Q2 2025 Winnebago Industries Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Winnebago Industries, 2nd quarter, fiscal 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star 1-1 again.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your speaker today, Ray Posadas, vice president, investor relations, and market intelligence. Please go ahead.
Speaker Change: Thank you Daniel. Good morning everyone and thank you for joining us to discuss our fiscal 2025 second quarter earnings results. This call is being broadcast live on our website at investor.wga.net and the replay of the call will be available on our website later today.
Speaker Change: The news release with our second quarter results was issued and posted to our website earlier this morning
Speaker Change: Please note that the earning slide deck that follows along with our prepared remarks is also available on the investor section of our website under quarterly results.
Turning to slide two
Speaker Change: Certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under security's laws [inaudible]
Speaker Change: The company cautions you that forward looking statements involve a number of risks and are inherently uncertain and a number of factors many of which are beyond the company's control could cause the actual results to differ materially from these statements.
Speaker Change: These factors are identified in our SEC findings which we encourage you to read. In addition, on today's call, management will refer to gap and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures are available in our earnings press release.
Speaker Change: Please turn to slide three. Joining me on today's call are Michael Happe, the President and Chief Executive Officer of Winnebago Industries, and Bryan Hughes, Senior Vice President and Chief Financial Officer.
Michael Happe: Michael will begin with an overview of our Q2 performance. Bryan will then discuss the associated drivers of our financial results in addition to sharing our forward view of the market and our fiscal year 2025 clients.
Speaker Change: But that, please turn to slide four of the hand the call over to Mike [inaudible]
Thanks, Craig, and good morning, everyone.
Speaker Change: RQ2 performance highlights several positive accomplishments to build on as we enter the all-important selling season.
Speaker Change: Importantly, profitability for the company increased sequentially, partly reflecting operating, pricing or cost improvements within our total and motorhome RV segments.
Speaker Change: As expected, soft retail and growing macroeconomic uncertainty continue to create a challenging sales environment across the outdoor recreation industry in our second quarter.
Speaker Change: Consequently, we remain intently focused on the factors in our control. Disciplined production, strong dealer relationships, improved operating efficiency, and sustained innovation valued by our end customers.
Speaker Change: These are the strategic pillars that position us for sustainable growth as our in markets gain momentum.
Speaker Change: Our teams have effectively managed production output and input product costs in this current environment.
Speaker Change: We are collaborating closely with our dealer partners to provide market support where necessary.
Speaker Change: As we head into the prime selling season, the composition of our RV inventory, quality and quantity.
Speaker Change: He's as healthy as it has been in a long time. [inaudible]
Speaker Change: Additionally, we are leveraging innovation as a strategic differentiating tool to meet available demand and stay ahead of market trends.
Speaker Change: Now let me highlight some notable recent achievements across our business units.
in the Motorhome RV segment.
Speaker Change: Grand Design's new motorized division is off to a strong start driven by the successful production ramp up of the lineage brands and inaugural product.
The Series M Class C
Speaker Change: The initial response to this award-winning series M has been outstanding.
Speaker Change: Consumers and dealers applaud the vehicle's quality, comfort, handling, and meticulous attention to detail
We are pleased with the retail performance to date.
Speaker Change: That is just the beginning of what we expect to be a successful inaugural year for the grand design RV brand in motorized overall.
Speaker Change: Initial shipments of the new lineage series F. Supersea Coach are also getting underway as we speak with opening shipments of the series BT class B product to follow late this third quarter.
Speaker Change: For those of you who missed it at the Florida RV Super Show in January , the grand design Super C is a beautifully designed four-season coach featuring our own Lithionics 320 amp-hour Lithium battery, a thousand watts of solar, a fox racing suspension, and the new Sure Slide Out mechanism.
Speaker Change: The series F combines exceptional engineering with premium amenities, setting a new standard in the Super C market.
Speaker Change: We have set a revenue target of $100 million plus for the overall lineage brand lineup in fiscal 25 and I am confident we are on track to achieve it.
Speaker Change: Our new Mar-Brand continues to lead in the premium Motorhome RV category, particularly in the Class A diesel market.
Speaker Change: where its flagship Dutstar has been the number one model for three consecutive years fueling continuous market share growth for New Mar in that diesel category.
Speaker Change: On the technology front, Neumar is beginning to leverage advanced 3D product development technology to successfully reduce the time to market for innovative products like its SuperC Grand Star.
Speaker Change: The business turnaround plan is expected to begin taking shape in the second half of fiscal 2025, and especially into fiscal 2020 in meaningful.
Speaker Change: Full organic up opportunity for us over the next several years.
Speaker Change: Notably our Tri brand strategy in the motor home sector marks a key milestone in our diversification efforts.
Speaker Change: By leveraging multiple brands, we can begin to cater to distinct market segments across the whole of the category.
Speaker Change: Mitigate market risk and unlock greater potential for collective margin expansion.
Speaker Change: <unk> is undergoing a strategic transformation under 2024 industry Hall of Famer Don Clark leadership.
Speaker Change: This initiative consolidates, our current <unk> expertise in northern Indiana, leveraging the region strong design and manufacturing heritage and the overall support ecosystem from the Grand design told those organization.
Speaker Change: By delivering travel trailers that meet evolving customer needs Winnebago brand <unk> is positioning itself to expand market share and drive growth.
Speaker Change: The combination of a powerful one two brand towboat punch from our Grand design and Winnebago brands makes us a more formidable competitor and lifts our market share ceiling in this segment long term.
Speaker Change: At the 2025, Miami International boat show.
Speaker Change: <unk> and Chris craft receive customer satisfaction Index awards from the National Marine Manufacturers Association.
Speaker Change: Chris craft enjoying a strong spring show season has also earned innovation recognition 40, its new sportster, 28, offering which blends classic design and premium performance with affordability.
Speaker Change: The Chris craft team is energized by the Sportster series success with a fifth model launching soon.
Speaker Change: The series is driving dealer network expansion and introducing the iconic brand to an even broader audience.
