Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020, Winnebago Industries' Conference call.
At this time all participants on in listen only mode. After the speakers presentation. It would be a question and answer session.
Asked the question doing this session somebody to press Star then one via telephone.
Please be advised that today's conference is being recorded if people quite any further assistance. Please first thought into real.
Well now like the hand, the conference over to your speaker for today.
Steve Silver director of financial planning analysis, and Investor Relations you may begin.
Thank you operator, and good morning, everyone. Thank you for joining us today to discuss our second quarter earnings result.
I'm joined on the call today, My Michael Happy.
That said Chief Executive Officer in Brighton, Hughes, Vice President and Chief Financial Officer.
This call is being broadcast live on our website at Investor WG, ODAC nuts, and a replay of the call will be available on our website later today.
The news release with our second quarter results was issued and posted to our website earlier this morning.
Before we before we start I'd like to remind you that certain statements made during today's conference call regarding Winnebago industries and its operations, maybe considered forward looking statements under securities laws.
The company cautions you that forward looking statements involve a number of risk.
And our inherently uncertain in a number of factors many of which are beyond the company's control could cause actual results could differ materially from these statements.
These factors identified and her FCC filings, which I encourage you to read.
Before I turn the call over I'd like to mention that we are conducting the call remotely and while we hope to college executed seamlessly as usual we may ask called listening to adult just should we run into any technical difficulties.
Well just in connectivity or other distractions that could be encountered as we proceed.
With that I would now like to turn the call over to our President and CEO Michael Happy.
Right.
Thank you, Steve and good morning to everyone on today's call.
We especially realized during these challenging times that your attention is being appropriately diverted in many directions and we sincerely appreciate your interest in Winnebago industries and spending that valuable time with us This morning.
Before we get into details of the quarter and what I am sure will be an engaging question answer session about the future.
I want to recognize the hard work flexibility and steadfast commitment of our approximately 5500 employees to our vision into making Winnebago industries, a premier outdoor lifestyle company a reality.
All employees within our Winnebago Grand design, Neumar, and Chris craft businesses as well as in our enterprise functional teams.
Have been critical to the progress of these brands and our overall company.
Every individual has contributed in a meaningful way to the results you were about to here.
And every one of these individuals is rightly concerned about what the future will hold for our company themselves and their families.
We recognize that uncertainty is real and as a leadership team. We will do everything we can to provide them transparency to that future and fairness as we navigate forward.
But most importantly, we will continue to hold their health and safety a top priority while they work within our organization.
Thanks, again to the entire Winnebago industries team.
I would like to start our discussion this morning by providing a brief overview of what Winnebago industries has done and is doing relative to the corona virus pandemic.
I will then provide an overview of our second quarter results and our perspective on the unpredictable balance of fiscal year 2020.
Following that I will turn the call over to our Chief Financial Officer, Brian Hughes.
And we'll provide more detail on Q2 financials and the current strength of our balance sheet.
I will then return to offer some closing comments before concluding the call with a Q1 day session.
Now turning to our response to the covert 19 pandemic.
We at Winnebago industries much like every other small or big company in the industry around the world have been keenly focused on this rapidly evolving situation.
Almost two months ago as the virus was impacting the Asia Pacific region.
We began to seriously monitor a possible impact on our supply chain network.
That initial risk mitigation activity eventually led to a comprehensive crisis management process being set up in our company many weeks ago.
There is a command center team, which includes me and at least five major working groups reporting to it.
Led by senior leaders from around the company.
These work streams have been and are focused on employee health and wellness supply chain delivery.
Operational stability.
Market demand.
And financial strength.
This defined process has allowed a cross functional team to work across the enterprise and ensure that information flows positively and that best practices are shared quickly.
We have regular electronic communication forms accessible to broader groups of employees around this crisis management process.
We have also been providing our board of directors regular updates, including special calls outside of formal board meetings.
We believe this crisis management process has put us in the best possible position to have minimize significant disruption throughout our second fiscal quarter.
But also now be asked prepared as possible for the difficult journey ahead in Q3 and Q4.
I am extremely proud of the task force teams engaged on the front lines of this black Swan risk item.
They have made a real difference.
Unfortunately as of this past Monday March 20, Threerd, we made the tough but necessary decision to temporarily suspend most production activities across all campuses.
This will be a phased process throughout this week and we expect full suspension of manufacturing to begin formerly next week, which we project to last through April 12.
This includes our Winnebago Grand design, Neumar and of course craft operations.
This decision was rooted in a combination of drivers first the health of our employees and their families and second the significant and quick change and demand for our products from dealers and into customers over the past several weeks.
We felt to both reasons together necessitated the pause in production. So that we can continue to assess appropriate next steps.
However, our company will remain open and perform as allowed by any state mandated stay at home or shelter in place directives, a central activities for our dealers and customers.
Including remote retail support for the channel.
Along with technical care warranty administration and parts fulfillment.
We will also continue to support the employees affected by this temporary production suspension by providing base pay and benefits for the next two weeks.
Our leadership teams are also in close contact with our dealers to monitor and assess how the Corona virus pandemic continues to impact their business.
Most RV and marine dealers are open at a minimum for essential activities, such as RV or boats service repair.
But some continue to engage in consumers and drive whatever retail business is available in their area.
Finally, we will continue to be disciplined in our financial management of the company as we closely follow the market to stay ahead of any significant disruptions.
As the impact of covert 19 continues to evolve we are confident in the strength of our business and our balance sheet.
And remain committed to keeping our teams safe as we support our dealer partners and consumers.
Prior to this evolving situation the trends we have seen indicate that the RV industry conditions have been showing signs of improvement.
We are realizing the benefits of having a diverse portfolio and relentless focus on improving operational efficiency across the organization.
While the near term may be uncertain for everyone going forward. We believe Winnebago industries is in a great position to extend its recent track record of outperforming whatever the broader RV market is over the longer term.
Now turning to the results of Q2.
Overall, we are pleased with our strong results during the first half of fiscal 2020.
Our team has worked hard to build on our momentum from the first quarter and we have made tremendous progress towards our goal of enhancing our position as the leader in outdoor lifestyle solutions.
Company revenues were up approximately 45% for the second quarter of fiscal 2020.
Excluding a full quarter of contribution from Neumar.
Consolidated revenues grew approximately 13% over the prior year well ahead of the broader industry performance.
Consistent with the results we posted last quarter consolidated revenues grew organically at a healthy pace in the second quarter.
Such that our North American RV market share is now 13.2% on a trailing three month basis through January.
Including an increase of 1.8 organic percentage points over the same period last year.
We are pleased with our ability to outperform the RV market and expect we will continue to do so in the coming quarters.
Our ability to deliver strong consistent top line results continues to result in strong operating cash flow.
Year to date operating cash flow was $119.2 million up 129.4%.
Allowing us to invest in our businesses care for our employees and maintain adequate liquidity and what is now a very challenging environment, what the impact from the Corona virus.
Now, let's turn to the segments in more detail.
In the Towable segment revenues for the quarter were up 13.1% over the prior year period, primarily driven by overall strength of the Grand design brand and popularity of several recently redesigned flagship products, including the reflection imagine and transcend models.
