Good day, and thank you for standing by. Welcome to the Fiscal 2023 Second Quarter Winnebago Industries Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Ray Posadas, Vice President of Investor Relations and Market Intelligence. You may begin.

Good morning, everyone, and thank you for joining us today to discuss our fiscal 2023 second quarter earnings results. I am joined on the call today by Michael Happe, President and Chief Executive Officer; and Bryan Hughes, Senior 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. The news release with our second quarter 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, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?

Thanks, Ray. Good morning. We appreciate your interest in Winnebago Industries and taking the time to discuss our fiscal 2023 second quarter earnings results. I will provide an overview of our performance during the quarter and then pass the call to Bryan Hughes to cover our financial results in more detail. I will return and offer some closing thoughts before we turn to your questions. Winnebago Industries' second quarter results continue to demonstrate the resilience of our unique business model in the face of macroeconomic uncertainty and a dynamic outdoor industry environment. We have been focused for some time on a cultural, strategic and financial transformation of the business, with the ultimate objective of building one of the world's leading and most trusted premium branded outdoor recreation companies. A more balanced and diversified organization that can hopefully navigate short-term volatility better than most of its peers and simultaneously continue to invest smartly in the drivers and engines of a more prosperous future, taking great care of its employees, customers and ultimately, investors. And while we have much work to do to realize our grander vision and potential, this quarter is a good example of being able to produce solid financial results in the face of adversity. As evidence of the benefits of a more diversified outdoor portfolio, another strong performance in our Marine segment in the second quarter helped to offset a continued softening in consumer demand for recreational vehicles versus the recent cyclical highs. And despite a continuation of many of the same macro dynamics we experienced in the first quarter, including general pressure from moderate inflation, higher interest rates and supply chain inconsistencies, as well as challenging comparisons to the year ago period of tremendous growth, continuous efforts to improve the efficiency of our operations, reinforced by our commitment to disciplined production and cost management allowed us to sustain competitive double-digit margins across our towable motorhome and marine segments. Though we must continue to anticipate and actively manage these trends throughout the rest of our fiscal year, I am immensely proud of how our Winnebago Industries team members have risen to the challenge and delivered strong results. Each of our premium brands is engaged daily on the difficult decisions necessary to balance market share and profitability, along with customer and employee relationships. Doing so well allows us to simultaneously invest in industry-leading innovation and the digital business capabilities needed to compete effectively in the future. The value of our growing and diverse portfolio of premium brands is evident in our second quarter performance and validates that we are a stronger organization in 2023 than we were in 2019. Ultimately, in the second quarter, Winnebago Industries achieved $866.7 million in net revenues, consolidated gross margin of 16.9% and adjusted earnings per diluted share of $1.88. While down compared to historic record levels last year, these outcomes remain solidly above pre-pandemic results and exceeded external market expectations, once again reflecting the strong underlying agility of our operations and appeal of our products. Our second quarter results were driven by a few key factors. First, the strength of our innovative premium product portfolio, which continues to resonate with an increasingly diverse population of outdoor lifestyle consumers. We have strong conviction in the ongoing appeal of our premium RV brands, which have maintained net stable market share even as overall RV market demand has softened. And on the Marine side, the Barletta brand of Aluminum Pontoons has achieved extraordinary market share growth, making the Marine segment our fastest-growing category with consumers currently. The complementary and steady demand for the iconic Chris-Craft brand in the fiberglass boat category also contributed to the growth of Marine in the quarter. We are extremely proud of the suite of premium products we have in the market today, but we are not content to stand still, continuously investing to develop industry-leading innovation remains a core pillar of our strategy. On the Marine side, the recent launch of the Chris-Craft Calypso 32 at the Miami International Boat Show in February is just the latest example. The CALYPSO 32 is the first Chris-Craft to be fully connected to the owner through the MyChris-Craft app, enabling real-time monitoring of GPS, engine, battery and builds data as we continue to expand and enhance our consumers' customer digital experience. Barletta's recent launches of the new entry-level brand, Aria and its ultra-high-end offering Reserve are giving dealers more reasons to commit increased showroom space to this young, exciting pontoon brand. On the RV side, Grand Design's Imagine AIM travel trailer was named RV Pros 2023 Best New Product of the Year and its MAV extension of the popular momentum Toy Hauler line offers increased affordability to customers when they need it most. Our Winnebago brand continues to expand floor plans of its mini travel trailer product, add new paint options to the iconic Revel Class B 4x4 line and launch a proprietary partnership with Adventure Wagon on a Mercedes Class B chassis, giving the #Vanlife consumer a modular interior platform for the ultimate flexibility and functionality. The Newmar New Aire luxury diesel line adds a fourth floorplan offering and now come standard with a lithium-ion house battery system. Furthermore, the recent unveiling of the second-generation prototype Winnebago brand, eRV2, an all-electric zero emission RV and Chris-Craft's first zero-emission all-electric concept boat, the Launch 25 GTe are the latest examples of electrification innovation we are developing across our brands, ensuring Winnebago Industries remains a leading innovator in the growing outdoor lifestyle recreational industry when the emerging technology becomes accretive to the consumer experience. The next key factor contributing to our second quarter results is our continued commitment to operational excellence and maintaining our highly variable cost structure. Winnebago Industries is leveraging enterprise capabilities in strategic sourcing and across-the-board made-to-order production planning philosophy and strengthen consumer insights to shape our operations and enhance our ability to respond quickly and appropriately to evolving market conditions in ways that allow our business to sustain strong profitability through economic and industry cycles. We will continue to work closely with our dealer partners to maintain appropriate and balanced overall inventory levels and product mix in an increasingly dynamic demand environment. We also continue to watch very closely any aging channel inventory and work precisely with our dealers to address in a mutually beneficial manner. All of these efforts had a direct impact on our ability to produce competitive double-digit margins across all our segments in the second quarter. Lastly, we successfully navigated the resolution of the 2019 to 2022 model year Sprinter Chassis Recall by our supplier Mercedes-Benz as well as other supplier component constraints or quality challenges, resulting in a lower-than-anticipated impact to motorized revenue during the second quarter. We are fortunate that our outstanding Winnebago Industries team is adept at navigating these challenges to mitigate the impact of supply inefficiency on our top and bottom line, although we are fine having less practice on that going forward. Though the frequency and severity of supply constraints are decreasing, global supply chains continue to be very dynamic, presenting ongoing risk and must be monitored closely. Looking ahead, we will continue to actively manage and navigate a dynamic demand environment with a focus on profitability through disciplined production and cost management, leveraging our highly variable cost structure and by working closely with our dealer partners. We will also continue to capitalize on our strong balance sheet and cash flow generation to make strategic investments in our business and our future, reinforcing our golden threads of quality, innovation and service and ensuring our increasingly diverse portfolio of premium brands continues to resonate with consumers. Winnebago Industries remains well positioned to further strengthen our enterprise capabilities, capitalize on growth opportunities through the cycle and achieve our long-term value creation goals. With that summary, I will now turn the call over to our Chief Financial Officer, Bryan Hughes, to review our fiscal 2023 second quarter financial results in more detail. Bryan?

