, you, and good morning, everybody, and welcome to our fourth quarter and full year 2023 earnings call last year proved to be an eventful year for Lippert as we work to extend our position as an industry leader while navigating a challenging environment around the RV and marine businesses. Despite continued softness in the RV industry throughout 2023, along with a slowdown in the marine industry in the second half. Our consistent execution on diversification priorities and steadfast commitment to operational discipline helped to lift our performance. As we face these headwinds, our teams took action by leveraging our operational expertise deep customer relationships and robust culture of innovation drive the business forward.
Looking at the full year, we closed 2023 with $3.8 billion in revenues, declining year over year from last year's $5.2 billion in revenues due largely to lower RV OEM. and marine industry production levels for dealers worked to rightsize inventories in both markets. That said, it is important to emphasize the durability of our business.
As many of you know, we have significantly diversified Lippert beyond recreational vehicle into transportation vehicles, marine, automotive, residential and the related aftermarket as well as into Europe. And that effort is now paying dividends. In fact, over the past five years, we have successfully executed our strategic playbook, growing revenues in new markets by nearly 60%, which has bolstered our diversification. And this quarter, that growth was underscored by the strength of our growing aftermarket businesses.
To be clear, these results would not have been possible if we focused our attention on the ERP space alone, instead by applying our core manufacturing competencies to gain a foothold in adjacent markets, we have created a range of what we believe are countercyclical revenue streams with a combined $11 billion-plus total addressable growth opportunity. We're working hard to continue to grow these opportunities, both organically and through acquisitions. Net sales from acquisitions completed in 2022 and 2023. The majority of which are focused outside of North American RV contributed approximately $74 million of revenue in 2023.
Looking ahead, customer demand for high-quality innovative content has resulted in new business commitments for 2024 of approximately $200 million net of any business losses. Moving forward, we continue to prioritize making improvements to our operations and optimizing our cost structure to support the long-term profitability of our business. We believe we have invested more capital into automation than any other player in the space, totaling over $100 million over the last few years. With the added benefit of 20,000 continuous improvement projects completed in 2023, we have improved our flexible and efficient manufacturing footprint through which we can quickly adjust production in line with constantly shifting demand levels in the cyclical markets. Additionally, we worked through the last few quarters to consolidate certain facilities and decreased fixed costs. We believe that our advanced manufacturing capabilities serve as a major competitive moat for our business that would take decades for any competitor to replicate while also positioning us to drive profitable growth as RV & Marina OEM production begin to normalize in the coming quarters.
Despite our great progress in reducing operating costs, we are constantly exploring opportunities to drive margin improve. We also have been focused on strengthening our balance sheet, reducing inventory by $261 million this year and delivering $527 million in cash flows from operations in 2023.
This disciplined approach has further solidified our financial profile and balance sheet during a very challenging period, establishing a stable foundation to allow us to weather any near-term challenges and capitalize on growth opportunities that lie ahead.
During the fourth quarter, content per towable RV decreased from the prior year to $5,058, while content per motorhome RV for the quarter was $3,506 and one of the prior quarter these content declines can largely be attributed index pricing reduction versus actual reduction of any of our content. Excluding the impact from index pricing, we saw market share content gains of 8.5%, largely driven by our consistent focus on new products and market share wins.
Looking at 2024, we anticipate that $130 million of the $200 million in new business I mentioned earlier will be RV new market share and content, while RV unit selling prices decline. I want to again emphasize that we do not anticipate much of the impact of de-contenting trend as our stickiness is driven by several factors from Apple chassis, Windows furniture, slides leveling and beyond. We have built our reputation on creating essential and innovative products for RVs that cannot easily be removed or replaced by another supplier.
We believe that our domestic manufacturing footprint also adds significant value for OEMs and sets us apart from other suppliers. Domestic and international or domestic factories typically require just a weekly time in order to supply product to our customers in our markets for many customers, we often build products on demand for emergency needs, which products can be completed in a day or two, we're easily able to provide inventory to OEMs and just-in-time basis where if they were to order the same parts from overseas suppliers, our customers would need to plan out much further than they do now as well as carry much more inventory, which often leads to Asola additionally, we have a team of highly trained technicians that travel across the nation to help our dealers with service and train on all of our products are unique capability that many of the suppliers have we have found that dealers value that's servicing capability to the point that they will push the OEMs to use lipid content versus our competitors that cannot provide the same support.
This fact is even more relevant on some of our more complex products we do. We've done a lot of talk about competition lately as well as customer verticals. And our response to that is simply business. In the last 30 years, I've had the privilege to help lead this business. We've developed a great strategy with amazing team, and we have a great track record of winning business competition and that new for us, we feel we are great at beating competitors as our market share and history proves that we win more battles than we lose.
And while we can't predict the future, we do know that our strategy and teams have a successful recipe to win competitive battles. We're also confident in our ability to continue growing our market share, both in RV and across adjacent markets. Our deep-rooted industry relationships, broad portfolio of innovative products and reputation for best-in-class quality and service have helped us create value in a way we believe cannot be replicated despite lingering chatter around heightened competition and new entrants. These differentiators have and should continue to keep us positioned as an industry leader while driving long-term market share expansion.
Now I'd like to highlight some of our recent announcements. First, we establish Merrimack's for mobility, a new joint venture with your EMS for mobility, Europe's leading supplier of aluminum products for our business. This partnership combines our well-established North American RV connections with your massive vast manufacturing knowledge to provide one of the most diverse product catalogs with industry leading customer service to a broader range of recreational and transportational vehicle customers who will soon be announcing some exciting new products that this joint venture will launch for RV OEMs in an effort to change the game for metal siding on RV.
Secondly, we teamed up with Keystone Cougar, the best selling fifth wheel in the country to showcase our ABS brake technology and Cougar RVs have the Tampa RV Super Show last month posting on the right track in Tampa, we gave a live demonstration to our being ambassadors and Keystone RV leadership on how much of a difference EBS can make per safely time of travel trailers and fifth wheels and adverse weather conditions. We're excited to continue finding new ways like the partner and collaborate with well-known brands and bring even more innovative content to the outdoor recreation markets.
Now in the aftermarket, our aftermarket net sales were $881 million for the year, down 1% compared to 2022, yet up 10% in the fourth quarter as we continued to expand market share, we are proud to have achieved a 370 basis point increase in operating margins for the full year due to improved mix, along with tailwinds from continued operational efficiencies with millions of vehicles entering the rip-and-replace cycle in the coming years.
Our aftermarket last some amazing opportunities. As our OEM market share has increased substantially over the last 10 years and all of our core product offerings. It stands to reason that more and more aging and are the repair and replacement cycle in the near term, they will ultimately require more deliberate replacement parts in the aftermarket Lippert Kurt Ranch Hand, Celera Varian are just a few of our popular brands that are playing critical roles and fueling this bottom line strengthen top line growth.
