LCI Industries (LCII) 2021 Third Quarter Earnings Conference Record | Motley Fool

2021-11-25 10:22:27 By : Mr. William Wang

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LCI Industries (NYSE:LCII) 2021 Third Quarter Earnings Conference Call, at 8:30 AM EST, November 2, 2021

Good day, thank you for your support. Welcome to the third quarter earnings conference call of LCI Industries. 【Instructions】. Please note that today’s meeting is being recorded.

[Operator Instructions] Now I want to hand over today's meeting to your speakers. please continue.

Brian Hall-Chief Financial Officer

Good morning, everyone, and welcome to the LCI Industries third quarter 2021 conference call. Today, President, CEO and Director Jason Lippert joined my conference call. We will discuss the results of this quarter later. But first, I want to inform you that in today's conference call, certain statements about LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve many risks and uncertainties.

Therefore, the company reminds you that there are many factors (many of which are beyond the company's control) that can 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 our 10-K form and other documents filed with the U.S. Securities and Exchange Commission. Unless required by law, the company does not undertake any obligation or promise to update forward-looking statements to reflect circumstances or events that occur after the date of forward-looking statements. With this, I want to forward the call to Jason Lippert.

Jason Lippert-President, CEO and Director

Good morning everybody. As consumers continue to switch to outdoor lifestyles in record numbers, we have achieved another quarter of strong performance, driving substantial growth in revenue and market share. Despite operating in an environment full of supply chain challenges, material and labor shortages, and rising input costs, our team has overcome these headwinds to fulfill our customer commitments and meet the record demands of the entertainment market we serve. In this quarter, we achieved sales of US$1.2 billion, an increase of 41% year-on-year and an increase of 99% compared to the third quarter of 2019.

This great achievement of our team is supported by the tremendous organic growth and success of our recent acquisitions of Veada, Challenger, Polyplastic and CURT, which highlights the strength of our diversification strategy. In addition, we continue to increase the growth of RV content per vehicle, further consolidating our position as a global leader in the leisure space. Before entering the market segment results, I want to talk about our recent acquisition of Furrion, which we announced in early August. Furrion is a major distributor of a range of electrical and other electronic products for RVs in the wider transportation market.

The addition of Furrion, which is expected to have sales of USD 230 million in 2021, will help us enter a potential market of USD 1.5 billion in North America through its powerful catalog of innovative products, complementing our OEM product lineup, including kitchen appliances, AV appliances, and observation camera systems , To name a few. Thanks to the team, products and innovative thinking, we believe that we have a real opportunity to double this business in the next few years. In addition to North America, we plan to use Furrion to expand our products in the international market and leverage our existing global customer relationships. This will enable our company to further release its market share, especially in the caravan industry in Europe and Australia.

In addition, Furrion brings a strong aftermarket business, including online and physical businesses, further accelerating our company's aftermarket department, which is one of our fastest growing market segments. Our investment and growth in the aftermarket helps accelerate our proven diversification strategy to support the long-term growth of LCI. Over the years, the Lippert team has been working closely with the Furrion team through our distribution partnership and has established long-term relationships with its strong management and R&D team. Since the completion of the acquisition, we have initiated some exciting projects, and we will discuss these projects in further detail in the coming quarters.

We are very happy to welcome Furrion to the Lippert family, and I look forward to them helping us drive innovation to further change the industry we serve. Speaking of our market segment performance, starting with RV OEM, driven by strong demand in North America and international markets, sales in the third quarter increased by 44% year-on-year to approximately US$667 million. Our preliminary results showed that sales in October hit a record high, indicating that the strength of the industry continued into the fourth quarter, demand remained strong, and dealer inventories were still at the lowest level in history, not to mention that campsites across the country were still fully booked. In order to alleviate the profit pressure we saw throughout the year, which was caused by factors such as historically high steel and aluminum prices, skyrocketing freight rates, and widespread labor shortages, our team focused on driving continuous improvement and automation programs throughout the company.

These efforts will also help us create capacity without the need to build many new buildings, and we have allocated record funding for these automation and continuous improvement projects, of which more than 15 larger automation projects will be launched in 2022 Go live, part of the first 2023. In the long run, we will continue to implement more of these projects to support profit margins, while also positioning our production as agile, repeatable, and scalable in any environment. As our team continues to push new products to the market and gain market share, and some of our competitors have not been able to supply well in the past 12 months, the RV content per unit increased significantly this quarter. This is due to our continued Strong organic growth. The content of towable RVs increased by 10% year-on-year to US$3,786, while the content of each RV RV increased by 14% year-on-year to US$2,732.