The robust consumer demand, we are seeing for Grand design products has allowed us to again outpaced the industry in terms of both towable unit shipments and retail growth.
Adjusted EBITDA margins decreased by 110 basis points, largely reflecting startup cost for increased capacity at both the Grand design and Winnebago towables campuses and a shift in product mix towards travel trailers.
Total backlog for the quarter increased 22.3% in units versus the prior year, reflecting more retail demand for travel trailers.
Our multi branded Towables portfolio has proven to be resilient and capable of gaining share regardless of market conditions.
While the global pandemic creates uncertainty regarding near term industry and consumer dynamics, we are confident in our ability to grow the business and gain share over the long term.
Importantly, the growth we are seeing this year as impressive as it has been balanced by Winnebago, Towables, new product launches and especially the ongoing momentum of the core Grand design RV model lineup underscoring the strong combined appeal of both brands with consumers.
We have been busy introducing grand designs reflection and imagine model refreshes, along with Winnebago Towables new products, the hike travel trailer and the voyage fit the wheel.
The excitement around all of those products was evident during this year's retail show season.
Well some events across the country have been canceled recently the bulk of our retail show season is largely behind US which is a positive considering the recent onset of the current a virus and the implications on large gathering such as these shows.
Collectively all of our businesses around Winnebago industries have attended over 150 shows in 2020, and the overwhelmingly positive reception of our products by dealers and consumers gives us further confidence in our long term outlook.
Our consolidated retail show performance for the entire company was up multiple Doug double digits. This spring.
Turning now to the motor homes segment.
We have made reestablishing a premium leadership position for this business a top priority we have refreshed our lineup of high quality motorized rvs with innovative enhancements and designs that are resonating well with consumers.
And the addition of new Mars Ultra premium brand to our portfolio is now, allowing us to more effectively compete in the high end motor home market.
The acquisition of Neumar has galvanized our motor home segment by adding a highly respected premium brand.
The integration process is well underway and progressing as planned as part of our approach to the integration. We are working to ensure the neumar team retains committed autonomy to operate the business, while still being able to benefit from the support and synergies that comes with being a part of the broader winnebago.
Industries organization.
Second quarter Motor home segment revenues were up 97.7% over the prior year period, driven by a full quarter of contribution from Neumar and strong Winnebago branded class B sales.
Excluding neumar organic revenue growth in the segment was 13.6% over last year.
Adjusted EBITDA margins increased 190 basis points to 4.6% in the quarter.
Partially due to a strong quarter from the Winnebago branded business and a full quarter contribution from Neumar.
Our motor home backlog increased 51.8% in units from the prior year due to the addition of Neumar and the continued strength in Winnebago branded class B retail demand.
We've made material strides towards improving the financial strength of our motorized business and before the Corona virus outbreak, we're eager to build on this momentum throughout fiscal year 2020.
Including leveraging best practices and experience from our talented colleagues at Neumar.
Finally, I will touch on our marine business second quarter results for Chris craft, where solid and in line with our expectations as one of the four iconic brands in our portfolio. The Chris craft business remains an important platform for Winnebago industries.
They continue to expand the vitality of their product line, especially with the continued extended the launch of the G. T series.
They are making great progress on strengthening and the quality and relationships of their dealer network as well.
Chris craft represents the type of premium manufacture we aspire to be.
And we continue to learn through the Chris craft team about the marine market and the opportunities. It holds in the future for our company.
One note specific to Chris craft in previous calls we had outlined our intent to initiate a capacity expansion project within this business that would provide them the room necessary to continue to build out there exciting multi generational product development plan.
We have made the decision at this time to pause this capacity expansion plan.
Due to obvious reasons concerning the uncertainty of the demand within our end markets.
We will continue to monitor the health of the marine market and the confidence of our channel partners within Chris craft when deciding in the future to reignite This project.
With that overview I will now turn the call over to our Chief Financial Officer, Brian Hughes to review, our fiscal Twentytwenty second quarter financials in more detail.
Ryan.
[music].
Thanks, Mike and good morning, everyone.
Second quarter consolidated revenues were 626.8 million in.
An increase of 44.9%.
Compared to 432.7 million for the fiscal 2019 period, driven by a full quarter of contribution from new Maher.
And strong organic growth from both our towable and motor home segment.
As Mike mentioned earlier, excluding Neumar, we thought topline organic growth of 12.9%.
Versus the same period last year.
Gross profit was 79.8 million in.
An increase of 20.1%.
Compared to 66.4 million for the fiscal 2019 period.
Gross profit margin declined 270 basis points in the quarter.
Primarily driven by a change in mix due to the inclusion of a full quarter of the neumar.
The impact of inventory step up purchase accounting related to the Neumar acquisition and startup costs associated with new production facilities.
At both our Grand design, RV and Winnebago branded campuses.
Operating income was 29.6 million for the second quarter compared to 28.9 million in the second quarter of 2019.
Operating income included Neumar related impacts.
For the inventory step up of 3.6 million.
And a full quarter of amortization of 5.8 million.
Net income was 17.3 million.
The decrease of 20%.
Versus the same period last year.
Reported earnings per diluted share.
Were 51 cents per share a decrease of 25% compared to reported earnings per diluted share of 68 cents in the same period last year.
As a reminder, we're also reporting diluted earnings per share on an adjusted basis.
As we felt this would be helpful and aid and transparently conveying or performance.
Following the new more transaction.
As such and consistent with fiscal 2020 Q1, we have provided an adjusted EPS performance measure in our press release.
Adjusted earnings per share were 67 cents in the second quarter.
An increase of 9.8% versus adjusted diluted earnings per share of 61 cents in the prior period.
In the current period adjustments exclude inventory step up and the non cash portion of interest expense.
Totaling 5.4 million or 16 cents per share after tax.
Adjusted EPS for the prior year second quarter results.
Just out the R&D tax credit, which we disclosed last year.
Consolidated adjusted EBITDA was 45.4 million for the quarter.
Compared to 34.5 million last year or an increase of 31.7%.
Now turning to the individual segments.
Starting with the Towable segment revenues for the second quarter were 283.5 million up 13.1% from fiscal 2019.
As the broader RV market continued to become healthier during Q2, we're extremely pleased with the performance of Grand design, RV and its ability to aggressively grow the topline by consistently gaining share.
On a trailing three month basis through January Grand design, Arby's retail share. The total towable segment now stands at 10%.
2.6 percentage points versus the same period a year ago.
Segment adjusted EBITDA for the second quarter was 34.7 million up 3.3% from the prior year.
Adjusted EBITDA margins of 12.3%.
Decreased 110 basis points.
Given by startup costs at the Grand design, RV and Winnebago branded facility.
And headwinds in the form a product mix.
It was represented more heavily I travel trailers.
Turning now to the motor home segment.
Our motorhome revenues were 325.5 million for the quarter.
97.7% versus last year.
Excluding neumar revenues grew 13.6% during the second quarter, primarily due to growth and market share gains in our class D lineup, including the rebel Trivago and both brands.
