LCI Industries (NYSE:LCII) Q3 2023 Earnings Call Transcript

LCI Industries (NYSE:LCII) Q3 2023 Earnings Call Transcript November 7, 2023

LCI Industries misses on earnings expectations. Reported EPS is $1.02 EPS, expectations were $1.38.

Operator: Hello, and welcome to the LCI Industries Q3 2023 Earnings Call. My name is Lauren, and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation [Operator Instructions]. I will now hand you over to host, Lillian Etzkorn, to begin. Please go ahead.

Lillian Etzkorn: Good morning, everyone. And welcome to the LCI Industries’ third quarter 2023 conference call. I am joined on the call today by Jason Lippert, President and CEO; and Kip Emenhiser, VP of Finance and Treasurer. We will discuss the results for the quarter in just a minute. 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 that the forward-looking statements are made, except as required by law. With that, I would like to turn the call over to Jason.

Jason Lippert: Thanks, Lillian and good morning, everyone. And welcome to our third quarter 2023 earnings call. Over the last 20 years, this team has worked very hard to transform Lippert from a manufactured [housing] chassis and roofing supplier to a diversified innovative global supplier for some of the most core and highly engineered RVs, Marine and aftermarket products offered to OEMs and their consumers. By 2008, our business had transitioned from a 100% manufactured housing to almost 90% RV. We then leveraged our talented team and created a strategy that would take us into Europe, building products, transportation, aftermarket, and marine over the next decade. Our successful diversification strategy is what has enabled us to experience results this year that would not have been possible had we stayed only in our traditional markets.

It is this successful execution of our diversification strategy that has transformed us into a dynamic Fortune 1000 company. With respect to Q3, we continue to encounter a challenging operating environment that while pressuring the top line exhibited the durability of our diversified businesses. Our aftermarket segment and adjacent industries OEM revenues are outpacing RV OEMs, exceeding 55% of revenues for the quarter, a trend we expect to continue as we extend our capabilities into growing our markets outside of RV. Not only did these revenues outpaced our RV OEM business, we saw a strong results in these businesses for the quarter. When you look at our overall business,in 2019, our top line was approximately $2.4 billion in sales. Even with the RV business down almost 50% this year, we have successfully grown our top-line as our current trailing 12 months revenue eclipsed $3.8 billion.

Our aftermarket business has been a particular highlight delivering nearly 500 basis points in margin expansion for the quarter, as we capture demand for repair, replacement, service and upgrade revenue opportunities in the RV, automotive and Marine aftermarket. The aftermarket business in general has helped to really balance our portfolio, providing some solid counter-cyclical revenues. We also differentiated ourselves through strategic investments over the years to build high level manufacturing capabilities, enabling us to develop and bring to market solutions and products with complex engineering and manufacturing requirements. We are not a commodity supplier. In fact, many of our processes require specialized teams and equipment capable of handling those sophisticated requirements.

Our global manufacturing footprint that supports these operations and teams, along with the product breadth and manufacturing capabilities, can not easily be replicated. This, coupled with our longstanding reputation for quality, service and deep rooted and decades long relationships with our customers, has helped to establish Lippert as a leader in the outdoor recreation space. Operationally, we remain focused on optimizing our cost structure to support our long term profitability. Our leadership teams continue to implement cost savings initiatives and continuous improvement projects to drive ongoing efficiencies throughout our business. Through calendar year 2023, we have already undertaken 17,000 continuous improvement projects across our business platforms.

We have flexible capacity in place to adjust production quickly to match constant changes in demand even with a high level of skew variability across the RV business, while at the same time providing support to areas of our business that are outside of typical industrial cyclicality. Additionally, we are improving working capital bringing down inventories by $238 million year-to-date to bolster cash generation. These effective actions have continued to solidify our financial profile and balance sheet, helping to provide a strong foundation needed to manage through near term challenges while enabling us to capture growth opportunities as conditions improve. Lastly and most importantly, new business commitments for 2024 across our business totaled approximately $185 million.