Thanks, Mike, and good morning, everyone. Second quarter revenues were $866.7 million, reflecting a decrease of approximately 26% compared to $1.2 billion in the second quarter of fiscal 2022. As Mike mentioned, these results are lapping record-high pandemic-driven demand from the prior year. The expected decline in unit sales was partially offset by carryover price increases across all segments. Our efforts to diversify our portfolio of premium brands across multiple segments in the outdoor recreation space proved beneficial this quarter, as evidenced by the variability of the growth versus prior year in each segment. Marine sales increased 16% in the quarter. Motorhome sales were down just 3% and towable sales with portfolio-leading sales results the past 2 years was down 47% on the tougher comps. The mix of our businesses, therefore, produced a meaningfully improved consolidated sales result relative to the RV industry. While the mix of our business was beneficial, our teams demonstrated disciplined execution within each segment as towable, motorhome and marine all drove double-digit EBITDA margins in the second quarter. Gross profit for the quarter decreased 32.2% to $146.8 million from $216.6 million during the second quarter of 2022. Gross profit margin of 16.9% was 170 basis points lower than last year. These declines were driven by lower volumes, higher material and input costs, deleverage and productivity loss from supply disruptions, but were partially offset by carryover price increases that were implemented last year. Operating income was $76.8 million for the quarter, a decrease of 43.9% compared to $136.8 million for the second quarter of last year. Second quarter net income was $52.8 million, 42.1% lower than the $91.2 million recorded in the prior year period. Reported earnings per diluted share was $1.52 compared to reported earnings per diluted share of $2.69 in the same period last year. Adjusted earnings per diluted share decreased 40.1% year-over-year from $3.14 to $1.88. Consolidated adjusted EBITDA was $88.4 million for the quarter, a decrease of 41.3% from $150.7 million in the prior year quarter. As a reminder, we adopted a new accounting standard in the first quarter of fiscal 2023, which impacted the accounting treatment for our convertible notes and the calculation of earnings per diluted share. Specifically, the impact of the adoption is a reduction in interest expense on the face of the income statement and an increase to the number of diluted shares outstanding in the earnings per share calculation. Our adjustment following adoption of this new accounting pronouncement results in adjusted EPS to be on an equivalent basis with how we have been doing the adjustment previously such that we recognize the economic benefit of the call spread overlay that we implemented when we issued the convertible note. I'll now go over our performance by segment, starting with our Towable segment. Revenues for the Towable segment were $342.5 million for the second quarter, down 47% compared to the prior year. This was primarily driven by declines in unit volumes as a result of the normalization of consumer demand as well as the impact of our adjusted production schedules due to normalized dealer inventories. To put our second quarter performance into context, revenues for the Towable segment are up 36.6% compared to the second quarter of fiscal 2019 and up 20.8% compared to the second quarter of 2020 prior to the outstanding demand catalyzed by the pandemic. We are confident the long-tail impact of our record growth period will continue to propel Winnebago Industries for years to come even as the environment normalizes and sets up tough year-over-year comparisons. Segment adjusted EBITDA was $39.3 million, down 60.9% from the prior year period, primarily as a result of deleverage and higher discounts and allowances compared to the prior year when demand was elevated. Adjusted EBITDA margin was 11.5%, down 410 basis points year-over-year, but up 100 points sequentially. Backlog decreased to $278.2 million, down 85.1% from the prior year when dealers were focused on increasing their inventories. Turning to our Motorhome segment. We delivered second quarter revenues of $403.8 million, down approximately 3% from the $417.6 million recorded during the prior year period. This slight decline was the result of unit volume decline, partially offset by carryover price increases and favorable product mix. The Mercedes-Benz recall [ph] remedy was implemented earlier than we had anticipated, and the impact, therefore had a smaller impact to the second quarter than what we had anticipated and communicated at our prior earnings release. Rather than the $50 million impact we had expected, we now estimate slightly less than a $10 million impact to revenue. Working capital remains elevated in part due to the recall. Segment adjusted EBITDA was $42.5 million, representing a decrease of 7.8% from the prior year. Adjusted EBITDA margin was 10.5%, down 50 basis points from the second quarter of 2022 due to deleverage, productivity and supply chain challenges, partially offset by carryover price increases. Backlog for the Motorhome segment decreased 60.6% year-over-year to $872.7 million, driven by normalizing levels of dealer inventories. Dealer inventories of Motorhome are gradually returning to more appropriate levels, though pockets of replenishment opportunities remain. As always, we continue to work closely with our dealer partners to ensure they have the products they need at the appropriate time to meet consumer demand. Finally, let's turn to our Marine segment, which continued its strong performance in the second quarter. Revenues were $112.9 million, up 16.1% from the prior year as a result of carryover price increases. We remain encouraged by the continued and growing demand in the marine market for our brands, particularly Barletta, which continues to outperform the Aluminum Pontoon category and gain market share. Adjusted EBITDA for the Marine segment was $14.4 million, a 11.4% higher than the same period last year. And adjusted EBITDA margin was 12.8%, 50 basis points lower than last year. Our backlogs were down 14.1% compared to the second quarter of the prior year as we continue our work to replenish dealer inventories in the marine space. As always, we will continue to closely monitor demand trends in our marine markets and manage our production accordingly. Moving now to the balance sheet. As of the end of the quarter, Winnebago Industries had approximately $591 million in outstanding debt, representing a net debt-to-EBITDA ratio of approximately 0.7 times. Our healthy balance sheet continues to be a strength for us and continues to support our balanced capital allocation strategy. We made further progress in the strategic investments we are making in our business to drive growth and improve our operations. For example, the manufacturing capacity expansion, we are constructing for both our marine businesses are nearing completion, and we expect both to come online in the back half of the fiscal year. We remain committed to balancing these investments with returning capital to our shareholders as evidenced by the payment of our quarterly dividend for the quarter, which, as a reminder, was increased by 50% to $0.27 per share during the fourth quarter of fiscal 2022. Lastly, I know we are all watching with great interest, the stability of the banking industry following the collapse of Silicon Valley Bank and Signature Bank and others that have shown signs of vulnerability, including most recently Credit Suisse. Our own banking relationships are with institutions that are believed to be sound. We likewise have been monitoring the situation closely and to this point, are not aware of key suppliers or dealers that have been exposed to the bank failures nor are we hearing of situations that would impact the availability of credit at the wholesale or retail level. This remains a fluid situation, and we will continue to monitor the impact to key stakeholders as they evolve. With that, I will now turn the call back to Mike to provide some closing comments. Mike, back to you.