Segment, adjusted EBITDA was 14.9 million for the second quarter.
242.9% year over year, driven by the addition of a full quarter of Newmont operating results.
And solid improvements in the profitability of the legacy Winnebago motor home business.
Adjusted EBITDA margin increased by about 200 basis points, primarily driven by strong mix.
And fewer allowances in the Winnebago branded business and the mix benefit of Neumar.
Turning to our balance sheet.
As of the ended the second quarter the company had outstanding debt.
464.8 million.
This is net of convertible note discount of 80.8 million and debt issuance costs of 11.6 million.
Working capital was 313.5 million.
Our current net debt to adjusted EBITDA ratio was 1.9 times.
Cash flow from operations was 119.2 million for the six month of fiscal 2020, an increase of 67.2 million over the same period in fiscal 2019, driven by favorable changes in working capital and good operating performance.
As well as contributions from the new my business.
Lastly, but very important considering the environment. We are currently in.
Cash on hand at the end of the second quarter was 122.9 million.
Providing ample liquidity, but the uncertain future, we will all phase in the coming weeks.
In months.
The effective income tax rate for the second quarter was 18.8%.
Compared to 12.8% for the same period in fiscal 2019.
The fiscal 2022nd quarter rate is higher versus last year due to onetime research and development credits claimed last year.
The reduced tax rate in the current period is driven by true ups to prior estimates.
We expect our annual effective tax rate to be approximately 22% under the current tax code.
And before consideration of any discrete tax item.
On March 17, 2020, our board of directors approved the quarterly cash dividend.
Of 11 cents per share payable on April 29, 2020.
To common stockholders of record at the close of business on April 15th 2020.
Also note that this quarter marked the first time, that's the full 2 million of shares issued as part of the new more transaction were outstanding and the dilutive impact to earnings per share.
Compared to the same period last year was approximately four cents.
Before I turn the call back over to Mike.
I want to emphasize that in light of the Corona virus pandemic.
We have worked diligently to model several scenarios for the economic impacts of the Corona virus, and the resulting impact to our financial performance.
All of which will serve our go forward action planning.
To ensure we maintained a healthy level of liquidity.
We start from a place the strength.
And that our cash at the end of the second quarter as mentioned was approximately 123 million.
And that balance has grown nicely from that point during the first three and a half weeks of March.
Also recall that we have access to a 193 million.
Our credit facility that remain at this point in time completely untapped.
We believe our cash position and our ideal provide a robust level of liquidity to allow us to meet our commitments over the duration of a reasonable shutdown period.
We are working across Winnebago industries.
And with our various stakeholders to mitigate risk.
Developed contingency plans reduce cost.
And above all keep our employees safe.
And our long term viability secure.
That concludes my review of our quarterly financials and with that.
I'll now turn the call back to Mike to provide some closing comments Mike.
Thanks, Brian.
I would like to conclude our comments this morning with our views on several topics as it relates to our future going forward.
When managing a consumer cyclical company like Winnebago industries, the Crystal ball is always a little bit more dynamic than in other industries perhaps.
We will do our best now to advise you as to how we're thinking about our operations and preparation for what appears to be a variety of scenarios that could play out in the marketplace.
We have appropriately referenced our status as a suspension of production not a shutdown of the company.
We are and will continue to monitor the status of the health crisis carefully and the accompanying financial challenges in the market very carefully.
Every day.
Every hour if not more frequently.
First Winnebago industries enters this crisis in a solid position across strategic cultural and financial dimensions.
Strategically we have a sharp focus on what our business priorities are.
We have assembled a stable of significant brands that all have momentum in various to abroad parts of each of their businesses.
We are strengthening our credibility with dealers suppliers and in consumers and our market share gains and financial results are proof of that.
We are far from perfect in any of our businesses, but we feel very confident about the strength of our growing portfolio in terms of competitive presence in the market.
We see no reason to believe that this will change when we do have the ability to resume normal operations at some time in the future.
Culturally we have now collected and developed a talented group of leadership across the enterprise.
Combined with our dedicated team would then the functions and the whole of our operations.
Our talent and culture is in as good a shape as it has ever been.
We have strong experienced leaders from the RV and Marine industries, who have intimate knowledge of the levers to pull in both good and bad times, we have complement at those assets with sharp talent from outside industries, who have also succeeded in their careers during times of normalcy and adversity.
The leadership team is highly engaged and collaborative at the present moment to protect our competitive position in the market.
Make smart financial and operating decisions about how to write out a period of crisis.
But share knowledge and practices amongst each other so the whole of the team is stronger together.
Then separate.
Financially why we have leverage on the books, we have also structured the leverage in a considered manner to ride out material periods of disruption.
We have been very fortunate to see our cash balance climbed significantly during this fiscal year and combined with our available line of credit provide access to liquidity during a variety of graduated scenarios one could plan for.
We will remain diligent humble and paranoid as we work with all of our partners to manage this financial position and model many possible scenarios that could put additional stress on our balance sheet.
We are working very closely with our board of directors and strategic external partners on this dimension of financial strength and well ensure alignment with them on the most important of decisions.
I strongly believe that the appeal of the great outdoors, while outlast whatever period of disruption lies ahead of us whether that is weeks or months.
We fully understand there could be lasting and real consequences of the economic disruption happening now in North America and around the world.
And we will need to manage through those whatever they may be.
However, we feel that the north American consumer well stay safely engaged with outdoor recreation activities in both the short term and the long term.
In fact, some might make the argument that outdoor businesses will receive a material future boost as end customers reevaluate how they want to spend their discretionary discretionary time in the future when social dispensing practices may become more of a norm than they are today.
Camping hiking biking, boating fishing you name it all of those activities and more our tremendous for families and friends to safely create extraordinary experiences and memories and the outdoors in the future.
They will return in spades and consumers will invest in the future in the products they need for those activities.
During this time a pause at Winnebago industries, we will continue to provide a central services to our dealers and customers.
And we will also work diligently to plan for and prepare for many different scenarios in front of us from a hopeful returned to normal operations in weeks to a possible extended shut down throughout the spring and parts of the summer.
Which is not what we are formerly projecting at this time.
However, there is extensive financial modeling happening today.
We will be prepared regardless hope for the best planned for the worst our teams are also presently doing the work needed to prepare to drive further variable costs from our business in a professional manner.
Many of those costs and expenses are being actively manage today. This includes a comprehensive list of direct and indirect spending within each business and function, including corporate SGN, a corporate expenses hourly and salary personnel executive compensation allocation of capital disk.
Visions and many many more areas.
We have traditionally not provided specific guidance within our earnings call process, and certainly won't start today, given the unpredictability of the future.
The next to 30 days will be critical for us to better understand the magnitude of our remaining opportunity for revenue and profits in fiscal year 2020.
And clarity will be provided through a variety of external actions, including legislative decisions fiscal policy action governments social interaction directives.
Medical developments and so much more.
Our view for these forward looking thoughts have changed from fiscally and quarterly.
The monthly and weekly if not daily.
These are truly unprecedented times.