Our automotive aftermarket brand Kurt fell just shy of $1 million hitches during the year, a 6% increase over 2022 and continues to account for just over half of our total aftermarket sales. Appliances remain a massive opportunity and products like Varian water heaters, refrigerators and air conditioners has seen double-digit market share gains in the last 12 months.
Looking ahead, we expect to see gains in mattresses, furniture and awnings as consumer replenish used RVs. Most people don't realize that the used RV market sales are on average over 600 to 700,000 units per year, which represents a huge opportunity for our aftermarket products and services such that that focus on service has also continued to fuel our growth.
In addition to providing support through our large dedicated service center. We are always looking for ways to engage customers and dealers gathering feedback to improve our products. We have had amazing success with using the Lippert Technical Institute to host maintenance training for technicians and RV owners alike, helping people to learn how to extend the life of their vehicle and fix issues. So they can spend more time on the road and help others along the way.
During the quarter, we also returned to the Stuttgart retail show connecting with European consumers to unveil some recent RN. appliance and other innovations. Events like this, along with our other initiatives like the Scouts, the campground project, deliberate ambassador, they help us to build our relationships with the well-connected outdoor community driving trust and long-term loyalty to deliver.
Turning to the North American adjacent markets, 2023 revenues were down only 8% compared to the prior year. The decline was primarily due to softness in the marine retail environment, particularly impacting pontoon sales, where we sell the majority of our marine content. Marine production dropped sharply in the fourth quarter as OEMs began working to right-size inventory channel.
We're expecting this softness to continue into the next two quarters of 2024, with marine sales likely to decline for the year that said, we do expect a shorter downturn, marine versus what we have seen in RV. And we will focus resources this year to continue to develop numerous products as well as tighten efficiencies and processes.
This year alone, we expanded our marine product catalog with products like our shallow water Anchor Systems, glass system thrusters, new seating and electric remedies for many classes of boats. We plan to continue these types of innovations in 2024 to bolster ongoing organic content growth. We are seeing strength in other adjacent markets like transportation, supported by acquisitions, like Western MTP. I'll say these acquisitions. We continue to successfully expand into other adjacent areas by leveraging our existing manufacturing competencies from our other core businesses.
Our residential windows as well as our actual products continue to gain share. And the recent launch of our first transit bus seating product and bus chassis stretching is off to a great start. We are also making solid traction through our partnership with ATW, which is on a path of contributing $1 million actually annually.
We've also nearly completed construction and rollout of equipment of our world-class glass and acrylic processing center. With approximately $65 million of automated equipment and building space under one roof, we soon will be able to process hundreds of thousands of pieces of glass per month for the housing RV, marine, power sports and commercial glass industry's first fully automated facility is the future of our window and glass processing and should give us significant moat relative to any other competitor out there. This project is one of many that demonstrates our ability and willingness to invest in the future of quality manufacturing.
Moving outside of North America, our international business grew 4% as supply chain headwinds decreased abroad, driving increased shipments to meet pent-up demand. Products like our popped up acrylic windows but list store electronics, the skylight continue to highlight our international footprint works as an incubator for innovation across our brands. These products have the potential to bolster our competitive advantage in the US is a continued popularity with US OEMs.
We also initiated a new leadership structure in the Europe business, elevating for seasoned leaders with extensive backgrounds in these recreation markets who will strive to take our international presence to the same leading position we have in North America. As you all know, innovation acts as one of the primary drivers of our content expansion. We have invested in our R&D capabilities at what we consider to be an unparalleled rate that we believe will continue to help us develop world-class products and keep our competitive edge.
More importantly, we are also focused on making improvements to existing products, adding more content at a higher price point that gives us a massive long-term opportunity to drive content growth as there are numerous products in our portfolio that we're able to improve upon further. These are typically unique products that are both integral to vehicles and cannot be commoditized, helping us avoid de-contenting BioArray. A prime example of our innovative capabilities driving our market share expansion can be seen in our transformational ABS system.
I mentioned earlier, ABS brakes were not readily available or affordable in the US for RV production until we brought them to market since launching, we now have about 10 high-profile RV brands using ABS with more in process of committing to it growing our market share into the double digits for the total addressable market of $150 million to $200 million. We are finding that our beers vastly prefer having a VF on their vehicle to the added level of safety and peace of mind that provides helping us gain traction with the OEMs.
In addition to ABS., we launched several products in 2023 to have great momentum heading into 2024. Some of the more notable developments were our 4K window series with integrated shape, a new high-capacity, quite AC. We call the telco new leveling by seeding furnaces, a new line of electric Bimini and so much more in 2024, one of our largest innovation announcements is that we are launching a brand-new line of flying us for OEMs.
As we expand our portfolio. We plan to continue introducing innovative products to cater to a wide range of customer needs, which should drive long term content growth while expanding our presence and impact across the recreational markets. We believe that our enduring success all stems from our strong culture that start to the top, where we have skilled empathetic leaders dedicated to fostering team members, professional and personal growth.
We've implemented several programs of asset development, leading to one of the highest retention rates in the industry over the years, we have found that higher retention has a direct and meaningful impact on quality, safety, efficiency and innovation, all things that we believe are very critical for any good business externally. We are actively engaged supporting the communities where we work and live in 2023. Our team members contributed over 125,000 hours of community service worldwide involving numerous charitable organizations.
We are proud to note that around 75% of our 12,000 strong workforce participated in at least one of these service events throughout the year. As we aim to enhance our collective impact, we hope to inspire other organizations to contribute similarly to their communities. We delivered what we consider to be an amazing cash generation of $527 million in operating cash flow in 2023, considering the challenging conditions we have been working through and we expect to keep up this progress in 2024.
In turn, we have strengthened our balance sheet, maintain ample liquidity while paying down $277 million in debt. While we've cut down capital expenditures, we are continuing to prioritize spend in R&D, automation, operational excellence, M&A and other high return investments to support profitable growth for our business.
In closing, I would like to thank all of our team members across the globe for their dedication to overcoming significant challenges and moving our business forward over the last year and have any good business that experienced extreme cyclicality can't make it through without great teams. And I believe we have the best I'm incredibly encouraged by the development of witness in our teams over the past year, both personally and professionally as we work together to serve customers and deliver value to all of our stakeholders. We look forward to continuing this progress as we position Liberte for growth in 2024.
I will now turn to Lillian Etzkorn, our CFO, to give more detail on our financial results.