Thanks, Bryan. In anticipation of a robust Q&A session, I will be brief in our closing comments. Despite the current softening of consumer demand for RVs, we remain confident that our opportunities for growth and long-term value creation are robust, and our long-term targets for revenue, market share and profitability are appropriate and achievable. Engagement in the outdoors continues to be extremely healthy during 2023. Consumers, young and old, increasingly diverse and always adventurous are using their RVs and boats or in some cases, rental and/or friends RVs and boats to experience physical and emotional well-being outdoors. Our supplemental slides contain fresh updates on those participation trends. As many on this call are aware, the RV Industry Association recently lowered their expectations for calendar 2023 RV shipments to a mid-range of 334,000 units in response to a weakening macroeconomic environment, higher interest rates and an anticipated reduction in consumer discretionary spending. While we respect the impact these trends are having on the end market consumer, the outlook we have based on our business plans is a bit more optimistic. Based on what we are seeing in the market, hearing from our dealers and customers, we are currently expecting shipments for calendar 2023 to be in the 340,000 to 345,000 unit range, anticipating the dealer channel to destock about 30,000 to 35,000 units over the 12-month calendar period. Of course, there is no clear crystal ball that we nor any of our dealer or supplier friends have, and the ultimate numbers will still be determined by the yet-to-be-seen retail vitality of the spring and summer selling season and the plethora of elements that contribute to consumer confidence. Our investors can rest assured that we run multiple sensitivity scenarios into our operational and financial planning models and are prepared to navigate through anything worse or better. As we have previously stated, we are not counting on a dramatic rebound in RV shipments to achieve our previously announced fiscal 2025 financial targets. Our success toward achieving those goals is primarily predicated on the continued execution of our organic growth strategy, focused on delivering superior quality, innovation and service to drive market share expansion and operational excellence to further improve profitability. Our organic growth can and likely will be augmented with inorganic opportunities. We maintain ample financial flexibility to be opportunistic in expanding our platform, but only if we believe in the strategic imperative of those possible acquisitive additions. Looking ahead, we are confident that Winnebago Industries is well positioned to maintain and grow market share and further expand the baseline profitability of our business. Each of our fiscal quarters in 2023 or any other year has its own flavor and can be affected by short-term unanticipated challenges. I am more concerned about the consistency of the revenue line in the months ahead than I am with our ability to turn a solid profit yield. The former revenue is dependent mostly on the macro wholesale market available to us. While the latter profitability yield is more of a competency that we can impact directly. We have the right talent, a diversified portfolio of premium outdoor lifestyle brands, a commitment to innovation and operational excellence, all backed up by a strong financial discipline and a balanced capital allocation strategy. We remain resolute in building a premium outdoor lifestyle company that delivers value to customers and shareholders for the long term. That concludes our prepared remarks this morning. I will now turn the call back over to the operator who will open the line to your questions. Thanks again for your interest in Winnebago Industries.

Thank you. [Operator Instructions] Our first question comes from Alice Wycklendt with Baird. You may proceed.

Yes, thanks, gentlemen. Good morning and thanks for all the helpful context on the industry. Maybe I just want to touch on cash flow actually. You had modest cash flow from operations in the first half year and I know the recall has impacted working capital. How should we be thinking about that in the second half, though?

Good morning, Alice. Thanks for the question. This is Bryan. Yes, we continue to be challenged with working capital, in particular, inventory due to the recall, as well as other supply chain challenges that we have. That, of course, is further amplified by the continued decline in retail demand and pull-through. And so we end up having more finished goods on hand, of course, than what we have had historically. Going forward, the right way to think about it is, yes, we do expect some of that working capital to unwind as we catch up, so to speak, with the decline we're seeing in the end markets and would expect then that working capital would be a net contributor to cash flow versus a detractor as it's been for the past, what, year and half now or so. So that's how we're thinking about it.