We believe these are tremendous organic and market share wins for next year. Moving to RV OEM. Sales decreased 26% during the third quarter of 2023 compared to 2022 due to decreased wholesale shipments. Although the RV market remains pressured dealers are telling us that inventories are right sized and in many cases lower than where they would typically be at these retail volumes. It is also important to note that OEMs have remained very disciplined with production rates over the last quarters as retail shipments have outpaced wholesale shipments now for nine straight months. During the quarter, content for total RV decreased 11% from prior year to $5,192, while content for motorhome RV for the quarter decreased 3% from prior year to $3,705.

I want to emphasize that while RV unit selling prices have declined, we do not anticipate much of an impact from any deep contenting trends. The content declines this quarter can largely be attributed in tech pricing pass-throughs versus elimination of any of our content. Whereas our content increased in past quarters due in part to index price increases, we are now seeing the reverse effect in Q3. Also worth mentioning is that over half of the $185 million commitments for new business for 2024 that we just spoke of earlier is coming from our RV business. Most of our RV organic growth is either innovative first-to-market product content that customers are excited to get their hands on or content that is completely integral to the vehicles like chassis, awnings, furniture or windows with new features and benefits, neither of which can easily be replaced by going to another supplier.

I will address our R&D highlights in a bit. But as we continue to drive investment into product development, we believe we will keep growing organic content well into the future as we have historically. It is important to note that content for total RV in late 2019 was right around $3,400 per unit, demonstrating our ability to drive new organic content over the long term to $5,200 per vehicle. There has been some chatter about other players in the space potentially starting to build chassis, including THOR, one of our top customers and partners. I would like to get out ahead of these false reports. In recent weeks, I’ve had the opportunity to connect directly with the THOR leadership team, including Bob Martin and Todd Woelfer, who have confirmed that they have no plans to build global chassis in the foreseeable future.

Taking it a step further, they reiterated the importance of continuing to strengthen this longstanding 25 plus year relationship with Lippert. We are confident that demand for our chassis and the rest of our wide range of best-in-class products will keep us positioned as an industry leader, while enabling us to continue to capture new market share. And lastly, when it comes to competition, we feel our market shares speak for themselves. We are best-in-class competitors and are winning because we have best-in-class value for our customers and at the end of the day, our customers choose to do a lot of business with us based on that perceived value. Our aftermarket revenues grew $231 million, up 5% versus the prior year as channel inventories stabilized and we added new market share.

Impressively, aftermarket revenues have remained near record levels on a trailing 12 month basis and operating margin grew 15%, up 470 basis points compared to the third quarter of 2022. Our aftermarket leadership and team have done a fantastic job of growing this business, along with its services, products and customer relationships over the past decade, since we launched our aftermarket division. Most Lippert RV products are front and center when it comes to the types of parts that eventually need repair and replacement, a fact which we believe makes our aftermarket strategy very viable because we have significant content on the OEM vehicles, which ultimately drives the choice of replacement products in the aftermarket. The resiliency from the repair and replacement opportunities, particularly in the downturn, should continue to support the strength of our aftermarket and overall business, helping us capture more share in a $10 billion plus addressable market.

A critical driver of our aftermarket has been our customer service and support teams and call center, giving us a major advantage over other aftermarket suppliers. Over 300 specialized support team members are in place to directly engage consumers, dealers, distribution partners and OEM customers across the globe to quickly solve technical problems, helping the consumers spend more time on the road, the water and outdoors rather than in the repair shop. Additionally, in July, we held our third annual Lippert Getaway event for RV’ers. This time in Island Park, Idaho. Through events like these, we are able to speak with the [RV’ian] community in person and collect feedback that we leverage to fuel future innovations around products and services.

Other customer events like Lippert Scouts, Cambrown Project, Lippert Ambassadors, and product giveaways continue to benefit our relationships with RV’ers as we work to foster a well-connected community that continues to be a solid champion in so many ways for our brand. Turning to North American adjacent markets. Third quarter revenues were down 14% compared to prior year, primarily due to the softness in the marine retail environment. Although marine markets have slowed, we remain focused on expanding our marine product catalog with products like our shallow wire anchor systems, thrusters, windshields, seating and electric biminis for all classes of boats, which the electric biminis continue to see rapid adoption and is on its way to becoming a marine industry standard.