Lastly, we are engaged in numerous discussions and how we can help our communities and health care providers across the country. During this difficult time.
I am proud of the recent action our Winnebago Industries Foundation took to provide immediate covert 19 directed financial donations to several organizations in the various communities we have a presence in.
In addition, we are also in exploratory conversations with multiple organizations on the possibility of how our current products can be used are modest modified as helpful solutions from a mobile medical standpoint. During this crisis, we have a deep history, especially in our specialty vehicles.
Business, providing mobile medical products to various entities throughout the years.
We are also pursuing the opportunity of using our extensive industrial sewing capabilities across many facilities to manufacture level, one procedural medical mass for use by local medical organizations in the states and communities we have a presence in.
This is a fast evolving topic here at the company and one that we cannot confirm final direction on given further details to be worked out in the days ahead.
But we are indeed actively exploring that possibility.
We do not paid either the mobile medical vehicle opportunities or the exploration of making medical mass to be financially material currently.
Thank you again for your time this morning.
The speed of change on so many external variables is quite a challenge to all of us.
We are generally focused on three items in terms of navigating forward.
Urgency preparation and agility.
I am proud of our teams for their performance in the second quarter fiscal year 2020, and how they have leaned into the adversity that is now upon us.
We will now turn the call back over to the operator and begin the QNX session. Thank you.
Thank you, ladies and gentlemen, as a reminder to ask the question you would need to press Star then one your telephone.
Well you question press the pound cake.
Again, I want to ask the question.
Please stand that while we compound acuity Boston.
Our first question comes from the line of Craig Kennison with Baird. Your line is open.
Good morning, and thank you Brian question for you.
You mentioned some scenarios that you are planning for if you look at some of the more dire scenarios, how does cash flow and liquidity look and then as a follow up with that 193 million dollar you'd be all available have you considered simply drawing on that just in case.
Okay.
Yeah. Thanks, Craig.
We don't give forward guidance as you know as I commented, we are looking at many scenarios the things that we're focusing on.
Our ultimately our cash position as well is.
The other key metrics that we have profitability EBITDA.
Et cetera.
I I won't comment further about.
The extent of the duration of this news, but as you can imagine or appreciate a we're looking at that at all cases.
Looking at the various levers that we can pull Mike suggested many of those levers that we're evaluating in his comments.
You know it comes back to our position.
Where we're at today, which we feel very good about Greg and if you look back to how we've structured our debt it was.
Some conservatism certainly in mine the recent Neumar deal that we did where we executed the unsecured convertible bond is one example, we feel very good about landing that deal with a leverage ratio right around two 2.1.
So we've done things in the path.
That I think position us well sitting here today.
As it relates to the A.B.L., we are in conversations with our banking partners and we do not feel at this stage that it'd be advantageous for us to drawn that we're certainly mindful that that other companies are are taking action against their credit facilities, we've evaluated our position.
I feel that it's prudent to not incur that additional cost of that financing at this time, but as it's a very fluid situation will continue to evaluate as time progress this year and as.
The impacts of the Corona virus are seen over that time period.
Thanks for that Brian and then Mike you mentioned, a the health of your dealers, which is critical and very important to you could you talk about what any credit partners might be doing to support dealers during what could be a tough period for them from a cash flow standpoint.
Thank you Craig can you clarify that again what types of partners did you reference I I'm wondering whether any of your.
Partners in the RV industry, the credit partners in particular, any banks, whether they're providing any sort of financial support to your dealer network such that the dealers can survive this outbreak.
Yes. Thank you further clarification, there and Brian Hughes I would invite you.
To complement the answer as needed here.
Craig we are in constant conversations with especially those financial institutions that provide.
Floorplan mechanisms to our dealers.
And as you can imagine several of these entities.
Have a deep experience from other.
Cyclical, especially down periods within the RV and or marine.
Business in the past.
And I can't speak for them, but I can tell you that we are encouraged.
There is appropriate and thorough conversations being had between the a inventory finance companies and the dealers about the state of their businesses. They are monitoring the health.
Of our collective dealers.
Very actively.
And there are conversations within some of those institutions about possible moves they could make that would provide a further summit financial support for a period of time to the dealers I won't get into any specifics there out of respect to some of those organizations.
But we are encouraged that there is at least that thought process and those discussions happening.
We continue to check in regularly with the health of our dealers from our perspective and not just in terms of retail velocities.
Resale velocity or traffic that they're seeing.
But also if any of them have concerns for their their health as well and as you can imagine.
Ah this.
Crisis has.
Come upon the dealers in a relatively quick timeframe in the last two weeks and they are all continuing to on a daily basis evaluate their own financial status, Brian would you add anything else to my response.
Yeah, just a couple of comments, Mike I think a lot of the audience on the call here understands and appreciates that the position of the dealers and as it relates to their inventory levels has come into balance very nicely.
And so we entered this black Swan event here with the Corona virus with a much healthier dealer network as it relates to the inventory balances.
Specific to the question about have the banking partners on floor plan financing come forward with some you know some help here the answer to that is yes. You know recently in fact in the last 24 hours there have been announcements to the dealer network of of suspension of curtailment payments.
Well as interest payments for two months and in some cases, even longer so those banking partners have already publicly step forward.
To help to address the situation that dealer network.
We'll be in here and I suspect that that likewise will be a a fluid situation.
That those partners will continue to evaluate overtime.
Thanks, and best wishes.
Thank you.
Our next question comes from line of.
Scott Stember C.L. King your line is open.
Good morning, I hope everybody is doing well thanks for taking my questions as well.
Good morning, Scott and good morning.
Yeah, the flipside of Craig's question about.
No different scenarios like you're planning for on the other side of it assuming.
We're looking at three to four weeks you talked about.
At this point not wanting to.
I happened to the HBIO.
When you talk about that are you're talking about over the next three to four four weeks and also maybe just again I know you guys don't want to give any guidance at this point, but under that scenario planning assuming that we are in a western colonial scenario can you just talk about generally speaking about profitability or lack thereof over that period.
Yeah, I'll speak first to the HDL you know it Scott it's fluid as the situation is right now.
You know will continuously evaluate where we see things playing out in and how that might impact our decisions around our credit facilities.
So we remain very open ended there as I mentioned earlier in response to Craig's question. Our current position is that it.
Not be prudent for us to incur that extra cost associated with increasing our levels of that and so we feel it that's the right decision for now, but hey, we're going to keep our our options open there certainly will evaluate from day to day and.
May change so I guess, that's I view it as it relates to our our profitability.
Look of course, as you'd expect us to in a situation, where we have made the decision to spend their operations and effectively over that.
Two three week period, we will as a result have limited wholesale we will continue to have some you know the dealers will remain open and.
We'll continue as it's safe to do so to ship out of our finished goods.
To supply those dealers, but obviously our revenue stream.
It will be dramatically impacted during that suspension of operations.
And we evaluate during that period, what our cash flow looks like cash outflow or burn rate as you would expect us to to look at.
And we don't give a forward looking view of that but were certainly.
Evaluating that and then as Mike alluded to are looking out all the appropriate ways to likewise minimize that cash burn and.
