Steve Stuber - IR Michael Happe - President & CEO Bryan Hughes - VP & CFO

Craig Kennison - Baird Seth Woolf - Northcoast Research Steve O'Hara - Sidoti Scott Stember - CL King Mike Baudendistel - Stifel Mike Swartz - SunTrust David Whiston - Morningstar Fred Wightman - Citi Steph O'Hara - Sidoti

Good day, ladies and gentlemen, and welcome to the Winnebago Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer-session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Steve Stuber. Sir, you may begin.

Thank you and good morning everyone for joining us for Winnebago Industries' conference call to review the Company's results for the fiscal 2018 second quarter, which ended February 24, 2018. I am joined on the call today by Michael Happe, President and Chief Executive Officer; and Bryan Hughes, Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. A news release with our second quarter earnings results was issued and posted to our website earlier this morning. Before we start, I'd like to remind you that certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws. 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 actual results to differ materially from these statements. These factors are identified in our SEC filings, which I encourage you to read. With that said, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?

Thank you, Steve, and good morning everyone. We hope you are all well. We appreciate your time this morning as we review Winnebago Industries' fiscal year 2018 second quarter results. We have much ground to cover today as I'm sure you would agree. And as usually the case, I will first provide a high level summary of the quarterly results and then be followed by our Chief Financial Officer, Bryan Hughes, who will go into much more detail regarding our financial performance. I will return with closing comments outlining our progress, on key strategy initiatives, and offer a few thoughts about other relevant topics. And undoubtedly, you'll have a few questions for us that we can answer in our Q&A session. Our second quarter performance continues to reflect the journey we are on here at Winnebago Industries to build a more robust, balanced, increasingly profitable overall business model. Much has changed in recent quarters at Winnebago Industries, and our results this period are both a reflection of those accomplishments, but they also highlight that we continue to have unfinished work to do. This will be a net positive journey we believe. And we are pleased with our consolidated results in the second quarter which are record numbers on both the top line and in profit generator. Overall strong sales growth and meaningful margin improvement for the Company were hallmarks of this quarter. Certainly highlighted and generated by our impressive growth in the Towable segment. Again another reflection of what's changed in the last two years. Consolidated second quarter revenue rose 26% year-over-year and marked the first comparable quarter that fully included Grand Design RV as part of the Winnebago Industries' portfolio in both the prior year and current year results. We're pleased that overall revenue continues to grow organically and profitably at a strong pace. Gross margin increased 110 basis points driven primarily by accelerated growth in the Towable segment. Both Towable businesses are delivering solid profitability as they both gained share. Looking at the segments in more detail starting with the Towable side revenues increased 55% year-over-year, which again represents entirely organic growth now the Grand Design RV has been part of Winnebago Industries for over a full year. Margins also expanded due to both fixed cost leverage and net cost savings initiatives that continue to incrementally contribute to improve profitability in this segment. The Towable industry segment remains healthy continues to grow and importantly we as a company are capturing meaningful shipment and retail market share across this segment with both the Winnebago and Grand Design brands. Both Towable businesses had retail performance in the quarter, which significantly outpace the industry. Backlog for the quarter was up 10% to over 9,000 units, which is compared against a particularly robust backlog from a year ago, which if you recall included the continued dealer ramp up of our high demand Reflection and Imagine series combined with the capacity constraints within the Grand Design business. We believe this backlog supports our future growth expectations in the Towable segment. Our current plants in Indiana have been running efficiently and new capacity has become to come online within the Grand Design business midway through the second quarter. Initial interest and are recently announce Grand Design RV Transcend line has been tremendous. The Transcend officially launched in January with production just now beginning to reach material levels and represents Grand Design's entree into the largest segment of the Towable market, the introductory Travel Trailer segment that we have not had a presence before. We are still metering our deliveries on Transcend to dealers across the country and we’ll see this reach a more normal flow throughout the back half of the year in terms of orders generated, retail and shipments. In addition, the Winnebago-branded mini-plus fifth wheel introduced last fall also is now reaching normalized production rates and being taken on to dealers lots, generating more lot share and exhibiting good early season retail performance. We are fully aware that the eyes of the financial community often wonder to what can be improved when a company’s financial results are released, more of the comparative against previous periods, but we are also quite proud of the significant progress Winnebago industries has made us an entity in the Towable segment in just 18 short months. The Grand Design acquisition has been strategic and effective and our own Winnebago-branded Towables business is growing rapidly as well. In an industry where 85% plus of the units are Towables, we have advanced our Towable segment share from less than 1% market share at the beginning of 2016 to somewhere in the mid single digits presently, and most importantly doing that with favorable margins. We are optimistic about the ability of our Towables businesses to make materially more progress in the market and help generate net positive results for the Company in the future. Our Towables brands are becoming a stronger viable choice for dealers and end customers looking for alternatives to their long health competitive options. And we are aligned on our core differentiation principals of product quality, innovation, and customer service support. Turning now to the Motorized segment, we are slowly but assuredly making progress in our sales results. Shipment numbers were light versus the industries overall numbers, but both Winnebago dollar and unit shipments showed a positive comp versus our own second quarter a year ago. Component availability limitations on several new products provided an unexpected headwind versus what was possible in the quarter on the top line and we are working intently to mitigate those availability challenges. We are also working to manage down some less than desired historical sales discounts to occasionally move our inventory. And while our sales allowance support levels are down year-over-year, this industry doesn't always reward those good intentions immediately especially in light of other competitive activity and incentives. However, we are extremely pleased that Motorized retail growth improved quarter-over-quarter with double-digit percentage growth reaching levels that are in line with the overall industry pace and thus demonstrating point in time stability in retail market share for the first time in several years. The Motorized backlog was up more than 42%, reflecting solid interest in our new products and increasing confidence in our future by dealer partners. Our optimism is growing and above the traction that we beginning to slowly see in the marketplace. We are becoming more competitive. Initial retail sales of our new Motorized products including the previously announced in 10 Class A Gas, the Ravel Class B and the Horizon Class A Diesel have been on pace notwithstanding a few of the components availability issues I mentioned earlier. And we look forward to continued revenue benefits from these new product lines in the back half of fiscal 2018. During the second quarter, we also worked on a new Class C product which was just unveiled early in March at the beginning of Q3. The new outlook of Class C gas Motorized product is the younger brother to the Intent platform, broadens our portfolio in the Class C gas lineup especially into the value category and the rental markets, and continues our recent track record of the introducing new products, with strong customer appeal, better value with a shorter product development cycle. In the case of the outlook, we have targeted an affordable price point, much like have done recently with the Class A gas Intent and look to see Class C share erosion moderate in coming months. Shipments on this new product will begin later in the third quarter. While we are encouraged by the improving stability of our Motorized business base in the market, driving acceptable profitability continues to be impacted by the manufacturing investments that we are making to both restart facilities like one in Junction City, Oregon, but also to remake manufacturing lines in Forest City. In addition, we are seeing some net challenges from rising material cost in the Motor Home segment and some product mix shifts as we more vigorously defend market share. We are focused on addressing all of these challenges and certainly improving profitability long term in our Motorized business as we continue to make foundational and operational improvements to the business. There are many tools that are disposal including select price increases that will happen with the advent of our 2019 model year units. While we believe we are on the right path to ultimately improve Motorized profitability, this won't be an overnight fixed. Rather a gradual but a certain assent the stronger performance. I'm personally not very patient on this front but we continue to take a methodical approach to the turnaround process. And with that, overview, I will now turn the call over to Bryan Hughes to review our fiscal 2018 second quarter financial results in more detail. Bryan?