Speaker Change: Last week at the Palm Beach boat show, Chris Craft unveiled the Catalina 31, a redesigned center console luxury day boat and the newest member of the Catalina series I've seen it firsthand and it is stunning.
Speaker Change: Okay.
Speaker Change: Looking at recent RV industry data on slide five it is worth mentioning that from a retail perspective, the winter months and Q2 are seasonally less relevant with April and May in our third quarter, providing a clearer gauge of selling season strength and consumer confidence.
Speaker Change: For calendar 2025, we continue to forecast wholesale RV shipments of 320000.
Speaker Change: To 350000 units.
Speaker Change: Or a median of 335000 units.
Speaker Change: This is about 4% below the RV I as recent 351.
Speaker Change: 100 unit forecast and reflects our conservative approach as retail conditions remained subdued and increasing consumer uncertainty threatens to dampen the potential of this calendar year.
Speaker Change: Subsequently dealers are expected to prioritize leaner inventory levels due to higher carrying costs as compared to past years drew.
Speaker Change: Driving improved industry inventory turns beyond the current two time level.
Speaker Change: Some stability and optimism and future retail sales will be key to reducing dealer uncertainty and refining stocking strategies. So the broader trend will remain focused on increased efficiency.
Speaker Change: Now I'll make two key points on the North American RV market share data on slide six.
Speaker Change: Strong performance exists in our core segments.
Speaker Change: We're performing well in the tolerable and motor home RV price points that align with our strengths.
Speaker Change: In motor homes, our class a gas class a diesel and class C models gained retail share over the most recent six and 12 month periods, driven by new offerings with strong growth potential.
Speaker Change: And the forward price categories, where we have the highest mix our motor home market share rose mid single digits in 2024 versus 2023.
Speaker Change: In <unk>, we continue introducing affordable innovative products expanding into new markets and attracting customers.
Speaker Change: Our market share in the four tolerable price categories, where we have the highest mix grew low single digits over the same period.
Speaker Change: We are beginning to see stronger signs of the affordability moves made by the businesses in the last year stabilizing our overall total share amidst tough competition.
Speaker Change: Profitability over market share also remains a priority.
Speaker Change: We are committed to sustainable financial performance.
Speaker Change: First is simply chasing pure volume.
Speaker Change: We won't engage in a race to the bottom. However, we will ensure a careful balance between profitability and sustainable share.
Speaker Change: All of which guides, our strategic market decisions and ensures long term success.
Speaker Change: Turning to slide seven.
Speaker Change: <unk> market share for the 12 months ended February 2025 increased 140 basis points to nine 5%.
Speaker Change: Led by the <unk> team has built the fastest growing U S aluminum pontoon brand in marine history by listening to their customers and delivering the <unk>.
Speaker Change: Performance safety and quality of every Barletta model is a testament to their commitment to customer satisfaction and innovative design.
Speaker Change: This success is further enhanced by their strategic and disciplined approach to inventory management and product development.
Speaker Change: By working closely with customers. Our letter has carefully managed inventory levels, while expanding its channel in introducing new models over the last several years like the <unk> series, which caters to a wide range of customers.
Speaker Change: Our lead US future continues to look bright and we are especially focused on ensuring our dealers are carried forward during this more difficult marine market environment.
Speaker Change: Now I will turn the call over to Bryan Hughes for the financial review.
Speaker Change: Brian.
Speaker Change: Thanks, Mike and good morning, everyone.
Speaker Change: As a reminder, in my prepared remarks, I will focus on the key drivers of our performance.
Speaker Change: Please refer to our earnings release and earnings supplement documents for a detailed overview of our key financial results.
Speaker Change: Our consolidated results shown on slide eight reflected a shift in product mix, both within and between business units.
Speaker Change: Total RV volume increased year over year with a greater share in lower priced units.
Speaker Change: Partly driven by Grand design RV is successful lineup expansion.
Speaker Change: Gross margin declined year over year.
Speaker Change: Which was primarily due to deleverage associated with the product mix shift.
Speaker Change: Partially offset by operational efficiencies.
Speaker Change: However, gross margin improved 110 basis points sequentially.
Speaker Change: Mainly due to lower allowances and discounts.
Speaker Change: Second quarter, adjusted EBITDA declined 340 basis points year over year due to the decline in gross margin.
Speaker Change: Along with an increase in SG&A related to the mix of incentive based compensation plans relative to performance across businesses.
Speaker Change: As well as the launch of the Grand design Motor home business.
Speaker Change: And sales related SG&A growth in the <unk> business.
Speaker Change: However, adjusted EBITDA increased 140 basis points sequentially as anticipated.
Speaker Change: Driven by lower allowances and discounts and lower SG&A expense.
Speaker Change: Turning to our total RV segment results on slide nine.
Speaker Change: Revenues increased modestly year over year, primarily due to higher unit volume.
Speaker Change: Firstly offset by an industry shift towards more affordable models.
Speaker Change: Adjusted EBIT margin declined year over year due to product mix shift higher warranty experience and higher input costs.
Speaker Change: Moving to motor home RV results on Slide 10 second.
Speaker Change: Second quarter revenues were down from the prior year.
Speaker Change: Year over year, the decrease reflected lower unit sales related to current market conditions.
Speaker Change: Largely offset by product mix.
Speaker Change: As mentioned previously sales benefited from the launch of the Grand design Motor home lineage lineup.
Speaker Change: Adjusted EBITDA margin decreased compared to the prior year.
Speaker Change: Primarily due to volume deleverage.
Speaker Change: We offset by operational efficiencies and favorable warranty experience compared to prior year.
Speaker Change: Turning to slide 11.
Speaker Change: Revenues for the Marine segment were up from the prior year, primarily due to unit volume, partially offset by a reduction in average selling price per unit related to product mix.
Speaker Change: Adjusted EBITDA increased compared to the prior year.
Speaker Change: Primarily due to targeted price increases leverage and operational efficiencies.