We are also seeing strength in our other adjacent markets like transit and school bus, rail, utility trailer and building products. We’ve been able to expand into these adjacent areas by leveraging the same core manufacturing competencies we’ve developed over the years in our core businesses. We have seen great progress in our residential windows, as well as our axles and suspensions for the utility trailer markets. This quarter, we are also launching our first transit bus seating products for the largest transit bus manufacturer in North America. This product has a large potential addressable market over $100 million with our existing bus customers. All in all, our adjacent market categories have never had normal momentum than they do today.

Moving outside of North America to our European business. We had another quarter of growth as our international business grew 7% and supply chain headwinds have decreased abroad, driving increased shipments to meet pent up demand. Our international business continues to be an innovation incubator as we design and market sophisticated products such as pop tops, windows, bed lift doors and skylights. These types of products have the potential to strengthen our competitive differentiation in the US with easy access to our proven European products, designs and our production facilities there. Once we see a high level of adoption rate of European products by US customers, we work to transition the manufacturing of those products stateside as we have with our bed lift, pop tops and acrylic windows.

We look forward to driving further growth internationally as this business continues to contribute to our overall performance and diversification. Innovation is the key driver of our content growth engine, differentiating our business by bringing new and exciting products to our customers in each of our core markets. With roughly 150 team members and our business dedicated to innovation and product development, we have developed our innovative expertise and resources into a huge competitive advantage. Few peers and competitors have come close to the investment we have made into building out these R&D capabilities. Presently, we are making significant traction with new and existing products, such as our hot water heaters and new furnace, which has sparked high demand as Furrion continues to add to our portfolio.

Also, our Furrion refrigerators and air conditioners have seen double digit market share gains in the last 12 months. Furrion has also debuted industry first 18K air conditioner that has completely grabbed the attention of our OEMs as a result of its higher capacity, efficiency and reduced noise levels. Another new product we recently brought to market is DoubleCOOL, double-pane acrylic doors for refrigerated cabinets, which are being adopted by supermarkets across Europe over the last month. As I mentioned earlier, we consider the best new adjacent market product introduction in years to be our transit bus seat set to shift this year to our largest transit bus customer. Our other innovations continue to perform well as they enter mainstream use like our manual hydraulic leveling system, OneControl auto setup app, independent suspension axles, acrylic windows and built-in shade windows.

Perhaps one of our most pronounced and transformational product launches for the RV and utility industries is our antilock braking systems or ABS for short. ABS has not been readily available to the US or RV manufacturers until our most recent cost effective design. We are making the compelling argument that ABS is the safest option out there for brake technology on all towable RVs. Since launching, we have 14 RV brands committed to or using ABS. Our ABS is engineered and built in Detroit, Michigan by our talented manufacturing and engineering teams. We also successfully launched a Solera off-grid series solar awnings through which we created a solar array integrated with our awning fabric, capturing the attention of the growing number of off-grid enthusiasts.

As we keep building out our portfolio, we are finding that each of these innovative products help us better meet a diverse range of customer needs, further increasing Lippert’s presence in the outdoor lifestyle, while continuing to grow our content per unit. As I’ve said many times, our culture of [continuous] development of our leaders and external contributions to our surrounding communities are part of the foundation that keeps us successful over the long term. We believe a strong culture starts with experience and caring leaders at the top who are willing to be develop themselves and work to create opportunities for other team members so that they can become leaders in their own right. Our in-house leadership development programs and coaches give our team members, resources and opportunity to grow personally and professionally.

Through our efforts to coach and inspire our team members to reach new heights, we have achieved an anywise voluntary turnover rate of only 25%, which considering the environment we’re in puts us in the industry best retention category. Throughout this 10 year journey, we have seen that an effective culture leads to higher retention and higher retention proves the key metrics of our business, which are quality, safety, efficiency and innovation. Our team comes to work every day ready to tackle the challenges with a heavy dose of discipline and passion, really amplifying our belief that Lippert can continue to leverage its strong, highly functioning culture to be an overwhelming competitive advantage. Outside of our internal culture, we have also been greatly supporting the communities that surround us in a very meaningful and intentional way.

