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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2023
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________
Commission File Number: 001-13646
LCI INDUSTRIES
(Exact name of registrant as specified in its charter)

Delaware | 13-3250533
(State or other jurisdiction of | (I.R.S. Employer
incorporation or organization) | Identification Number)
3501 County Road 6 East | 46514
Elkhart, | Indiana | (Zip Code)
(Address of principal executive offices) |

(574) 535-1125
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report) N/A
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $.01 par value | LCII | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
1

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, as of the latest practicable date (April 28, 2023) was 25,298,420 shares of common stock.
2

LCI INDUSTRIES
TABLE OF CONTENTS

|  | Page
PART I – | FINANCIAL INFORMATION |
| ITEM 1 – FINANCIAL STATEMENTS |
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | 4
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | 5
| CONDENSED CONSOLIDATED BALANCE SHEETS | 6
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 7
| CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | 8
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 9
| ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20
| ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29
| ITEM 4 – CONTROLS AND PROCEDURES | 29
PART II – | OTHER INFORMATION |
| ITEM 1 – LEGAL PROCEEDINGS | 30
| ITEM 1A – RISK FACTORS | 30
| ITEM 6 – EXHIBITS | 30
SIGNATURES | 31
EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION |
EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION |
EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION |
EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION |

3

PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
(In thousands, except per share amounts) |  |  |  |  |  |  |
Net sales | $ | 973,310 |  |  | $ | 1,644,568 |  |  |  |  |
Cost of sales | 787,239 |  |  | 1,180,325 |  |  |  |  |
Gross profit | 186,071 |  |  | 464,243 |  |  |  |  |
Selling, general and administrative expenses | 166,028 |  |  | 194,542 |  |  |  |  |
Operating profit | 20,043 |  |  | 269,701 |  |  |  |  |
Interest expense, net | 10,394 |  |  | 6,252 |  |  |  |  |
Income before income taxes | 9,649 |  |  | 263,449 |  |  |  |  |
Provision for income taxes | 2,390 |  |  | 67,268 |  |  |  |  |
Net income | $ | 7,259 |  |  | $ | 196,181 |  |  |  |  |
Net income per common share: |  |  |  |  |  |  |
Basic | $ | 0.29 |  |  | $ | 7.75 |  |  |  |  |
Diluted | $ | 0.29 |  |  | $ | 7.71 |  |  |  |  |
Weighted average common shares outstanding: |  |  |  |  |  |  |
Basic | 25,228 |  |  | 25,329 |  |  |  |  |
Diluted | 25,293 |  |  | 25,461 |  |  |  |  |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
(In thousands) |  |  |  |  |  |  |
Net income | $ | 7,259 |  |  | $ | 196,181 |  |  |  |  |
Other comprehensive income (loss): |  |  |  |  |  |  |
Net foreign currency translation adjustment | 2,000 |  |  | (2,882) |  |  |  |  |
Total comprehensive income | $ | 9,259 |  |  | $ | 193,299 |  |  |  |  |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5

LCI INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, |  | December 31,
| 2023 |  |  |  | 2022
(In thousands, except per share amount) |  |  |  |  |
ASSETS |  |  |  |  |
Current assets |  |  |  |  |
Cash and cash equivalents | $ | 23,465 |  |  |  |  | $ | 47,499 |
Accounts receivable, net of allowances of $7,645 and $5,904 at March 31, 2023 and December 31, 2022, respectively | 340,305 |  |  |  |  | 214,262 |
Inventories, net | 909,385 |  |  |  |  | 1,029,705 |
Prepaid expenses and other current assets | 91,624 |  |  |  |  | 99,310 |
Total current assets | 1,364,779 |  |  |  |  | 1,390,776 |
Fixed assets, net | 480,904 |  |  |  |  | 482,185 |
Goodwill | 566,178 |  |  |  |  | 567,063 |
Other intangible assets, net | 491,415 |  |  |  |  | 503,320 |
Operating lease right-of-use assets | 248,575 |  |  |  |  | 247,007 |
Other long-term assets | 57,516 |  |  |  |  | 56,561 |
Total assets | $ | 3,209,367 |  |  |  |  | $ | 3,246,912 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |
Current liabilities |  |  |  |  |
Current maturities of long-term indebtedness | $ | 25,450 |  |  |  |  | $ | 23,086 |
Accounts payable, trade | 169,883 |  |  |  |  | 143,529 |
Current portion of operating lease obligations | 35,516 |  |  |  |  | 35,447 |
Accrued expenses and other current liabilities | 205,182 |  |  |  |  | 219,238 |
Total current liabilities | 436,031 |  |  |  |  | 421,300 |
Long-term indebtedness | 1,055,625 |  |  |  |  | 1,095,888 |
Operating lease obligations | 224,451 |  |  |  |  | 222,478 |
Deferred taxes | 31,405 |  |  |  |  | 30,580 |
Other long-term liabilities | 102,344 |  |  |  |  | 95,658 |
Total liabilities | 1,849,856 |  |  |  |  | 1,865,904 |
Stockholders' equity |  |  |  |  |
Common stock, par value $.01 per share | 286 |  |  |  |  | 285 |
Paid-in capital | 231,294 |  |  |  |  | 234,956 |
Retained earnings | 1,201,443 |  |  |  |  | 1,221,279 |
Accumulated other comprehensive income | 8,704 |  |  |  |  | 6,704 |
Stockholders' equity before treasury stock | 1,441,727 |  |  |  |  | 1,463,224 |
Treasury stock, at cost | (82,216) |  |  |  |  | (82,216) |
Total stockholders' equity | 1,359,511 |  |  |  |  | 1,381,008 |
Total liabilities and stockholders' equity | $ | 3,209,367 |  |  |  |  | $ | 3,246,912 |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Three Months Ended March 31,
(In thousands) | 2023 |  | 2022
Cash flows from operating activities: |  |  |
Net income | $ | 7,259 |  |  | $ | 196,181 |
Adjustments to reconcile net income to cash flows provided by operating activities: |  |  |
Depreciation and amortization | 32,499 |  |  | 31,812 |
Stock-based compensation expense | 4,695 |  |  | 6,517 |
Other non-cash items | 877 |  |  | 1,771 |
Changes in assets and liabilities, net of acquisitions of businesses: |  |  |
Accounts receivable, net | (123,072) |  |  | (240,404) |
Inventories, net | 131,708 |  |  | (31,278) |
Prepaid expenses and other assets | 5,577 |  |  | 20,495 |
Accounts payable, trade | 25,822 |  |  | 57,808 |
Accrued expenses and other liabilities | (10,689) |  |  | 92,024 |
Net cash flows provided by operating activities | 74,676 |  |  | 134,926 |
Cash flows from investing activities: |  |  |
Capital expenditures | (17,159) |  |  | (42,037) |
Acquisitions of businesses | (6,250) |  |  | (50,089) |
Other investing activities | 1,960 |  |  | (219) |
Net cash flows used in investing activities | (21,449) |  |  | (92,345) |
Cash flows from financing activities: |  |  |
Vesting of stock-based awards, net of shares tendered for payment of taxes | (8,888) |  |  | (10,569) |
Proceeds from revolving credit facility | 165,300 |  |  | 372,400 |
Repayments under revolving credit facility | (201,385) |  |  | (330,600) |
Repayments under shelf loan, term loan, and other borrowings | (5,276) |  |  | (55,642) |
Payment of dividends | (26,563) |  |  | (22,870) |
Payment of contingent consideration and holdbacks related to acquisitions | — |  |  | (2,031) |
Other financing activities | (12) |  |  | (4) |
Net cash flows used in financing activities | (76,824) |  |  | (49,316) |
Effect of exchange rate changes on cash and cash equivalents | (437) |  |  | (712) |
Net decrease in cash and cash equivalents | (24,034) |  |  | (7,447) |
Cash and cash equivalents at beginning of period | 47,499 |  |  | 62,896 |
Cash and cash equivalents cash at end of period | $ | 23,465 |  |  | $ | 55,449 |
Supplemental disclosure of cash flow information: |  |  |
Cash paid during the period for interest | $ | 9,052 |  |  | $ | 3,943 |
Cash paid during the period for income taxes, net of refunds | $ | 390 |  |  | $ | 192 |
Purchase of property and equipment in accrued expenses | $ | 2,304 |  |  | $ | 2,400 |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