Our team is focused on continuing to leverage content growth through innovation and continuous development of new and existing products. Innovation is still one of the cornerstones of our success. We are committed to meeting the demand for technologically advanced products, creating a first-class experience for consumers, and satisfying the needs of new technology-savvy customers. In accordance with recent consumer trends, we are also more focused on developing our safety product suite to introduce safety-related components that have been in the RV space in automobiles for many years. Our ABS brakes are a classic example of one of our latest motorhome safety innovations.

We have seen a lot of demand for this product in the market. In addition, our security products are designed to be compatible with a control to further expand the functionality of the platform and ecosystem, while providing customers with more flexibility and technology for their entertainment experience. Speaking of our aftermarket, total revenue in the third quarter increased to 219 million US dollars, an increase of 18% year-on-year. The Lippert after-sales team in the automotive, RV, and marine sectors continues to handle a large backlog of orders.

As used RVs continue to enter the repair and refurbishment cycle in record numbers, there is a great demand for our aftermarket products because the units being repaired are at the highest level in history. With the number of RVs currently on the road hitting a record high, 1 million vehicles enter the maintenance and replacement cycle every two years. For after-sales products and service companies that help RV consumers repair, replace and upgrade, this trend should be excellent. As we want to serve this growing existing user base and new lifestyle users, customer experience programs such as the Lippert Scouts program and the campground program remain a top priority. These innovative measures allow us to collect valuable feedback directly from RV users themselves, and we can use this feedback to improve our current and future products and services to RV users everywhere.

This quarter, we contacted more than 200 families through Lippert Getaway. This is our company’s first RV gathering, meeting with owners and groups, and hosting our first All Lippert Influencer Summit in history, in Tennessee A great campground in Pigeon Forge. During the four days in Tennessee, we listened to the opinions of RVers who are loyal to our brand. Based on their comments and testimony, it is clear that we have done more for this group than anyone, and it is more beneficial to listen to the opinions of these customers. Affect the RV customer experience. Turn to our neighboring market. Revenue in the third quarter increased 55% year-on-year to US$281 million.

Ships and other related markets are driven by the same long-term trends in trailers and aftermarkets. Shipping demand remains strong, but industrial production is also affected by the supply chain. In other words, we are successfully expanding our market share, and we have achieved this goal with the support of the marine business manufactured by Lexington, Vinda and Taylor. You may remember that we purchased electric Bimini products about a year ago, and we have only now begun to transition most of the industry from manual Bimini to electric Bimini, and at the same time created aftermarket options for this.

Earlier this year, we established a seating division for TRACKER Marine in Missouri, and we believe this is a great success because we are located near the largest pontoon and shipyard in the country and provide a lot of additional opportunities for the manufacturer. Our utilities and trailer axle businesses continue to make other notable progress. It has now surpassed our sales of RV axle suspensions and continues to significantly exceed industry growth. Due to our relationship and product supply, we win new customers in this field every month.

Due to the success of similar programs in RV, we have also launched a customer experience program for crew members and other users in the marine sector. We hope that these findings can solve the pain points of existing customers and enhance their experience in the yachting field, and at the same time draw more people's attention to the Lippert brand. Our international business performed strongly, with revenue increasing by 47% year-on-year to US$88 million. From what we have seen, we are very clear that European consumers continue to switch to outdoor lifestyles.

In fact, caravans and caravan retail sales increased by 70% in September. The response of the European RV industry seems to be a bit slower than that of the United States and can meet consumer demand, so we think this may be a good tail for us, because Europe may run longer than the United States. We continue to see increased interest Among European products in the U.S. and U.S.

RV OEMs are increasingly adopting Lippert's European components, including our European pop-up roofs, steps, doors, windows and bed sheets. Five years ago, these European products were not even sold in the United States. This strategy further helps build our brand reputation as a global innovator. Currently, the pop-up tops of B vans produced in our European factories provide a huge growth opportunity for us to manufacture these products in the United States.

Just like we have other products adopted by American manufacturers from Europe. Our European products and R&D continue to be the secret weapon of our sales team's stability, because they enable us to provide products to customers, otherwise these products would not be possible without the European business and creative product team. Next, I want to highlight our recent progress in sustainability reporting.