Speaker Change: Partially offset by product mix and higher operating expenses, including incentive based compensation.
Speaker Change: Turning to our balance sheet on slide 12.
Speaker Change: We have a strong track record of generating annualized free cash flow.
Speaker Change: Which is the foundation of our diverse capital allocation strategy.
Speaker Change: This approach has enabled us to fund organic growth.
Speaker Change: Pursue value accretive acquisitions.
Speaker Change: Return cash to shareholders through dividends and repurchases and.
Speaker Change: And manage that effectively.
Speaker Change: Okay.
Speaker Change: Recently, we completed a $100 million cash tender offer to repurchase a portion of our 6.25% senior secured notes due 2028.
Speaker Change: Additionally, $59 million of convertible debt will mature in April 2025.
Speaker Change: At the end of Q2, our net debt to EBITDA ratio stood at 4.0 time.
Speaker Change: Above our targeted range of 0.9% to one five times.
Speaker Change: We remain committed to meaningfully improving our working capital and bringing our leverage ratio back in line with our historical target.
Speaker Change: Returning capital to shareholders also remains a priority.
Speaker Change: In second quarter, we repurchased $20 million in stock.
Speaker Change: With $180 million remaining under our share repurchase program.
Speaker Change: In April we will pay a quarterly dividend of <unk> 34 per share because the 40 <unk> consecutive quarterly dividend.
Speaker Change: As shown on slide 13 to navigate tariff.
Speaker Change: We employ a multifaceted strategy to mitigate their impact.
Speaker Change: We collaborate with suppliers to identify exposed components.
Speaker Change: Analyzing bills of materials to understand country of origin assess risk.
Speaker Change: And develop targeted solutions.
Speaker Change: We also explore alternative suppliers with lower tariff exposure to maintain a resilient supply chain.
Speaker Change: While we expect to mitigate a large portion of tariff related costs.
Speaker Change: Some residual impact may require price adjustment.
Speaker Change: Given the fluid nature of tariff policies quantifying.
Speaker Change: Quantifying the precise impact remains fluid.
Speaker Change: Turning to our fiscal 2025 outlook on slide 14, let.
Speaker Change: Let me address the economic realities that we're all seeing in the headlines.
Speaker Change: Expectations for our industry are subject to several dynamic factors not the least of which are consumer confidence and expectations for future interest rate reductions.
Speaker Change: We keep close to these and other macro influences on our industry.
Speaker Change: And generally speaking the last couple of months have seen expected tailwind shifting to more neutrality or even slight headwinds.
Speaker Change: Inflation is something we are watching carefully <unk>.
Speaker Change: Including any inflationary impacts resulting from tariff policy.
Speaker Change: We are mindful of the impact on our product cost.
Speaker Change: And also on the overall impact inflationary pressure may have under our consumers' willingness and ability to purchase durable discretionary products such as ours.
Speaker Change: In light of the uncertain macroeconomic environment, we are reducing our adjusted EPS guidance to a range of $2 75 to.
Speaker Change: To $3 75 per diluted share from our prior forecast of $3 10 to $4 40.
Speaker Change: And bringing in our consolidated revenue forecast.
Speaker Change: To a range of $2 8 billion.
Speaker Change: Two 3 billion.
Speaker Change: From $2 9 billion to $3 2 billion.
Speaker Change: This reduction in sales expectations is largely driven by the reduction in consumer confidence and consumer sentiment.
Speaker Change: All eyes are on the forthcoming selling season and much will be learned in the April through July period, when the bulk of retail sales occur in the RV and marine industries.
Speaker Change: Regardless, we are encouraged about the new products in our pipeline.
Speaker Change: And remain confident in our long term strategy.
Speaker Change: And in consumer interest in the RV and marine segments.
Speaker Change: Bottom line, yes, the industry continues to face some challenges.
Speaker Change: But we've been through many tough times before and we've come out stronger.
Speaker Change: We've got a solid balance sheet, we are lean and efficient but have opportunities still for further improvement and we are ready to seize on these opportunities.
Speaker Change: We are staying nimble, we're staying focused and we're committed to protecting profitability.
Mike: I'll now turn the call back to Mike for closing comments on Slide 15, Mike.
Mike: Thanks, Brian.
Mike: In summary, we are realistic about the level of economic uncertainty stemming from pending trade policy around the world.
Mike: Despite those challenges.
Mike: Ryan said our business is healthy.
Mike: We are bringing exciting new products to market across our entire RV and marine portfolio.
Mike: Building a foundation for organic growth as.
Mike: As the outdoor recreation industry rebounds.
Mike: Each of our five organic OEM brands have significant potential during a market recovery into a mid cycle climate in the future.
Mike: The prudent and fiscally responsible manner in which we have managed our business has been a cornerstone of our success.
Mike: Over the years, Brian and I have been proud to lead our entire team at maintaining a strong balance sheet, ensuring financial stability and flexibility.
Mike: This strategic approach has allowed us to navigate economic fluctuations effectively.
Mike: While investing in innovation and positioning ourselves for long term growth.
Mike: Our focus for the remainder of this fiscal year and beyond is simply this.
Mike: These opportunities that fit our strengths <unk>.
Mike: Expand our offerings to improve customer value, where we should and strengthen our overall market presence with stronger products.
Mike: Relationships and brand presence.
Mike: Those are the most effective ways to ensure we enhanced the value of Winnebago industries for all of our stakeholders.
Mike: Now.
Mike: Brian and I are happy to take your questions. This morning, operator, please open the line for the Q&A session.
Mike: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Mike: In the interest of time, we ask that you. Please limit yourself to one question and one related follow up.
Mike: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Joe <unk> with Raymond James Your line is open.
Speaker Change: Thanks, Hey, guys good morning.
Speaker Change: Just first question I wanted to go back to the guidance for a second you talked about obviously, the challenging backdrop as well as tariffs how much of the call it 50% cut at.
Speaker Change: At the midpoint to EPS is.
Specifically on the tariffs.