(In thousands, except shares and per share amounts) | Common Stock |  | Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Treasury Stock |  | Total Stockholders’ Equity
Balance - December 31, 2021 | $ | 284 |  |  | $ | 220,459 |  |  | $ | 930,795 |  |  | $ | (501) |  |  | $ | (58,162) |  |  | $ | 1,092,875 |
Net income | — |  |  | — |  |  | 196,181 |  |  | — |  |  | — |  |  | 196,181 |
Issuance of 138,208 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | 1 |  |  | (10,570) |  |  | — |  |  | — |  |  | — |  |  | (10,569) |
Stock-based compensation expense | — |  |  | 6,517 |  |  | — |  |  | — |  |  | — |  |  | 6,517 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | (2,882) |  |  | — |  |  | (2,882) |
Cash dividends ($0.90 per share) | — |  |  | — |  |  | (22,870) |  |  | — |  |  | — |  |  | (22,870) |
Dividend equivalents on stock-based awards | — |  |  | 392 |  |  | (392) |  |  | — |  |  | — |  |  | — |
Balance - March 31, 2022 | $ | 285 |  |  | $ | 216,798 |  |  | $ | 1,103,714 |  |  | $ | (3,383) |  |  | $ | (58,162) |  |  | $ | 1,259,252 |

Balance - December 31, 2022 | $ | 285 |  |  | $ | 234,956 |  |  | $ | 1,221,279 |  |  | $ | 6,704 |  |  | $ | (82,216) |  |  | $ | 1,381,008 |
Net income | — |  |  | — |  |  | 7,259 |  |  | — |  |  | — |  |  | 7,259 |
Issuance of 119,091 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | 1 |  |  | (8,889) |  |  | — |  |  | — |  |  | — |  |  | (8,888) |
Stock-based compensation expense | — |  |  | 4,695 |  |  | — |  |  | — |  |  | — |  |  | 4,695 |
Other comprehensive gain | — |  |  | — |  |  | — |  |  | 2,000 |  |  | — |  |  | 2,000 |
Cash dividends ($1.05 per share) | — |  |  | — |  |  | (26,563) |  |  | — |  |  | — |  |  | (26,563) |
Dividend equivalents on stock-based awards | — |  |  | 532 |  |  | (532) |  |  | — |  |  | — |  |  | — |
Balance - March 31, 2023 | $ | 286 |  |  | $ | 231,294 |  |  | $ | 1,201,443 |  |  | $ | 8,704 |  |  | $ | (82,216) |  |  | $ | 1,359,511 |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements include the accounts of LCI Industries and its wholly-owned subsidiaries ("LCII" and collectively with its subsidiaries, the "Company," "we," "us," or "our"). LCII has no unconsolidated subsidiaries. LCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, "Lippert Components," "LCI," or "Lippert"), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers ("OEMs") in the recreation and transportation product markets, consisting primarily of recreational vehicles ("RVs") and adjacent industries including boats; buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; trains; manufactured homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. At March 31, 2023, the Company operated over 120 manufacturing and distribution facilities located throughout North America and Europe.
Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company's sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, current and future seasonal industry trends have been, and may in the future be, different than in prior years due to various factors, including fluctuations in dealer inventories and the timing of dealer orders, the impact of international, national, and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, the impact of severe weather conditions on the timing of industry-wide shipments from time to time, as well as the coronavirus ("COVID-19") pandemic and related impacts. Additionally, many of the optional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing certain Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future be, different as a result of the COVID-19 pandemic and related impacts.
The Company is not aware of any significant events which occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Condensed Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated.
In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented. The Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include some information necessary to conform to annual reporting requirements. Results for interim periods should not be considered indicative of results for the full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, operating lease right-of-use assets and obligations, asset retirement obligations, long-lived assets, pension and post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies, and litigation. The Company bases its estimates on historical experience, other available information, and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management estimates.
9

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Risks and Uncertainties
Negative conditions in the general economy in the United States or abroad, including conditions resulting from financial and credit market fluctuations, increased inflation and interest rates, changes in economic policy, trade uncertainty, including changes in tariffs, sanctions, international treaties, and other trade restrictions, including heightened tensions between China and Taiwan, the occurrence of a natural disaster or global public health crisis, such as the COVID-19 pandemic, or armed conflicts, such as the conflict between Russia and Ukraine, could negatively impact the Company’s business, liquidity, financial condition and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2022 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report.
There are no recent accounting pronouncements that have been issued and not yet adopted that are expected to have a material impact on our Condensed Consolidated Financial Statements.
3. EARNINGS PER SHARE
The following reconciliation details the denominator used in the computation of basic and diluted earnings per share for the periods indicated:

| Three Months Ended March 31, |  |
(In thousands) | 2023 |  | 2022 |  |  |  |
Weighted average shares outstanding for basic earnings per share | 25,228 |  |  | 25,329 |  |  |  |  |
Common stock equivalents pertaining to stock-based awards | 65 |  |  | 132 |  |  |  |  |
Weighted average shares outstanding for diluted earnings per share | 25,293 |  |  | 25,461 |  |  |  |  |
Equity instruments excluded from diluted net earnings per share calculation as the effect would have been antidilutive | 160 |  |  | 111 |  |  |  |  |

For the Company's 1.125 percent convertible senior notes due 2026 (the "Convertible Notes") issued in May 2021, the dilutive effect is calculated using the if-converted method. The Company is required, pursuant to the indenture governing the Convertible Notes, dated May 13, 2021, by and between the Company and U.S. Bank National Association, as trustee (the "Indenture"), to settle the principal amount of the Convertible Notes in cash and may elect to settle the remaining conversion obligation (i.e., the stock price in excess of the conversion price) in cash, shares of the Company's common stock, or a combination thereof. Under the if-converted method, the Company includes the number of shares required to satisfy the conversion obligation, assuming all the Convertible Notes are converted. Because the average closing price of the Company's common stock for the three months ended March 31, 2023, which is used as the basis for determining the dilutive effect on earnings per share, was less than the conversion price of $165.65, all associated shares were antidilutive.
In conjunction with the issuance of the Convertible Notes, the Company, in privately negotiated transactions with certain commercial banks (the "Counterparties"), sold warrants to purchase 2.8 million shares of the Company's common stock (the "Warrants"). The Warrants have a strike price of $259.84 per share, subject to customary anti-dilution adjustments. For calculating the dilutive effect of the Warrants, the Company uses the treasury stock method. With this method, the Company assumes exercise of the Warrants at the beginning of the period, or at time of issuance if later, and issuance of shares of common stock upon exercise. Proceeds from the exercise of the Warrants are assumed to be used to repurchase shares of the Company's common stock at the average market price during the period. The incremental shares, representing the number of shares assumed to be received upon the exercise of the Warrants less the number of shares repurchased, are included in diluted shares. For the three months ended March 31, 2023, the average share price was below the Warrant strike price of $259.84 per share, and therefore 2.8 million shares were considered antidilutive.
In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated call option contracts on the Company's common stock (the "Convertible Note Hedge Transactions") with the Counterparties. The Company paid an aggregate amount of $100.1 million to the Counterparties pursuant to the Convertible Note Hedge Transactions. The
10