Our consolidated net sales for the fourth quarter decreased 6% to $838 million compared to the prior year period, primarily impacted by a reduction in North American RV and marine production as well as decreased selling prices, which are indexed to select commodities, partially offset by acquisitions. Our operational improvements and diversification strategy has partially mitigated the impact seen from lower wholesale shipments in the quarter.
Sales to North American RV OEMs declined 11%, excluding both North American RV OEM and marine OEM business increased 8% compared to the prior year period. Our diversification strategy and continued pursuit of operational improvements had not only provided near term support, but a strong platform to drive long-term growth.
The decline in Q4 2023 sales in North American RV OEMs was again driven by a decrease in wholesale shipments, which was influenced by current dealer inventory levels, inflation and rising interest rates. Content per towable RV unit decreased 17% to $5,058, while content per motorized unit decreased 14% to $3,506 compared to the prior year period.
Again, these content declines are largely attributed to index pricing pass-through versus elimination of Lippert content. We have continued to increase our organic content and market share through our focus on innovation. In Q4 2023, our organic growth contributed approximately 5.4% year over year LTM content per unit.
Sales to adjacent industries declined 9% versus the prior year, driven by the 41% decrease in marine sales. Marine content per powerboat decreased 27% to $1,244, primarily due to price decreases associated with year-over-year declining input costs and changes in product mix. However, sales were positively impacted by acquisition and pricing adjustments for our transportation products. Q4 2023 sales to the aftermarket increased 10% compared to the prior year period, driven by increased repairs and replacements and continued growth in automotive products.
Helping to illustrate the countercyclical nature of the business, international sales increased 4% year over year as supply chain headwinds decreased the brand's driving increased shipments to meet pent-up demand. This increase was also driven by an estimated 2% positive impact for exchange rates in the quarter. Gross margins were 19.2% compared to 16.4% in the prior year period, primarily due to positive mix shift and lower sales volume. Partially offset by the timing of sales price reductions contractually tied to commodity prices.
Operating margins increased compared to the prior year period, driven by decreased material commodity costs and effective fixed cost leverage. The aftermarket business delivered solid operating profits in the quarter at 8%, which is an 860-basis point improvement over the prior year. Gaap net loss in Q4 of 2023 was $2.4 million, our $0.09 loss per diluted share. This is compared to a net loss of $17.1 million or $0.68 loss per diluted share in Q4 of 2022. Ebitda increased 248% to $35.6 million for the fourth quarter compared to the prior year period.
Moving on to full year 2023 results. Sales to North American RV OEMs decreased 47% to $1.5 billion, driven by decreased wholesale shipments. Sales to North American adjacent markets decreased 8% to $1.1 billion in 2023, driven by Salton's marine production. North American aftermarket decreased its total sales by 1% to $814 million, while international sales increased 4% to $414 million compared to the prior year period.
Acquired revenues were approximately $73.6 million for the full year of 2023. Noncash depreciation and amortization was $131.8 million for the year ended December 31, 2023, while noncash stock-based compensation expense was $18.2 million for the same period, we anticipate depreciation and amortization in the range of $130 million to $140 million during the full year of 2024.
For the 12 months ended December 31, 2023, cash generated from operating activities was $527 million with $62 million used for capital expenditures, $26 million used for business acquisitions and $106 million returned to shareholders in the form of dividends.
We have had a strong focus on generating cash and continuing to improve working capital with an emphasis on decreasing inventory. This has resulted in a decrease in inventory of $261 million in 2023. We made net repayments on our long-term debt of $277 million in 2023, including prepayments of $37.5 million under term loan principal.
These term loan prepayments were applied to pay in full the scheduled principal amortization payments through Q1 of 2025 and are projected to save us approximately $1.9 million in annual interest expense based on the rates in effect at the end of 2023.
At the end of the fourth quarter, we had an outstanding net debt position of $781 million, which is 2.7 times pro forma EBITDA, adjusted to include LTM EBITDA of acquired businesses and the impact of noncash and other items as defined in our credit agreement.
Overall, we are seeing positive signs in total revenue, both sequentially and year over year for the month of January, sales were up 13% to $308 million versus January of '23, primarily due to more RV production days in 2024 compared to the prior year. This was partially offset by a significant decline in marine sales in the month compared to 2023.
We are expecting marine softness to continue into the next two quarters of 2024, with marine sales likely to decline for the year, we are pleased to see February RV orders increase and anticipate that these positive trends will continue throughout 2024. During the year, we will also continue to grow the aftermarket and adjacent businesses through both organic and inorganic methods. While the RV industry regains its footing.
Regarding RV wholesale shipments, we estimate a full year range of 325,000 to 350,000 units. As we look forward, we are focused on maintaining a strong balance sheet and targeting a long-term leverage of 1.5 times net debt to EBITDA. For the full year 2024 capital expenditures are expected to be in the range of $55 million to $75 million. We are confident in our ability to deliver long-term profitability and value for all of our stakeholders.
Our strategic approach, coupled with investments in innovation, facilities and our teams will further drive our success and enable us to achieve long-term, sustainable, profitable growth that at the end of our prepared remarks, operator, we're ready to take questions. Thank you.