Joe: Joe Good morning, this is Mike.
Speaker Change: I think a better way to think about.
Joe: The guidance from a tariff standpoint.
Joe: Is that the range that we offered on guidance would incorporate.
Joe: We believe at the time for fiscal 'twenty, five would be any tariff impact.
Joe: We certainly would hope that that would land.
Joe: Closer to the midpoint than the lower end of that range.
Joe: But.
Joe: Generally fiscal 2025 tariff impact will be relatively limited.
Joe: Giving timing remaining in our fiscal year, our existing working capital in terms of inventory, we have ongoing supplier negotiations.
Joe: And precise pricing action that we can take.
Joe: During this fiscal year.
Joe: Okay understood and then just to follow up on that pricing point.
Price increases would you contemplate.
Joe: If you have certain tariffs were to go into effect for example.
Joe: Joe we won't share this morning on the earnings call.
Joe: Intended pricing actions in the market that will be handled brand by brand and communicated directly to our dealers I prefer not to lift those up visibility wise to our competitors.
Joe: Our businesses.
Joe: Will react in the short term if they see any incoming cost pressure that we cannot mitigate.
We are also preparing our model year 2026 product lineups and pricing.
Joe: That will also.
Joe: Have the opportunity to include some assumptions around tariffs I just want to reiterate though that.
Joe: As Brian said, there remains significant unknowns about tariffs.
Joe: In terms of the degree.
Joe: And including reciprocal or retaliatory tariffs and we will be much better informed probably sometime in early to mid April following the administration's announcements I believe on April 2nd.
Joe: Okay. Thank you.
Speaker Change: Thank you. Our next question comes from Scott <unk> with Roth Kim Your line is open.
Scott: Good morning, guys and thanks for taking my questions.
Speaker Change: Good morning, Scott.
Speaker Change: Scott Yes.
Mike when you were talking about.
Speaker Change: Lower shipment guidance for 25, it sounds as if.
Speaker Change: You guys are incrementally more concerned about retail or at least that's the way that.
Speaker Change: But.
Speaker Change: What are you seeing right now at least in March I know that that's a little bit ahead of.
Speaker Change: The key months that you talked about but are you seeing anything in March that is making you more.
Speaker Change: Incremental concern.
Speaker Change: That the start of the selling season can be at risk.
Speaker Change: Scott Good morning, I would say that March retail patterns in the first couple of weeks mirror, what we have been seen in February so we're not seeing a significant change.
Speaker Change: Probably either to the good in our north to the bat in the first couple of weeks of retail.
Speaker Change: It depends again on brand and by category or segment.
Speaker Change: I would tell you that the guidance modification for the remainder of the fiscal year is probably mostly related.
Speaker Change: Two a couple of factors one would be that.
Speaker Change: The timing of what we had hoped to be.
Speaker Change: A retail rebound appears to be later.
Speaker Change: Particularly here as we enter the early spring selling season.
Speaker Change: To pay that and as you can imagine that's that's been impacted by consumer sentiment.
Speaker Change: The likelihood that the fed will not make any.
Speaker Change: Multiple rate adjustments within that particular fiscal year back half window for us.
Speaker Change: And the other element to our guidance adjustment probably relates directly to dealer inventory appetite.
Speaker Change: Our dealers continue to be great partners to US we are working hard to support them as best we can.
Speaker Change: They continue to also be very disciplined about the inventory they have on their lots. They they continue to be focused on making sure that their model year 'twenty three 'twenty four inventory is.
Speaker Change: He is especially low and getting that model year 'twenty five inventory into a better shape before they take model year 'twenty six inventory later in the year. So it's really the combination of retail sentiment not been as optimistic or a strong forward looking as we had hoped and dealers continuing to be disciplined.
Speaker Change: Got it or Mike allow me to add just one comment there.
Speaker Change: Tend to having just wrapped up the calendar year, we focus on some of the market share story for the calendar year 'twenty four I think if you look at some of the underlying data and the more recent retail performance, we're feeling pretty good about some of the trends we're seeing as it relates to market share specifically saw some stabilization.
Call it proof points that some of our expanded product lineup is indeed, driving some good market share performance. So we are encouraged by that.
Speaker Change: Got it.
Speaker Change: And then the last question is one of your big competitors recently announced that they were formed some strategic alliances with some big dealers just trying to get a sense of what your early read on this is on this for the entire industry the relationship between OEM.
Speaker Change: And dealer and if you could talk about any potential impact on your guys business.
Scott: Yes, Scott.
Speaker Change: We probably won't comment specifically on.
Speaker Change: What our competitors are doing with any of their strategic dealer partners. We certainly been aware of the chatter around that topic emanating from an earnings call a couple of weeks ago.
Speaker Change: I am at the Newmar dealer meeting as we speak and have visited within the last 24 hours with several of our larger dealer partners not just for Newmar, but really for Winnebago industries on the RV side.
Speaker Change: And we feel really good about our standing in our relationships with those dealers across our three RV brands. So.
Speaker Change: Competition is going to do what theyre going to do.
Speaker Change: We've stated very clearly this morning that we're going to continue to balance the.
The pursuit of share as Bryan just highlighted.
Speaker Change: With <unk>.
Speaker Change: Profitability and do our best with product differentiation are good quality, good aftermarket service support to earn our dealers' business, but.
Speaker Change: We will we will not.
Speaker Change: Highlight any significant shipments share strategies here this morning.
Speaker Change: That would.
Speaker Change: Have a negative impact on margin that is not our intention.
Speaker Change: Got it that's all I have thanks guys.
Speaker Change: Thank you.
Sean Wagner: Our next question comes from Sean Wagner with Citi. Your line is open.
Sean Wagner: Hey, guys.
Sean Wagner: Is there any color you can give on the phases of the top line or margin in the second half of the year are there any kind of one offs, we should be aware of in either quarter.
Sean Wagner: So I don't think you should look for particular, one off so to speak.
Sean Wagner: Continue to expect sequential improvement both in the topline from year over year perspective as.