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately 2.8 million shares of the Company's common stock, the same number of shares initially underlying the Convertible Notes, at a strike price of approximately $165.65, subject to customary anti-dilution adjustments. The Convertible Note Hedge Transactions will expire upon the maturity of the Convertible Notes, subject to earlier exercise or termination. Exercise of the Convertible Note Hedge Transactions would reduce the number of shares of the Company's common stock outstanding, and therefore would be antidilutive.
4. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Acquisitions Completed During the Three Months Ended March 31, 2023
During the three months ended March 31, 2023, the Company completed an acquisition for $6.3 million of cash purchase consideration, plus holdback payments of $0.5 million to be paid over the two years following the acquisition. The purchase price allocation resulted in $4.2 million of goodwill (tax deductible). As this acquisition is not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.
Acquisitions with Measurement Period Adjustments During the Three Months Ended March 31, 2023
Way
In November 2022, the Company acquired substantially all of the business assets of Way Interglobal Network LLC ("Way"), a distributor of innovative appliances and electronics to OEMs in the RV industry. The purchase price was $54.8 million, which includes a holdback payment of $2.0 million due on the first anniversary of the acquisition in November 2023. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date, primarily in the Company's OEM Segment. As the operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.
During the three months ended March 31, 2023, the Company adjusted the preliminary purchase price allocation reported in the Company's December 31, 2022 Annual Report on Form 10-K to account for updates to net working capital balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. The purchase price allocation is subject to further adjustment for net working capital and the fair value of intangible assets as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date).
Goodwill
Changes in the carrying amount of goodwill by reportable segment were as follows:

(In thousands) | OEM Segment |  | Aftermarket Segment |  | Total
Net balance – December 31, 2022 | $ | 399,736 |  |  | $ | 167,327 |  |  | $ | 567,063 |
Acquisitions – 2023 | 3,345 |  |  | 836 |  |  | 4,181 |
Measurement period adjustments | (7,125) |  |  | (289) |  |  | (7,414) |
Foreign currency translation | 1,941 |  |  | 407 |  |  | 2,348 |
Net balance – March 31, 2023 | $ | 397,897 |  |  | $ | 168,281 |  |  | $ | 566,178 |

Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist.
11

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other Intangible Assets
Other intangible assets consisted of the following at March 31, 2023:

(In thousands) | Gross Cost |  | Accumulated Amortization |  | Net Balance |  | Estimated Useful Life in Years
Customer relationships | $ | 521,288 |  |  | $ | 173,070 |  |  | $ | 348,218 |  |  | 6 | to | 20
Patents | 121,674 |  |  | 65,254 |  |  | 56,420 |  |  | 3 | to | 20
Trade names (finite life) | 98,206 |  |  | 22,705 |  |  | 75,501 |  |  | 3 | to | 20
Trade names (indefinite life) | 7,600 |  |  | — |  |  | 7,600 |  |  | Indefinite
Non-compete agreements | 11,484 |  |  | 8,164 |  |  | 3,320 |  |  | 3 | to | 6
Other | 609 |  |  | 253 |  |  | 356 |  |  | 2 | to | 12
Other intangible assets | $ | 760,861 |  |  | $ | 269,446 |  |  | $ | 491,415 |  |  |  |  |

Other intangible assets consisted of the following at December 31, 2022:

(In thousands) | Gross Cost |  | Accumulated Amortization |  | Net Balance |  | Estimated Useful Life in Years
Customer relationships | $ | 520,273 |  |  | $ | 163,562 |  |  | $ | 356,711 |  |  | 6 | to | 20
Patents | 121,167 |  |  | 62,841 |  |  | 58,326 |  |  | 3 | to | 20
Trade names (finite life) | 97,810 |  |  | 21,380 |  |  | 76,430 |  |  | 3 | to | 20
Trade names (indefinite life) | 7,600 |  |  | — |  |  | 7,600 |  |  | Indefinite
Non-compete agreements | 11,584 |  |  | 7,698 |  |  | 3,886 |  |  | 3 | to | 6
Other | 609 |  |  | 242 |  |  | 367 |  |  | 2 | to | 12
Other intangible assets | $ | 759,043 |  |  | $ | 255,723 |  |  | $ | 503,320 |  |  |  |  |

5. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out (FIFO) method) or net realizable value. Cost includes material, labor, and overhead. Inventories consisted of the following at:

| March 31, |  | December 31,
(In thousands) | 2023 |  |  |  | 2022
Raw materials | $ | 529,497 |  |  |  |  | $ | 600,601 |
Work in process | 46,951 |  |  |  |  | 44,850 |
Finished goods | 332,937 |  |  |  |  | 384,254 |
Inventories, net | $ | 909,385 |  |  |  |  | $ | 1,029,705 |

At March 31, 2023 and December 31, 2022, the Company had recorded inventory obsolescence reserves of $55.8 million and $55.9 million, respectively.
6. FIXED ASSETS
Fixed assets consisted of the following at:

| March 31, |  | December 31,
(In thousands) | 2023 |  |  |  | 2022
Fixed assets, at cost | $ | 959,897 |  |  |  |  | $ | 945,255 |
Less accumulated depreciation and amortization | 478,993 |  |  |  |  | 463,070 |
Fixed assets, net | $ | 480,904 |  |  |  |  | $ | 482,185 |

12

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at:

| March 31, |  | December 31,
(In thousands) | 2023 |  |  |  | 2022
Employee compensation and benefits | $ | 57,148 |  |  |  |  | $ | 77,804 |
Deferred acquisition payments and contingent consideration* | 34,086 |  |  |  |  | 34,013 |
Current portion of accrued warranty | 40,358 |  |  |  |  | 35,148 |
Other | 73,590 |  |  |  |  | 72,273 |
Accrued expenses and other current liabilities | $ | 205,182 |  |  |  |  | $ | 219,238 |

* Includes current portion of contingent consideration (Note 10) and deferred acquisition payments (Note 4).
Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company's historical warranty costs, warranty claim lag, and sales. The following table provides a reconciliation of the activity related to the Company's accrued warranty, including both the current and long-term portions, for the three months ended March 31:

(In thousands) | 2023 |  | 2022 |  |
Balance at beginning of period | $ | 54,528 |  |  | $ | 52,114 |  |  |
Provision for warranty expense | 20,827 |  |  | 15,441 |  |  |
Warranty costs paid | (15,227) |  |  | (8,770) |  |  |
Balance at end of period | 60,128 |  |  | 58,785 |  |  |
Less long-term portion | (19,770) |  |  | (20,530) |  |  |
Current portion of accrued warranty at end of period | $ | 40,358 |  |  | $ | 38,255 |  |  |

8. LONG-TERM INDEBTEDNESS
Long-term debt consisted of the following:

| March 31, |  | December 31,
(In thousands) | 2023 |  |  |  | 2022
Convertible Notes | $ | 460,000 |  |  |  |  | $ | 460,000 |
Term Loan | 370,000 |  |  |  |  | 375,000 |
Revolving Credit Loan | 255,569 |  |  |  |  | 289,067 |
Other | 3,838 |  |  |  |  | 3,959 |
Unamortized deferred financing fees | (8,332) |  |  |  |  | (9,052) |
| 1,081,075 |  |  |  |  | 1,118,974 |
Less current portion | (25,450) |  |  |  |  | (23,086) |
Long-term indebtedness | $ | 1,055,625 |  |  |  |  | $ | 1,095,888 |