In the past year, we have focused on understanding the impact of our operations on the environment and the communities in which we operate, and exploring sustainable business practices that can promote value creation in the long term. Through these efforts, we have achieved real operational improvements, including establishing an environmental management system to monitor and reduce waste, and updating our safety training requirements. To highlight these and many other advancements, we would like to announce that we will release our first corporate sustainability report at the end of the fourth quarter, which we will use to report on our ESG performance and track future improvements. Along with operational sustainability comes the support of our team members and the community. These are the two key pillars of our cultural foundation, which allowed Lippert to stay in the company it is today.

Just four weeks ago, with the support of a large group of Lippert volunteers, I had the opportunity to preside over the auction of the Goshen Boys and Girls Club in Indiana. We raised $2 million through this auction to benefit local youth. I am extremely proud of the volunteers who helped these benefits, which shows that we have the ability to give back to the community through Lippert's support. This event is one of nearly 100 events, and our global team members participated in this event in October. Last week, more than 2,000 team members participated in our company's annual volunteer week. During this period, our charity team created service activities every day for our team to participate.

Shift to capital allocation. We focus on integrating our recent acquisitions, but still accept strategic M&A opportunities when we repay debt. As I mentioned earlier, we are investing heavily in the automation of our manufacturing footprint to ensure that we maintain the appropriate capacity and quality to meet the growing demand for leisure products, while determining cost efficiency where possible. Finally, I want to thank our dedicated team members for their efforts to overcome challenges while fostering a culture that supports sustainable growth and continuous improvement.

Without this dedication, and the strength and guidance of our dedicated leaders throughout the company, we would not be able to achieve these results consistently. We look forward to continuing to maintain our incredible momentum while creating value for our shareholders in 2022 and beyond. I will now forward the call to our Chief Financial Officer Brian Hall to discuss our third quarter financial results in more detail.

Brian Hall-Chief Financial Officer

Thank you, Jason. Driven by continued strong market performance and strong operational execution, our consolidated net sales in the third quarter increased by 41% compared to the same period last year, reaching US$1.2 billion. The acquisition contributed US$78 million or 10% growth to our quarterly performance, and organic growth contributed the balance or 31% improvement. As Jason said, October sales increased by 52% compared to October 2020, reaching 441 million U.S. dollars. Under seasonal influence, the implied growth rate in the fourth quarter exceeded 50%.

We expect demand will continue to rise for the rest of this year. Due to increased wholesale and retail demand, sales to RV OEMs in the third quarter of 2021 increased by 44% over the previous year. The current productivity of the North American RV industry also remains high, which means that the wholesale shipments in 2021 will be approximately 577,000 to 587,000 vehicles, setting a historical record for the industry. We significantly expanded the content of trailers and RVs during the quarter.

As Jason mentioned, compared with the previous year, the content of each towable RV unit increased by 10% to US$3,786, and the content of each mobile unit increased by 14% to US$2,732. Content growth can be attributed to organic growth, such as the launch of several new products in addition to the impact of price increases implemented this quarter. Driven by the similar tailwinds that drove RV, we continue to see strong performance in the maritime market. Due to a further increase in production to support demand growth, North American ship sales increased by 119% during the quarter, and we expect this to continue into the fourth quarter.

The acquisition contributed $23 million, accounting for 49% of this increase. Sales to neighboring industries increased by 55%. As strong long-term trends continue to push consumers into the entertainment sector, sales in the after-sales segment increased by 18%, and international sales increased by 47%. As we continue to implement our diversification strategy, we completed the acquisition of Furrion in the third quarter.

As Jason said before, this addition not only opens the door for us, because we will continue to expand our OEM products through their innovative products to help drive long-term content expansion, but also help us by leveraging Furrion’s current There are distribution channels to further seize market share. Approximately 40% of Furrion's sales come from the aftermarket, and the remaining 60% is OEM. Gross profit margin was 21.6%, compared with 26.8% in the same period last year. It was pressured by unfavorable factors, including rising freight, material and labor costs. Steel costs have risen again, rising 23% this quarter, partially offset by the aforementioned price increases.

As we mentioned before, many of our price increases were passed on to our customers during the two-quarter lag period, which is the main factor in the margin pressures we have experienced. The price increase took effect in October and has now passed the bottom of the curve. Compared to the third quarter results, we are beginning to see an increase in profit margins. We expect the profit margin in the fourth quarter to be 100 to 150 basis points higher than that in the third quarter. SG&A costs as a percentage of sales began to decline in the third quarter of 2020, and due to the decline in fixed costs and increased sales, the increase in freight and transaction costs was offset.