Sean Wagner: As we go through Q2, and Q4, and then obviously as we get into the selling season.
Sean Wagner: Margins will benefit from the higher volume.
Sean Wagner: The higher sales dollars in the form of leverage so.
Sean Wagner: That's the extent of what we're prepared to provide as it relates to forward looking guidance.
Sean Wagner: Okay.
Sean Wagner: I think you mentioned.
Sean Wagner: Inventory turns currently around two times, what is your ideal where would you like to end the year.
Sean Wagner: And I guess any thought on where you would want 2026 or just long term.
Sean Wagner: Yes, there are a lot of that will depend on where our dealers.
Sean Wagner: Drive this influenced of course by the interest rates that they are experiencing.
Sean Wagner: Look I think they're going to continue to push for higher efficiency in the form of higher turns and so we will work closely with them on what that balance looks like in other words, serving the customer with having inventory available on their lots that will remain important to us and stocking level and the agreements we have with our dealers will certainly play a role there.
Sean Wagner: On the other hand, we know that they're going to continue to push for higher efficiency. So what that right number is.
Sean Wagner: We don't.
Sean Wagner: Don't have a specific guide as it relates to the two point, though going to two five for example.
Sean Wagner: We don't have a specific target in mind.
Sean Wagner: Our dealers to serve our customers and have product available and so that's what we'll continue to work and partner with them on.
Sean Wagner: To make sure that they have our full product lineup available in there.
Sean Wagner: You've got the floor plans that our customers are wanting.
Speaker Change: Okay, but its safe to say you think that there will be further inventory drawdown in the industry. This year Youre retail estimate that I assume is below your wholesale projections.
Sean Wagner: For the industry.
Speaker Change: I don't think that.
Speaker Change: Wholesale shipments will necessarily exceed retail I think the dealers are going to continue to as we're seeing right now, particularly in the motor home side dealer is going to continue to strive to minimize their inventory.
Speaker Change: There may be a little bit of reduction required yet on the motor home side based on the conversations we're having with dealers. We think the total inventory is positioned very well.
Speaker Change: So a lot of the.
Speaker Change: The moves that.
Speaker Change: The more the dealers will make.
Speaker Change: Will be related to.
Speaker Change: The pace of retail that they are seeing.
Speaker Change: And they'll they'll adjust our inventories accordingly.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Tristan Thomas Martin with BMO capital markets. Your line is open.
Speaker Change: Hey, good morning.
Speaker Change: Could you maybe just remind everybody the motorized chassis in particular at the Mercedes sprinter. The bromine upstairs transit I'll, let so where does that manufactured and then kind of what.
Speaker Change: How should we think about.
Speaker Change: Where you would source chassis is given some of these Mexico auto tariffs. Thanks.
Tristan: Good morning, Tristan.
Speaker Change: As you know we do source.
Speaker Change: Motorized RV chassis from a number of different manufacturers.
Speaker Change: Several different companies that have been good partners with us through the years.
Speaker Change: From a manufacturing or assembly standpoint, it is a mix there are some of those chassis.
Speaker Change: That are manufactured.
Speaker Change: And final assembly, especially in the U S. And then there have been times both in the past, but also currently.
Speaker Change: We have taken chassis in.
Speaker Change: That had been imported in from.
Speaker Change: Other manufacturing locations from around the world.
Speaker Change: We are working closely with our chassis manufacturers, obviously in light of tariffs and particularly the announcement the administration made yesterday.
Speaker Change: To do everything we can to.
Speaker Change: Manage and mitigate.
Speaker Change: The cost exposure.
Speaker Change: We would have that we would likely have to pass on to our dealers and consumers and that could include at times in the future.
Speaker Change: Resourcing of those chassis too.
Speaker Change: Some of those manufacturers U S based operation should they have capacity.
Speaker Change: Also have chassis inventory on the ground.
Speaker Change: In a number of our businesses from a working capital standpoint that we'll be able to work through.
Speaker Change: And a number of other mitigation strategies and actions.
Speaker Change: We're working on I'd prefer not to share those in detail from a competitive standpoint. This morning, but motorized chassis probably represents the most significant.
Speaker Change: Tariff exposure to us.
Speaker Change: And sort of bulk good items.
Speaker Change: In the future. So you can be rest assured thats something our strategic sourcing team is working on as we speak this morning.
Speaker Change: Okay, and then just one quick follow up I think in the past.
Speaker Change: Price increases have always pass through the rate increases would there be any thoughts maybe do like surcharges given the fluidity of everything.
Speaker Change: Tristan I think all options are on the table, especially given the uncertainty of the of the environment.
Speaker Change: So as I mentioned earlier, there could be some some just pure price increases.
Speaker Change: Tariff costs are embedded and in other cases, our businesses or brands may choose to use surcharges as well we want to be very transparent with our dealers and subsequently we want to be transparent with our consumers as well.
Speaker Change: The event that.
Speaker Change: The tariff environment changes, which is probably more likely than not.
Speaker Change: We have to have agile methods and processes to be able to react relatively quickly and so it will be a mix of.
Speaker Change: Different forms of.
Speaker Change: Costs going to the market, but again I want to reiterate that we're going to do everything we can.
Speaker Change: We can first and foremost with our suppliers to mitigate that cost and I would say in general we're in better shape in fiscal year 2025, and the 2026, then we were back in fiscal year <unk>.
Speaker Change: <unk> when we saw the first versions of of these tariffs from this administration many years ago. So I'm proud of our purchasing and sourcing teams, but that doesn't mean that there isn't going to be some increased cost exposure.
Speaker Change: Downstream from us.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question comes from Michael Swartz with true Securities. Your line is open.
Michael Swartz: Hey, guys good morning, maybe.
Speaker Change: Maybe just to start I think Mike in your prepared comments you talked about.
Speaker Change: Resetting the pricing strategy with the Winnebago <unk> business, maybe provide us a little more context, there of what exactly that means I would assume some of that is maybe going down market a little bit given where the grand design mix has gone over the past 12 months or so, but just any context would be helpful.