Thanks, Mike, and good morning everyone. Second quarter consolidated revenues were $468 million, an increase of 26% year-over-year driven primarily by strong organic growth in the Towable segment. As Mike mentioned, the second quarter of last year fiscal '17 was our first full quarter following the acquisition of Grand Design RV. So we've now fully left the transaction and reported growth of 26% is up fully organic. Gross profit was $67.7 million in the second quarter, an increase of 37% year-over-year, driven by continued growth in the more profitable Towable segment, which accounted now for 57% of total revenues for the quarter. Gross profit margins expanded by 110 basis points driven by mix of business and fixed cost leverage from the Towable segment. Second quarter operating income was $35.5 million, up over 24% and net income was $22 million, an increase of 45%. Earnings per share were $0.69 per diluted share an increase of 44% over the $0.48 EPS in the second quarter of last year. You should note for comparison purposes that the second quarter of 2017 included a $12 million benefit relating to the termination of our post retirement healthcare plan. Finally, also recall that last year also included tighten amortization associated with the Grand Design deal. As a result of the recently enacted Tax Cuts and Jobs Act, the Company recorded a 2.3 million or $0.07 per share net benefit in the second quarter. We have provided non-GAAP EBITDA and adjusted EBITDA performance measures in our press release as a comparable measure. The schedule is accompanying the press release to our reconciliation between net income and adjusted EBITDA. As these schedule show consolidated adjusted EBITDA for the quarter was 39.4% an increase of over 35% year-over-year. Turning to the individual segments. In a Towable segment, revenues were 266 million for the quarter, up 55% year-over-year driven by consolidated strong organic growth across the Grand Design RV and Winnebago-branded lines. Segment adjusted EBITDA for the second quarter was 35.3 million, up nearly 94% from the prior year. And adjusted EBITDA margins increased 270 basis points driven by fixed cost leverage and strong top line growth. Towable backlog remain strong at over 9,000 units, growing 10%, but as mentioned by Mike, this number compares to a backlog in the prior year that was at elevated levels due to the ramp up of the couple of our key products. Retail sales continue to outpace the industry for both the Grand Design RV and Winnebago-branded lines. Motorized revenues were 202 million for the quarter, up 1.5% year-over-year supported by recent stability we are seeing in our retail momentum. As Mike mentioned earlier, backlog increased over 42% or over 900 units, reflecting the strength of our recently introducing products. Segment adjusted EBITDA was 4 million for the quarter, down nearly 53% year-over-year and adjusted EBITDA margin decrease 340 basis points driven by manufacturing start-up investments and increased material costs. We are also facing year-over-year margin headwinds from product mix as the Class A Diesel business was slow in the quarter compared to last year due to the ramp up of our new facility that assemble the diesel product. And at the same time, we increase in the second quarter, the production and sales of the value price product is part of our efforts to fill the gap that existed previously in our products line-up. Turning to our balance sheet and as the quarter end, the Company had outstanding debt of 271.1 million, that’s comprised of 279.7 million net of debt issuance costs of 8.6 million. Working capital was 177.1 million, our current net debt to adjusted EBITDA ratio is 1.4 on track with our deleveraging expectations and in line with our targeted leverage ratio range of 0.9 to 1.5 as communicated last November at our Investor Day. Cash flow from operations was 15 million in the first six months of fiscal 2018 an increase of 9.9 million from the same period in fiscal ’17, driven by continued profitable growth and changes in working capital. As I mentioned earlier, we recorded a 2.3 million or $0.07 per share net benefit in the quarter as a result of the recent tax reform legislation and our blended effective tax rate was 27.2%. Included in these figure is that $1.4 million charge related to the re-measurement of net deferred tax assets, but this charge was more than offset by the benefit associated with the reduction in the federal tax rate. Since we are in a fiscal year that differs from the calendar year, we project our blended reported tax rate will be 29% for fiscal 2018. For the year, we expect tax reform will contribute a $0.10 to $0.12 per share benefit net of the reinvestments we are making in the business that Mike will speak to further in a moment. We currently estimate our ongoing rate to be further reduced for fiscal 2019 as the full fiscal year realizes the benefit of the lower federal statutory rate of 21%. Finally, our board of directors recently approved a quarterly cash dividend of $0.10 per share payable on April 25, 2018 to common stockholders of record as of the close of business on April 11, 2018. That concludes my review of our quarterly financials. I will now pass the call back to Mike for some final comments. Mike?