The operating profit margin dropped by approximately 375 basis points compared with the same period last year. This was again due to the increase in labor costs to meet higher production requirements and the increase in steel, aluminum and freight costs, partly due to our continued implementation of lean manufacturing and automation programs. Offset introduction. GAAP net income in the third quarter of 2021 was US$63.4 million or diluted earnings per share of US$2.49, while in the third quarter of 2020 it was US$68.3 million or US$2.70 in diluted earnings per share. This decline due to the aforementioned cost pressures was partly affected. This was offset by strong sales growth in all of our business channels. Compared with the same period last year, adjusted EBITDA in the third quarter fell 1% to US$118.1 million. For the first nine months ended September 30, non-cash depreciation and amortization was US$80.2 million, while non-cash stock compensation expenses for the same period were US$20.3 million.

We continue to expect depreciation and amortization for the full year of 2021 to be between US$110 million and US$120 million, mainly due to increased capital investment to increase production capacity and further improve manufacturing efficiency. In the nine months ended September 30, cash generated from operating activities was US$12 million, of which US$155 million was used for business acquisitions, US$74 million was used for capital expenditures, and US$64 million was returned to our shareholders in the form of dividends . In addition to rising steel and aluminum-based product prices, operating cash flow has also been negatively affected by the intention to increase working capital to support increased demand and reduce supply disruptions. At the end of the third quarter, our outstanding net debt position was $1 billion, or 1.8 times adjusted pro forma EBITDA to include the LTM EBITDA of the acquired business.

As the operating environment continues to change, we focus on maintaining a strong balance sheet and continue to set long-term leverage targets at one and a half times net debt and EBITDA. In the short term, we are working hard to integrate the recently completed acquisitions, and we expect this to have a positive impact on our operating cash flow in the next few quarters. The capital expenditure for the full year of 2021 is expected to be between US$130 million and US$150 million. Looking ahead, we are confident in our ability to continue to provide strong performance and continue to commit ourselves to further implementing our growth strategy and creating long-term value for shareholders.

This concludes our prepared comments, operator, we are ready to ask questions. Thank you.

Thank you. 【Instructions】. Your first question comes from the series between Scott Stember and CL King.

Scott Stember - CL King and Associates - Analyst

Good morning guys. Thank you for answering my question. At the beginning, maybe just talk about Furrion. Obviously, you had a history with them a few years ago, and now you have taken over the whole thing after leaving a few years ago, what is different now.

Then, maybe just talk about the profit margin profile of how this will affect the overall results.

Jason Lippert-President, CEO and Director

Okay, of course. So the biggest difference is that we can now fully control the entity. Before, we were strict sales and distribution, so we did all the warehousing, logistics and sales work. We have some investment in the product, but not much.

Today, we have 100% control over the product, which is an important part of it. Therefore, we control the amount of funds used for innovation and R&D. We can listen to the voice of customers, find out their needs, and then directly carry out R&D and engineering design, and start designing products that customers require, instead of just giving us things. So we said in our previous comments that we feel that we can double this business in the next few years. This is entirely because competition is a good position for us.

Competition in this field is relatively weak. There are many opportunities. There is not much innovation in this area. Furrion is a clear innovator in this field.

They can do more with electrical and electronic products. So can this answer your question?

Scott Stember - CL King and Associates - Analyst

Yes, there is also an overview of the margin.

Brian Hall-Chief Financial Officer

Yes. Then, from the point of view of profit margins, today there are about 60% of OEM and 40% of the after-sales market business. Since we worked with them a few years ago, the after-sales market has grown significantly. Therefore, the aftermarket must take off and have very, very attractive profit margins, which, as you might expect, are much better than our combined aftermarket profit margins. From an OEM point of view, I hope these profit margins are very consistent with the profit margins of our other OEMs, just taking into account the competition and some of the profit margins we see today.

Scott Stember - CL King and Associates - Analyst

Scott, they didn't really hit the aftermarket. So this is-obviously, we have a strong structure and sales team and distribution network there, and we will use it-to really take advantage of the aftermarket opportunities instead of e-commerce and some other smaller aftermarket businesses that we are doing.

This sounds like an overview of the overall operating market of the entire company.

Brian Hall-Chief Financial Officer

Except for the aftermarket part, as I said, this increases the profit margins we see in the traditional aftermarket business today. So this should be where we should see the expansion of comprehensive profit margins.