Speaker Change: Yes, good morning, Mike. Thanks for the question, that's an important business opportunity for this company, we truly believe that we can.
Speaker Change: It takes share from around one 4% of totals today on the Winnebago <unk> business to something north of 3% was probably 5% is a big over the next three to five years so in.
Speaker Change: In the short term.
Speaker Change: There are many actions being undertaken in that business to sort of reset the environment amongst them are modifying pricing on current products in our lineup there have been times, where.
Speaker Change: Perhaps the MSRP.
Speaker Change: It was elevated to allow the dealer.
Speaker Change: Room that they often like to negotiate with them customers.
Speaker Change: But it also probably included an expectation that the OEM.
Speaker Change: Ourselves.
Speaker Change: Would offer some pretty significant sales allowances or discounts.
Speaker Change: So in the short term, we're pricing Winnebago <unk> products to where they need to be priced in the market.
Speaker Change: Move effectively of retail and two.
Speaker Change: Enhance the probability that our dealers will take that inventory in the long term, we're going to get the product right, we're going to have better product in terms of differentiation.
Speaker Change: Going to probably attack some price points and segments that we may not get to completely with our other towboat brand Grand design, and we're going to look to create some innovation as well in that space I am really excited by the work that Dan and the team are doing there and we're getting good feedback from <unk>.
Speaker Change: <unk> in the RV industry about the potential for that business and brand as we share some of our early strategic intentions. There. So obviously in future quarterly earnings calls, we will be sharing updated progress on that but.
Speaker Change: Got to get the current product price right and then bring some new product to market and I think youll see some of that new product late in this fiscal year, probably sometime in the fourth quarter, you might even see some new products from <unk>.
Speaker Change: Okay great.
Speaker Change: I know you've talked about managing or balancing.
Speaker Change: Margins and market share and I think over the past four or five quarters or so pretty consistently under ship the market.
Speaker Change: I guess, how do you just think about that maybe over the coming 12 months in terms of how you think of market share is there a point, where you need to put some more product back into the market.
Speaker Change: More on the <unk> side than maybe what you've been doing over the past couple of couple of quarters.
Speaker Change: I think thats, probably right to Brian users earlier point in the call that will probably come, especially where we're gaining retail market share we've had to make some adjustments across our RV lineup specifically in order to address the consumer shift to affordability.
Speaker Change: And obviously the mix lower from an ASP standpoint, and thats been a little bit of a work in progress we're really pleased.
Speaker Change: With some of the recent market share gains we're seeing at retail on some of the new products, we've introduced to the market and.
Speaker Change: And we think at that point, the dealer backlog and Reorders will follow.
Speaker Change: Our dealer backlog in <unk> is higher today than it was a year ago.
Speaker Change: Both in terms of units, but also dollars.
Speaker Change: And we think that reflects increasing.
Speaker Change: Dealer appetite.
Speaker Change: For our products. So we're certainly aware of shipment sure trends, where we're certainly aware of sort of the macro field inventory dynamics.
Speaker Change: We're focused on retail market share right now getting the product right.
Speaker Change: And we're confident that our dealers will adequately stock the <unk>.
Speaker Change: <unk> products.
Speaker Change: Overtime so much.
Speaker Change: Much rather have dealers feeling like they have a little less than they need going into the recovery in.
Speaker Change: In the future than more than they need on our products and we want the aging of our products in the field to also be healthy and that continues to improve every month, it's significantly better than a year ago.
Speaker Change: So.
Speaker Change: Shipment share is important.
Speaker Change: But long term, it's all driven by having the right products at retail that pull that shipment share along in the future.
Michael Swartz: Okay, great. Thanks, Mike.
Speaker Change: Thank you. Our next question comes from <unk>.
Andrew Wolf: Andrew Wolf.
Speaker Change: With C L. King your line is open.
Speaker Change: Thank you. Good morning. My question is kind of related to the last question. It's about the sequential change in dealer inventory.
Speaker Change: And sort of just kind of a similar question I guess you kind of add.
Speaker Change: Answered it but.
Speaker Change: The segments. It was up which I think is you know obviously.
Speaker Change: Seasonally related but I wanted to ask if there was any.
Speaker Change:
Speaker Change: Sense of restocking or buying into it.
Speaker Change: Dissipation of future sales.
Speaker Change: And I guess it seems like you answered it in.
Speaker Change: Some of the innovation you're doing but there is also the other.
Speaker Change: The motorized where it was down sequentially, which really was contrary to seasonal.
Speaker Change: Seasonality should have been up.
Speaker Change: Which is sort of telling us that the dealers are still.
Speaker Change: Cautious there given the price points.
Speaker Change: Could you just add any flavor on that.
Speaker Change: And in the context in which I'm asking about potential stocking up in limited.
Speaker Change: Areas, where the dealers at least as at the end of last months.
Speaker Change: It might have been feeling there.
Speaker Change: Going to be good future sales.
Speaker Change: Well good morning, Andrew let me speak to the motorized RV side, I think that might be the most.
Speaker Change: Interesting part of your question because we've addressed some of the <unk> dynamics, a little earlier I think the total RV.
Speaker Change: Stocking behavior, you've seen in recent months is.
Speaker Change: Probably as.
Speaker Change: As much related to seasonal.
Speaker Change: Dealer appetite to raise their inventory levels, a little bit going into the season, but on the motorized side I think the general sentiment in the industry is that motorized RV field inventory is still a little elevated.
Speaker Change: And includes probably a little bit more aging then you will see on the <unk> side and so subsequently I think dealers have been much more cautious on motorized RV inventory, you've also seen more retail pressure on motorized products here in the last number of months and so I think dealers are feeling a little less bullish.
Speaker Change: The spring and summer selling season on motorized specific to our brands, we have been very conscious with our Newmar brand.
Speaker Change: Making sure that the dealer inventory is in a healthier position than it was several years ago, we were probably a little bit bloated and high on Newmar inventory.