Question and Answer Session

Operator

(Operator instructions)
Scott Stember, ROTH MKM

Scott Lewis Stember

Good morning, guys, and thanks for taking my questions. Can you remind us about how the indexing the timing all the mechanics work and how often do you go back to your the OEMs to talk price and down, what's the tail here about how far into 2024 should we expect to see headwinds as you return price?

Yeah, good question. We're indexed on steel and aluminum, as you know. So those just happen without any conversations, and we just follow the indexes on those two commodities on steel, we've seen a trending down and price last quarter and this quarter and what we're giving back to our customers will see that increase again, where they'll actually get some increases on steel in Q2 on steel one down to low 30s, and now it's back up into the mid 50s. So and then aluminum stayed pretty consistent. So there hasn't been a whole lot of movement in aluminum and we might maybe index more than other businesses out there. So, you know, the good of it is we just don't have to go and have those conversations with our customers on a regular basis with respect to the steel commodity related products and the rest of it's just kind of as we see commodities move enough to need price or to give price back, then we have those conversations with our customers. But steel and aluminum there, they're fixed on the indexes.

I want to add a little color also from that from the content on US, as we've talked in the past couple of quarters, the index pricing is still materially impacting that change in content per unit on a trailing 12 month basis. The fourth quarter kind of consistent with what we had talked about in the last the last call was also mid 10s in terms of the percent get back on impact on the content number.

Scott Lewis Stember

Got it. And then my next question and I'll go back into the queue is on the first quarter. Just trying to make sense of some of the puts and takes as far as sales and will we be profitable in the first quarter?

So in terms of -- yes, that's the expectation here on in terms of expectations from a sales perspective. So as we're starting the year, RV is coming back, as we indicated January on, we return back. We had good production up versus last year. Expecting seasonally expect RV to continue to trend well as we move through the quarter. That said, Marine is definitely a significant headwind. We had a very strong first quarter in 2023, and we are materially off that in January and expect that to continue. We're down anywhere from 40% to 50% in marine when we compare it to last year, so from a net-net perspective, I would expect revenue bottom line to be up sequentially from Q4. So we will be down versus 2023 because of that Marine softness.

