Mike Swartz: Hey, good morning. Just first question maybe, Lillian, on the towable content, 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?
Lillian Etzkorn: Yes, I’d say the key elements to break out there, Mike mentioned that in terms of the index pricing to give back, that was in the mid-teens as a percentage basis. The organic growth was at about 5.4%. And then, if you looked, and I think Jason cited this in his commentary, the overall growth, which would have included acquisitions 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 giveback. That’ll begin to mitigate as we move through 2024. We’ll still have a little bit of a headwind in Q1. But as we move through the quarters, consistent with what we’ve talked about before, we expect that to mitigate and you’ll really see more of the full impact of the organic benefit of our growth that is 3% to 5% that Jason was just citing.
Mike Swartz: Got you. That’s helpful. Thank you. And then, just on the gross margin in the fourth quarter, maybe if we compare it to the third quarter, I guess what were the puts and takes there? It’s down about 300 basis points, but we assume that that mix towards aftermarket was a positive. But what are some of the negatives that you encountered in the quarter?
Lillian Etzkorn: Yes, I’d say the biggest impact frankly, is the volume, and the headwind that that had on us. Mix was a little bit, but by far it was just decreasing the sales volume.
Mike Swartz: Okay, perfect. And then, I know in the past, you’ve kind of provided us some guide rails around EBIT margin, and 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?
Lillian Etzkorn: 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 quarter. So, there’ll be some 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 at mid-single-digit for this year is probably a reasonable assumption.
Jason Lippert: And Mike, going back to the other question too, we did call out warranty as well. If you look at sales like Lillian said, significantly underpriced compared to the last couple of years when we had a significant amount of units built over COVID, just the volume of it and that starts to show up a couple of years after these units start getting sold, so, that’ll eventually retract.
Mike Swartz: Okay, great. Thank you.
Lillian Etzkorn: Thank you.
Operator: The next question comes from Craig Kennison with Baird. Please go ahead.
Craig Kennison: Yes, thank you for taking my questions. Jason, I just wonder if you would characterize the competitive landscape today versus your long history with the company. There’s just a tremendous amount of 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, some different sources there, and wonder how you would characterize the competitive landscape and whether there are categories where you’re losing share.
Jason Lippert: It’s my favorite topic, Craig.
Craig Kennison: Thank you.
Jason Lippert: So, yes, I’ll categorize it. I mean look like I said, I’ve been in this business since we started our first RV products. So, 30 years, I watched a lot of competitors come and go. I put them into a couple of different categories. Some we’ve beat and they’re gone. Some we’ve acquired and they’re part of our business now and others are still around. We’re competing with them on a regular basis. And we have, I’d say over the 30 years what’s been consistent is not only that but the fact that, just competition is part of what we do. It’s part of the business, it’s part of any business. And you look at the new entrants now, if you’re looking at the axle thing that people keep bringing up, the air axle thing, people keep bringing up.
We’ve had new competitors, I would say almost every year in the last 30 years. So, 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 to beat our competitors. We use our bundling and just our massive mode of 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 five to 10 years ago. So, I point to those things and look at, if you’re pointing specifically to air axle, I’d say look, we’re taking double-digit margin increases in market share against that business in the last two years. You look at this axle thing that’s popped up, yes, we’ve lost a little bit of axles on the Forest River side of our business, but axles in general is a small part of our business.
And to boot, we’ve had we won a million axles this year. So, axles was like one of 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 thing, I have to point it out. And just to say, look we’re down 50% in other RV products. We were flat in axles even though we lost a little bit of market share. So, I 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: Yes, thanks for that, Jason. And I just wonder if there’s a way to reconcile what you just talked about with what Lillian 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 if the competitive landscape is within the realm of what you’ve experienced in the past?
Jason Lippert: Yes. I would say a couple of things. First, if you look at the last three years, ’23, ’22 and ’21, our operating margin was just a little over 8% and $16 billion in total revenue. So, you look at that and say, okay, over time, will they perform? I mean, yes, we pick out one down cycle. We’ve had, I’d say, 2.5% over the last 15 years. We had a little dip in ’18 and then we had the latter part of ’22 and ’23. So, yes, in those years, we’re definitely going to see the pressure in margin. I think maybe one difference from between now and ’08 is we have all these indexes in place where when there is extreme volatility in steel and aluminum pricing, there’s going to be 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 or 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 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 the same kind of margin performance and knowing that we’re going to have a down cycle every once in a while. Maybe we — maybe the — on the steel side, we’re giving — I’d like to think we’re contributing to the lower ASPs right now because we’re one of the ones through the steel have given some pretty significant increases. And we all know if ASP is lower, then we’re going to probably have a better chance of selling more RVs. So, —
Lillian Etzkorn: Craig, also on that building on what Jason was just saying, I mean, well, yes, we are seeing the RV industry recovery in 2024, we’re still not back at the historic levels in terms of wholesale and production. This business as we stated before, this business really is and will be a double-digit margin business. I’d say once the overall industry is 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 flexing the business, streamlining where appropriate. And now it’s a matter of capitalizing on the recovery of the various industries that we perform and to get back to those double-digit margins that we should be delivering, and we will be delivering.
Craig Kennison: Great, thank you, and helpful. Thanks.
Operator: The next question comes from Bret Jordan with Jefferies. Please go ahead.
Patrick Buckley: Hi, good morning guys. This is Patrick Buckley on for Brett. Thanks for taking the questions.
Jason Lippert: Good morning.
Patrick Buckley: 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 U.S. as of late?
Jason Lippert: Yes, great. We’ve been in the international side for about 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. There’s 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 RV piece of it being more consistent. It’s never going to go — it never seems to go up substantially and big ways are down substantially in big ways. So, it’s a more consistent part of our business. And right now, it feels pretty flattish. And I know there’s some talk that there’s some business downtick in some areas, but we’re still seeing opportunities with content gain and market share gains over there. So, we expect it to be pretty flat.
Patrick Buckley: Got it. That’s helpful. And then, on the marine side of things, how close is that to the bottom? Is it still accelerating down here? Or is it going to start to flatten out soon?