Reduce costs so that's.
What I would say to address that question Scott.
Got it fair enough. Thank you.
And then on the inventory front I know it looks like your guys were in excellent shape, even with the acquisition.
At the end of the quarter, maybe just talk about in a real time basis, what you're looking at and inventories and.
You know when this thing does clear up where do you expect to be.
What what position so I guess, assuming a a base case scenario.
Yes, Scott I'll I'll speak to that this is Mike.
On my computer screen in front of me this morning I have a.
Business by business view of such things as retail orders.
Backlog, we're tracking those on a daily basis, or we can slice and dice that appropriately.
We feel fortunate.
That even as we started this calendar year that we felt our inventory was.
In good position to not just in terms of total quantity, but also in terms of the mix of aging and.
While we have spots like any other RV, a marine business in terms of dealer inventory not being as current as we'd like it to always be.
Our teams have continued throughout.
On the beginning of this calendar year to continue to work on that as the spring retail ramps up.
So as we entered this crisis, we feel that the dealer inventory in most of our business is appropriate.
There are some pockets of aged inventory that we will continue to monitor and work on.
And if we were to have suspension of shipments.
For an extended period of time.
Our hope is that whatever retail is happening out in the market.
Continues to improve both the quantity, but also the quality of the dealer inventory foundation, so that when we come back.
We are in the.
Hey, good position going forward in terms of what the dealers have and as you know that will depend.
Part as well as to what future retail demand will look like at that time.
So again, we monitor all of those things on a daily basis.
And we continued to ship some products. This week as our operations are winding down as Brian indicated in his comments that's been helpful. In terms of further cash flow generation.
But part of our decision to suspend operations temporarily was that we did not want to be putting more product into the market.
That would put a burden on our dealers financially or essentially begin to just sit there with lower retail appetite for a period of time.
So as not just a decision hopefully made out of the best interest of our business, but also because we just did not think it was the right decision for us to keep shipping product to the dealers as well at this time, we are hopeful that that will resume in the near future and again, we feel or dealer inventory is in good shape.
But that will be pending whatever retail demand is available to us at that time.
Got it and just last question might there to get US talk about this you discussed earlier about your belief that the industry could potentially benefit I guess its.
Open air and outdoor types of recreation or you know pick back up and I guess, we saw some of this after 911, but at least.
Getting into.
The last week when we've heard about certain states are shutting down campgrounds could you talk about what you were hearing.
Just I guess since the cobot virus hit what you were hearing at the Cat Browns campgrounds related to increased velocity of bookings just to get a sense of what you heard.
Yeah, absolutely Scott and again, we're not directly in the campground business, but we have a good sources. There there was a nice article by.
Toby O'rourke the CEO of came away here recently, where she offered some extensive comments in terms of her views on what's happening.
Again, this really started to impact arguably the north American outdoor areas literally probably within the last three weeks from a materiality standpoint.
I would argue that the weekend of March.
Probably march 7th and eighth.
Was when we started the here from our dealers that the traffic was potentially starting to slow.
A little bit and we also began to hear from a some of the camping organizations during the week of March 9th that Monday.
That they were beginning to see some light cancellations.
Within their their businesses and as you. All know this has quickly unfolded over the last two weeks or so that the retail impact to the dealers, but also the access of consumers currently to private or public campgrounds started to change dramatically for different reasons as an example.
When the country's borders began to tighten up a you may have seen Canadians as an example, making a move to position themselves closer to the Canadian border if not cross it back home and you did see some of the stay at home or shelter in place directives begin to have an impact.
On the private campgrounds, the public camp grounds have been intermittently accessible depending on either the federal or state level.
It has been challenging to a two to manage those but our industry associations are doing the best they can not only campgrounds, but also marinas across the country as well.
My comments about returning to strengthen the future.
We genuinely feel that the emotional in real appeal of the outdoors for in consumers remains as strong as ever and in some ways may be strengthened to because of the of the time people are spent appropriately and safely at doing social distant CNN and quarantine practices.
I do couch my comments in some way that we recognize there will be economic implications to the crisis, we're going through as well that will also have an effect on the appetite of consumers to buy products like ours, rvs and votes to spend time in that outdoors. So.
We believe we believe we'll see a pluses and minuses.
But we do believe the RV and boating industries will return to strength at the appropriate time in the future.
Got it thanks, so much.
Thank you.
Our next question comes from the mine as Steve O'hara with Sidoti Your line is open.
Hello, sorry about that you can you hear me.
Yes, I guess is you know first I'm just curious I mean, your your comments, Mike I guess, you know we're talking about the potential for you know kind of Threeq and Fourq you to be.
Challenging, obviously and obviously nobody knows the.
No the duration to this and you know I mean, I guess, the you know that.
Outline that you have currently obviously things can change pretty quickly.
For good or bad but.
Can you talk about you know.
You know if things kind of get back underway you. If you do resumed production.
You know on the current plan you know and demand is you know kind of comes back relatively quickly you just talked about you know how quickly you get back up to speed in terms of you know producing a units and you know if you know.
Hediger decides to move you know faster in terms of them restarting operations is that change your plan at all we're you know kind of force your hand.
Yes, Steve good morning, Thanks for the comments.
There are questions. Let me start you know with the with the latter.
We what we are currently discussing as you can imagine the conditions under which we.
We will be like I'm comfortable with resuming operations in the future.
Because we anticipated a over this last weekend.
That there would be significant Ah stay at home shelter in place directives.
And viewed the reality of the pandemic outbreak as being multi week in nature.
We felt it was best to announced the suspension, we did in terms of being.
Suspended within manufacturing through Sunday April 12, which I believe is Easter Sunday.
While we are hopeful that we can resume operations on Monday April 13th.
We also recognize that the that decision as one that will be fluid here.
For a little while further and that decision will be made out of primarily two factors one our ability to keep our employees are healthy and safe in the manufacturing environments, depending on the protocol suggested by organizations like CDC.
And what we're allowed to do potentially within each of this the states or counties that we have a presence.
We will also balance that with what we.
I would hope to see which is a stabilization of market conditions are around retail, but also dealer sentiment as well as I mentioned in my last answer or the anxiety rose very quickly amongst all of us, but especially the dealer community between.
On the weekends of March 7th and eighth.
Through this last weekend.
To the degree that not only did they see traffic at retail begin to slow down in some cases, but we also saw a.
Meaningful materially meaningful change in their appetite to place new orders.
Or take possession of the orders that they already had in their books, a we have seen few cancellations, but we have had many discussions with dealers about moving out the ordering of products until the time in the market has stabilized.
Hi.
Well very be very candid on this call that competitive reaction to resuming operations will not be one of our top two priorities.
We will certainly be mindful of it and keep an eye on that.
But we will do what we believe as in the best interest of our own business.
Now resuming operations has some complexity involved in that as well as you're aware in both the RV and marine spaces. We've seen now multiple Oems make a similar decision and we've seen operations impacted by some of the states a social distancing directives.
In the us a we are we will need to monitor the health of our supplier base, especially.