And Scott, we've got new had January results and so we are profitable in January. We know January February revenues look very similar to January at this point in time, at least from an RBC perspective. And if you look at March and we've got certainly have visibility into March, we're seeing RV OEMs increased some days production, which in some cases will be 20% for some of those and others that are others that are flat and others that are just adding a few units a week to their production schedule. So January, February look pretty, you know, consistent with one another March looks like it will be up a little bit. So it looks like, you know, like we've said all along, we know that what goes down must come up and what feels like we're coming starting to come off the bottom, at least in March, we'll certainly see a little bit more more volume and is that helpful?

Scott Lewis Stember

Not very helpful. So just to be clear, profitability would be lower than last year's first quarter.

Not sure for that quarter yet.

Yes, what I was saying from a revenue perspective, Scott, I would expect revenue to be lower overall because of the marine softness and you're offsetting some of the three flat to lower yet flat to lower. And then from a margin perspective about it just to be a little bit better than where we were last year in the first quarter auger.

Scott Lewis Stember

Perfect. Thanks so much, guys.

Operator

Fred Wightman, Wolfe Research.

Frederick Charles Wightman-

Hey, guys. Good morning. I just wanted to maybe clarify something on the shipment outlook for '24. I believe it's unchanged versus what you guys have talked about last quarter. But Jason, you've also talked about some of the disconnect between what the RBIA reports in terms of shipments versus what you actually produced. So can you just sort of level set if we think about the third of 313 the TRV I have reported for '23, what you think the actual production number was and maybe how to evaluate that against your 325 to 350 outlook for '24.

Yes, that's good. I'm glad you're bringing that up because we wanted to make the make the point anyway. It's just important, like you said, the consider wholesale production versus wholesale sales. So the reported last year, the 313 or whatever the number ended up to be, we feel the number in terms of units produced because they sold a bunch of units in '23 that were actually built in '22 that we would have, you know, built components foreign '22 on.
So we feel that delta was, you know, a production number of maybe 280 to 275, somewhere in there itself, it's clear enough to put it in a short range. So we feel that even if the even if on the low end, you're at the low end of our 325 to 350 on RV, we could see another 35,000 to 45,000 units of what we will produce this year from a wholesale perspective different than last year.
So I think that that's those are the puts and takes. We're not seeing it. You know, this January or January was up a little bit. But from a on a seasonality perspective, I think that, like I said, March April, May, June, these these dealers are going to need product. And that's what we're going to see more of the bump to get us closer to that 325 and North number, whatever number you're picking. But yes, from a production perspective, it feels like at the low end of our our scale or 35 to 45,000 units more units that will produce components for this year than last year, which is significant.

Frederick Charles Wightman-

Okay. That's helpful. And then just thinking about -- that's great. Just thinking about the January and February commentary, I mean, basically every other consumer company has talked about some impact of weather in January. Is there anything that you would call out there that we should keep in mind either days that got cut that are reflected in that January number incremental days in February. Anything that stood out from a weather impact perspective.

There was then there was weather impact for sure. There was a few days of shutdown, but the OEMs made some of that back and then some of it, they didn't own some of those days on inventory days. So there might have been a little bit of impact there. But I would say that year over year were ICN weather related impacts a day or two here there, and it's usually in January or February.

Frederick Charles Wightman-

Fair enough. Thanks a lot.

Operator

Daniel Moore with CJS Securities.

Daniel Joseph Moore

Yes, perfect. Thanks, Jason. Thanks for taking questions. First, on marine side that down 40% to 50% that you described. Is that all production are your customers managing down their inventories? Or is it do you sell to that more just in time? Similar to RV?

Yes, we'll for sure adjustment time. But I think that the of the down side that we're seeing there is partially similar to what we saw with Arby's, where inventories are starting to be adjusted at the dealer level and OEMs just in our building. So you'll probably see a little bit more sell through on the whole on them on the retail side, which you know, will impact both OEMs and our production and marine.

Daniel Joseph Moore

Understood. That's helpful. And then maybe just you talked about it in round about terms, but just your expectations for content growth in RV as well as marine kind of H1 versus the full year '24. Do you expect positive growth for the full year? And is pricing more likely to be a headwind, at least for the first half?

Yes, we maintain that. If you eliminate the index indexing puts and takes out of whatever the content number is that in our ability to to continually organically grow content. As you know, the three to 5% to 6%, somewhere in there just depends on what we're launching and how the OEMs adapt and bring in our new products. So we feel like we can possibly grow organic content on a consistent basis, and we've demonstrated that over the over history.

Daniel Joseph Moore

Okay. One more little in the weeds, but the graph, the glass and acrylic factory, can you maybe talk a little bit about some of the newer end markets you're targeting with that capacity and capabilities? And what does the total TAM look like relative to the revenue you're currently generating out of that? Thank you.