Thanks, Bryan. I would like to first expand on Bryan's comments regarding Winnebago Industries' tax reform distribution intensions. We have committed to passing on a portion of the tax reform savings to benefit our dedicated employees in the form of forward distributions. One, each employee will receive a onetime bonus from the Company, split 50% in cash and 50% in a stock award. Two, we will target certain areas of the organization with select wage adjustments to ensure we are market competitive in key roles. Three, we are making a seven-figure donation to our Winnebago Foundation, with the specific purpose of identifying targeted opportunities in the future to give back financially to the communities that our employees live and work in. And number four, we will make specific capital investments in improving workplace environments in which our employees gather and work. Our employees are learning about these intentions concurrent with this morning's release. On the employee front, we also want to highlight that our recently announced employee stock purchase plan, which was approved by the board and shareholders last quarter has been launched. We see that this program was an initial offering of shares for each employee with the hopes that our employees view this program as a great way to enhance our teammates' connection to the organization and provide them with the direct avenue to personally benefit from our future successes. We are intense on building stronger, high-performance ownership culture. Many of you are likely looking for what we believe about the future prospects for the North American RV industry. As a whole, we remain cautiously optimistic that the calendar year 2018 will see another positive increase in shipments and retail in North America. The RVIA recently released an updated forecast for 2018, and is projecting wholesale shipments for the U.S. on the magnitude of the 7% up for the year. We have no reason to believe at this time that the industry projection is not a good starting point. Each month will unveil ultimately its accuracy. We still believe that the secular trends driving increasing popularity the RV lifestyle are real and that’s a macro academic, economic conditions are relatively stable. There is certainly more noise in the media and on the street of other return of volatility in the equities market. The risk of increasing interest rates by the fed and the possibility of cost pressures from steel and aluminum tariff or inflation in general. And all of those may in fact, the very real things to watch and managing terms of its impact on consumer confidence. However, foot traffic and buying interest and results at various RV retail sales across the country has generally been quite solid. Not for shadowing a material in certain decrease in consumer interest in RVs this spring summer. Overall, dealer settlement remains stable in the RV industry and we believe that dealer confidence in ongoing narrative of what Winnebago industries in our brands or building is increasingly positive. We recently completed a Winnebago-brand national dealer meeting in San Diego in early March, the first meeting of its kind in 4 years. It was a very positive opportunity and event for us to tell our story to dealers about the progress we are making to build a stronger flagship brand and a stronger company. We also use the opportunity to visit with dealers and suppliers about the state of the industry and especially current inventory levels. The consensus from our point of view is that inventory levels are in fact balances, non-aging significantly and dealers are position to serve the retail needs of the customers in the spring and summer months ahead in fact potentially better position than they were a year ago. What I believe is more important and dealer inventory at the present time though is the manufacturing output pace of the OEMs in the months ahead. Manufactures have done a good job in the last year of driving production to record levels and in many cases adding new capacity. It is in Winnebago industries best interest and that will all of our competitors to continue to ensure that we manage our production base to the pace of both retail and dealer stocking level demand, regardless of whether that will be really positive in the future or not. We are aggressively managing aging inventory in the field and we are pursuing increased log share due to the momentum especially our Towables businesses. Our Motorized turns in the field are up and are Towables turns are study. We will keep a close eye on our own production output and the inventory levels that we carry ourselves. This is in a sign of skepticism it’s simply good business practice. In line with those comments, we are though continuing to make progress on our release recently announced Towables capacity expansion projects. A portion of the Grand Design RV capacity came online as expected in January. With an additional face coming online later this spring, we are continuing with the Grand Design capacity expansion projects. We are also now ready to launch our Winnebago Towables capacity expansion projects with the recent closing at land contiguous to our current campus in Middlebury, Indiana. We expect that we will see the financial benefits of the Winnebago Towables expansion in the front half of fiscal 2019, particularly are out second quarter of that year. If we are to reach our goal of 10% plus overall unit RV market share by the end of fiscal year 2020, these Towables expansion project will be critical to that end. Lastly, we are pleased with the increasingly positive state of our balance sheet. Last November, Bryan Hughes shared our overall capital allocation priorities and also communicated where we would like to be in terms of a levered zone. We must certainly protect the company's long term interest and have a path to ensuring that we can weather a material downturn that could happen in the future. But we have also been transparent about our intentions to smartly use the balance sheet to drive profitable growth and deliver increased shareholders value. We have become to enter the high end of our leveraged comfort zone and will continue to progress towards the lower end, but we are also ramping up activity here at Winnebago Industries on both the business development front, but also in terms of identifying further organic investments that can accelerate our growth and profitability. Stay tuned as we share more in future quarters about our intentions and developments. And with that, we will wrap up our formal comments for the morning. I would like to end as we always do with a genuine statement of thanks for our Winnebago Industries' employees for their hard work during the quarter and for their continued commitment to providing our customers with high quality products and services. It is their efforts that make all the difference. Thanks very much for your time this morning. I wish all of you and all of the Winnebago Industries' team a great start to spring. For those of you in the Northeast hang in there, it won't snow forever. I'll now turn the call back over to the operator to start the Q&A session.

Thank you. [Operator Instructions] Our first question comes from the line of Craig Kennison of Baird. Your line is now open.

On the tax rate, Bryan, what should we use as the effective all in tax rate for fiscal 2019 and beyond?

For 2019 and beyond, although have a 21% statutory, you can assume 3% 4% state rate. That's still unknown right now Craig as we work through I think every company works through the impact of the state rate. But that would be the assumption I would guide you towards.