Scott Stember - CL King and Associates - Analyst

OK. Then, in terms of prices, I know that you usually have a two-quarter lag, and now prices are going through a period of time. Can you talk about what is going on, any signs that consumers are postponing, and then just the last question, just a comment on gross margin or profit margin, Brian, you did about 100 basis points. Are we talking about gross profit margin or operating profit margin?

Jason Lippert-President, CEO and Director

Yes. Therefore, we haven't seen anything about the feedback from consumers in the world. Our understanding is that we will start to see some dealers exit with higher profit margins first because they have just sold the inventory they own and their selling price is equal to or higher than the suggested retail price, most likely in these types In the cycle, because we started to catch up and still lag behind and enter the point where our selling price will exceed the cost we have been rising. We will be in such a position that dealers may start to compress their profits slightly, and it will start to move down the chain.

But so far, we have not seen anyone back down. I don't know if it's because of new buyers. They looked at a $20,000 trailer, which might have been $15,000 a year ago, and it didn't really affect the payment. Some new buyers, they really don't know what will happen in terms of price, 20,000 USD seems to be a reasonable price from looking at such a trailer. So-but the bulls and the bears are that we have not yet seen that inflation has been passed on to consumers through rising sales prices.

Brian Hall-Chief Financial Officer

And Scott, wrap it on the margins. So as I mentioned in the prepared comment, we finally, we believe, reached the turning point at the bottom of the curve and we started to catch up a bit. Therefore, in the fourth quarter, our index contract experienced an October price increase. Therefore, we expect an improvement of 100 to 150 basis points to begin in October.

So happy to finally see it coming. As for its position in profit and loss, I'm talking about operating profit margin, but in fact all the margin compression we see is due to gross margin, due to direct labor and materials, so this is where we really experience completely offset it It is to use our manufacturing management expenses and our SG&A management expenses.

Scott Stember - CL King and Associates - Analyst

understood. This is what I have now. thanks. thank you all.

Your next question comes from the collaboration between Kathryn Thompson and Thompson Research.

Brian Biros-Thompson Research-Analyst

Hi, good morning. Catherine is actually Brian Biros. Thank you for answering my question. Maybe you can start-for the fourth quarter, considering any difference between the October numbers and normal seasonality, the backlog of records you can deal with, you can deal with all of them every day, and there may still be no real dents.

So just want to know how your method in the fourth quarter compares from normal seasonality to this year.

Jason Lippert-President, CEO and Director

Yes, I mean, we are only considering the run rate related to OEM. Of course, we will pay close attention to the situation at the distributor and retail level. But now the operating rate is at the highest level in history. I mean, they are higher than the previous quarter's level.

Therefore, from the perspective of supply chain, materials, and labor, there are only a few restrictions. Therefore, if we can get the material and do not have some of the supply chain issues we have encountered, then we can actually run more runs than we are running today or the runs we predict to run this quarter. But the industry is currently running about 600,000 clips. If you take all the output of all manufacturers on the OEM side, it will be about 600,000 units.

They tried to run more, but the supply chain has been limited to 600,000. We believe that this situation will continue to ease over time, but some of these issues will take some time to resolve.

Brian Hall-Chief Financial Officer

Hey Brian, in terms of seasonality, I think I said in the prepared comment that there was a 52% increase in October. Due to the typical work stoppage around Christmas and New Year, I expect a drop in this quarter. We are now working with original equipment manufacturers to try to measure the consistency of this with what we have seen in the past. I suspect this will not be much different from what we saw last year or even compared to July this year.

So they will need some time, I believe it will be a week or even a day or two later.

Brian Biros-Thompson Research-Analyst

Thank you. Very helpful. The second follow-up question, I think, you have been talking about automation for a while, and I think that every quarter seems to become more and more something you should continue to invest in. How does the thinking process have changed recently, if any? Compared to before, it seems that larger projects may now be on the table.

I think they are working on smaller projects, trying to use some kind of manual process? Are people thinking about bigger things now, or how do you think about automation now given that the supply chain still exists-challenges still exist, some of which seem to have been bottlenecks that have been around for a while?

Jason Lippert-President, CEO and Director

Yes. Therefore, our process is usually suitable for us to analyze every unit and every manufacturing unit in our business, and then we try to eliminate it and strive to achieve as much progress and improvement as possible through continuous improvement, and to make the unit as efficient as possible. Then, once we do this, the next step is, ok, can we automate it? So let me tell you, we are not thinking of bigger projects. Our project is a bit suitable for the low-end hundreds of thousands of dollars to the high-end millions of dollars, which is a sweet spot.