13

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Agreement
The Company and certain of its subsidiaries are party to a credit agreement dated December 14, 2018 with JPMorgan Chase, N.A., as a lender and administrative agent, and other bank lenders (as amended, the "Credit Agreement"). The Credit Agreement provides for a $600.0 million revolving credit facility (of which $50.0 million is available for the issuance of letters of credit (the "LC Facility") and up to $400.0 million is available in approved foreign currencies). The Credit Agreement also provides for term loans (the "Term Loan") to the Company in an aggregate principal amount of $400.0 million. The maturity date of the Credit Agreement is December 7, 2026. The Term Loan is required to be repaid in an amount equal to 1.25 percent of the original principal amount of the Term Loan for the first eight quarterly periods commencing with the quarter ended December 31, 2021, 1.875 percent of the original principal amount of the Term Loan for the next eight quarterly periods, and then 2.50 percent of the original principal amount of the Term Loan of each additional payment until the maturity date. The Credit Agreement also permits the Company to request an increase to the revolving and/or term loan facility by up to an additional $400.0 million in the aggregate upon the approval of the lenders providing any such increase and the satisfaction of certain other conditions.
Borrowings under the Credit Agreement in U.S. dollars are designated from time to time by the Company as (i) base rate loans which bear interest at a base rate plus additional interest ranging from 0.0 percent to 0.625 percent (0.125 percent was applicable at March 31, 2023) depending on the Company’s total net leverage ratio or (ii) term benchmark loans which bear interest at LIBOR (or a relevant benchmark replacement rate) for an interest period selected by the Company plus additional interest ranging from 0.875 percent to 1.625 percent (1.125 percent was applicable at March 31, 2023) depending on the Company’s total net leverage ratio. Foreign currency borrowings, other than Pounds Sterling, have the same additional interest margins applicable to term benchmark loans based on the Company's total net leverage ratio. At March 31, 2023, the Company had $4.6 million in issued, but undrawn, standby letters of credit under the LC Facility. Availability under the Company’s revolving credit facility, giving effect to certain limitations related to compliance with the maximum net leverage ratio covenant, was $318.2 million at March 31, 2023. A commitment fee ranging from 0.150 percent to 0.225 percent (0.175 percent was applicable at March 31, 2023) depending on the Company's total net leverage ratio accrues on the actual daily amount that the revolving commitment exceeds the revolving credit exposure.
Shelf-Loan Facility
The Company and certain of its subsidiaries had a $150.0 million shelf-loan facility (the "Shelf-Loan Facility") with PGIM, Inc. (formerly Prudential Investment Management, Inc.) and its affiliates ("Prudential"). On March 29, 2019, the Company issued $50.0 million of Series B Senior Notes (the "Series B Notes") to certain affiliates of Prudential for a term of three years, at a fixed interest rate of 3.80 percent per annum, payable quarterly in arrears. The Series B Notes were paid in full in March 2022, and the Shelf-Loan Facility expired on November 11, 2022.
Convertible Notes
On May 13, 2021, the Company issued $460.0 million in aggregate principal amount of 1.125 percent Convertible Notes due 2026 in a private placement to certain qualified institutional buyers, resulting in net proceeds to the Company of approximately $447.8 million after deducting the initial purchasers' discounts and offering expenses payable by the Company. The Convertible Notes bear interest at a coupon rate of 1.125 percent per annum, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes will mature on May 15, 2026, unless earlier converted, redeemed, or repurchased, in accordance with their terms.
As of March 31, 2023, the conversion rate of the Convertible Notes was 6.1297 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes. The conversion rate of the Convertible Notes is subject to further adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture) or upon a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or notice of redemption, as the case may be.
Prior to the close of business on the business day immediately preceding January 15, 2026, the Convertible Notes are convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price (as defined in the Indenture) per share of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding
14

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
calendar quarter is greater than or equal to 130 percent of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98 percent of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; or (4) upon the occurrence of certain specified corporate events described in the Indenture. On or after January 15, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company's common stock, or a combination of cash and shares of the Company's common stock, at the Company's election, in respect of the remainder, if any, of the Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.
The Company may not redeem the Convertible Notes prior to May 20, 2024. On or after May 20, 2024, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, if the last reported sale price of the Company's common stock has been at least 130 percent of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of a fundamental change (as defined in the Indenture), subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all or any portion of their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price equal to 100 percent of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest on such Convertible Notes to, but not including, the fundamental change repurchase date (as defined in the Indenture).
The Convertible Notes are senior unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Convertible Notes, equal in right of payment with all the Company's liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the named trustee or the holders of at least 25 percent of the aggregate principal amount of the outstanding Convertible Notes may declare 100 percent of the principal of, and accrued and unpaid interest, if any, on all the outstanding Convertible Notes to be due and payable.
The Convertible Notes are not registered securities nor listed on any securities exchange but may be actively traded by qualified institutional buyers. The fair value of the Convertible Notes of $414.0 million at March 31, 2023 was estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.
General
At March 31, 2023, the fair value of the Company's long-term debt under the Credit Agreement approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.
Pursuant to the Credit Agreement, the Company shall not permit its net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio, and must meet certain other financial requirements. At March 31, 2023, the Company was in compliance with all such requirements.
The Credit Agreement includes a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness that the Company may incur on a trailing twelve-month EBITDA. This limitation reduced the Company's remaining availability under its revolving credit facility at March 31, 2023. The Company believes the availability of $318.2 million under the revolving credit facility under the Credit Agreement, along with its cash flows from operations, are adequate to finance the Company's anticipated cash requirements for the next twelve months.
15

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. LEASES
The Company leases certain manufacturing and warehouse facilities, administrative office space, semi-tractors, trailers, forklifts, and other equipment through operating leases with unrelated third parties. The increase in lease expense for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily driven by capacity expansions and leases assumed in acquisitions. The components of lease expense were as follows:

| Three Months Ended March 31, |  |  |  |
(In thousands) | 2023 |  | 2022 |  |  |  |  |  |  |  |
Operating lease expense | $ | 15,244 |  |  | $ | 12,912 |  |  |  |  |  |  |  |  |
Short-term lease expense | 1,480 |  |  | 1,840 |  |  |  |  |  |  |  |  |
Variable lease expense | 1,000 |  |  | 713 |  |  |  |  |  |  |  |  |
Total lease expense | $ | 17,724 |  |  | $ | 15,465 |  |  |  |  |  |  |  |  |

10. COMMITMENTS AND CONTINGENCIES
Holdback Payments and Contingent Consideration
From time to time, the Company finances a portion of its business combinations with deferred acquisition payments ("holdback payments") and/or contingent earnout provisions. Holdback payments are accrued at their discounted present value. As required, the liability for contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital. Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods. See Note 4 - Acquisitions, Goodwill and Other Intangible Assets for information on certain holdback payments. Contingent consideration balances were not material at March 31, 2023.
Product Recalls
From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and occasionally receives inquiries directly from the National Highway Traffic Safety Administration regarding reported incidents involving the Company’s products. As a result, the Company has incurred expenses associated with product recalls from time to time and may incur expenditures for future investigations or product recalls.
Environmental
The Company's operations are subject to certain Federal, state, and local regulatory requirements relating to the use, storage, discharge, and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third-parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction with voluntary remediation programs or third-party claims.
Litigation
In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries, and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of March 31, 2023, would not be material to the Company's financial position or results of operations.
16

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. STOCKHOLDERS' EQUITY
The following table summarizes information about shares of the Company's common stock at:

| March 31, |  | December 31,
(In thousands) | 2023 |  |  |  | 2022
Common stock authorized | 75,000 |  |  |  |  | 75,000 |
Common stock issued | 28,639 |  |  |  |  | 28,519 |
Treasury stock | 3,341 |  |  |  |  | 3,341 |
Common stock outstanding | 25,298 |  |  |  |  | 25,178 |

The table below summarizes the regular quarterly dividends declared and paid during the periods ended March 31, 2023 and December 31, 2022:

(In thousands, except per share data) | Per Share |  | Record Date |  | Payment Date |  | Total Paid
First Quarter 2022 | $ | 0.90 |  |  | 03/11/22 |  | 03/25/22 |  | $ | 22,870 |
Second Quarter 2022 | 1.05 |  |  | 06/03/22 |  | 06/17/22 |  | 26,702 |
Third Quarter 2022 | 1.05 |  |  | 09/02/22 |  | 09/16/22 |  | 26,701 |
Fourth Quarter 2022 | 1.05 |  |  | 12/02/22 |  | 12/16/22 |  | 26,453 |
Total 2022 | $ | 4.05 |  |  |  |  |  |  | $ | 102,726 |
First Quarter 2023 | $ | 1.05 |  |  | 03/10/23 |  | 03/24/23 |  | $ | 26,563 |

Deferred and Restricted Stock Units
The LCI Industries 2018 Omnibus Incentive Plan (the "2018 Plan") provides for the grant or issuance of stock units, including those that have deferral periods, such as deferred stock units ("DSUs"), and those with time-based vesting provisions, such as restricted stock units ("RSUs"), to directors, employees, and other eligible persons. Recipients of DSUs and RSUs are entitled to receive shares at the end of a specified vesting or deferral period. Holders of DSUs and RSUs receive dividend equivalents based on dividends granted to holders of the common stock, which dividend equivalents are payable in additional DSUs and RSUs, and are subject to the same vesting criteria as the original grant. DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers, based on achievement of specified performance conditions. RSUs vest (i) ratably over the service period or (ii) at a specified future date. In addition, DSUs are issued in lieu of certain cash compensation. Transactions in DSUs and RSUs under the 2018 Plan are summarized as follows:

| Number of Shares |  | Weighted Average Price
Outstanding at December 31, 2022 | 277,774 |  |  | $ | 120.92 |
Issued | 881 |  |  | 109.87 |
Granted | 146,821 |  |  | 114.26 |
Dividend equivalents | 3,080 |  |  | 104.48 |
Forfeited | (10,888) |  |  | 121.85 |
Vested | (106,546) |  |  | 112.79 |
Outstanding at March 31, 2023 | 311,122 |  |  | $ | 118.06 |