Yes, thanks. That's helpful. And then just on the Marine segment, strong quarter there. We don't have a long history of the data from an inventory standpoint, but it did increase, what, 95% over 4,000 units. What's the right level of inventory there for the current environment? Do you have room to expand that still given your market share gains and growth? Or is there to – you see a drawdown?

Yes. Good morning, Alice. This is Mike. Primarily, your question pertains [Indiscernible]] brand. And before I get to the Barletta brand, I'll just acknowledge that the Chris-Craft brand continues to have low inventory in the field. So while that's our smallest marine business and really the smallest of our 5 branded businesses overall, from a Chris-Craft standpoint, we continue to have an opportunity to put more inventory into the dealer channel in a healthy manner. From a Barletta standpoint, we have to recognize that they are a business in transition, a very healthy positive transition. And while inventory is certainly elevated than historical gross unit numbers, this is a brand that has went from roughly 0% market share 5 years ago to approaching about 7.5% share in the Aluminum Pontoon market. They also just have recently introduced 2 new brands to their product lineup. So they went from 3 brands to 5 brands, and you are seeing some pipeline fill from especially the introduction of a brand called the Aria, which is a more entry-level pontoon brand that allows us to go from competing in about 40% of the Aluminum Pontoon market to competing in about 70% of the Aluminum Pontoon market. The last factor I'll mention for Barletta, and we don't talk about this much, primarily because of recent supply chain constraints, is that we probably have somewhere in the neighborhood of 2 to 3 dozen open markets still in the United States. Where we believe there can be a Barletta pontoon dealer to go after retail business. And so you will likely probably see the inventory levels on the marine side remain elevated historically, but most of that, we believe, is appropriate because of the Barletta transition. Now we are carefully watching the Aluminum Pontoon category. That has certainly slowed down here in recent months, and we will manage production rate and any expansion of these new brands or into new markets at an appropriate and disciplined level.

Great. That's helpful context. That's all from me. Thanks, guys.

Thanks, Alice.

Thank you. Our next question comes from William Stanninger [ph] with BMO Capital Markets. You may proceed.

Hey, good morning. You guys called out Mercedes-Benz recall had a $10 million headwind to sales in 2Q. How much of a tailwind in 3 and 4Q do you guys expect? Thanks.

Yes. It's hard to predict if there's a catch-up in the forward view. We're not counting on it, to be clear. And there might be some, but we're not counting on that.

Okay. And then what percent of dealer inventory currently is model year '22 or earlier?

So good morning. This is Mike. We are paying very close attention to that subject. And here just recently, we conducted an analysis of all of our brands on the RV and marine side and have understood specifically what those numbers are. We're not going to share that number externally. But we know what that number is. In many of our businesses, we feel very comfortable that the model year '22 inventory is not unhealthy. We have a couple of places where our model year '22 inventory is a little heavier than I would like, and the businesses are aware of that and working with the channel partners precisely to try to take care of that. So we do not view model year '22 inventory for Winnebago Industries as a significant headwind here in the rest of 2023. We really do not plan to introduce our model year '24 product for the RV business until later this late summer, probably again in that July through August to September time frame. We will certainly begin talking about model year '24 product with some of our dealer events coming up in the future. But our model year '24 timing is still a little ways off, which is good because it gives us some more time to allow the dealers to focus on that model year '22 and '23 inventory.

Perfect. Thank you.

Thank you. Our next question comes from Scott Stember with Roth MKM Partners. You may proceed.

Good morning, guys. And thanks for taking my questions.

Hey. Morning, Scott.

Can you maybe dig a little bit more into the towables side of the business? You talked about, I guess, some promotional activity in the quarter. Your margins at least sequentially held up pretty darn well. So can you just talk about the level of discounting that you've had to do? And if there was anything else that helped the profitability in towables in the quarter?

Scott, this is Mike. I'll speak to some of the discounting behavior that we're seeing, and then Bryan can add some more meat to the bone on the margin side. From a discounting standpoint, we certainly have been seeing dealer promotional activity at retail return here over the last year. And so dealers are certainly operating within the towable segment at a lower gross margin level than they had seen during probably their peak gross margin days in parts of 2021 and early 2022. So the dealers have certainly returned to promotionally competing against each other to move product. And you have seen that at some of the shows. And in some cases, you see a graduated level of promotional activity based on the age of that inventory. Excuse men, our businesses have provided at times, certainly support to help dealers address excessively aged inventory. And that is an activity that we've done ever since I've been here now 7 years. So this is really a return to what we believe is a healthy partnership with our dealers on excessively aged inventory. The last form of discounting, I would say, is that as backlogs have retracted and dealers, in some cases, have canceled orders that they had once submitted, we have had in the last 6 months an elevated level of finished goods, open inventory higher than we're used to seeing. And consequently, we've been obviously working carefully with our dealer partners, especially on the RV brands to move that inventory in a careful way. And you can tell from the margins that we reported this last quarter that we were not forced to do anything irrational with those discounts, but we have been active in discounting some of that open inventory that we've had on our own lots. And we will continue to monitor that side of our business carefully going forward. Bryan, do you want to comment on margin?

Yes. Thanks, Mike. Just briefly, Scott, if you look at the discounting relative to what we've done historically, most notably pre-pandemic, it's very consistent for Q2. There's some seasonality, of course, in the business. So the discounting in Q2 was similar on the motorized side to our pre-pandemic levels. And on the towable side, maybe just a little bit elevated, but less than a point expressed as a percent of sales, just to give you some perspective there. So pretty consistent overall with pre-pandemic activity.

Got it. And then on the motorized side, sales were only off a few percentage points. And obviously, some of that had to do with the faster-than-expected resolution of the - the Sprinter Recall, but Class Cs were up pretty sharply in inventories year-over-year. I know that there's - the pipeline has been pretty barren for a while. But could you maybe just talk about was there an accelerated build-out of product in refilling dealer pipelines as retail further falls and the supply chain is easing.