And then Mike, in your prepared remarks, you mentioned employees the foundation and some capital projects has potentially used for windfall from tax reform. What proportion of the windfall would you expect to allocate to shareholders. And kind of on the related note, how does the decision to reinvest in the company in a way you described impact your 2020 margin plans, if at all?

Good morning, Craig. And I'll probably have Bryan go into a few more of the details around the employee distribution and its percentage potentially of the tax reform benefit. I would say that we're not necessarily looking at the tax reform savings is something that will be certainly a headwind to meeting our 2020 objectives. Certainly all this continues to unfold and as you know it's not the only development that's happening in the economic market as well, where certainly some of the things I referenced earlier around steel and aluminum and other potential pressures there. So, we believe this is just another factor in striving towards the 2020 growth that we laid out, and if you’re referencing specifically the 10% plus operating income goal that we announced last November at our Investor Day, we certainly or not hedging away from that. And as we intentionally use the plus in that phrase, we’ll do everything we can to meet that and certainly exceeded. But Bryan, you want to speak to some of the…

Yes, Craig, as it relates for the impacted 2020 margins, those will be discretionary decisions that we would make the appropriate time in the future. I would say at this stage, the impact to our OI margin would be inconsequential.

I guess the question is should shareholders read anything into the fact that they were not mentioned among the groups that are going to benefit from the tax winfall?

No, you should not read anything into that. There will certainly the portion of the benefit that will flow to shareholders.

Great, thank you.

That was meant to be implied.

Our next question comes from the line of Seth Woolf of Northcoast Research. Your line is now open.

Just couple of quick ones from me. First one, just, thank you Mike for the color on the production cadence inventory, I think that’s really helpful information. I guess, it seems a little bit more of cautious tone. Have you seen anything with retail perhaps, you're referenced the snow storms coming. Have you seen anything to maybe cause a little bit later start to the season?

Good morning, Seth. I would say, certainly anytime for Northeasterns hit the Northeast part of the country that may have an impact on that particular part of the country. I talk to a few RV dealers in that area of the country whose lots are becoming a little bit more difficult maneuver around and certainly as they take in some inventory from OEM to start the season with the way that snow is piling up, they're trying to figure out how to manage that. But that’s more pragmatic and logistical for the dealers. There has been a few retail shows across the country where whether has not been favorable. The good news is that as I mentioned in my comments, we are seen very strong RV retail show traffic. That is generally consistent across the country. Now there are times where whether potentially place and impact on the actual sales that haven’t at those retail shale. But I would say, when you look at our own results, I mean, we’re, and I certainly want share much about what we’re seen here in March at the start of third quarter. But we have been please with Winnebago industries results on both Grand Design and Winnebago through the first two months of the calendar year January and February on the retail side. So I think we’re all rooting in the North part of the country for the sun to come out and this notice out in certain places. But we’re not seen anything that would mean that the customers are going away permanently. If they don’t buy at the levels that they might about last March, we believe the demand still there for April or May or June.

Okay. Thank you. Yes, hopefully, spring arise soon. Okay, then just a real quick question with respect to Grand Design. So I guess there's two parts to it. Number one, if we look at the backlog is a little bit of a deceleration, but does that include the Transcend product? Because we've heard really favorable base for the dealers, and I'm just curious as some of the Transcend product would be included in the backlog you reported this morning? And secondly, there is some consolidation in this space. And I think generally speaking some the consolidators don't carry Grand Design. Any -- could you just kind a give us the reminder of what happens when you have a Grand Design dealers that's acquired? And maybe the parent company doesn't generally do business with Grand Design. How does that shape out another opportunities for you to move to another point of distribution in the market if need to be?

Sure, I'll address your first question. Obviously, first that'd be around the backlog for Grand Design. We're very comfortable and pleased with the backlog for Grand Design. And as we've referenced in our comments, this business continues to grow at a very material pace. They've introduced new products really in each of the last two or three years that have really hit the mark and the industry. And all of those products as they're introduced have a little bit of different cadence to them in terms of order generation certainly shipment pace and then the retail impact on the business. And so your question I think was specific to the Transcend. We are taking orders for the Transcend and have been since we showed the product in Louisville in November of 2017. However, we are working with the dealers to make sure that the orders that they give us on the Transcend are reasonable and what we can fill over the course of the coming months. The Transcend has been built on a new line in one of the new production facilities on the Grand Design Campus. That production really began in earnest in early January and is continuing to ramp up to material production rates as we speak. And so, if you were to survey many of the Grand Design dealers, they would tell you that they're not really -- they really haven't been able to get as many Transcends yet as they would have liked. Because the customers are learning about it and they are asking the dealers and certainly they are acting in terms of retail, on the units that they do on have on their lot. So we continue -- we will see Transcend contribute more to the backlog in the future and contribute obviously more to the shipment and retail results as well. The other thing that perhaps I wasn't overly emphatic about in my comments, were Grand Design has got to know to such a great start in its company's history. That is back order position really outpace significantly its capacity or manufacturing capabilities. And as you guys well know, there is a point where too much of a good thing can hurt you a bit. And that backlog for Grand Design was certainly elevated because of strong demand new products pipeline fill, but we have been struggling to obviously react to that was strong in our production rates. We believe that this addition and if you remember a couple of quarters ago, we've referenced 40% more square footage been added to the Grand Design Campus overtime. We believe that those manufacturing additions will certainly allow us to work the backlog down, while we continue to add orders to the backlog in the future. So, it's a bit hard on Grand Design to do apples-to-apples on backlog still and that will probably normalize itself over the coming years.