Yes, we don't have a just given the last piece first, we don't have a TAM on there yet because we're in early stages, but we've got probably three four. So the factory running. So we've been kind of installing it in pieces, and it's pretty impressive if you come out next time, we'd love to take you through the everything, but we're doing housing glass for both manufactured housing and residential housing.
We're doing certainly RV glass and now our RV door glass, if you've been around Arby's lately, we're putting glass on the front doors of the units. It would make it look nicer and adding some content there. But if you look at some of the commercial markets we're building for their. If you look at solar glass, refrigerator glass and in grocery stores, we're doing some of that a lot of garage door glass. If you look at Garage Doors these days, both commercial and residential, you see a lot a lot of glass in the garage doors versus just the older type door that you'd normally expect.
So and then we get acrylic and they can do some thermoforming there. And we expect acrylic to be big on RVs. I mean, we're going to certainly offer that as part of our our mode on Windows, which is, you know, second or third largest in our component in the RV business for our core products. So we'll have acrylic the windows, which nobody else has here. And then we also will do acrylic skylights and things like that. You're seeing a trend with our RVOEM.s that continue to put more, you know, more glass and acrylic around the units to just let more natural light and the units itself units so that's where we're at today, more of an update next quarter.

Daniel Joseph Moore

Very good. I'll jump back. I'm going to follow up. Thank you.

Sure. Thanks, Dan.

Operator

Mike Swartz, Truist Securities.

Michael Arlington Swartz

Good morning. Just first question, maybe on the on the towable content that's down 17 in the quarter. I think you provided some of the moving pieces there, but can we just go through how much of that was M&A versus pricing versus organic growth?

Yes. I'd say the key elements to break out there, Mike on you mentioned that in terms of the index pricing, the give back that was in the mid 10s as a percentage basis on the organic growth was at about 5.4%. And then if you look to net and I think Jason cited this in his in his commentary, the overall growth, which would have included on acquisitions that well as well was sitting at about 8.5%. So really the biggest headwind that we've been experiencing, and this has been consistent as we've moved through the quarters in 2023 has been the index pricing get back some battle that will begin to mitigate as we move through 2024. We'll still have a little bit of a headwind in Q1. But as we as we move through the quarters, consistent with what we've talked about before, we expect that to mitigate and you're really seeing more of the full impact of the organic benefit of our growth in that 3% to 5% that Jason lift exciting.

Michael Arlington Swartz

Got you. That's helpful. Thank you. And then just on the gross margin in the fourth quarter on maybe if we compare to the third quarter, what I guess, what were the what were the puts and takes there been about 300 basis points, but I assume that that mix towards aftermarket was a positive, but what are some of the negatives that you encountered in the quarter?

Yes, I'd say the biggest impact, frankly, is volume and the headwind that that had on us. Mix was a little bit on, but by far it was just decrease in the sales volumes.

Michael Arlington Swartz

Okay. Perfect. And then I know in the past you've kind of provided us some some guide rails around EBIT margin. I think you said in the first quarter on a year-over-year basis, it should be a little better. But I guess any way to think about that on a full year basis for 2024 and maybe how that plays out as the year progresses?

Yes. So we've talked before that we'd expect the margins to be kind of in the call it, the mid single digits. And really that's where we probably are going to see ourselves this year as we progress through 2024 with the quarters will be some a little bit higher quarters depending on the volume that's flowing through and a little bit lower quarters depending on seasonality. But net-net kind of that mid single digit for this year is probably a reasonable assumption.

And Mike, going back to your other question, too, we didn't we did call out warranty as well, if you look at sales like early and said, you know, significantly underpriced compared to the last couple of years, and we had a significant amount of units built over COVID just the volume of it out. And that starts to show up a couple of years after after these units start getting sold. So and that will eventually retract.

Michael Arlington Swartz

Okay, great. Thank you.

Thank you.

Operator

Craig Kennison, Baird.

Craig Kennison

Yes, thank you for taking my questions. Jason, I just wonder if you would characterize that Inscape today versus your your long history with a company, there's just a tremendous amount investor concern about your share loss. And yet you talk about organic growth when you unpack some of your content per unit metrics. So honestly, just trying to reconcile a lot of different information from different sources there and wonder how you would characterize the competitive landscape and whether there are categories where you're losing share?

So my favorite topic, Craig, and so yes, I'll categorize that. And we look at, like I said, I've been in this business since we started our first RV product. So 30 years, I watch a lot of competitors come and go and put them into a couple of different categories. Them we'd be in there. They're gone some we've acquired and they're part of our business now and others are still around and we're competing with them on a regular basis. And we have and I'd say over the 30 years what's been consistent is not only that, but the fact that, you know, we just competition as part of what we do as part of the business as part of any business and you look at the new entrants now looking at the actual thing that keep people keep bringing up the Ericsson, helping people keep bringing up. We've had new competitors, you know, I would say, almost every year in the last 30 years. So I just I just keep pointing people to our track record and say, look at our track record. We won more battles than we've lost. We continue to use innovation and to beat our competitors. We use our bundling and our just our massive motive products there to beat competitors. And then now we've got diversification strategy, which allows us to do some things that we couldn't do in oh five to 10 years ago. So I pointed those things and look at if you're pointing specifically to Eric Selle. I'd say, look, we're we're taking double-digit margin, have increases in market share against that business the last two years. And when you look at this axle thing that's popped up. Yes, we've lost a little bit of axles for server side of our business. But axles in general, the small part of our business and to boot we've had we won axles this year. So axles was like one of the the biggest gainers in 2023, where we were almost flat year over year in our axle business. We don't typically get that granular, but to kind of defend the whole competitive landscape, then I have to point it out and just say, look, we're down 50% in other RV products were flat in axles, even though we lost a little bit of market share. So I'd just say we're going to continue to compete. We'll find we'll have new competitors next year and it doesn't bother us.