This fee will enable us to automate the entire production unit. This is where we experience maximum efficiency, maximum quality improvement, and maximum safety improvement, and, as I said in the opening remarks, allows us to be repeatable, scalable, and consistent. So I think this is our best choice. This is where we want to stay.

You get into these big projects, they-just those are much more complicated. We have achieved success in automating one unit at a time. If you consider that we have 100 facilities around the world, there are many opportunities for single-cell automation, and this is what we are focusing on.

Brian Biros-Thompson Research-Analyst

Your next question comes from the collaboration between Mike Swartz and Truist Securities.

Mike Swartz-Truist Securities-Analyst

Good morning. Maybe it just helps us consider price-cost dynamics. I think that in the second quarter, you said that your costs were deducted by about 300 basis points. I think, what happened in the third quarter? Then, how do we consider this in the fourth quarter and beyond?

Brian Hall-Chief Financial Officer

Yes, I mean, this is still a battle. If you look back at the steel and aluminum curves and the steepness of the curves, and considering that our price increases lag several quarters, the situation will get worse and worse, because we expect some of these costs to level off, we Will be able to catch up in the second quarter. That didn't happen. In the third quarter, it deteriorated a bit from there.

I will tell you that our materials-I will give you year after year. Compared with the third quarter of last year, our material was negative by more than 500 basis points. Therefore, this gives you an idea of ​​the disconnect between material input costs and pricing today and what it was a year ago. So the situation got worse.

But now, as I mentioned in the prepared comments, where we are in the fourth quarter. Then, on the previous issue, we expect an improvement of 100 to 150 basis points. This is mainly because the price has caught up with and exceeded the input cost we see from an inflation perspective. So it is mainly matter.

So you start to see that we have turned a corner in this area, and we should start to expand profits from there. As you know, many index agreements are-they are contractual. They are in a two-quarter lag, so this situation will continue into the first quarter, and may be delayed in the second quarter and 22 years.

Jason Lippert-President, CEO and Director

Steel is one of our biggest input costs. This is our biggest raw material input cost. So at the beginning of this year, we think that steel will be eclipsed or peaked sometime in the second quarter, and it has been running. As a result, our index pricing for our customers continues to lag behind this level, and it did not reach its peak until a few weeks ago.

So this is the source of what Brian is talking about, because our sales prices for the next quarter will eventually - or this quarter, will eventually catch up with our input costs, or even drop.

Mike Swartz-Truist Securities-Analyst

Okay, great. Thank you for the color. Brian, the second question, just looking at the income statement, I mean, the SG&A dollar seems to be slightly down from the quarter. Income has increased.

You have more acquisitions there. I know that some of your outbound freight rates have actually increased this quarter, I believe. So please help us understand why you have so much SG&A leverage this quarter?

Brian Hall-Chief Financial Officer

Yes, I want to say that from a dollar point of view and from a profit point of view, a slight improvement will be-a little improvement in traffic. Many of our shipping charges are also based on contracts. So some of them are passing lag. So we saw a little bit-looking back over the past few quarters, our transportation costs accounted for the highest percentage of sales in the second quarter, we saw some improvements in the third quarter, and return to more with us in the first quarter. The situation in the first quarter was similar.

So this is the real driving force between nominal improvements. I expect these SG&A costs to maintain a certain degree of consistency. From a profit margin perspective, price increases will certainly help, but the total dollar should remain relatively stable.

Mike Swartz-Truist Securities-Analyst

Your next question comes from Fred Wightman and Wolfe Research.

Fred Whiteman-Wolfe Research-Analyst

Hello everyone. Maybe just to follow up some steel comments. Yes-I think this reflects some loose tariff environment, can you talk about how much tailwind you think this might have, just some price pressure-plus you have seen in the past year?

Jason Lippert-President, CEO and Director

We have not seen any of these. I mean, I think that price increases are strictly dependent on supply and demand. So it's just-I mean, it's three times the historical trend. So we believe that its price will not exceed US$0.50 per pound, and it will continue until the mid-1990s.

But it should start to ease from there. I mean, we don't know where it will settle down. Of course not-it may not be a historical trend, but it is definitely much lower than today. This is where the index becomes advantageous, because from the perspective of the bottom line, from the perspective of the bottom line, chasing them is more beneficial and influential for us, and then chasing them.

Brian Hall-Chief Financial Officer

Fred, I do think that some of the conversations surrounding European trade relaxation negotiations may have some impact. I don’t know if we have seen it completely. This may be the reason why it has stabilized here recently, but I think we are still uncertain about the prospect of where it starts. The feeling has reached its peak.