Speaker Change: <unk> years ago.
Speaker Change: And now we feel really good about the inventory levels. There on the Winnebago branded Motorhomes side, we continue to look at that business as a refresh and turnaround opportunity as well and that team is working on some new products and subsequently the dealers are probably hedging some of their inventory on Winnebago motor.
Speaker Change: In the short term.
Speaker Change: Until we get some some better products to the market in the long term and finally Grand design motorized the lineage line is starting to rollout theres.
Speaker Change: There is no comps versus a year ago, because inventory was zero, but we're really pleased by retail activity, there and and dealers are very excited about.
Speaker Change: Now the three models of the Grand design lineage motorized line that they can see coming and you will see an inventory build on that brand for sure as we stock our dealers so.
Speaker Change: Just being very cautious I think both us as an OEM, but also our dealers on that on that.
Speaker Change: Alright. Thank you for that color just a quick follow up and this is the last question. How do you feel about the kind of rebate or helping the dealers clear out some of them.
Speaker Change: Whether it's older Winnebago product may be more than newmar.
Speaker Change: On the motorized side.
Speaker Change: Ill.
Speaker Change: Ask Brian to speak to that I'll just offer this comment that.
Speaker Change: Our motives.
Speaker Change: <unk> there has always been to be.
Speaker Change: Surgical more than us.
Speaker Change: Sort of a shotgun approach and so I think the businesses have been really looking for those pinch points in pain points that are of.
Speaker Change: Significant concern to our dealers, but Brian can probably give you a little bit of context as to how we kind of see that sales allowance and discounting trends here.
Speaker Change: Here currently but maybe in the future.
Brian: Yeah, Andrew I guess, what I would add is.
Brian: They still remain elevated across the industry on the motor motor home segments, specifically so elevated.
Brian: Rebate discounting.
Brian: And again that goes back to some of the.
Brian: Inventory aging out in the field that Mike referenced we try to.
Brian: To the best that we can work with our dealers to tiny.
Brian: Rebate structures to helping the dealers move those those aged units alone.
Brian: Sequentially it did improve a little bit.
Brian: In terms of its ratio to sales that rebate and discount allowance line. So we did see some improvement but it is still certainly elevated versus the long term rates that we would see.
Brian: More work to do on motor home dealer inventory in particular.
Speaker Change: Got it thank you.
Bret Jordan: Thank you. Our next question comes from Bret Jordan with Jefferies. Your line is open.
Hey, Good morning, guys. This is Patrick Buckley on for Brent Thanks for taking our questions.
Patrick Buckley: Could you talk a bit more about where we are in the marine cycle versus RV. How is the overall dealer out there and maybe what's the current appetite for restocking versus destocking into the spring and spring and summer season.
Bret Jordan: Yes, good morning.
Bret Jordan: <unk> the pivot here to the marine side, because we are really excited about our two brands and businesses there in.
Bret Jordan: Both that Chris craft, but particularly if our letter with our market share trend continuing upward there. Yes, we are not seeing at a dealer financial health level in <unk>.
Bret Jordan: Ordinary.
Bret Jordan: Pressure in marine that is what I'll call.
Bret Jordan: Demonstrably different from the RV side.
Bret Jordan: That doesn't mean that marine dealers aren't aren't a little bit stress like their RV counterparts in terms of the demand environment and consumer sentiment challenges and the like.
Bret Jordan: But we monitor very closely dealer financial health across our entire portfolio, particularly with the help of our our in house sales teams.
Bret Jordan: Also our inventory finance partners are very helpful.
Bret Jordan: To make sure that we're aware of any dealers that are stressed but nothing of significance that we would share on the call from a from a cycle standpoint, we continue to believe that the marine industry is a little bit behind the RV industry in terms of.
Bret Jordan: Probably the dealer Destocking curves.
Bret Jordan: That varies by by category.
Bret Jordan: But the dealers in the marine space do continue to manage their inventory.
Bret Jordan: Quite specifically.
Bret Jordan: Feel good about where barletta in Chris craft, our year over year other both down double digits as we speak on field inventory from a unit standpoint.
Bret Jordan: Aging inventory continues to improve with every with every month. So we'll see how the marine dealers Act here in the spring and summer selling season.
Bret Jordan: It is the marine industry can be more compressed from a both delivery standpoint.
Bret Jordan: Especially in the northern climates, you have limited weeks and months that consumers have the opportunity to use their product and dealers.
Bret Jordan: We want to have enough inventory to.
Bret Jordan: To manage retail and deliveries.
Bret Jordan: But I think we will still see several more quarters of at least of destocking behavior by our marine dealers.
Bret Jordan: But.
Bret Jordan: As we've indicated before in this call.
Bret Jordan: <unk> share trends, particularly in this space are very positive for us Chris craft's, gaining a little share but part of letter is now solidly the number three aluminum pontoon player in the U S continues to gain share almost every month and certainly over three six and 12 months periods and.
Bret Jordan: We think there is significant runway ahead for barletta, regardless of sort of industry dynamics at this point.
Bret Jordan: Great that's all from US thanks, guys.
Bret Jordan: Yeah.
Bret Jordan: Thank you.
Speaker Change: Our next question comes from Kevin Condon with Baird. Your line is open.
Craig: Hi, This is Craig I'm not sure if Youre hearing me, but.
Speaker Change: Can you hear me okay.
Speaker Change: Yes.
Speaker Change: Yes, I don't know why they registered that Kevin but.
Speaker Change: Mike I had a leadership question Cory I see that you hired someone from.
Speaker Change: John Deere.
Speaker Change: Run operations I know, it's only been a few weeks, but I am wondering what his early priorities are to drive.
Speaker Change: Better margin performance and kind of address what looks like a deficit relative to where you'd like to be.
Speaker Change: Good morning, Craig Thanks for the question a little bit of history on that new leadership position.
Speaker Change: This west who has been asked to go run the Winnebago branded Motorhomes and specialty vehicles business here about.