Craig Kennison

Thanks for that, Jason. And then I just wonder if there's a way to reconcile what you just talked about with what Lilian talked about, which was mid single digit margin. I know that's below your long-term target and maybe what you've delivered in the past in terms of EBIT margin. So what is driving that margin pressure is the competitive landscape is within the realm of what you've experienced in the past?

No, I would I would say a couple of things. First, you look at the last three years, '23, '22 and '21, our our operating margin was just a little we're 8% and $16 billion in total revenues. So you look at that and say, okay, over time, will they perform? I mean, yes, we pick out one one down cycle. We've had, you know, I'd say 2.5 over the last 15 years, we had oh eight, we had a little a little dip in 18 and then we had had a latter part of '22 and '23.
So yes, those years were definitely going to see compression in margin. I think what maybe one difference from between now and oh eight as we have all these indexes in place where when there is extreme volatility and steel and aluminum pricing know there's going to be some some bigger swings in profitability, but it all evens out in the end because we're going to get we're going to get the price sooner later, and it fell pretty significantly over the course of the last half of last year and Q4 and Q1, Q4 last year. Q1, this year is when we will kind of see some of that headwind. We're out of it in Q2 because we've got some price increases coming on the steel side. So but I would say over time, I would expect we expect the same kind of margin performance on knowing that we're going to have a down cycle every once in a while. Maybe we maybe the the steel segment we're giving. I like to think we're contributing to the lower ASPs right now because we're one of the ones through steel. You've given some pretty significant increases and we all know of ASPs lower than we're going to probably have a better chance selling RVs.

So, you know, Craig, also on that building and what Jason was just saying? Well, yes, we are seeing the RV industry recovery in 2024. We're still not back to historic levels in terms of wholesales and production on this business as we've stated before this business really is and will be a double digit margin business, I'd say once the overall industries in plural, not just the RV, but overall industries return back to what is more normalized. I think we've done the right actions in terms of on flexing the business, streamlining where appropriate. And now it's a matter of on capitalizing on the recovery of the various industries that we perform and to get back to those. So double-digit margins that that we should be delivering and we will be delivering.

Craig Kennison

Great. Thank you. Thanks.

Operator

Bret Jordan, Jefferies.

Bret David Jordan

Hey, good morning, guys. This is Patrick Buckley on for Brett. Thanks for taking our questions. And could you talk a little bit more on the international side of the RV business and how that's trending? How is that cycle over there compared to the US as of late?

Yes, great. We've been in the international side for about, you know, almost 10 years, almost a decade. And what we've learned is that it just moves slow, whether it's going down or whether it's going up on just a little bit slower reaction time by the market by the OEMs, the supply base, everything moves a little bit slower. So I'd say that over time you can plan on that just on the RB. piece of it being more consistent and it's never going to go. It never seems to go up substantially in big ways are down substantially in big ways. So it's a more consistent part of our business.
And right now it feels it feels pretty flattish. And I know there's some talk that there's some business business down downtick in some areas, but we're still seeing opportunities with content gain in market share gains over there. So we expect it to be pretty flat.

Bret David Jordan

Got it. That's helpful. And then on the marine side of things, how close is that to the bottom? Is it still looks at accelerating down here? Or is it going to start to flatten out.

Yeah, I think they've they realized and you look at some of the other public company releases, I think that they realize that you know, they need to really slow production and they've done that and started. It's really a tail end of last or early part of last half of last year. So we'll see how quickly, the dealers can get through product, but the products are never have never looked better. And I think that would help sell boats. Certainly this product moving out there. It hasn't completely stopped on the retail side, but we're kind of playing that same game at the RV OEMs and dealers played last years like just wait for inventories did to catch up and get to a reasonable level. And you know, we'll get we'll get back to business, but it doesn't feel like it's going to be as extensive or that or as long as what we saw on the RV side. So we're hopeful that they can get that fix this year.

Bret David Jordan

Got it. Very helpful. And my thanks, guys.

Thanks, Patrick.

Operator

Brandon Rollé, DA Davidson.

Brandon Rollé

Good morning. Thank you for taking my questions. First, just on the competitive wins, you had talked about inorganic market share gains, keeping your market share with increased competition or those market share wins or your ability to protect the market share, you have coming out of lower margin, maybe from people more people bidding on products or just an overall pushing the market to get pricing lower and to the consumer?