Scott, I would say that you've hit on a couple of the factors as to why motorized revenue declined significantly less than our towables revenue. The first factor I would say is, as you said, the faster resolution of the Mercedes safety recall issue allowed us to return to shipping those Mercedes chassis that have been stuck on our lot for many months. Number two is our Newmar business has been working for the better part of the last year and a half to have a better cadence of production because of supply chain consistency and refill the dealer channel on the Newmar side. And the Newmar business has done an excellent job of doing so in the first 2 quarters of this fiscal year. I would say the third element is on the Class C side for Winnebago. We have been seeing some nice retail momentum, particularly on the new EKKO that we introduced to the market about a year ago as, well as our View and Navion product. And so that's allowed us to ship certainly some more inventory to the dealers behind those strong retail sales in order to make sure that they continue to have enough on those particular brands. You are also seeing the benefit dollar-wise of some of the year-over-year pricing actions that we had taken in previous quarters. We did not raise price significantly in Q2 on our motorized product, but the year-over-year comp is definitely being aided by some of the prior price increases we took when inflation was at a more elevated level.

All right. And if I could just sneak one last one in. We've been talking about how the towable I guess, dealer situation needs to be rebalanced. And as we work through clearing out the '22s, what is the time line for when you would expect to start to benefit from dealers going back to ordering products such as Grand Design?

Well, dealers do continue to order products such as Grand Design currently. It's certainly the rate is reduced compared to those peak pandemic frenetic retail days. The timing question, Scott, is very difficult to answer because it really all depends on retail. We continue to monitor retail on a weekly basis in our business. And certainly dealer ordering patterns will be a combination of the seasonal retail activity that we see here in the late spring to summer months. In addition to some of the destocking levels that they're looking to achieve over the course of this calendar year. As I stated previously, we will stay disciplined to not introduce model year '24 product until later this summer, and that should allow us a good chunk of the late spring and early to mid-summer to try to focus on those model year '22 products. But we cannot and will not prognosticate on exactly when sort of retail will pivot in a way to reignite dealer orders to a higher level. That is difficult to forecast, and we just need to remain extremely agile on a literally weekly basis to react to what the market and the dealers are telling us.

Got it. Thanks again, guys.

Thank you. Our next question comes from Fred Wightman with Wolfe Research. You may proceed.

Hey, guys. I just wanted to follow up on the industry commentary that you gave. If we go back and just sort of look, I understand that the overall levels have come down. But last quarter, I think you guys were expecting wholesale and retail to be pretty much in balance. Now you're calling for a little bit of destocking. So can you just sort of walk through what exactly changed and maybe what the feedback from dealers has been and what you think that means for like a “normal inventory level going forward”?

Yes. Fred, this is Mike. Our last formal comment on industry shipment and retail levels was all the way back in mid-December. And here we are in late March. And so a lot has changed since mid-December. And that's why you've seen not only the RV Industry Association, but almost every other one of our OEM or supplier peers lowered their forecast as well on industry volume in 2023. So we just continue to be more enlightened by the reality of market conditions and what our dealers are telling us in terms of desired turn levels going forward. And so the numbers that we offered in our prepared comments today are latest thoughts. They are a little bit more progressive in terms of the amount of field inventory that we believe needs to be expelled from the field, and we'll see if that happens. But our businesses have operational plans from a sensitivity standpoint that are lower than those numbers in order for us to prepare in the things - get worse. And we also have the ability to react relatively quickly if retail were to be better than expected this summer as well. So that's our latest range. It's not really candidly too far off what a lot of our other peers are saying. And candidly, many of you, the sell-side analysts were generally in a similar range as most everybody else, so...

Totally fair. And then just on ASPs as we think about that moving into the back half of the fiscal year, can you help us out, particularly on the towable side? Is that going - is the rate of change going to be sort of similar? Do you think it will stay positive on a year-over-year basis? What should we sort of be looking for or expecting given the discount?

Yes. In terms of the pricing activity, it's - we've been pretty stable here in the last couple of quarters and even going back into Q4. So we're still annualizing right, Fred, on some of the price activity that we did earlier last year. We're expecting more stability, and we'll continue to match that with the inflationary pressures, which continue to be elevated on the motorized side from the chassis costs, but on the towable side, a lot more stability that we're seeing there. And so that's how I would think about pricing as we go forward. There's mixed things going on in the ASP as well, of course, as there always is. In terms of the higher-end units in the results, in the volume that we're seeing there or the higher the premium brands within Grand Design, for example, having more success. So you'll have some mix impacts that will continue, but the pricing activity itself should be pretty minimal based on what we're seeing on the cost side of the equation.

Understood. Thanks a lot.

Thank you. Our next question comes from Bret Jordan with Jefferies. You may proceed.

Hey. Good morning, guys. This is Patrick Buckley on for Bret Jordan. Thanks for taking our questions.

Yes, good morning.

Given the current elevated interest rate environment, should we expect to see a change to a new lower optimal level of dealer inventory compared to pre-pandemic levels?

Well, that's a good question in the sense that I think dealers are trying to answer what the right inventory levels are as well. And I think dealers are still primarily focused on having the right level of and mix of inventory on their lots to optimize whatever retail is available to them. But I think your question also infers that the cost of carrying that inventory is higher to them as well, which we certainly, certainly acknowledge. And I think that's one of the reasons why you're seeing dealers be very serious and proactive here with addressing their model year '22 inventory as quickly as they can. But it's a good thing if dealers return or exceed historical turn levels. I think when we saw dealers go through the 2020 - late 2020 to early '22 time period, we saw dealers become extremely financially healthier in terms of gross margins and higher turn levels, lower working capital. And as an OEM, we think that's a good thing. And so we would welcome higher turns from the dealers. Obviously, there would be a transitional period where dealers, as we've forecasted, would have to reduce their inventory levels overall in order to probably get to that point. But we are supportive of working through that transition with dealers. We feel that our operations and production processes allow us to be a good OEM partner and supplier to the dealers even at higher return levels. So I anticipate the answer to your question is yes. The challenge is we don't know the exact timing.