17

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Performance Stock Units
The 2018 Plan provides for performance stock units ("PSUs") that vest at a specific future date based on achievement of specified performance conditions. Transactions in PSUs under the 2018 Plan are summarized as follows:

| Number of Shares |  | Weighted Average Price
Outstanding at December 31, 2022 | 162,381 |  |  | $ | 120.12 |
Granted | 129,821 |  |  | 108.13
Dividend equivalents | 1,996 |  |  | 104.48
Forfeited | (3,245) |  |  | 96.55
Vested | (90,332) |  |  | 96.55
Outstanding at March 31, 2023 | 200,621 |  |  | $ | 123.39 |

Stock Repurchase Program
On May 19, 2022, the Company's Board of Directors authorized a stock repurchase program granting the Company authority to repurchase up to $200.0 million of the Company's common stock over a three-year period, ending on May 19, 2025. The timing of stock repurchases and the number of shares will depend upon the market conditions and other factors. Share repurchases, if any, will be made in the open market and in privately negotiated transactions in accordance with applicable securities laws. The stock repurchase program may be modified, suspended, or terminated at any time by the Board of Directors. In 2022, the Company purchased 253,490 shares at a weighted average price of $94.89 per share, totaling $24.1 million. No purchases were made during the three months ended March 31, 2023.
12. SEGMENT REPORTING
The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant.
The OEM Segment, which accounted for 78 percent and 85 percent of consolidated net sales for the three months ended March 31, 2023 and 2022, respectively, manufactures and distributes a broad array of engineered components for the leading OEMs in the recreation and transportation product markets, consisting primarily of RVs and adjacent industries, including boats; buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; trains; manufactured homes; and modular housing. Approximately 44 percent of the Company's OEM Segment net sales for the three months ended March 31, 2023 were of components for travel trailer and fifth-wheel RVs.
The Aftermarket Segment, which accounted for 22 percent and 15 percent of consolidated net sales for the three months ended March 31, 2023 and 2022, respectively, supplies engineered components to the related aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, tankless water heaters, and the sale of replacement glass and awnings to fulfill insurance claims.
Decisions concerning the allocation of the Company's resources are made by the Company's chief operating decision maker ("CODM"), with oversight by the Board of Directors. The CODM evaluates the performance of each segment based upon segment operating profit or loss, generally defined as income or loss before interest and income taxes. Decisions concerning the allocation of resources are also based on each segment's utilization of assets. Management of debt is a corporate function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 2 of the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
18

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present the Company's revenues disaggregated by segment and geography based on the billing address of the Company's customers:

| Three Months Ended March 31, 2023 |  | Three Months Ended March 31, 2022
(In thousands) | U.S. (a) |  | Int’l (b) |  | Total |  | U.S. (a) |  | Int’l (b) |  | Total
OEM Segment: |  |  |  |  |  |  |  |  |  |  |
RV OEMs: |  |  |  |  |  |  |  |  |  |  |
Travel trailers and fifth-wheels | $ | 314,982 |  |  | $ | 15,571 |  |  | $ | 330,553 |  |  | $ | 937,635 |  |  | $ | 15,591 |  |  | $ | 953,226 |
Motorhomes | 44,004 |  |  | 25,547 |  |  | 69,551 |  |  | 60,146 |  |  | 27,108 |  |  | 87,254 |
Adjacent Industries OEMs | 309,466 |  |  | 48,603 |  |  | 358,069 |  |  | 311,648 |  |  | 44,454 |  |  | 356,102 |
Total OEM Segment net sales | 668,452 |  |  | 89,721 |  |  | 758,173 |  |  | 1,309,429 |  |  | 87,153 |  |  | 1,396,582 |
Aftermarket Segment: |  |  |  |  |  |  |  |  |  |  |
Total Aftermarket Segment net sales | 200,486 |  |  | 14,651 |  |  | 215,137 |  |  | 230,167 |  |  | 17,819 |  |  | 247,986 |
Total net sales | $ | 868,938 |  |  | $ | 104,372 |  |  | $ | 973,310 |  |  | $ | 1,539,596 |  |  | $ | 104,972 |  |  | $ | 1,644,568 |

(a) Net sales to customers in the United States of America
(b) Net sales to customers in countries domiciled outside of the United States of America
The following table presents the Company's operating (loss) profit by segment:

| Three Months Ended March 31, |  |
(In thousands) | 2023 |  | 2022 |  |  |  |
Operating (loss) profit: |  |  |  |  |  |  |
OEM Segment | $ | (721) |  |  | $ | 245,374 |  |  |  |  |
Aftermarket Segment | 20,764 |  |  | 24,327 |  |  |  |  |
Total operating profit | $ | 20,043 |  |  | $ | 269,701 |  |  |  |  |

The following table presents the Company's revenue disaggregated by product:

| Three Months Ended March 31, |  |
(In thousands) | 2023 |  | 2022 |  |  |  |
OEM Segment: |  |  |  |  |  |  |
Chassis, chassis parts, and slide-out mechanisms | $ | 198,056 |  |  | $ | 559,720 |  |  |  |  |
Windows and doors | 218,611 |  |  | 330,358 |  |  |  |  |
Furniture and mattresses | 140,563 |  |  | 242,226 |  |  |  |  |
Axles and suspension solutions | 75,749 |  |  | 97,045 |  |  |  |  |
Other | 125,194 |  |  | 167,233 |  |  |  |  |
Total OEM Segment net sales | 758,173 |  |  | 1,396,582 |  |  |  |  |
Total Aftermarket Segment net sales | 215,137 |  |  | 247,986 |  |  |  |  |
Total net sales | $ | 973,310 |  |  | $ | 1,644,568 |  |  |  |  |

19

LCI INDUSTRIES
ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of Part 1 of this report, as well as the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
LCI Industries ("LCII" and collectively with its subsidiaries, the "Company," "we," "us," or "our"), through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, "Lippert Components," "LCI," or "Lippert"), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers ("OEMs") in the recreation and transportation product markets, consisting primarily of recreational vehicles ("RVs") and adjacent industries, including boats; buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; trains; manufactured homes; and modular housing. We also supply engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet.
We have two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At March 31, 2023, we operated over 120 manufacturing and distribution facilities located throughout North America and Europe. See Note 12 of the Notes to Condensed Consolidated Financial Statements for further information regarding our segments.
Our OEM Segment manufactures or distributes a broad array of engineered components for the leading OEMs of RVs and adjacent industries, including boats; buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; trains; manufactured homes; and modular housing. Approximately 54 percent of our OEM Segment net sales for the twelve months ended March 31, 2023 were of components for travel trailer and fifth-wheel RVs, including:

● Steel chassis and related components | ● Electric and manual entry steps
● Axles and suspension solutions | ● Awnings and awning accessories
● Slide-out mechanisms and solutions | ● Electronic components
● Thermoformed bath, kitchen, and other products | ● Appliances
● Vinyl, aluminum, and frameless windows | ● Air conditioners
● Manual, electric, and hydraulic stabilizer and leveling systems | ● Televisions and sound systems
● Entry, luggage, patio, and ramp doors | ● Tankless water heaters
● Furniture and mattresses | ● Other accessories