And the more these negotiations continue-more imported goods may enter the United States, which certainly bodes well for supply and demand, and will reduce some prices. But it remains to be seen.

Fred Whiteman-Wolfe Research-Analyst

OK. Then, in terms of the content of each unit, can you help us conceptually think about how we should model that kind of post-Furrion? Then, as the supply chain environment is expected to begin to normalize here. You have gained some share of the gains from the capabilities of some smaller competitors that are more restricted than yours. But when you look at it from a higher level, how do you see the development trend of these two categories?

Brian Hall-Chief Financial Officer

Yes, I mean, we are running-I would say the most are towable vehicles, because that is the dominant category. So we have now grown by more than 10% in the third quarter. Of course, as we said in the past, pricing is not a meaningful part of content growth. Therefore, before this quarter, our operating speed was about 7%.

So I think that pricing is definitely starting to become a differentiating factor for content growth. None of these content numbers now contain Furrion. We only have them in September or the last few weeks of the quarter. In order to maintain consistency, they are also not included in any historical figures.

So now, on the basis of moving forward, Furrion will start to play a role. As we mentioned, their rate today is $230 million, of which 60% are OEMs. As Jason said, we think we have a good opportunity to double this business in the next two years. We think we have a plan to do this.

So this should let you know what Furrion will do about it. Now, I think that pricing will continue to have an impact-a beneficial effect on content. Therefore, as we mentioned before, we should expect to see it become more meaningful in the next few quarters.

Jason Lippert-President, CEO and Director

It feels like the content we have been providing in terms of opportunity is about $7,500. In terms of total opportunity, it felt like everything else we added was close to $10,000. We have launched new products, and many products have 2.0 innovations. So this will always bring opportunities.

But this gives you a range of opportunities higher than today's $7,500.

Fred Whiteman-Wolfe Research-Analyst

Your next question comes from the cooperation between Daniel Moore and CJS Securities.

Daniel Moore-CJS Securities-Analyst

Good morning. Thank you for answering my question, Jason, Brian. Just in the aftermarket business, when you see the crystal ball, what kind of organic growth do you think the business will see in the next three to five years? Does it all depend on the wholesale shipment direction of RVs, boats, etc.?

Brian Hall-Chief Financial Officer

I mean, in terms of percentages, we have abandoned all acquisitions of Curt. Therefore, we have not done much in terms of acquisitions in this area. So I think our growth rate in the second quarter was about 36%, and there was a slight decline in the third quarter. I think we have been pursuing some prices there.

So it must be double digits. We have been below 10% in this category for a long time. Therefore, I think that usually 15% to 25% is a good long-term operation rate of the legacy business. Now Furrion, I think, the growth opportunities we have there.

Of course, the supply chain will become an obstacle. But as the supply chain eases in the next few years-the problem eases, I think that considering Furrion products, we will definitely be able to increase the growth rate. As you-I think Jason mentioned in his comment that there are millions-1 million units on the road every two years. When you complete the three to five-year trade-in and upgrade cycle, this is undoubtedly a good sign of aftermarket growth.

Jason Lippert-President, CEO and Director

This is what I really think-I think we are very concerned about the growth of the aftermarket. This is a good separator for us. This is something that many other companies have not paid attention to or considered. However, when you look at 2021 and 22, you will see that 1.7 million RVs have entered the RV world, and these RVs will enter the maintenance cycle.

In a few years, we may have 1 million units in 2018 and 2019. So if you look at those five years and how these equipment will enter the maintenance, replacement and upgrade cycle, I think this bodes well for us. Organic growth opportunities, not to mention that we continue to develop new products, we have our own after-sales innovation department, and we are developing these products. Then, you look at the way the RV is used. I talk about point-to-point leasing every time I call. You only look at point-to-point leasing. There are more people trying. If you use the RV for 20 days a year and run it three to four times, it will be used more and will require more maintenance.

Therefore, even if 10% or 20% of the entire RV population is operated peer-to-peer, the usage of the unit will increase and more services will be needed, which bodes well for our aftermarket department.

Daniel Moore-CJS Securities-Analyst

perfect. Then, as long as we stick to Furrion, once we exceed the fourth quarter in the initial accounting or our acquisition accounting, do you expect the 2022 profit growth you described earlier? Or is this more of a longer-term prospect? That is one. Then, two, given the supply chain challenges, what type of growth should we consider in the next 12 or 24 months? thanks.