And what about the consolidation? And if you have a dealer that taken out…

Thank you for the reminder. Our process for Grand Design, very candidly, is very similar to what we do with the other two businesses as well. Whenever a dealer in the marketplace is acquired or has a new owner that present itself, we look at that situation on a one-by-one basis and determine whether that new ownership group is aligned with what we want to build in the market. Now, there are certain states in markets, which have specific franchise laws or some regulations, which make that process a little bit different in some areas and it is and others. But for Grand Design, we are very pleased with the dealer based we have and as potential dealers that carry Grand Design are consolidated, we reviewed those on a case-by-case basis and determine whether the new company that acquired that dealer is somebody that we feel is a good fit for the Grand Design business model going forward. And there are many great independent dealers in the RV business that would love Grand Design that do not have it. And they are certainly folks that we'll look at in the future, if they acquired one of our dealers. But again case-by-case decision as that happens.

Our next question comes from the line of Steve O'Hara with Sidoti. Your line is now open. Steve O'Hara: So I mean, I guess in terms of the Grand Design, I mean it looks like your production has kind of been short of your backlog for some time. So I assume with the production to increase is coming at Grand Design and potentially the wholly-owned total business. You could have potential to produce more than you currently have in the backlog at the end of the quarter. Does that make sense?

Well, certainly, our production capabilities are increasing on the Grand Design campus. And as long as we have obviously a healthy backlog and the market conditions remain stable and hopefully growing, we’ll continue to utilize more and more of the new capacity that we bring online. So I don’t want to get in this specifics about, how much we can make and 1 percentage of the backlog. The backlog is literally sort of first in for first out list. Dealers have place orders with obviously the intention of receiving those. And the Grand Design team is feverishly working to fill those orders as quickly as they can with high quality product. And so, there is a pace to our manufacturing process that we try to stay with them to make sure that our employees work and stay productive environment. But, yes, our capacity is increasing in that business, and so long again as market conditions and our backlog warranted, we hope to continue increasing manufacturing output to meet that demand. Steve O'Hara: Okay. And then did you say with the growth was for Grand Design year-over-year in terms of revenue?

We’re not calling out Grand Design specifically anymore, but the Towable segment was 55%. Steve O'Hara: Okay. In terms of, I mean can you maybe talk about in terms of the Winnebago Towables? I would assume the growth rate would have been higher there just due to the -- due to fact that it’s up below number. Does this make sense?

Yes. It’s much smaller pieces in Towable segment than Grand Design is, but both businesses combined together contributing very nicely to the growth rate. Stephen O'Hara: Okay, okay. And then lastly, just on the, I mean obviously EBITDA, adjusted EBITDA for motorhomes down again. I think that was expected based on the comps last quarter. Could you just talk about longer term, certainly not this year, but maybe what your goal is for that business? Could you navigate back to the levels than it was in the past? You still feel confident that you're maybe at the right track. I know sometimes you could take step forward two steps back. And it's not a straight path I guess just what you said. But if you do still feel confident that you can return that business to maybe prior margins or what type of margins or the goal on an EBITDA basis?

Yes. So Steve, that's a, that certainly a focus as I believe you can tell from our comments this morning and in previous quarters. I hate to be overly simplistic but we'll break the Motorized turnaround into two pieces. One, facing the market and we're becoming more competitive in the marketplace with products that dealers and end customers like. And can dealers make appropriate margin on the Winnebago branded motorhomes that we're offering. We are making good progress facing the market on the Motorized business. Our product line is turning over effectively. We're getting more efficient and introducing new products to the market. Those products are more regularly being viewed as good products. We believe we can do even better in the future with the sort of the feature combination and certainly the design elements both interior and exterior. But facing the market, we believe we're starting to see some traction. And we don’t want to get ahead of ourselves, but we're working hard to rebuild the dealers' confidence. And while we can do, but also ultimately then earn the right to get the end customers' business. The second half of the Motorized turnaround is certainly as you mentioned the profitability of the business. And that has been something which for me now, having been at the company 26 months has proven to be a little bit more of a headwind than I would have expected and certainly would have liked. Now some of those are very intentional investments in order to upgrade and revamp our manufacturing facilities and our capacity on the Motorized side. And some of those are intentional in terms of defending what is been eroding market share. We've introduced products in the Class A gas and Class C now here with our early third quarter unveiling of the new products which are meant to attack that portion of the market that weren't previously competitive in. But the team is intently working on driving the cost structure of the overall business including materials and labor into a stronger position. And your question about what is the margin potential of the business? We have been very clear, that we have expectations for overtime, low to mid-double digit margin, gross margin potential in this business. And that progress has been slower than we would have liked. The gap between first quarter profitability Q1 '18 versus Q1 '17, that gap is wider than what it is now between Q2 '18 versus Q2, '17 meaning we narrowed the gap a little bit year-over-year and we will look to potentially increase the gross margin hopefully consistently in future quarters. So lots of hard work being put into that and we recognized that has to happen to have all three flywheels of our business model spinning.

Our next question comes from the line of Scott Stember of CL King. Your line is now open.

Just looking at the growth in the Towable business, again was all organic this quarter. And just, I know this isn’t an exact science, but if you look at your growth in generally speaking Grand Designs growth at retail, which is been at that mid-50% range. So it’s pretty much assumes, I know, there is been some build up of product, but obviously that you have some really good pull-through on the other side of that. With that said having into the back half of the year, where things stand right now with your backlog and just where your dealer inventories are, do you believe, you’re still in that position to mostly and have that near what we’re seeing at retail versus wholesale?

As I mentioned late in the prepared comments, our turns on the Grand Design business in the field are steady, which means that as things are be in retailed inventory has been replenished and the aging inventory at Grand Design is, very honestly, in wonderful shape. It’s the best of our three businesses, and not presenting any headwinds really to us at all on that particular brand. So we continue to be optimistic about Grand Design growth prospects in the future. The lot number starts to kick in a little bit as that business begins to get a little bit or a lot bigger in terms of the percentage comps that you can put on larger numbers. But again, we’re very early on as an example in the Transcend, in our entrance into the introductory Travel Trailer segment or as the industry insiders will call it Stick-and-Tin. And so, we have really barely any share at all in the Stick-and-Tin segment and Grand Designs now our first entree into that segment. And so in addition to the other products underlying, and some of the additions and wrinkles they’ve been adding there. We continue to be optimistic start about what they can do and as long as the turns stay in good shape, that’s for us a good sign. And I know people look at backlog and they look at inventory, we look at turns very intently in terms of whether they’re increasing or decreasing or staying stable and for our business like Grand Design, it’s continue to grow tremendously. We’re pleased with we’re, how they’re managing their business and their performance in the market.