The Aftermarket Segment supplies many of these engineered components to the related aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, tankless water heaters, and the sale of replacement glass and awnings to fulfill insurance claims.
Most industries where we sell products or where our products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, our sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, current and future seasonal industry trends have been, and may in the future be, different than in prior years due to various factors, including fluctuations in dealer inventories and the timing of dealer orders, the impact of international, national, and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, the impact of severe weather conditions on the timing of industry-wide shipments from time to time, as well as the coronavirus ("COVID-19") pandemic and related impacts. Additionally, many of the optional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future be, different as a result of the COVID-19 pandemic and related impacts.
Negative conditions in the general economy in the United States or abroad, including conditions resulting from financial and credit market fluctuations, increased inflation and interest rates, changes in economic policy, trade uncertainty, including changes in tariffs, sanctions, international treaties, and other trade restrictions, including heightened tensions between China and Taiwan, the occurrence of a natural disaster or global public health crisis, such as the COVID-19 pandemic, or armed
20

LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
conflicts, such as the conflict between Russia and Ukraine, could negatively impact the Company’s business, liquidity, financial condition and results of operations.
INDUSTRY BACKGROUND
OEM Segment
North American Recreational Vehicle Industry
An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers, and truck campers).
The annual sales cycle for the RV industry generally starts in October after the "Open House" in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. Due to the COVID-19 pandemic, the 2021 and 2020 Open Houses were canceled, but an Open House was held in September 2022. The seasonality of the RV industry has been impacted by the COVID-19 pandemic, and the timing of a return to historical seasonality is not possible to predict at this time.
According to the Recreation Vehicle Industry Association ("RVIA"), industry-wide wholesale shipments from the United States of travel trailer and fifth-wheel RVs, our primary RV market, decreased 60 percent to 61,200 units in the first three months of 2023, compared to the first three months of 2022, primarily due to decreased retail demand. Retail demand for travel trailer and fifth-wheel RVs decreased 25 percent in the first three months of 2023 compared to the same period in 2022. Retail demand has declined from recent elevated levels, partially driven by rising interest rates impacting retail consumers. Retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
While we measure our OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:

|  |  |  |  |  |  |  |  | Estimated
| Wholesale |  | Retail |  | Unit Impact on
| Units |  | Change |  | Units |  | Change |  | Dealer Inventories
Quarter ended March 31, 2023 | 61,200 |  |  | (60)% |  | 71,700 |  |  | (25)% |  | (10,500)
Quarter ended December 31, 2022 | 62,400 |  |  | (52)% |  | 59,000 |  |  | (23)% |  | 3,400
Quarter ended September 30, 2022 | 73,400 |  |  | (46)% |  | 105,900 |  |  | (19)% |  | (32,500)
Quarter ended June 30, 2022 | 133,700 |  |  | 0% |  | 129,500 |  |  | (28)% |  | 4,200
Twelve months ended March 31, 2023 | 330,700 |  |  | (40)% |  | 366,100 |  |  | (24)% |  | (35,400)
Quarter ended March 31, 2022 | 152,200 |  |  | 16% |  | 95,000 |  |  | (17)% |  | 57,200
Quarter ended December 31, 2021 | 130,400 |  |  | 13% |  | 76,700 |  |  | (14)% |  | 53,700
Quarter ended September 30, 2021 | 136,000 |  |  | 24% |  | 131,000 |  |  | (18)% |  | 5,000
Quarter ended June 30, 2021 | 133,800 |  |  | 100% |  | 180,600 |  |  | 36% |  | (46,800)
Twelve months ended March 31, 2022 | 552,400 |  |  | 31% |  | 483,300 |  |  | (2)% |  | 69,100

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first three months of 2023 decreased 15 percent to 13,400 units compared to the first three months of 2022. Retail demand for motorhome RVs decreased 18 percent year-over-year in the first three months of 2023, compared to a two percent year-over-year decrease in retail demand
21

LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
in the same period of 2022. We believe the decline in retail demand has been partially driven by inflation and rising interest rates impacting retail consumers.
Our current estimate for full-year 2023 industry-wide wholesale shipments from the United States of travel trailer, fifth-wheel, and motorhome RVs is approximately 310,000 to 330,000 units. This estimate suggests a decrease of 37 to 33 percent compared to actual wholesale shipments in 2022. This projected decline is being driven by current dealer inventory levels, inflation, and rising interest rates impacting retail consumers.
Adjacent Industries
Our portfolio of products used in RVs can also be used in other applications, including boats; buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; trains; manufactured homes; and modular housing (collectively, "Adjacent Industries"). In many cases, OEM customers of the Adjacent Industries are affiliated with RV OEMs through related subsidiaries. We believe there are significant opportunities in these Adjacent Industries.
We currently expect economic uncertainty to negatively impact consumer discretionary purchases such as trailers and boats as we progress further into 2023; however, we currently anticipate that production of manufactured homes, buses, and trains should remain at or near current run rates through 2023.
Aftermarket Segment
Many of our OEM Segment products are also sold through various aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. This includes discretionary accessories and replacement service parts. We have teams dedicated to product, technical, and installation training as well as marketing support for our Aftermarket Segment customers. We also support multiple call centers to provide responses to customers for product, delivery, and technical support. This support is designed for a rapid response to critical repairs, so customer downtime is minimal. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, tankless water heaters, and the sale of replacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing certain Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future be, different as a result of the COVID-19 pandemic and the continuing impact of market and supply chain disruptions.
According to Go RVing, estimated RV ownership in the United States as of 2020 had increased to over 11 million households. This vibrant market is a key driver for aftermarket sales, as we anticipate owners will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear.
We currently expect to see a slight increase in aftermarket volume in 2023 as distribution stocking levels return to normal and the new vehicle chip shortage ameliorates. We expect these gains will be tempered by the impact of inflation and rising interest rates on consumers' discretionary spending.
RESULTS OF OPERATIONS
Consolidated Highlights
•Consolidated net sales in the first quarter of 2023 were $973.3 million, 41 percent lower than consolidated net sales for the same period of 2022 of $1.6 billion. The decrease was primarily driven by a nearly 60 percent decrease in North American towable RV wholesale shipments and decreased selling prices which are indexed to select commodities, partially offset by acquisitions. Net sales from acquisitions completed in the twelve months ended March 31, 2023, primarily Way Interglobal Network LLC and Girard Systems and Girard Products LLC, contributed approximately $28.5 million in the first quarter of 2023.
•Net income for the first quarter of 2023 was $7.3 million, or $0.29 per diluted share, compared to net income of $196.2 million, or $7.71 per diluted share, for the same period of 2022.
•Consolidated operating profit during the first quarter of 2023 was $20.0 million compared to $269.7 million in the same period of 2022. Operating profit margin was 2.1 percent in the first quarter of 2023 compared to 16.4 percent in the same period of 2022. The decrease was primarily due to the impact of fixed costs on reduced organic sales
22

LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
and decreased selling prices which are indexed to select commodities, partially offset by decreases in material commodity costs.
•The cost of steel consumed in certain of our manufactured components decreased in the first quarter of 2023 compared to the same period of 2022. Raw material costs are subject to continued fluctuation and impact certain contractual selling prices which are indexed to select commodities.
•The effective tax rate of 24.8 percent for the three months ended March 31, 2023 was lower than the comparable prior year period of 25.5 percent, primarily due to an increased discrete benefit related to the cash surrender value of life insurance, as discussed below under "Income Taxes."
•In March 2023, we paid a quarterly dividend of $1.05 per share, aggregating to $26.6 million.
OEM Segment - First Quarter
Net sales of the OEM Segment in the first quarter of 2023 decreased $638.4 million, compared to the same period of 2022. Net sales of components to the following OEMs markets for the three months ended March 31 were:

(In thousands) | 2023 |  | 2022 |  | Change
RV OEMs: |  |  |  |  |
Travel trailers and fifth-wheels | $ | 330,553 |  |  | $ | 953,226 |  |  | (65) | %
Motorhomes | 69,551 |  |  | 87,254 |  |  | (20) | %
Adjacent Industries OEMs | 358,069 |  |  | 356,102 |  |  | 1 | %
Total OEM Segment net sales | $ | 758,173 |  |  | $ | 1,396,582 |  |  | (46) | %

According to the RVIA, industry-wide wholesale unit shipments for the three months ended March 31 were:

| 2023 |  | 2022 |  | Change
Travel trailer and fifth-wheels | 61,200 |  |  | 152,200 |  |  | (60) | %
Motorhomes | 13,400 |  |  | 15,800 |  |  | (15) | %