Got it. That's helpful. Thank you. And then I guess, could you talk a little bit more on the current pricing environment? It sounds like maybe more specifically on motorized. We saw a pretty healthy year-over-year increase in ASPs this quarter. It sounds like you guys expect that to be a little bit more sustainable given the chassis shortage? Or should we expect some moderation there moving forward?

I would say when you speak about pricing, we have to break it down by each of our businesses, but I would generally say on the motorized side, that while there has been a very meaningful year-over-year inflation from an ASP standpoint that affects retail customers. The cost environment on motorized is probably not yet in a stable enough environment in order for there to be deflationary movement that reaches the end customer, especially on the newest model year product. We are seeing more stable cost environments in some of the rest of our business. And in fact, on some categories, we are seeing some deflationary cost trends that we believe are very healthy and helpful for us to look at potentially even winding back pricing a little bit in the future. But each business, each product category, we'll continue to evaluate and do what they think is right.

Got it. That's all from me. Thanks, guys.

Thank you. Our next question comes from David Whiston with Morningstar. You may proceed.

Thanks, good morning. I guess first on SG&A. How much more can you cut there, if any, should you need to?

Good morning, David. This is Mike. Well, that answer really depends on whether you want to cut simply muscle or you want to start cutting into the bone. And we managed SG&A very intentionally. Most of our SG&A is within the business units and the brands themselves and is a combination of a number of different types of costs. And we feel that our businesses have been very intentional and appropriate with managing the SG&A year-to-date. However, if the marketplace continues to be softer than we would like or that we're even forecasting. All of us here will have to look very carefully at some of the further cuts we can make on expenses and potentially structure as well. But we want to stay very prudent and disciplined. We certainly don't want to create excessive overhead or bureaucracy. There are though several things that we need to continue to invest strategically in that are important to our future that we would have to evaluate further as well. So the net answer to your question is we do continue to have the dial to be able to turn SG&A spending down. It's just a trade-off in terms of your strategic investments, your structure and what level you think you'll need to live at here while we're writing through this down cycle.

Okay. Thank you for that. And on your EV, it's been a little over a year, I think, since the unveiling. I'm just curious how is the consumer interest for it relative to your initial expectations a year ago? And do you see maybe within the RV space, you see EV momentum accelerating maybe more than you did, would have thought of a year or 2 ago given that it is picking up on the light vehicle side?

Yes. Thanks for the question on the EV. In January of 2022, we introduced the eRV1, which was the concept vehicle, and we saw great reaction to that now about 15 months ago. In January of 2023, we introduced a prototype version of that, the eRV2. We currently have probably around 10 to 12 vehicles that are being used in the market today by different stakeholders that we trust, and they are using the product to give us real-world feedback as to how it operates. Certainly, such metrics as mileage travel range off the grid capabilities in terms of duration of the batteries there. And so we continue to get that feedback. And along with internal engineering and manufacturing development work continued to progress towards a possible launch of that vehicle. Consumer interest in the eRV2 has been what we would characterize as very strong, and we can capture a lot of that interest digitally in ways that our marketing team on the Winnebago brand is using to both measure but also capture that interest. So - but yes, we believe that the that the adoption of electric vehicle technology in passenger cars in last mile delivery is only going to help the RV consumer consider that technology credible. Our focus when introducing ultimately someday an electric RV van to the market is that the consumer experience is enhanced and not degraded. And so we will come to market when we feel that we can provide a consumer experience on an electric RV that meets the reputation and standard that is associated with our Winnebago brand. So we feel good about our progress, and it's not about being first. It's about ultimately being best in terms of what we bring to the market, and that's been our focus.

Okay. And just one more. Thank you for that. A cynical investor following you guys right now could look at your backlog and say, well, Mike did say it was really high and it's going to come down, which it has. But once that final backlog is burned off, Winnebago's top line is just going to be in a lot of trouble. I mean I don't think you probably agree with that, but what's your reaction to that sentiment?

Well, we're acutely aware, David, of the backlog. Certainly, as you can see the numbers in the earnings release at the end of February. And we have confidence that ultimately, the dealers will place orders when they think it's right for their business. And we really do not want to operate a business that is excessively pushing inventory into the market. We've been very intentional and even vocal that a high percentage of the time, we run a production planning process across our businesses where almost every unit on the line has either a dealer name or a customer name. I did make a comment in our prepared statements this morning that the revenue line is the one I worry about the most in terms of its stability and consistency month-to-month, quarter-to-quarter. That line will continue to be under some pressure in the next couple of quarters. And we will have to continue to optimize that in a healthy way as the market allows. What we can control most of the time, even back to your SG&A question is the profitability of the business. We are willing to give a little bit of market share up at times in order to maintain a profitable, healthy business. And so we're not going to chase every last wholesale unit or every last retail unit if it means we have to cut our profitability in half, for example. And so it is a balance between the top line and the bottom line. But we're very pleased with our Q2 results. I think we're especially pleased to demonstrate that the profitability of the business is as we've been stating structurally present. And I think that's what we'll continue to focus on most in Q3 and Q4 is the profitability of the business and the top line will be a little bit more out of our control, depending on market conditions.

David, the one thing I'll add to that is to supplement what Mike is thinking. We included some information on this in our supplemental deck that is posted online to supplement the financials, which is a very healthy consumer and a very healthy interest in the outdoor lifestyle, which gives us a lot of confidence long term in our top line. And that information, I think you'll find useful as well in terms of the number of households that are participating in the outdoors and camping, the number of households that are eager to buy an RV or get into the RV lifestyle. So I won't go into all that information, but I encourage you to look at it as well because I think it's also a good indicator of the stability that is to come. We're going to continue to face some near-term volatility in the top line. But obviously, our focus is even more so in the long term, and we feel good about the state of the industry long term.