Yes, I think in some cases, yes, in some cases now, but I think that's always the case brand. And I think that, you know, you can always make the argument that if there's a lot of a lot of competition, a lot of pressure that that definitely forces margins down in some cases. But I'd also say, look, a lot of the stuff we're doing and mitigate our air conditioner. We mentioned, for example, there's not another product out there like it's a lot. We're competing in air conditioning space. We've got a product that nobody else has is higher-capacity is quieter, and we can we can retain margins on anything that's got IP or unique properties or unique features and benefits. So our ABS, certainly there's just nothing else out there really that that is giving a competition. So we can all margins and things like that, new suspension systems and there are some commoditized products for sure you're going to you're going to experience margin pressure and things like that. But you know, I don't think it's really any more than what we're typically used to. And that's that's probably the main stories. We're we're competing always and have for the last, you know, 30 years. It's just a matter of it's just seems to be more on everybody's radar now.

Brandon Rollé

Okay, thank you. And then just lastly, just going back to the fourth quarter, you know, wholesale production was much stronger than I think you guys had forecasted for the quarter yet know earnings came in a little lighter than expected. What kind of gives you confidence in your ability to forecast margins moving forward, given it seems like throughout the second half of the year, maybe around the new model year, things got a little squirrelly in terms of just accuracy with the forecast? Thank you.

Yeah. So to that, I mean, a couple of things to point out with the fourth quarter. So we were within that range However, I'd say at the very low end on the RV side of the brand and the biggest driver there was the marine drop off. I don't think that was anticipated or expected for the industry itself to drop off so dramatically and look, when we're in a time of dramatic volatility in terms of industry expectations, production levels, frankly, it's difficult to plan and it's difficult to forecast in that manner as we're looking forward to 2024 on when I think of the various markets that we're in, I think we're anticipating a little bit more stability from the RV side of the business, which is obviously a significant part of the business. Marine is going to be a challenge. We're expecting that to be down this year. Again, it's going to be driven by the industry. It's not us driving, it will need to flex and respond appropriately. So we are taking into account the macros and what we're hearing from our customers and the dealers, and we're confident in what we're putting forward. Again, the industry is always going to be a little bit of your wildcard in terms of what actually pulls through first production.

And just to add to that, and I do see, you know, you know, the the puts were there was a little bit more warranty than normal, like I mentioned a little bit ago on that'll that'll normalize here when we get some when we get some volume. Marine was the other big one that Lillian mentioned, but that's that's less than a little less than 10% of our total business. So that being off doesn't impact is as much as you might think of and then our Vilex, you said will we expect to continue to normalize and aftermarket's been very steady and we keep dock and we expect the service and repair part of our business to continue to grow double digits. And it's which are just doing more and more repair and service because we've got more and more OEM parts in the field as we've as we've penetrated market share and OEM content over the last decade. Those units are all starting to come back and need repair on parts like awnings and axles and slide-outs and leveling systems and all the different things that we build. So on hopefully that's helpful.

Brandon Rollé

It was, Thank you.
Yes, thanks.

Operator

Tristan Thomas Martin, BMO.

Tristan M. Thomas-Martin

Good morning. Jason -- I'm good. How are you going? There are a significant delta between wholesale shipments and also production in Q4?

I know for the year there was I don't I don't think I'm not going to sit here and tell you what the number is because I don't know. But you know, it doesn't feel like there was it might be a little more a little less, but I don't. And now for the year, we said like you can even count on 35,000 to 45,000 units, probably if you're expecting a difference this year to last year to this year on a wholesale number of 325?

Tristan M. Thomas-Martin

Got it. And then trying to kind of square your the RV, you kind of have the industry productions in January relative to your sales guidance. I'm kind of getting content on the RV side similar to what it was in 4Q? Is that the right base to kind of use moving forward?

Yes, they're still pretty consistent. I'm just trying to think so. I'm thinking of it in a trailing 12 month manner on that should be overall pretty consistent.

The only difference we noticed was a little bit of a mix shift and in our single actual trailers in our versus what's historic on. Of course, you're out of the shows you steal this, although entry-level stuff, Bob with Bob Martin was unknown podcast, the other day and said something in fact that you notice that it shows a lot of the entry level stuff moving. So we're seeing a little bit of that trend. And but I think it's important to note the difference between mix shift and de-contenting, a lot of mix shift to lower units. We're going to have a little bit less content there, but we don't see the discounting de-contenting of our products on on units that would make any impact on on our content number.

Tristan M. Thomas-Martin

Okay. And then just can I squeeze in one more remark market share content gains of 8.5% outside kind of calculated what's behind that, it keeps adding interest and did you call out market share content gains of 8.5%? I may have misheard you. I'm just curious kind of how you calculated that number yet on.

Yes, what that was the 8.5% that the Jason quoted, it was the organic growth in our product on a trailing 12 month basis plus the addition of acquisition contracts where the index and the index pricing, it puts out of there.

Tristan M. Thomas-Martin

Okay. Okay. Got it. Thank you.

Operator

We have no further questions, so I'll turn the call back over to Jason.

Thank you, and thanks, everybody, for joining. We're really looking forward to next quarter. We'll see all then.
Thanks. Bye.

Operator

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.