The trend in our average product content per RV produced is an indicator of our overall market share of components for new RVs. Our average product content per type of RV, calculated based upon our net sales of components to domestic RV OEMs for the different types of RVs produced for the twelve months ended March 31, divided by the industry-wide wholesale shipments of the different product mix of RVs for the same period, was:

Content per: | 2023 |  | 2022 |  | Change
Travel trailer and fifth-wheel | $ | 5,881 |  |  | $ | 4,854 |  |  | 21 | %
Motorhome | $ | 3,985 |  |  | $ | 3,144 |  |  | 27 | %

Our average product content per type of RV excludes international sales and sales to the Aftermarket Segment and Adjacent Industries. Content per RV is impacted by changes in selling prices for our products, market share gains, and acquisitions.
Our decrease in net sales to RV OEMs during the first quarter of 2023 was driven by a nearly 55 percent reduction in North American wholesale shipments during the first quarter of 2023.
Our net sales to OEMs in Adjacent Industries during the first quarter of 2023 was approximately consistent with the same period of 2022.
Operating loss of the OEM Segment was $0.7 million in the first quarter of 2023, a decrease of $246.1 million compared to operating profit of the OEM Segment of $245.4 million in the same period of 2022. The operating loss margin of the OEM Segment in the first quarter of 2023 decreased to (0.1) percent compared to the operating profit margin of 17.6 percent for the same period of 2022 and was negatively impacted by:
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
•The impact of fixed costs on reduced organic sales, which decreased operating profit by $33.9 million related to fixed selling, general, and administrative costs and $29.1 million related to fixed production overhead costs.
•Selling prices contractually tied to indices of select commodities decreased, resulting in a decrease in operating profit of $59.9 million compared to the same period of 2022.
•Incremental costs incurred due to volatile OEM schedules resulting in a decrease in operating profit of $30.8 million compared to the same period of 2022.
Partially offset by:
•Decreases in material commodity costs, which positively impacted operating profit by $25.7 million, primarily related to decreased steel costs.
Amortization expense on intangible assets for the OEM Segment was $10.5 million in the first quarter of 2023, compared to $10.1 million in the same period in 2022. Depreciation expense on fixed assets for the OEM Segment was $14.4 million in the first quarter of 2023, compared to $14.5 million in the same period of 2022.
Aftermarket Segment - First Quarter
Net sales of the Aftermarket Segment in the first quarter of 2023 decreased by $32.8 million, compared to the same period of 2022. Net sales of components in the Aftermarket Segment were as follows for the three months ended March 31:

(In thousands) | 2023 |  | 2022 |  | Change
Total Aftermarket Segment net sales | $ | 215,137 |  |  | $ | 247,986 |  |  | (13) | %

The decrease in net sales of the Aftermarket Segment was primarily due to lower volumes due to fully stocked distribution channels, chip shortages impacting truck markets, and the impacts of inflation and rising interest rates on consumers' discretionary spending, partially offset by decreases in material commodity costs.
Operating profit of the Aftermarket Segment was $20.8 million in the first quarter of 2023, a decrease of $3.6 million compared to the same period of 2022. The operating profit margin of the Aftermarket Segment was 9.7 percent in the first quarter of 2023, compared to 9.8 percent in the same period in 2022, and was negatively impacted by:
•The impact of fixed costs on reduced organic sales, which decreased operating profit by $5.4 million related to fixed selling, general, and administrative costs and $1.8 million related to fixed production overhead costs.
•Investments in administrative structure of $1.0 million.
•Increases in production overhead costs in the current period resulting from investments to expand capacity over the past year, which negatively impacted operating profit by $1.0 million in the current period.
Partially offset by:
•Decreases in material commodity costs, which positively impacted operating profit by $7.9 million, primarily related to decreased steel costs.
•Pricing changes to targeted products, resulting in an increase in operating profit of $0.7 million compared to the same period of 2022.
Amortization expense on intangible assets for the Aftermarket Segment was $3.8 million in the first quarter of 2023, compared to $3.7 million in the same period of 2022. Depreciation expense on fixed assets for the Aftermarket Segment was $3.9 million in the first quarter of 2023, compared to $3.5 million in the same period of 2022.
Interest Expense
Interest expense, net was $10.4 million for the three months ended March 31, 2023, compared to $6.3 million in the same period of 2022. The increase in interest expense was primarily due to higher global interest rates on our adjustable rate Term Loan (as defined in Note 8 of the Notes to Condensed Consolidated Financial Statements) and revolving credit facility, partially offset by principal payments on the Term Loan, net repayments on our revolving credit facility, and the payoff of the
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
shelf loan balance in March 2022. See Note 8 of the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities.
Income Taxes
The effective tax rates for the three months ended March 31, 2023 and 2022 were 24.8 percent and 25.5 percent, respectively. The effective tax rate for the three months ended March 31, 2023 differed from the Federal statutory rate primarily due to state taxes, foreign taxes, and non-deductible expenses, partially offset by the recognition of excess tax benefits as a component of the provision for income taxes, and Federal and Indiana research and development credits. The decrease in the effective tax rate for the three months ended March 31, 2023 as compared to the same period in 2022 was primarily due to an increased benefit related to the cash surrender value of life insurance.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
We maintain a level of liquidity sufficient to allow us to meet our cash needs in the short term. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial condition, and maintain flexibility for our future strategic investments. We continuously assess our capital requirements, working capital needs, debt and leverage levels, debt and lease maturity schedules, capital expenditure requirements, dividends, future investments or acquisitions, and potential share repurchases. We believe our operating cash flows, credit facilities, as well as any potential future borrowings, will be sufficient to fund our future payments and long-term initiatives.
As of March 31, 2023, we had $23.5 million in cash and cash equivalents, and $318.2 million of availability under our revolving credit facility under the Credit Agreement (as defined in Note 8 of the Notes to Condensed Consolidated Financial Statements). We also have the ability to request an increase to the revolving and/or incremental term loan facilities by up to an additional $400.0 million in the aggregate upon approval of the lenders providing any such increase and the satisfaction of certain other conditions. See Note 8 of the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities.
We believe the availability under the revolving credit facility under the Credit Agreement, along with our cash flows from operations, are adequate to finance our anticipated cash requirements for the next twelve months.
The Condensed Consolidated Statements of Cash Flows reflect the following for the three months ended March 31:

(In thousands) | 2023 |  | 2022
Net cash flows provided by operating activities | $ | 74,676 |  |  | $ | 134,926 |
Net cash flows used in investing activities | (21,449) |  |  | (92,345) |
Net cash flows used in financing activities | (76,824) |  |  | (49,316) |
Effect of exchange rate changes on cash and cash equivalents | (437) |  |  | (712) |
Net decrease in cash and cash equivalents | $ | (24,034) |  |  | $ | (7,447) |