In the first nine months of 2023, Lippert team members performed over 100,000 hours of community service in hundreds of charitable organizations across the globe. Over the course of 2023, approximately 75% of our 12,000 team members participated in at least one serving event. This quarter, in addition to the community service events we do that take place weekly, we collaborated with the Detroit based nonprofit Life Remodeled. As part of this collaboration, 40 of our Elkhart based leaders took a bus to Detroit to join our Sterling Heights Innovation and Electronics team to repair and update the facilities at Life Remodeled. We are pleased to see our company make an impact in the communities we live and work in, and look forward to continuing company-wide impact as we hopefully inspire other companies to do the same along the way.

Regarding capital allocation to maintain a strong balance sheet, we are keeping our focus on generating significant cash to pay down debt in this challenging operating condition, while also investing in innovation and operational enhancements, such as our automation projects to drive enhanced efficiency, quality and profitability throughout the business. We are still receptive to strategic M&A and have several opportunities in the pipeline. But given the current environment, we are staying focused on keeping a strong balance sheet and making growth investments. Of course, if a deal is strategic enough and the timing’s right, we will not hesitate to acquire as we did this year with Marine Trailer Performance and [indiscernible]. As we continue to diligently monitor our expenses, we have significantly paired back our CapEx, which we expect to equal approximately $60 million this year, which is lower than last year by approximately $70 million and targeted on high return investments, including automation enhancements to our business.

All in all, we expect that we will generate in excess of $440 million cash from operating activities in this full calendar year of 2023. We consider that an astounding win considering the challenging industry environment we’ve seen this year. In closing, I’d like to extend a sincere thank you to all of our team members around the business for their hard work in this tough operating environment. I’m encouraged by the growth I have seen from our team, both personally and professionally, as we continue to work towards long term growth, while delivering value for all of our stakeholders. Without our fantastic team members and leaders that contribute to the business and the way that they do, we certainly wouldn’t have the strong business we have today.

I will now turn to Lillian Etzkorn, CFO to give more detail on our financial results. Lillian?

Lillian Etzkorn: Thank you, Jason. Our consolidated net sales for the third quarter decreased 15% to $1 billion compared to the prior year, primarily impacted by a reduction in North American RV production and decreased selling prices, which are indexed to select commodities, partially offset by acquisitions. For the month of October, sales were down 1% to $344 million versus October of 2022. As Jason noted previously, our operational improvement and diversification strategy has partially mitigated the impact seen from lower wholesale shipments in the quarter. While sales in North American RV OEMs declined 27%, sales in our adjacent markets, aftermarket and international businesses only declined 4%. These improvements to our overall strategy have not only significantly reduced the impact from year-over-year declines in the RV business but have well positioned Lippert in all facets for sustainable, long term growth.

The decline in the third quarter 2023 sales to North American RV OEMs was again driven by a decrease in wholesale shipments, which was influenced by current dealer inventory level, inflation and rising interest rates that impacted retail consumers. Content per towable RV unit decreased 11% to $5,192 while content per motorized unit decreased 3% to $3,705 compared to the prior year period. As Jason indicated in his remarks, the content declines this quarter are largely attributed to index pricing pass-throughs versus elimination of Lippert content. We have continued to increase our organic content and market share through our focus on innovation. In Q3 2023, this contributed approximately 7% year-over-year growth in content per unit. Sales to adjacent industries declined 11% versus the prior year.

Sales were positively impacted by acquisitions and pricing adjustments to our transportation products and were offset by lower sales in North America marine OEM. Marine content per powerboat decreased 23% to $1,359, primarily due to the price decreases associated with year-over-year decline in input costs and changes in product mix. Third quarter 2023 sales in the aftermarket increased 5% compared to the prior year period, driven by increased repairs and replacements, helping to illustrate the countercyclical nature of the business. International sales increased 7% year-over-year, including an estimated 2% positive impact of exchange rates for the quarter as European OEMs continue to receive the materials necessary to meet pent-up demand. Gross margins were 22% compared to 22.4% in the prior year period, primarily due to the impact of fixed production costs and lower sales volume and the timing of sales price reductions contractually tied to commodity prices.