Speaker Change: Six months to eight months ago.
Speaker Change: It was.
Speaker Change: The predecessor to our new leader Steve Spike.
Speaker Change: This was our SVP of enterprise operations.
Speaker Change: Since the late fall of 2016 and did a really good job standing up that center of excellence in that enterprise function, Steve Spike is.
Speaker Change: I think going to offer a significant positive impact of the company. He spent several decades that obviously a high quality organization at.
Speaker Change: At Deere and company. He is he's been an operations leader in multiple parts of that discipline around the globe and really is focus.
Speaker Change: Functional leader standpoint will be on manufacturing.
Speaker Change: Excellence in productivity and efficiency.
Speaker Change: He will also have oversight over our strategic sourcing.
Speaker Change: Team, which works with our supply chain leaders across the company to obviously manage.
Speaker Change: Cost and fill rate and delivery and quality.
Speaker Change: Steve will also have his hands on the steering wheel on product quality improvement again working directly with our businesses.
Speaker Change: Continuous improvement activities.
Speaker Change: You call them lean.
Speaker Change: Or.
Speaker Change: Solving and then.
Speaker Change: Employee health safety and security also fall under St's per view in the short term Steve is building full then quite quickly to obviously the tariff discussion.
Speaker Change: And I think he will also give us a nice fresh set of eyes on how we can continue to <unk>.
Speaker Change: Manage our production variances, especially in light of.
Speaker Change: <unk>, a significant amount of our capacity not being utilized in the present moment.
Speaker Change: Steve to look at across our manufacturing footprint, and and obviously try to identify waste and inefficiency across the footprint to see if we can't again drive our margin profile, a little bit higher by utilizing our infrastructure more effectively so it's a big job, but he is a capable leader where.
Speaker Change: We're excited to have him on the team we think that type of leadership is what separates us at times from some of our competition as well.
Speaker Change: Thank you and as you look at the margin deficit relative to where you'd like to be how much of that is volume.
Speaker Change: Our mix of promo and how much of it is.
Speaker Change: Some of the operating initiatives that Steve may undertake.
Speaker Change: Well I think.
Speaker Change: Some of this will be sort of short term long term management I'll ask Bryan to comment on margin management within the company.
Speaker Change: I think Steve obviously on the tariff side is going to be involved in the short term on helping us navigate that increased cost environment, but really some of his initiatives are probably going to take.
Speaker Change: Six months to 36 months to ultimately bring to life and and draw out some of that inefficiency in and add to margins, but Brian you may have some thoughts obviously on more shorter term margin management from sort of Steve's point of view.
Speaker Change: Yes, I mean, the big story in the near term has been the leverage equation as we've thought through the trough here.
Speaker Change: And then product mix as the market has a preference for the more affordable products. So those have been the two biggest drivers.
Speaker Change: As we start to see improvements to the top line year over year, we should see some leverage as the biggest driver of margin opportunity.
Speaker Change: And then at the same time some of the market based incentives and discounting that we talked about earlier.
Speaker Change: Good.
Speaker Change: Hurt back to some longer term trends, we would expect I think theirs.
Speaker Change: Longer term there is there is an opportunity for us.
Speaker Change: In the quality realm, Mike referenced that that will be an area of focus for Steve.
Speaker Change: We've had some cost of quality flow through our P&L over the last couple of years.
Speaker Change: And I think some opportunity there and then long term, we've always talked about innovation and our focus on differentiated product is the big opportunity that has for a long time helped us have EBIT margins that are above the competition. So that will continue to be a focus of ours as well you know that differentiated product line.
Speaker Change: So several things that I think we will see in the near term and then.
Speaker Change: In the longer term.
Speaker Change: Showing the opportunity that we have to exceed industry level margins as well.
Speaker Change: Thanks.
Thank you and our final question comes from Michael <unk> with benchmark. Your line is open.
Speaker Change: Yeah, Hey, guys. Thanks for taking my question just a quick one wondering if you can kind of comment on the increase in the warranty expense and towboat segment.
Speaker Change: Maybe just give us an idea I guess of the delta year over year or maybe the margin impact and I guess really was that is that within your expectations and kind of historical cadence just any color there would be helpful.
Speaker Change: Yes, I'll cover that first Mike and then you can you can chime in with some additional thoughts with you if you'd like.
Speaker Change: There's a couple of comments I'd make first our Winnebago <unk> business is going through a reconstruction and revitalization as we've talked about earlier in the call here and as we address the historical quality issues that this business has had we're certainly experiencing elevated warranty expense as a percent of sales.
Speaker Change: And we hold this to be more transitory.
Speaker Change: In our Green design Towboat business I'll remind you of the longer history as it relates to warranty expense and experience in this business, where we had a couple of years fiscal 'twenty three and fiscal 'twenty four we're warranty expense as the recent sales was notably lower.
Speaker Change: Relative to the long term trend in fiscal 'twenty five now we have seen warranty expense ratio sales rise of sales gone through the trough of the cycle to maybe call. It 30 to 50 basis points higher than historical levels as a result of addressing some broader quality campaigns.
Speaker Change: Increases versus the low rates through the sales in fiscal 'twenty four is closer to a point of margin, probably we've always emphasized quality and make taking care of our customers.
Speaker Change: In design as noted in the industry for doing so so I'd say the higher rate of sales in the current quarter is more a reflection of that practice combined with going through the current cycle trough in sales. So if you look at the details underneath the businesses there.
Speaker Change: A couple of different dynamics going on but that's how I would describe the current quarter performance.
Speaker Change: Great that was really helpful. Thank you.
Speaker Change: Thank you. This concludes the question and answer session I would now like to turn it back to Ray Posadas for closing remarks.
Ray Posadas: Thank you Daniel that at the end of our second quarter earnings call. Thank you everyone for joining US we look forward to further updating you on our progress on future calls. Thank you.
Ray Posadas: This concludes today's conference call. Thank you for participating you may now disconnect.
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