Okay. Thanks for the color. Appreciate it.

Thank you. Our next question comes from Joe Altobello with Raymond James. You may proceed.

Thanks. Hey, guys. Good morning. First question, I want to go back to something you mentioned earlier, Mike, about the Xyris [ph] dealer inventory turn levels. And I asked you this question on the last call, so I'll go there again. But is it still sort of in that 2.5 to 3 turns neighborhood that you expect dealers to kind of shake out at?

Yes. Joe, ultimately, there'll be a consolidated number. The one that you probably just referenced or asked about there. And as you know, that number is broken down by each of our businesses. We believe that dealers will desire to have higher turn levels on their towables products versus their motorized products. So that historically won't change. But if we can get some retail stability in the market in 2023. And by that, I mean that the dealers have increased confidence that the retail sales will be at a certain level of range. I think then that they will work to set their net consolidated turn levels at a little bit higher level than what they were at pre-pandemic. So 2.5 to 3 would be a good range, I think, for them. You will find some dealers that will be more aggressive and say they'd like even higher turns. And you will see some other dealers that are comfortable with maybe something on the lower side of that. But I think that's not a bad range for the dealers to shoot for. We have to set up our business to react to whatever turn level that they ultimately end up settling in. If they settle at 2, 2.5 or 3, we obviously need to compete to serve them at whatever level that they turn to. So - but higher would be better. And some would be surprised that an OEM would say that. But I think financial health for our dealers in higher turn levels at high fill rates would be a good thing. And I think Winnebago Industries would be advantaged to that end.

Got it. And just I think in terms of towables, your shipments historically have declined sequentially from Q1 to Q2. This quarter, we actually saw a sequential increase. Turns [ph] are now below 2. So are you concerned about maybe over shipping in the quarter, particularly if retail doesn't materialize like you think it will?

Yes, the question whether we're concerned that we did over ship in Q2 or that we could over ship in a future quarter?

Yes, more so in Q2, just given that it's unusual from a seasonal perspective to see a sequential increase in shipments and you're now below 2 turns?

Yes. Thanks, Joe, for the clarification there. I don't think our business is in hindsight here, 3 weeks into Q3, feel that we did anything in Q2 that jeopardizes the business in any significant way. Again, to be fair to our businesses, we had produced units that the dealers had ordered from us that they subsequently canceled. And so when that happens and we end up with open inventory on our lots, we will work in a careful, intentional and smart way to place that in the field. A unit has a significantly better chance of retailing when it's on a dealer lot than if it's on a manufacturer's lot. And so Q2, you certainly saw us deal with some of that open inventory. In Q3 and Q4, I think what you'll end up seeing and probably into our Q1 fiscal '24 year, I think you'll end up seeing some of that - if the inventory in the field is going to retract in the neighborhood of 30 to 35 units like we had stated in the call this morning, we will be a part of that inventory destocking. And so we will need to see some destocking in our businesses as well, probably over the next 3 fiscal quarters. And so I'm really focused now on Q3 and Q4 of this fiscal year to make sure that, to your point, we don't over ship. We are great partners with our dealer channel and that we help set the inventory levels in the market that are right and healthy in our long-term interest. So - and that's why I stated that, that revenue line is the line that probably could have more volatility in the quarters to come.

Just one last one, if I could, on that last point. It doesn't sound like you're expecting any major changes from a margin standpoint in the second half on the towable side either?

We feel that our business, as we stated previously, is being run with good discipline. And so we've stated very clearly at times repeatedly, that we believe we've established a new financial floor in the business. And while we certainly don't provide formal guidance or forecast, our expectation in future quarters is similar to what you saw this quarter that each of our business segments can deliver double-digit adjusted EBITDA yield. And we'll see if we can maintain that in future quarters. Some of that will depend on the stability of the overall marketplace. But our business structurally is in a good place to not see wild swings in profitability that surprised us. And not to say that could never happen, but we believe our leaders are managing the business well and especially profitability-wise, paying very close attention to what we think is fair to make.

Got it. Thank you, guys.

Thanks, Joe.

Thank you. Our next question comes from James Hardiman with Citi. You may proceed.

Hey, good morning. Thanks for taking my call. Maybe a similar vein of question to what Joe was asking there. But I wanted to talk a little bit about share of shipments. We don't have the February data, but it does seem like you may have had a greater share of shipments in the second quarter. I guess why do you think that's the case? Is that a good thing or a bad - first, is it right? Is that a good thing or a bad thing? And why do you think that happened in Q2? And then as I think about the broader full year, I guess, this calendar year guidance, which makes it a little bit trickier but the difference between how you're seeing the industry as one of the smaller players relative to your big peer and the industry association. I don't think there's a ton of daylight on the retail assumption. Should I read this as you think your shipments will decline maybe a little bit less than the rest of the industry? Help us parse out a little bit of that.

Yes, James, it's a fair question. And we've stated in past Q&As that we do not obsess about shipment share. At the end of the day, we do believe, as I'm sure most businesses do, that retail share is the ultimate judge and jury on the health of your business. We certainly pay attention to shipment share to the degree that it supports our retail ambitions. And our shipment share through the years has risen in a very close and coordinated fashion, obviously, with the retail share rise in our business the last 6 or 7 years. I would say the shipment share can vary from quarter-to-quarter, up or down anywhere from 50 to 150 basis points, one in the RV business. And I'm not sure we historically have read much into that. We're a different OEM than our peers with different mix, different supply chain constraints. Some things that are headwinds affect us better or worse than our competitors and vice versa. So if, in fact, in our quarter 2 period, we took a little bit of shipment share, I would tell you that was not an overarching objective. It just happened because we thought it was the right thing to do to ship what we shipped. And I don't anticipate in future quarters a dramatic increase or decline in our shipment share going forward. It's generally stayed in a pretty steady range. And listen, as the supply chain improves, that allows us to stay in that range, I think, relatively comfortably. So I would say in businesses like Barletta, on the Aluminum Pontoon side, where we have a young, fast-growing market share-taking brand that is expanding its product line has market expansion possibilities. That would be a specific business where we could rationalize that shipment share will timing-wise be ahead of retail share as we continue to grow that brand and that business. But even there, as the pontoon market has cooled, we have to make sure that shipment share and retail share are not completely out of whack. So I guess the net answer is we thought Q2 was responsible, and it really wasn't driven by any shipment share ambitions of significance.