So basically, echoing the comments in the press release and what you said you’re comfortable with your Grand Design inventory right now, where it stands?

We are comfortable with our Grand Design inventory. We are taking dealer lot share, we’re introducing new products. The aging percentage of that inventory is very low and more and more dealers are shifting more business to Grand Design. And so, again, Grand Design is has mid-single-digit share of the Towable segment. And so there is a lot of runway there, which means the raw inventory numbers gross wise, should grow overtime as we take share. So long as the turns stay steady or increase. And again, we watch hope those to make sure that inventory is healthy.

And just going back to the backlog and year-over-year basis, again, you said the last year, it sounds you’re taking full orders for couple of new products to this year. I guess, you're taking orders but not really as much as you probably could have, because you don't want to just have units that you can't deliver, if you have the production capability for it. So, the other way, good way to look at the backlog could have been a lot higher, if you really -- if you were to fulfill all of the Transcend orders that are out there?

Yes, I would just say that the Grand Design team has very much been managing the conversations with the dealers about the Transcend and the production output capabilities. And I think dealers are placing orders that are in accordance with what they believe the production output is? And so as production increases on the Transcend and knock on what the product continues to retail as it has been early on at strong level. We believe we'll continue to see the orders backlog increase on Transcend. It's materially today, but again it's a -- it's still very early. And probably a year ago, we were probably putting our foot on the pedal a little bit more with the Imagine. And I think the reflection of product that had been -- those two had been sort of recently introduced in the year prior. So timing is obviously a little bit different in terms of the Transcend introduction, but again we're not seen any concerning signs in terms of market acceptance of the Transcend as compared against the other products Grand Design has introduced in its lifetime.

And just going to the outlook on the Class C side, you've talked about how earlier this month. So when you revealed that it's sounds like it's been well received and maybe just talk about I mean this was not been your Motorized backlog of course at the end of February, correct?

No, we unveiled that as the National Dealer Meeting in early March in San Diego. We also unveiled and I did not mention this in my comments say new Travato product with the lithium battery pack, which also was received very favorably by our dealers. And we took orders on both of those products in addition to some other products that we showed. But those were kind of the two primary new motorized offerings. And so the orders we took on both the Class C outlook and the Travato and that we're continuing to take would not have shown up in our end our Q2 backlog. So that narrative and conversation with the dealers is really just be getting on both of those products.

Got it. And just one quick last one, I know its way early to talk about tariffs, but maybe just give us your initial take on that, on how you would handle that whether it will be for price increases? And maybe if you just talk about, I don't know if you have this figure handy but steel and aluminum, how material of a piece of your cost-to-good sold? And that's all for me. Thanks again.

Yes, Scott, this is Bryan. The impact of the tariffs and how that will flow through into the domestic marketplace here is still big unknown. Okay, so, we have gone through a process of analyzing our direct purchases which are entirely domestic, a direct purchases of steel and aluminum that is which are domestic. Our component parts we likewise have analyzed what percentage of our cost-to-goods are exposed through the component parts. And so we've done all the work now it remains to be seen with the market settles on steel and aluminum here. And I think it's a little bit early to tell. And of course, our initial analysis assumed that administration would stick to the no exemption policy. And that is clearly loosening now with Canada and I think Europe now also receiving exemption. So a lot remains to play out yet in the marketplace. How we would handle it we would certainly first work with our vendors to understand how we could offset any potential increases from the marketplace through costs reduction initiatives that we will jointly pursue. And then we would also pursue any pricing necessary to offset inflationary pressures from aluminum and steel in the marketplace. So that’s how we are approaching it, but it’s still early it seems in terms of seeing how this will play out in the market.

Our next question comes from the line of Mike Baudendistel of Stifel. Your line is now open.

Just wanted to ask you about the Winnebago-branded Towable expansion projects and some of the other projects to expand the manufacturing capacity, I mean, could you frame that for us in terms of how much your increasing the capacity for unit output? Or is there potential revenue?

Yes. So Mike good morning and thanks for the question. This is Mike. We’re not sharing specific units or even revenue potential impact from the capacity expansion plans. But we reference with Grand Design, when we maybe announcement several quarters ago that we were adding above 40% manufacturing space to the Grand Design business. Now not all of that was relative to assembly, there were some increase lamination capacity that was added and some other room that’s needed for material storage and the like. Winnebago Towables expansion was approved by our Board, couple of quarters ago. We made that announcement then, we’ve been working with certainly our construction firm partners and with state local officials to be prepared to kick-off that project. The land that we intend to look at for that expansion has been recently closed on and we’re nearing the point where we’ll be breaking ground and/or at a minimum preparing site for that project in the future. And so, if you were to go to the one of the Winnebago Towables campus today, it’s a relatively small campus versus in size in the industry. And it literally has two buildings they’re manufacturing product in it. We will begin the expansion project by adding a third building. And so the map isn’t probably exactly from two to three buildings in terms of our output, but it gives you some relative idea of, the proportion of an increase that is happening there, and we have the capability with the land or we’ve acquired to add even more buildings on that side it will need to. So that business Winnebago Towables is growing albeit at smaller volumes, it’s growing at a very similar rate to the Grand Design business. Its smaller, it has a more compact product line, very much focus on sort of a different product concept in many ways. But we very much focused, equally as focused on growing our Winnebago Towables business as we are Grand Design, and we have a lot of work to do in the product line out there. We’re very light on ship wheels as an example, very light on toy haulers. We’ve not entered the Stick-and-Tin segment with the Winnebago branded and Towables. And so the manufacturing space that will be adding allows us to not only grow the current product line, but potentially consider expansion into these other segments.