Operating margins decreased compared to the prior year period, but remained relatively flat sequentially in line with our previously stated expectations. This decrease was primarily driven by lower fixed cost absorption on lower sales and decreased prices indexed to select commodities. However, we again saw a year-over-year and sequential increase in aftermarket margins, driven by decreased material commodity costs and effective fixed cost leverage on a higher sales base. GAAP net income in the third quarter of 2023 was [$25.9 million] or a $1.02 per diluted share compared to $61.4 million or $2.40 per diluted share in Q3 of 2022. EBITDA decreased 34% to $78.9 million for the third quarter compared to the prior year period. Non-cash depreciation and amortization was $98.8 million for the nine months ended September 30, 2023 while noncash stock-based compensation expense was $14 million for the same period.

We anticipate depreciation and amortize in the range of $130 million to $135 million during the full year 2023. For the nine months ended September 30, 2023, cash generated from operating activities was $389 million with $50 million used for capital expenditures, $26 million used for business acquisitions and $80 million returned to the shareholders in the form of dividends. Net cash flow from operations were $116 million in the quarter, and as I previously stated, $389 million year-to-date. Operating cash flows were negatively impacted in the quarter by lower sales and partially offset by the positive changes in working capital. The improvements in working capital were led by the initiatives we put in place to decrease inventory, which has resulted in a decrease of $238 million year-to-date.

We continue to focus on reducing inventory. And as dealers inventories continue to normalize, we expect further improvements to working capital and positive impact to cash flow. We expect net cash flow from operations to be positive in the fourth quarter. We have made net repayments on our long term debt of $211 million year-to-date through September 30th, including a $30 million repayment on our term loan principle in the third quarter. At the end of the third quarter, we had an outstanding net deposition of $878 million, 3.1 times pro forma EBITDA, adjusted includes LTM EBITDA of acquired businesses and the impact of other non-cash items. As we look forward, we are focused on continuing to maintain a strong balance sheet and targeting a long term leverage of 1.5 times net debt to EBITDA.

In the near term, we are focusing to integrate recently completed acquisitions, which we expect to positively impact our operating cash flows in the coming quarter. For the full year 2023, capital expenditures are anticipated in the range of $55 million to $60 million. As we look to the fourth quarter, this is historically a seasonally softer quarter with fewer production days due to the holidays. We are also expecting additional downtime around the holidays this year. With that, we expect Q4 2023 RV shipments will be between 55,000 and 65,000 units with the full year estimated range of 295,000 to 305,000 units. Overall, we are expecting a 10% sequential decline in total revenue Q4 versus Q3 with aftermarket seasonally dropping about 15% sequentially.

We are projecting positive net income in Q4 along with positive net cash flow from operations. Looking ahead to full year 2024, we expect RV wholesale shipments to be in the range of 325,000 to 350,000 units and the marine industry to continue to experience softness. The key takeaway for 2024 is that we will continue to grow the aftermarket and adjacent businesses while the RV industry slowly recovers. We believe Lippert is well equipped with the right strategy in place to maintain long term profitability and value for our shareholders. We remain confident in our ability to achieve growth as our investments and innovation, our business and our team continue to yield results. That is the end of our prepared remarks. Operator, we’re ready to take questions.

Thank you.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Kathryn Thompson from Thompson Research Group.

Kathryn Thompson: When we look forward — and appreciate the color that you look into Q4 for results. And a trend that we’re seeing is overall less bad while 10% sequentially down it’s pretty close to where we had expected. I think the bigger picture that we’d love to get a little bit more color in, in terms of what are you seeing from Elkhart Open House, and what does this mean for dissipating trends of the big declines that we’ve seen over the past few years?

Jason Lippert: I think that, Kathryn, you look at where we’re kind of looking at 2024 as a 325,000 and 350,000 unit run rate. I think, the hidden gem in there for us is that we’re probably going to end the year actually building only about 285,000 units. So even if we hit the low end of that scale next year, I mean, we’re talking about adding 40,000 units and you can do the math on the content plus our $185 million in market share and organic growth. So just on the RV side, there’s a good opportunity for us. We think it’ll creep back slowly. If you look at the last eight years, the average wholesale unit shipments are around 430,000 units. It’s got a couple years of COVID baked in there, so it might be a little high. But I think we’re slowly going to creep over the next couple years back up to that 400,000 mark, it’s not going to happen all at once but that’s kind of the color we have on 2024.