In being able to resume operations. We are doing what we think is prudent in terms of not consuming or taking any excess.
Inventory onto our campuses many of our suppliers have had to alter or suspend some of their own operations as well.
So when we make the decision to resume manufacturing.
In part of that will also the timing of that will also be.
Influenced by our ability to work with our supply base to get the the supply chain back to a minimally operational level and I'm sure Winnebago industries well.
We'll be working through that just as our peer companies in the outdoor lifestyle space or competitors. So we don't control our fate in resuming operations completely we'll need to work carefully with our supply base.
Make sure our employees feel comfortable and make sure. The dealers are ready to resume the acceptance of product from us on a regular basis.
Okay, and then just maybe go back to Craig's question on the.
I guess repurchase agreements or what have you called them in terms of that the floor plan financing arrangements.
My me during the financial crisis, maybe what the total.
Total impact was and then maybe during 911.
If you have it on hand, I don't know you know that offhand, but is there way to think about what you know the issue was lot or how big the issue was last time.
And maybe kind of get a sense for you know what could be this time I guess and then I mean, I assume that inventories and think we're kind of bloated going into the financial crisis, where I think you've got it had a good period of drawdown here, but you know what's a good way to think about what it was last time. Thank you.
Yeah, I can take that one Mike as Steve If you look back at the two a recessionary periods that you just referenced we did a very good job. Obviously those are both prior to the current management of Mike and I.
But the company did a very good job of managing with the dealers that inventory on their lot.
And then with the Floorplan finance folks as well to stay in front of that and if you look at the financial impact it was.
What I would characterize is de minimis.
Even in the the throws that that financial crisis.
0789, So we'll continue to do the same you know we manage it dealer by dealer even unit by unit.
To make sure that we're we're helping to move those units that need to be moved and do we can to partner with our dealers through that time, but to answer your question very specifically.
The financial impact or the impact or financial statements was as I would characterize it de minimis.
Okay. Thank you very much appreciate the time.
Thank you.
Our next question comes from the line of Gerrick Johnson with BMO capital markets. Your line is open.
Mr., Jonathan checked to see the on mute.
Well I think you.
Are you.
There sorry.
So Mike you still think you can outperform the rest of the industry. We emerge from a we're going through are you anticipating any changes in the structure of demand you. So some good better best product I would say would you be a thinking that it might be a demand shift towards more value oriented products.
What kind of demand changes would you expect coming out of this.
Yeah. Good morning, Derek Thanks for the question, that's a fair one certainly and.
My answer this morning, as probably I'm not sure where yet again. This is unfolding quickly [laughter], we'll need a will need to monitor access to retail financing very carefully certainly coming out of the crisis.
And where a potential demand hiftwo.
Mostly impact.
While this is an economic you know.
Situation is born out of.
More of an a natural disaster resorts in terms of the pandemic.
And subsequently there may be less structural financial issues for some of our customers.
Then there were in past.
Significant RV downturns and I can only hypothesize on that so so we will have to see I'm, probably not ready to offer an educated guess yet as to.
Which parts of our line would be.
Be more stable than others.
Certainly there's a natural inclination to think that products that have a lower price point would be less affected.
But I guess I'm not ready to finalize a thought on that yet.
Makes sense. Thank you make it if I named Mike Let me add on to that I think one one thing that you will see garik is dealers.
In times like this they make choices on their lots as well and typically what they will do is they will favor. The you know the strongest brands the best brands in the industry and allocate beef and there are lots for those best brands I think our our momentum that we have.
And on the retail side the quality of brands.
That we have you nine Grand design, and Winnebago, and new modern Chris scrap will sort of its really well as it relates to the decision by the dealers.
Where to allocate a lot space, so well well as Mike said, the retail customer, it's a bit of but to be determined past practice would suggest that the dealers will certainly be.
Allocating towards our in favor of our brands at times like this so another thing to be thinking about there. That's that's certainly has an influence than on the retail side of things as well.
Great and lastly, when one question on.
If if do is quite a business go bankrupt is the responsibility buyback a certain amount of inventory what could that liability b.
Yes, we monitor that dealer by dealer Garrick, and so in inventory or item by item really and so.
We would aggressively manage that through this time period.
There is a disclosure.
Within our Q that you can reference I think you'll be seeing that MXN 24 hours here that you can reference that adds what the total.
Exposure is.
Like I said to Steves question earlier, though we'll manage that aggressively as we do and and have done in prior.
Definitely periods or or events, you will and.
I expect that we'll be able to minutes you that.
At the Port for reference that I, just wanted to make sure you realize that that was one of our disclosures in the queue.
Okay tick it up thank you.
Thank you.
Our next question comes from the amount of Mike Swartz with Suntrust. Your line is open.
Hey, good morning, everyone I'm just one quick question on on the as it pertains to the quarter, maybe this for Brian.
In terms of some of the start up or inefficiencies you saw coming out of the towable facilities in the quarter. If they were a little more than than most would have anticipated maybe talk about the impact that that had to gross margin in the quarter and then I know looking forward, there's a lot of moving moving pieces.
I guess, how much how long would you anticipate those inefficiencies lasting for if we were just in normalized production environment over the next quarter too.
Yeah. Thanks, Mike Yeah. So if you look at our total margin.
Step back little bit and first talk to the total margin impact of 270 basis points that we've disclosed.
About think of it this way about two thirds of that margin erosion versus last year is really driven by the new more acquisition be it in the mix impact that it has to the overall portfolio as well as the.
Purchase accounting or more specifically to the inventory step up impact. So two thirds of that 270 basis points. You should think about Simplistically is that's driven by that the other one third is kind of the balance of of the impacts we've referenced product mix I'm certainly in the quarter that had an impact and then as you.
Point out the impact of the start up costs, you know our experienced historically Ana this is not to a new thing for US Grand design as you know has been standing up.
Production facilities over the last three years to try to keep pace with the demand the very healthy demand that we've had on it is pretty quick stand up now obviously that will be impacted by the most recent environment that we're operating in and so.
You know will fight that but your question was really hay in a normal run rate scenario.
What happens and I would say that it we overcome those those inefficiencies very quickly the Grand design team knows how to do this.
Winnebago with Towables business also stood up a new facility.
To accommodate some of their new product lines and they likewise.
We expect to overcome those startup inefficiencies and pretty short order within Oh, you know the next quarter I would say is our past experience. There again, assuming that we returned to you know.
Some normalcy here.
Hopefully that helps address the yes, no that was that was very helpful. I appreciate that and then I I don't know who wants to take this Brian or Mike, but just in terms of maybe your your flexibility around capital in your cost structure I think you've mentioned that you're deferring some of the investment around the Chris crash facility.
Relative to that $35 million to $40 million in Capex that you called out for 2020, I guess, how much of that is more discretionary and.
Maybe you can pull back a little looks if things were to get worse.
Yeah, I'll take that one Mike first and then you can add on if you find helpful. You know we've spent I think just under 20 million in capital I don't have the that's my recollection of the Catholic statement I think that we'll be able to pull back pretty dramatically. You know we've we've got the spending that we have.