Also I just want to ask you as a follow-up on the input cost. I mean it sounds like from your comments that the main sort of pricing actions to pass those input costs on, so the dealers would comment this fall when the new model years rollout. And am I interpreting that comment right? And are there opportunities in the interim to capture to fit pass those cost on sooner than that?

So, there is a difference between model year and fiscal year. The model year change is in the RV industry actually tends to happen kind of more in the early spring part of the business cycle. And so when I say model year changes, we're actually right in the midst of some model year changes from 2018 to 2019 across our businesses. And we have tend at the time many of our price increases to model year changes. And so some price changes were embedded in performance year-to-date, but there are more price adjustments to come as the three businesses introduced 2019 model year. And we do not use a straight line pricing strategy across the board. We price the market each business unit leader is got the autonomy and the empowerment price the products to the market. But certainly respectful of some of the price pressures or cost pressures that they're seen on the commodity or on the supplier side, and the other comment I'll just make is that our three businesses have varying degrees of effectiveness that driving cost out. And as I mentioned, our Motorized business can do a lot better job in the future in driving costs out of the products to help offset some of the potential inflationary pressure that we may see in the future. And that's just part of the learning curve year and journey that we're on is to have a list of productivity improvements and cost out improvements without impacting quality that allow us to offset. But we do a lot better job of that in our Towables' businesses today. And that's impart by why you're seen the Towables business continue to demonstrate really good profitability.

I'm just sneak one last one. I know you can get some good detail on your thoughts on your inventories. Do you have any thoughts on overall industry inventory levels? Is there been any stuff in the channels by competitors in order to capture share of the dealer lots and anything like that?

Our visibility to industry inventory levels comes from a variety of sources. Some of the inventory financing partners have better inside into that. Sometimes even some of the bigger suppliers can give us some insight into that. And very candidly sometimes we read the analyst reports to get some of that insight a little bit as well. I would tell you that again we are at just at number three in terms of size of this industry. And so as you're hearing us say today, we're actually comfortable with the inventory positions in the field on our three businesses. And so, if there is any pressure in the field on inventory levels it's not coming from Winnebago Industries in the eyes of the dealers. And so do we watch other lines on the lots that we have visibility to with the dealers that we work with sure. And certainly my comments and my prepared remarks about OEM manufacturing pace are in some ways related to your question. And then I think as an industry we just with all this capacity coming online all of us just need to be continually mindful that no matter what the growth pace is. So, it's similar to the past several years or in fact if it does slowdown, we just need to very mindful that we've got a manufactured to what the market doing, and so that's -- we're having that conversation very much and our company, let’s not get ahead of the market. Let’s run the business smartly. Let’s optimizer everything we can. But we’re not going to driver turns out in order to take retail share, that’s not our strategy.

Our next question comes from the line of Mike Swartz of SunTrust. Your line is now open.

Just questions on the Motorized side. From a profitability standpoint, you said margins were down I guess over 300 basis points year-over-year, right around that. Can you give us a sense of how much of that is going to be mix versus input costs versus some of the investments you’re making and some of the ramp up costs? I know I think last quarter, you said about 50% year-over-year decline in these investments. So could give us a sense of maybe what that look like in the second quarter?

Yes. I can give you. This is Bryan, Michael. Good morning. I don’t think we'll provide a specific breakdown of in percentage point terms. I’ll tell, in terms of how I would rank that and the impact they’ve had. I would say starts with investments to increase capacity, the on-boarding of the West Coast facility, the change over the lines in Forest City that Mike alluded to. I think the material pressures, I would characterize a second and I would characterize the business mix as third.

Okay. And then just to help, I just understand a little better. On the investment and capacity in the line changeover, I guess thought that you talked about it. When should we start to see that impact ease?

When start to see it ease? Is that what you said?

Yes.

Yes, we’re not committing to specific timeframe Michael. As Mike alluded to, this is a longer term transformational journey that we’re working towards. We believe that we’re doing all the right things during Q2. I would say that’s in 2Q as well. And so we’re not making a long-term commitment or a near-term commitment to it, what we are committing to is that in the long-term we believe, we’re doing all the right things to turn this business around and at the transformation journey that we’re on is the right path.

And then second on Motorized, I think you said going the quarters you had through challenges from a sourcing perspective, some of the new product chain you introduced in the fall off ’17. Could you give us a sense of maybe when some of those model mix or some of the sourcing issues actually clear out?

Yes, this is Mike. I’ll speak to that a little bit. I will give you an example and that’s probably a sort of follow first world problem. We introduced there Revel has been just home run within customers in the market. It is our Class B 4-by-4 sort of off road RV. And it is just hit, just a huge vane in the sense of excitement around, especially younger RV customers and explorers and outdoor enthusiasts about this product. In fact, it actually, it’s the market turns of where customers used to by their own Class B van and outfit themselves and now the Revel is essentially what they were trying to build themselves and their own garage. That product when we introduce that open house in fall of 2017, just tremendously generated excitement across dealers and within customers. We’ve seen millions of questions and hits on social media and subsequently the demand from the dealer base has exceeded some of our initial forecast. And we're working with our suppliers on the Ravel to try to keep up. And so that's an example where component availability is generated from stronger demand than we had anticipated. At the same time we have a few products in which, some of our suppliers and the times working with Winnebago, where we've falling down together. And it's inhibited a few of the products from getting in a timely manner we'd like. So it's not epidemic, it's really sort of spot-by-spot. But I just point to it in the sense that it is just something that we continue to battle in the Motorized business. And as we mature and get better, our forecast will get more accurate, and we'll have better relationships even with most of our suppliers and more timely delivery.