And I think that the most important thing for everybody to realize is that there we did not — if we end up at 300,000 or 310,000 wholesale units this year, that is not what we as a supplier bill, because there was a lot of flow through units that were sitting on, the OEM’s properties in November, December that got carried over and sold into the first quarter, second quarter of this year. So it’ll actually be a benefit for us even if wholesale stays the same next year because we’ll just build more units.

Kathryn Thompson: And also, you may have covered this in prepared commentary. I apologies I missed it. But could you clarify on the year-over-year decline in content per unit both for trailer and RV, how much of that is just commodity pricing versus just volumes in any other factors?

Jason Lippert: And nearly a thousand of it was index pricing that came down…

Lillian Etzkorn: From an organic perspective, what we’re seeing on the towables is roughly about 7% organic year-over-year growth, and that’s pretty consistent with we have been seeing in prior quarters. So the content story is still there. We’re growing content increasing market share. It really is that commodity pass through that also as a reminder does have a lag. There is — typically a couple quarters of a lag in there by the time the pricing does flow up or down with the commodities.

Operator: Our next question comes from Scott Stember with ROTH MKM.

Scott Stember: When you guys talk about content, when you factor in the indexing, I guess the implied pricing on the 24 units at the OEM and deal level and these $85 million of — or the half of the $185 million worth of content gains. Where do you see towable content actually coming in at within the next few quarters once indexing has finally worked its way through?

Lillian Etzkorn: I think we are going to still see for the next couple of quarters, the indexing still working through. Fourth quarter will still be pretty heavy, it’ll start tapering off as we get into Q1, Q2, Q3 next year where we will start to see some sequential mitigation, I guess, you could say. So it is going to take a few quarters. And I would say probably net-net going to stabilize as you start having organic growth offsetting the index pricing.

Jason Lippert: And just to add to that, we are going to see more organic content going to vehicles. I think the big question mark is just, are they going to start building smaller vehicles or smaller units over the course of the next couple of quarters, while they drain some of the higher end, fifth wheel and motorhome inventory out, that stuff’s moving a little bit slower. So obviously, if we build more parts and content for smaller units then the overall content goes down a little bit. But other than that, we anticipate continuing to take the innovation that we have built and continue to plug it into all the new builds in the coming quarters.

Scott Stember: And what are you hearing from the OEMs regarding what ’24 pricing will look like? Obviously, a lot of reports of high single digits, low double digit declines. But what are you hearing or is it a little bit too soon to draw a conclusion?

Jason Lippert: I think that’s consistent with what we have heard. I think the big challenge is to make sure that with dealer inventories being lower that they start getting some product on their lots. I mean, what we are hearing is that there is a lot of people showing up on lots of the dealers don’t have what they want. And then orders are gonna be backed out with the seasonality coming and the downtime, and some of the backlog that’s already plugged into the system. I mean, the OEMs have some decent backlogs already but they are on small run rates, and we have got this downtime coming up. So I think that what you have heard, single digits, low double digit reduction ASP is probably the same information and intelligence we have heard thus far and it’s probably likely to happen.

Scott Stember: And then last question on October with be essentially flat sales. I guess when you strip out what marine is doing, RV is doing, you have aftermarket. But within the pure adjacency non-marine, it seems like there is some pretty big movements there to the positive side. Does the transit bus business, is that in there or is there something else that’s really starting to pop-up early in the quarter that we should be looking at?

Jason Lippert: The transit bus, new products we spoke of, the seats, that’s happening in this this quarter. So it wouldn’t really be baked into October’s numbers. So there is a lot of puts and takes on the adjacent side with respect to all the different businesses that we operate there and we usually don’t get too granular. But what we can say is the business on the aftermarket and adjacent side of our business is going along at a pretty good clip, and we have seen a lot of great momentum. And what’s probably most helpful to our business is that the performance is as high as it’s ever been there. So our focus is on continuing that momentum into the future quarters because it’s really delivering some strong performance back to the total business bottom line.

Operator: Our next question comes from Mike Swartz from Truist Securities.

Michael Swartz: Just a quick question on the third quarter. I think back when we last talked in August, you had kind of implied that third quarter earnings will be similar to the second quarter. Obviously, that came in a little lower. So I guess what were some of the things that I guess went against your outlook that you provided in early August?