Completed for the startup of the the facility and Grand designs campus. You know so that spending has pretty much come to conclusion.
We have as Mike alluded to push the pause button on the Chris craft expansion until that end market becomes a little clear as we get through this epidemic or pandemic situation.
And I would suspect that we you know we as a company will will clamped down on Capex as I think everybody will be doing.
To manage our cash flow very aggressively. So you can expect to see that that year to date run rate of 20 million over six months come down dramatically here until we understand the full extent of the impact your economically the corona virus.
[music].
Okay, Great. That's helpful. And then one last question just for Mike I know you've put out there in terms of market share gains for given the next 12 months. You've said previously you expect to exceed the market by 10 to 15 point.
No. There's a lot of uncertainty going forward, but maybe give us a sense of how that was trending prior to some of the softness in retail demand that we've seen in recent weeks.
Yes, Thank you Mike.
No I would say the drivers for the trends.
I've been consistent beginning with Grand design Towables.
Winnebago branded class B motor homes, and now the retail momentum of Neumar that as a part of our portfolio. Those are the three real drivers to our retail momentum and certainly outperforming the industry on a macro.
Basis.
You could make the argument that in the last.
Three months, we've seen an acceleration.
Of the over performance at retail and that is what we're most focus on we are less worried about overperformance from a shipment standpoint.
Because we need to be very diligent with our field inventory levels. We are most interested in maintaining that retail momentum so.
Whereas we had seen that retail overperformance being the 10 to 15 point range consistently for.
Really most of the last probably year and a half I would.
Argue that the that actually has increased in the last three months, probably closer to the 15% to 20% range.
In terms of Overperformance no we understand that we have very legitimate competitors and the RV space and.
And they will do everything in their power to.
Hi come at us and be more competitive in certain categories and so our teams are very focused on continuing to keep their businesses fresh and their dealer relationship strong and all the other ways, we take care of the end consumer and the dealer.
So we are pleased in Oh, we are hopeful.
When whatever new normal emergence here in the future that that retail overperformance well.
Continue to be present, I, just can't tell you Mike.
What level that will be you know given potentially some of the changes in the margin.
Understood. Thanks, a lot guys.
Thank you.
Our next question comes from them on the right Brett entry with Keybanc capital markets.
Okay.
Hey, good morning, so like a question on FEMA and disaster relief. If you are any of your dealers in contacted by FEMA as it relates to supply and Rds and I guess what has the scope of those conversations been if any.
Yeah. Good morning brand, we are seeing multiple organizations reach out primarily to dealers in some cases manufacturers to inquire about the possibility of our products to be used for.
Hey variety of purposes, or less temporary housing, but often times the questions around mobile medical uses such as potentially mobile testing or a place for health care professionals to register shower or what have you during a during.
In this challenging time.
FEMA has been I would say much less aggressive in terms of the scale of their involvement then they were in some of the natural disasters such as Hurricane Katrina.
In New Orleans, many years ago.
So I would I would state that most of the inquiries are going to the dealers now that being said our industry I.
Association has been in contact with the federal government and specifically the current a virus task force.
With the direct commitment at offer as to what we can do as an industry.
And Oh I would imagine most of the companies in the organized in the in the industry are also engaged with a variety of state officials.
No I've had several conversations with state leaders in the last week, where I've personally offered you know our assistance on a local level as to how are people are products.
Play a role so I wouldn't say FEMA.
Active but less so than maybe your traditional natural disaster, which creates a huge need for temporary housing and these conversations are happening more on a local and state level.
And.
For a broader variety of use cases.
Got it very very helpful. And then just the one more quick one I guess, how how much or what percentage of your dealer base are actually selling units at this point given everything that's going on.
Yeah, we do not have a a we do not have a precise number for that as you're aware. There are a list of states that have a put out directives in terms of stay at home or shelter in place we've been working with a our industry Association and each of those states and with other helpful entities.
Like a Nam National Association of manufacturers.
To try to ensure that our RV and marine dealers.
I have the ability to provide at a minimum essential services through this period such as service repair.
But in most cases, we are advocating that.
If there are consumers that would still like to purchase a product.
And use that product get a safe and reasonable manner that those entities it'll be a encouraged to to operate.
I think I used the term most yeah and my comments and I'm hopeful that it's a high majority of the dealers that remain open for business in some form it just may vary between full retail engagement to a limited service offerings, but we're not with our hundreds of deal.
As far as across our enterprise and our different businesses I do not have an exact number on that right at this moment.
Understood. Thank you.
Thank you.
Our next question comes from the line of Mark Jordan with Jefferies.
Your line is open.
Good morning, and thank you for taking my question here. This one's for you Mike So in conversations with some of your suppliers there any concerns raised regarding the potential for supply chain disruption.
Yes, good morning, and thanks for the question as I indicated in my prepared comments, we have been working with the does a team inside of our company for several months now to monitor and manage the.
Probable risk excuse me of disruption in the supply chain network.
And we were very fortunate in that probably up until early March.
We were pleasantly surprised im pleased that and this is due to the good works of our teams as well make no bones about that but we were pleased that we had had minimal supply chain disruptions really through.
The early part of March.
That environment has changed materially in the last several weeks and there are numerous reasons for that I'll give you a couple examples certainly one is the.
States stay at home or shelter in place directives, which have limited some of the operations of key suppliers and or at least cause confusion about how those suppliers should you know run their businesses in this time.
We've seen impact in Europe, with some of our suppliers over in Europe.
That we get either chassis is and or other components for from because they either have plants and affected countries or their own subs supply network that comes from some affected countries, including those such as Italy, and Germany and then another example would be the.
The announcement of the the big three automakers here, a week or so ago to suspend their own operations.
That had a little bit of a ripple effect and then lastly on the marine side you have seen the engine manufacturers, particularly Brunswick.
With Mercury.
And some others have to make some changes to their engine production.
And availability as well so we have seen a dramatic and material increase of the I guess, the cases were managing and in some cases, we have alternatives in the event, we arteris resume operations in the near future.
In other cases, it will be more challenging to a.
To replace that particular supplier or component with a reasonable alternative so we.
We are very concerned to slash focused on that as we continue to go no go forward. So it is now upon us and I would imagine most durable good companies are dealing with that across their their supply chains as well.
Okay, great. Thank you very much for taking my question and us they say.
Thank you.
Our next question comes from the mom brand in Romania.
I'll close research your line is open.
Good morning, I just had two questions first could you back out a new more inventory out of ending motor home inventory just for the comparability year over year and then two up could you also comment on your toll like total liability to buyback inventory from dealers. If they were to go under and how that compares versus.
Last quarter. Thank you.
Yeah, Brian and on the Neumar.
Inventory I don't I don't have that in front me I don't I don't think that we're going to continue to disclose within our motor home segment. Some of those breakout specifically the neumar. That's just not something we're going to do for competitive reasons.
So I'm going to take a pass on that one.
As it relates to the total liability that is certainly within our 10-Q. It has been disclosed historically and you can pull that from the 10-Q.
The the total liability as you can appreciate.
We have disclose there is for.