Brian Hall-Chief Financial Officer

Yes, I mean, I think you have entered next year before you start to see some profit margin appreciation. They have a third-party logistics company, we have to start with it, we are now working hard to remove them from the channel, and we will take over the distribution as before. So of course we should see some improvements there. But it will take some time to integrate.

So, of course, 2022 is when I want to see some of them. In terms of the aftermarket, I think from the beginning, we should treat the appreciation of profit margins as their profit margins-they even sell to some large stores where the profit margins are high. So I think we will start to see this. But again, this accounts for about 40% of their business today.

The supply chain, in your opinion, may be the first half of this year-the first two quarters will be a bit challenging, but we expect some additional suppliers to provide services for their products. So we think we can expand our opportunities in the second half of 2022.

Daniel Moore-CJS Securities-Analyst

OK. Very helpful. Appreciate it.

Brian Hall-Chief Financial Officer

Your last question comes from the collaboration between Ethan Huntley and Jefferies.

Ethan Huntley-Jefferies-Analyst

Good morning. This is Ethan Huntley of Brett Jordan. Thank you for answering my question. In terms of October sales growth of 52% year-on-year, can you calculate the percentage of organic and acquisitions?

Brian Hall-Chief Financial Officer

This is a good question, Ethan. I don't want it to be too different from the third-quarter figures I announced, because in fact Furrion was acquired at the end of September or mid-September, and it did not have a meaningful impact on us. So if you look at the third quarter, the organic growth rate in the third quarter was about 31%, and the acquisition growth rate was close to 10%. So I think that for the fourth quarter, considering Furrion, this may increase some acquisition points.

But I also think there is a chance-this will be the balance they will get.

Ethan Huntley-Jefferies-Analyst

great. This is very helpful. Then, in the fourth quarter, I know that you said that November and December are expected to be a correction, but can you provide any color or comment on the magnitude of the correction?

Jason Lippert-President, CEO and Director

I will chip in here. I mean, like I said, the run rate-we are now running at a record run rate to 600,000 unit run rate adjustments. As I said before, their schedule doesn't stop there. The industry supply chain has not yet reached these numbers.

Therefore, suppliers are looking for alternative supply chain opportunities in order to be able to obtain-some of the higher numbers, and they have arranged more for the first quarter. So the supply chain is a real problem. I think the only fact that will affect the seasonality of the fourth quarter is that I think-within a few weeks when most manufacturers are closed, most manufacturers are in December, and sometimes they separate between January and December . So I think you get it from that aspect.

But, of course, they did not spend more time on Thanksgiving, and the running rate is at the highest level in history. So I think, if you look at the run rate for the carryover in October-October and November, since the holiday months and December fall in that month, there may be an extra week of seasonality, I think it helps you get this number.

Ethan Huntley-Jefferies-Analyst

great. thanks. Then, at the end, I just want to make an anecdotal comment on the retail trends you have seen. Then, I thought, to some extent, any outlook on the OE backlog would be helpful.

Jason Lippert-President, CEO and Director

Yes, I mean, the retail industry is still very solid. I mean, this is-it is entering the year when it is slowing down a bit. This is only historical. However, OEMs and distributors expect a strong sales season from the beginning of the peak sales season or the peak sales season.

The backlog of OEM orders still seems important. I mean, they told us to be prepared. They are adding facilities-all original equipment manufacturers are now adding facilities. Therefore, some of them are going online, some of them went online in the last quarter, and others will go online in the next few quarters.

So I think we are just preparing for the strong sales season in the next few quarters.

Ethan Huntley-Jefferies-Analyst

great. Thank you for answering my question.

Jason Lippert-President, CEO and Director

There are no more questions. I will now turn the call back to Jason.

Jason Lippert-President, CEO and Director

Okay, thank you all, listen to the phone. I just want to say one last sentence. We are very grateful to our team for their hard work and efforts in overcoming major challenges in labor, materials and supply chains, as well as all aspects. I mean, this is no small feat, and our customers tell us that we are the top supplier in terms of how we supply all the crises we have experienced in the past 12 or 18 months. See you next quarter.

Thank you for answering the call. thanks.

Brian Hall-Chief Financial Officer

Jason Lippert-President, CEO and Director

Scott Stember - CL King and Associates - Analyst

Brian Biros-Thompson Research-Analyst

Mike Swartz-Truist Securities-Analyst

Fred Whiteman-Wolfe Research-Analyst

Daniel Moore-CJS Securities-Analyst

Ethan Huntley-Jefferies-Analyst

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