One other thing I'll add to that, James, just briefly - sorry, one other thing, this is Bryan, I'll add to that to Mike's comments. We've talked historically about this, but just as a reminder, okay. What we saw through the peak of the pandemic is some of the Tier 2 and Tier 3 brands accelerate their shipments to make up for, call it, a lack of sufficient capacity by the Tier 1 brands to meet the full demand in the marketplace. And so we've been talking about how some of those Tier 2, Tier 3 brands will start to ease on dealer losses the dealers self-select back to the top brands, including the ones in our portfolio, of course. And so perhaps what you're seeing a bit of in Q2, although it's just a quarter. Perhaps what you're seeing is some of that return to the Tier 1 brands and the preference by dealers for those brands. And we've been talking about that for some time. So just a reminder on that impact as well.

And so just to clarify on the full year guide, I mean, do you think - I mean it's not a huge gap, but maybe it's a 3% difference, right, 8,000 to 10,000 units. Do you think the difference between you and the RVIA is you're a little bit more bullish on retail or you're a little bit more, I guess, conservative in terms of what you think the inventory drawdown will be?

James, I would say it would be the latter. I'm probably a little bit more skeptical than some of our peers or other stakeholders that the inventory drawdown can be as dramatic as some has forecasted. If it happens obviously, our business will deal with it. But I think we've tried to be a little bit more moderate. Dealers are competitive. I mean there will be a point in time where 10,000 units are taken out of the market and 20,000 units are taken out of the market and then 30,000 units are taken out of the market, there will be dealers at some point that go, okay, I'm ready to sort of stabilize my turn level, my inventory level and compete while other dealers would continue to have an appetite to destock. And so because of how fragmented the dealer channel is that sort of coordination in inventory lowering, I'm skeptical that it can be as much as people are forecasting in a short period of time, i.e., here the next sort of 6 to 8 months.

For sure. Yes. I think we're all skeptical. One more for me. You talked a couple of times about dealer orders being canceled by elevated finished goods open inventory. Presumably, I mean, you're going to get lower margins on that kind of product. Is that - how much of that is there heading into the back half of the year for you guys? Is the majority of that been sold through? Or is it sort of just is significant or more significant in Q3, Q4? How do we think about that?

I think what we're pleased, James, with relative to our Q2 performance is that we were able to move through a meaningful amount of open inventory, especially in our towables business and still produce the profitability or margins that you saw in the report this morning. And so while there will most likely still be some of that in our next two fiscal quarters. Our responsibility is to make that as low as possible by adjusting our production schedules. And I think we've demonstrated that we will stay disciplined in negotiating with dealers as best we can to move those from our lots to their lots. And so listen, this is a very noisy environment in terms of uncertainty around retail. It's a very noisy environment in terms of dealer ordering behavior. They're very, very prudent right now with what they're ordering. And so the least amount of open inventory that any of our businesses can have is certainly best for all parties, but we managed through that pretty effectively in Q2. And so again, we don't enter Q3 with a giant discounting challenge on our hand with what's on our lots. Our teams work it every day.

Makes sense. Thanks, Mike. Thanks, Bryan.

Thank you. Our next question comes from Griffin Bryan with D.A. Davidson. You may proceed.

Thanks, guys. This is Griffin on for Brandon. I guess my first question is kind of what the results and commentary Bryan today. Do you think you've hit trough in terms of like margins and overall earnings as it relates to fiscal '23?

Thanks for the question. We really won't respond to that question because that would assume that we know exactly what will happen with the market in terms of retail stability, what will happen to the market in terms of supply chain stability or where the inflation curve is headed. So I think you always hope that future quarters are better than the quarter you just finished, whether you're writing a high or whether you're traveling through a down cycle, but we do not offer forward-looking guidance. And consequently, I won't comment on the probability of the numbers that you saw being at a certain place in the cycle. We really are taking each - we run the business with a long-term perspective, but we manage the business hopefully well in the short term, and we'll just take each quarter as it comes and we have been very vocal though that we've been working for many years on improving and raising the financial floor of our business so that we can ride through cycles from a profitability yield standpoint and a balance sheet liquidity standpoint to be healthier than most people think we can be. And I think quarter two was a good step in demonstrating that that's happening.

Yes. Okay. That's fair. I guess is the second quick one here. Kind of digging into the financial help you're giving dealers how much front-end discounting are you offering Grand Design dealers? And is there any concern on back-end discounting given the slower dealer chain [ph]

Yes. Again, we don't share for competitive reasons primarily and talking about our businesses individually, we do not share discounting levels by brand nor the different forms of discounting that happened in the value chain. So Grand Design continues to be a well-run business, a brand that's very popular with dealers and consumers. And our team is working very hard to keep the product fresh and vibrant and the pricing relationships between Grand Design product and its main competitive product in the right place so that dealers can be successful turning the Grand Design line at retail. So - but again, I think you saw towable margin stability in this quarter that should reflect well on the Grand Design team and our Winnebago towables team in terms of how they're managing the business.

Okay, great. That's all from me. Thanks, guys.

Thank you. This concludes the Q&A portion of today's conference. I'd like to turn the call back over to our host.

Thank you. That is the end of our second quarter earnings call. Thank you to everyone for joining. Enjoy the rest of your day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.