Every units out in the channel and so it's it's a big number I make no mistake about it as I've stated in response to some of the questions earlier on that repurchase topic.
We have even in the very significant events of 2001.
And more recently the financial crisis of 2007 to 2008.
We have managed through with our dealers those situation.
Very well and such that the financial impact.
That repurchase obligation has been minimal what I'd characterize the minimum.
So again I I reference our 10-Q on that you'll see the the disclosure there and you can certainly follow up with you offline. If you have any other.
Questions or need us to.
Direct you to the specific place where you can find it.
Okay, great. Thanks, Brandon. This is Mike I may just complement brands answer as well in this way like most Americans we are monitoring.
The movement through or and on Capitol Hill of Ah The Legislative action This week, which.
May provide a small and medium businesses access to the liquidity or assistance that they would need to do whatever they can to keep their their businesses vibrant and alive going forward. In addition to.
You know the health of their employees.
And so we will monitor that some of the work that's being done currently is.
Probably less applicable to Winnebago industries, there, maybe there will certainly be some elements of the bill that's passed here phase three that there could be a relevant to our own company.
But I am most interested in that bill in terms of the support it could offer.
Small and medium sized businesses, which would include many of our dealers and ore suppliers. So that they can get the assistance they need.
During this time of uncertainty to to make the right decisions to two or.
To go forward, so that would that would be the other thing I would offer is we are we're pleased to see progress on that this morning and are hopeful that that continues now to the house.
For further approval later in the week.
Okay, great. Thank you.
Thank you.
Our next question comes online.
David Whiston with Morningstar. Your line is open.
Thanks, Good morning, wanting to go back to that supply chain question in particular or get a bit more specific on chafee's 'cause a I believe both Ford and Diamond supply you guys. So my question is that you guys reopened well before they do.
Do you know if you have at least a few weeks of chassis learning stocks as to whether that storm.
David Good morning. This is Mike yes in the specific case of both of those suppliers.
We do have you know and amount of chassis is that are on our properties and or available to us in the in the the supply chain.
To allow us to restart operations. So we did not wind down or are not winding down operations. This week.
With a bear cupboard on most supplies for our businesses now remember that it is not unusual in the RV industry for manufacturers to take one or two weeks down.
Around certain holidays and or in the event of some seasonality and variation in the retail or shipment demand.
What is unique about this situation that is obviously really relevant to the question you asked it those decisions by Oems generally aren't wrapped up in supply chain challenges like the ones that you know we continue to navigate through but yes, we do have chafee's for both our motorized business and also the the check.
See frames for our Towables businesses.
That would allow us to to do a restart of certain models certain brands are products.
But as you would expect you know there wouldn't be a time in the future where that supply chain flow of new inbound chassis is would need to get going again.
Oh. Thanks, that's helpful. And then and this is probably for whoever wants to take it but on the dividend.
The annual Pan of its about 14.8 million given your cash position to me it looks like that dividend is pretty safe, but I think the number one question I would get from clients or the next month or two is going to be isn't that dividend same is there any assurances you can give to your investors in it than it is things right now at least.
And Mike I'll comment on that first and then you can follow up.
As you saw in our press release, we move forward with the clearing the regular dividend 11 cents per share.
When our board met on March 17th and that's payable with Peter here in April.
It's it's such a fluid situation really David that we'll continue to analyze that from a capital allocation standpoint.
And you know react accordingly based on how things are playing out in the marketplace and based on what we.
Believed to be the duration of you know the shutdown period or that the suspension of assembly operations and all the things that we've talked about on this call obviously the supply chain impacts the man impacts.
First and foremost the safety of our employees and the impact that that has.
So it's a fluid situation will continue to evaluate.
All cash requirements.
Are you waiting the things that we are fully obligated to such as principal pay downs.
On our term loan B, which are 3.75 per quarter. The interest payments, obviously, the cash required from interest payments and then well look at dividends and in light of all those factors and so.
As I think all shareholders would expect us to be doing.
So no no.
You know commitments at this stage as to what we're going to do in the future will just continue to evaluate that cash outflow given the environment that we find ourselves then.
Okay. That's helpful and I know the backlog with pretty good in the press release, but since its all started in early March have you had a lot of math cancellations or dealers.
Yeah. David This is Mike I will take that as I referenced before.
Literally have the screen up on my computer right now that shows orders that are coming in from dealers by business and the backlog.
And so yeah, we saw enough meaningful movement in retail traffic actual retail and dealer sentiment around orders.
Excuse me that you know, obviously, let us to make impart the decision on the production suspension, but whats mostly happened is that dealers are not canceling orders at the present time.
They are refraining from putting many new orders as many new orders into the system as as is we have been normally seen.
And they are communicating to us that they wouldn't you know at times like the push out some of the deliveries of the orders.
Into the future and those conversations are happening certainly by business. So our backlog today has not.
Dramatically changed you know, it's probably since the Q2 numbers I'd have to go compare it I would tell you. The first [laughter]. The first you know two weeks of March our backlog continue to grow at a very similar pace as to what we referenced through the end of quarter too in the release today and so it's really.
Just been within the last week.
We've started to see the backlog comp year over year, a moderate a bit you know as dealers have press pause as well. So again I think dealers are like us with our brands and businesses. They are they're writing this out for a few weeks and suspending most major decisions.
You know tied to their own capital or cash investments and once we see how the next two or three weeks goes well have a much clearer picture of how our dealers will behave and then subsequently how are we will you know a change any of our behaviors in the future.
Okay, Thanks, and though if I may just one more question for Brian. This is on new more in the beginning the press release you guys called out to 270, Ben had been on gross margin, partly due to the including numerous a inventory or including new Marianne just given the you talked about how is that still accretive.
The EBITDA margin. So I was just surprised that to be a gross margin headwind and I believe this is excluding the inventory purchase accounting adjustments. So can you just explain why the gross margin to be hurt with anymore.
Yes, Yeah, David as we stated when we did the deal a neumar, we knew would be dilutive to the overall portfolio so for Winnebago and for others in the industry frankly, I told him that Towables business has a stronger EBITDA margin.
Than does the motor business.
So we knew going into this that we would have a mix impact to profitability to the overall portfolio by bringing new more however, as we also talked about at that time of the deal it would be accretive to the motor homes segment, specifically and beneficial in a number away.
To our legacy motor home business, including just from a and overall profitability perspective and so.
That's really what we're speaking to there there's a a mix impact.
From that.
The 270 basis point that we disclosed at gross margin from year over year perspective was also impacted by that inventory step up.
So when I combine those two things the mix impact from adding new more into the portfolio overall as well as the inventory step up that is what I'm trying to explain.
As a two thirds of the impact on that 270 basis points overall, hopefully that's helpful.
Yes. Thank you appreciate it.
Thank you.
I'm showing no further questions at this time I would now I'll turn the call back to Steve for closing remark.
Thank you operator.
And thank you again, everyone for joining our call today as Mike mentioned earlier on in his comment we really appreciate you spending about your valuable time with us today during these challenging time.
Hope that you your colleagues and your family stay healthy.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect everyone have a wonderful day.
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