Cash Flows from Operations
Net cash flows provided by operating activities were $74.7 million in the first three months of 2023, compared to $134.9 million in the first three months of 2022. The decrease in net cash flows provided by operating activities was primarily due to a decrease in net income of $188.9 million. The decrease in net income was partially offset by the net change in assets and liabilities, net of acquired businesses, as it generated $130.7 million more cash in the first three months of 2023 compared to the same period in 2022. The primary provider of cash generated from net assets in the first three months of 2023 was the decrease in inventory of $131.7 million, due to decreasing commodity and freight costs and initiatives to reduce inventory as RV production demand has slowed from record levels seen during the first half of 2022. The primary use of cash in net assets was the increase of $123.1 million in accounts receivable due to seasonally higher sales in the first three months of 2023.
Over the long term, based on our historical collection and payment patterns, as well as inventory turnover, and also giving consideration to emerging trends and changes to the sales mix, we expect working capital to increase or decrease
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
equivalent to approximately 10 to 15 percent of the increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especially in the short term as we continue to reduce inventory balances.
Depreciation and amortization was $32.5 million in the first three months of 2023, and is expected to be approximately $130 to $140 million for the full year 2023. Non-cash stock-based compensation expense in the first three months of 2023 was $4.7 million. Non-cash stock-based compensation expense is expected to be approximately $25 to $30 million for the full year 2023.
Cash Flows from Investing Activities
Cash flows used in investing activities of $21.4 million in the first three months of 2023 were primarily comprised of $17.2 million for capital expenditures and $6.3 million for the acquisitions of businesses. Cash flows used in investing activities of $92.3 million in the first three months of 2022 were primarily comprised of $50.1 million for the acquisitions of businesses, net of cash acquired and $42.0 million for capital expenditures.
Our capital expenditures are primarily for replacement and growth. Over the long term, based on our historical capital expenditures, the replacement portion has averaged approximately one to two percent of net sales, while the growth portion has averaged approximately two to three percent of net sales. However, there are many factors that can impact the actual spending compared to these historical averages. We estimate full year 2023 capital expenditures of $80 to $100 million, including investments in automation and lean projects.
Capital expenditures and acquisitions in the first three months of 2023 were funded by cash generated from operations and borrowings under our Credit Agreement. Capital expenditures and acquisitions in the remainder of fiscal year 2023 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under our revolving credit facility as needed.
Cash Flows from Financing Activities
Cash flows used in financing activities of $76.8 million in the first three months of 2023 were primarily comprised of $36.1 million in net repayments under our revolving credit facility, payments of quarterly dividends of $26.6 million, cash outflows of $8.9 million related to vesting of stock-based awards, net of shares tendered for payment of taxes, and $5.3 million in repayments under our Term Loan and other borrowings.
Cash flows used in financing activities of $49.3 million in the first three months of 2022 were primarily comprised of $55.6 million in repayments under our shelf loan, Term Loan and other borrowings, payments of quarterly dividends of $22.9 million, and cash outflows of $10.6 million related to vesting of stock-based awards, net of shares tendered for payment of taxes, partially offset by $41.8 million in net borrowings under our revolving credit facility.
The Credit Agreement includes both financial and non-financial covenants. The covenants dictate that we shall not permit our net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio, and must meet certain other financial requirements. At March 31, 2023, we were in compliance with all such requirements. In connection with the planned phase-out of LIBOR, we are working with the administrative agent under the Credit Agreement to amend the Credit Agreement to replace the interest rate benchmark for U.S. dollars from LIBOR to a term rate based on the secured overnight financing rate (SOFR). In addition, while we expect to maintain compliance with the Credit Agreement financial covenants at each of June 30, 2023 and September 30, 2023, due to the uncertainties affecting our business, industry, and the global economy as discussed in Note 1 of the Notes to Condensed Consolidated Financial Statements and elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, we are also discussing with the administrative agent a potential increase to the net leverage ratio limit and a decrease in the minimum debt service coverage ratio as of those two dates.
We have paid regular quarterly dividends since 2016. Future dividend policy with respect to our common stock will be determined by our Board of Directors in light of our prevailing financial needs, earnings, and other relevant factors, including any limitations in our debt agreements, such as maintenance of certain financial ratios.
CORPORATE GOVERNANCE
We are in compliance with the corporate governance requirements of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. Our governance documents and committee charters and key practices have been
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
posted to the “Investors” section of our website (www.lci1.com) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. We have also established a Whistleblower Policy, which includes a toll-free hotline (800-461-9330) to report complaints about our accounting, internal controls, auditing matters or other concerns. The Whistleblower Policy and procedure for complaints can be found on our website (www.lci1.com).
CONTINGENCIES
Information required by this item is included in Note 10 of the Notes to Condensed Consolidated Financial Statements and is incorporated herein by reference.
INFLATION
The prices of key raw materials, consisting primarily of steel and aluminum, and components used by us which are made from these raw materials, are influenced by demand and other factors specific to these commodities, as well as by inflationary pressures. We experienced reduced prices of these commodities in the first three months of 2023, but prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. As a result, while we currently expect commodity prices in upcoming quarters in 2023 to remain generally consistent with prices in the first quarter of 2023, there can be no assurance that raw material costs will not increase. Please see "Results of Operations" above for additional information regarding the impact of raw material costs on our results of operations for the first three months of 2023.
NEW ACCOUNTING PRONOUNCEMENTS
Information required by this item is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, operating lease right-of-use assets and obligations, asset retirement obligations, long-lived assets, pension and post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies and litigation. We base our estimates on historical experience, other available information and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management estimates.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain "forward-looking statements" with respect to our financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, acquisitions, plans and objectives of management, markets for the Company's common stock, the impact of legal proceedings, and other matters. Statements in this Form 10-Q that are not historical facts are "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.
Forward-looking statements, including, without limitation, those relating to the Company's future business prospects, net sales, expenses and income (loss), capital expenditures, tax rate, cash flow, financial condition, liquidity, covenant compliance, retail and wholesale demand, integration of acquisitions, R&D investments, commodity prices and industry trends, whenever they occur in this Form 10-Q are necessarily estimates reflecting the best judgment of the Company's senior management at the time such statements were made. 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 include, in addition to other matters described in this Form 10-Q, the impacts of COVID-19, or other future
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
pandemics, the Russia-Ukraine war, and heightened tensions between China and Taiwan on the global economy and on the Company's customers, suppliers, employees, business and cash flows, pricing pressures due to domestic and foreign competition, costs and availability of, and tariffs on, raw materials (particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which we sell our products, availability of credit for financing the retail and wholesale purchase of products for which we sell our components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which we sell our components, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of production facilities and labor, team member benefits, team member retention, realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with environmental laws, laws of foreign jurisdictions in which we operate, other operational and financial risks related to conducting business internationally, and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices, and availability, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which we sell our components, and other risks and uncertainties discussed more fully under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and in the Company's subsequent filings with the SEC, including the Company's Quarterly Reports on Form 10-Q. Readers of this report are cautioned not to place undue reliance on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.
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LCI INDUSTRIES
ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in short-term interest rates on our variable rate debt. Depending on the interest rate option selected as more fully described in Note 8 of the Notes to Condensed Consolidated Financial Statements, interest is charged based on an indexed rate plus an applicable margin. Assuming a hypothetical increase of 0.25 percent in the indexed interest rate (which approximates a seven percent increase of the weighted-average interest rate on our borrowings as of March 31, 2023), our results of operations would not be materially affected.
We are also exposed to changes in the prices of raw materials, specifically steel and aluminum. We have, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures associated with fluctuations in steel and aluminum prices. While these derivative instruments are subject to fluctuations in value, these fluctuations are generally offset by the changes in fair value of the underlying exposures. We had no outstanding derivative instruments on commodities at March 31, 2023 and December 31, 2022.
We have historically been able to obtain sales price increases to partially offset the majority of raw material cost increases. However, there can be no assurance that future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases.
Additional information required by this item is included under the caption "Inflation" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this report.
ITEM 4 – CONTROLS AND PROCEDURES
a.Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of "disclosure controls and procedures" in Rule 13a-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. We continually evaluate our disclosure controls and procedures to determine if changes are appropriate based upon changes in our operations or the business environment in which we operate.
As of the end of the period covered by this Form 10-Q, we performed an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.
b.Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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LCI INDUSTRIES
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
In the normal course of business, we are subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of March 31, 2023, would not be material to our financial position or results of operations.
ITEM 1A – RISK FACTORS
There have been no material changes to the matters discussed in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K as filed with the SEC on February 24, 2023.
ITEM 6 – EXHIBITS
a) Exhibits as required by item 601 of Regulation S-K:

1 | 3.1 | LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016 (incorporated by reference to Exhibit 3.1 included in the Registrant’s Form 10-K for the year ended December 31, 2016).
2 | 3.2 | Amended and Restated Bylaws of LCI Industries, effective March 9, 2023.
3 | 10.1 | Offer Letter between LCI Industries and Lillian Etzkorn, accepted on March 30, 2023 (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed on April 5, 2023).
4 | 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a).
5 | 31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a).
6 | 32.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code.
7 | 32.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code.
8 | 101 | The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Condensed Consolidated Financial Statements.
9 | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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LCI INDUSTRIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LCI INDUSTRIES
Registrant
By | /s/ Lillian D. Etzkorn
Lillian D. Etzkorn
Chief Financial Officer
May 9, 2023

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