Thank you. Our next question comes from the line of David Whiston of Morningstar. Your line is now open.

Just two questions for me. First is on summer shopping behavior. Have you ever seen any data on customers who perhaps were in the market for an RV and ended up not buying an RV or ended up not buying Winnebago product either way? What did they end up doing? Did they end up either buying a different RV, not buying an RV at all or perhaps buying say an off-road light vehicle like the jeep or pickup truck?

I would say we have more visibility into RV customers that start their search with Winnebago and then buy something else. In fact the term we use here is closed rates for that. And the fact that that was just looking at some data over the week and published by actually in RVDA publication about when Winnebago being the most search for brand in Class A and Class C motorhomes. We literally are the most searched for online brand in Class A and Class C motorhomes. Lastly check, we did not have market leading share in either of those segments, which means our close rate is not as strong as we would like it to be. So we then dive into obviously those dealerships that do have Winnebago and what's our share in those dealerships compared to their other lines? And we do, do some analysis around that. It is much harder to track the customer that leaves the shopping process and goes and buys something else in the consumer discretionary market. It could it be an automobile, it could be a boat, it could be an ATV, anything else that they might want to experience in the outdoors. And so that is harder. We believe RVs have been competing very effectively for consumer discretionary dollars over the past several years. If you look at the average selling price of RVs compared to that subsequently of the marine market, the RV industry has been very stable. And in fact I think then able to compete very effectively if the customer has a choice there. So, but no, we don't necessarily track customers who leave the RV sales process in its entirety.

And then Mike you also said you're personally not very patient on the pace of return effort and what's frustrating you the most right now?

Well, I worry David about the things we can control and the things we can't. And so we're as I said before, and at the end of my comments, we're here to build a high-performance ownership culture certainly one that cares for our employees so that they care for our customers. The majority of my frustration as a leader is around the things that we can control and that we can do better. And listen the effort in the motorized business is superlative. We think we have very good leaders in different roles. But we continue to be inefficient in cases of removing constraints or barriers in the business or creating in a few of our own headwinds. And so that’s probably where, I tell you that the pace is a little bit frustrated. But yes, we’re really turning a 60-year culture and trying to do it in a way, which is respectful. But also ultimately convinces our team that we’re going to build something that all want to be a part of and all can’t be a part of. And I would say even the tax reform distribution announcement this morning to our employees signal that were committed to the culture both in terms of the cash benefit, but also making each of our employees even larger owners with today’s announcement as well. But thanks for the question, yes. We’re working on it.

Our next question comes from the line of Greg Badishkanian of Citi. Your line is now open.

Fred Wightman on for Greg. I think in the prepared remarks, you highlighted that you were working down sales support levels in the channel. Can you just talk about where those are today versus peers in the industry and sort of where you think that needs to go in the future?

Thanks for the question. It’s an important topic and I think in terms of the health of our business, we used the term sales allowance to signify at times, the sales support you need to support a product moving through the pipeline. First and do a dealer lot and on occasion into customers hands. And this industry not unlike other durable goods industries at times has some habits, where OEM incentivize dealers certainly to take product in times and which inventory needs to be move. And I would argue that the healthier or Motorized business becomes in the more pull we have within customers and the more profitability that our dealers make with our Winnebago brand motorhomes, the less will need to offer potential discounts in order to compete for a space on their lots. The good news is six months year-to-date in the Motorized business as a percentage of sales, we’re supporting the sales line, with less sales allowance dollars, which means that the product is getting better dealers or actually ordering it genuinely. As you can see in the backlog increase of 42% and it something that we just want to continue to have a healthy balance in the way that we support dealers with moving product? But we’re not looking to. We’re not -- we are looking to mitigate the temptation to incentivize dealers to take product that they don’t always potentially ask for at that particular time. And we’re making some progress on that, but it will become, because the product itself is better and more demanded by the end customer and the dealer and we’re starting to get that.

And then just an end consumer perspective, if you look at sort of the two big forces this year maybe some benefit some tax bill offset by rising interest rates. If we sort of talk about how are you think about there is two factors going forward for the rest of the fiscal year?

Well, certainly, we think there will be a positive from the tax reform legislation. And it is starting to slowly trickle end to the wallet of end customers through they’re weekly or twice a month pay checks. And at the same time, there will be more benefit I think from that as folks in the future receive those checks regulatory, they file the tax returns in the future. So we think that will be a positive certainly. In terms of the interest rates and I certainly understand there maybe some news yet today, we don't believe that that the interest rate ascension that could happen here in the next year while tremendously lower RV demand because we believe interest rates are still historically affordable and that the monthly payments that sometimes are offered by the financing companies on sound financing deals combined with those interest rates are still very much affordable. So while we believe that it's when we prefer to see interest rates go up probably not for our business but we're not anticipating that what we're hearing could happen is going to have a significant negative effect. We believe that there are enough other secular tailwinds. And again as I mentioned, traffic at RV Retail Shows has mostly been very good across the country. And so we believe people are still very interested in the lifestyle.

Thank you. Our next question is from the line of Steph O'Hara with Sidoti. Your line is now open. Stephen O'Hara: Yes, I guess sorry for the follow-up late call. But can you just remind your CapEx to be in the 2018 and fiscal '19 just directional maybe?

Yes Steph, CapEx we're expecting right around $35 million and 2019 would come down off of that following the big capacity expansions in both brand design and the initial steps we're taking in the Winnebago brand Towables business. And then we also have the ERP that should be ramping down in 2019 from 2018.

Thank you and I'm showing no further questions at this time, I would like to turn the conference back over to Mr. Stuber for closing remarks.

Great, thanks everyone for joining our call today. We certainly appreciate your time and look forward to speaking with many of you throughout the quarter. Thank you and have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may now disconnect. Everyone have a great day.