Good day, and thank you for standing by. Welcome to the First Quarter Fiscal 2023 Winnebago Industries Financial Results Conference Call. After the speakers’ presentation, there will be a question-and-answer session. 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 first 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 the replay of the call will be available on our website later today. The news release with our first 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 in 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, everyone. As always, we appreciate your interest in Winnebago Industries and spending time with us to review our fiscal 2023 first quarter financial results. I will initiate the call with a broad overview of our performance during the quarter and then pass the conversation to Bryan Hughes to cover our financial results in more detail. We will then offer some closing thoughts before turning to your questions. Winnebago Industries first quarter results are a testament to the strength, diversification and resiliency of our brand portfolio amid more difficult industry and macroeconomic conditions. As we expected, demand for our premium RV product lineups continued to normalize in the first quarter, lapping a period of tremendous growth for the RV lifestyle in our fiscal 2021 and 2022 years. While we believe many of the underlying drivers of this record-setting period are secular and likely to have a significant and positive impact in the long term, including the introduction of thousands of new, younger, and more diverse RV families that could remain customers of our premium brands for many years to come, Winnebago Industries will continue facing difficult comparisons to our fiscal 2022 results as the RV industry stabilizes throughout fiscal 2023. Our performance was also challenged by several macroeconomic factors that we expect to impact our near-term results. This includes a broader economic slowdown, general inflation that while trending lower is still meaningful, higher interest rates and as a result, lower consumer confidence. That said, our outstanding Winnebago Industries' team managed these challenges in the first quarter with agility. I am immensely proud of our teammates for their hard work to enhance our supply chain agility, increase the efficiency of our operations, and drive a more balanced portfolio of profit streams that are at various places in the outdoor economic cycle. The result was reasonable revenue stability and solid bottom-line results that exceeded most external expectations. While we certainly cannot control the overall size of the outdoor recreation market in the immediate near-term, we can stay focused on strengthening and investing in our key drivers of quality, innovation, and experience that will drive our profitable growth for years to come. Ultimately, Winnebago Industries achieved $952 million in net revenues in the quarter, a decline of 18% from the year-ago period. We realized a consolidated gross margin of 16.8%. While consolidated gross margin was down year-over-year, it remains well above pre-pandemic levels, up 240 basis points when compared to the fiscal 2019 first quarter, and we delivered adjusted earnings per diluted share of $2.07. While down compared to historic record high levels last year, these results remain strong and reflect the resilience of our operating model, the vibrancy of our products, and a more robust organization that we are today. Our results were driven by a few key factors. First, the strength of our premium outdoor lifestyle brands and our innovative product portfolio. Some of you saw our products in action at our Investor Day last month. The best current example of this formula is the Barletta lineup of pontoons. They are simply some of the best premium pontoons on the market today in function and feel, and the marine customers are voting with their purchase decisions. Barletta, which was founded just five years ago and acquired in August of 2021 by Winnebago Industries, has seen its market share begin to approach almost 7% of the market. The growth and profitability of our Marine segment is now a material chapter of our story and is becoming a more well-rounded outdoor recreation mobility leader. We remained incredibly focused on the organic competitiveness, health, and growth of our business. Our three RV brands, Winnebago, Grand Design, and Newmar, all received the recent Dealer Satisfaction Index awards from the RV Dealer Association, which places a special emphasis on quality. We recently began full production in shipment of our new HIKE 100 FLX travel trailer, which was named the model year 2023 'RV of the Year' by RVBusiness magazine. This product is part of an initiative to expand into differentiated customer segments and drive innovation with off-grid and off-road capabilities. A second key driver of our results in the first quarter was our flexible operating model that complements a highly variable cost structure and our commitment to operational excellence, which enabled Winnebago Industries to maintain strong profitability despite market pressure on our top line. Our operational excellence initiatives are another example of the shared enterprise capabilities that our individual business units leverage across our enterprise. These initiatives include an outstanding strategic sourcing function, manufacturing best practices, a company-wide focus on consumer insights and the consumer experience, and the benefits of an overlapping dealer network with deep, long-term relationships. And finally, certain external factors had meaningful impacts on our first quarter performance as well. The most significant was our supplier Mercedes-Benz AG's recent recall of all model year 2019 to 2022 Sprinter Chassis. As we discussed during our Investor Day last month, this recall prevents Winnebago Industries and all industry OEMs, upfitters, and retail dealers using that chassis from currently shipping, selling, or delivering any of the affected products until a remedy is implemented sometime in the first calendar quarter of 2023. This issue negatively impacted our first quarter top and bottom line results, including inventory levels and cash flow. Notably, despite this impact, we grew our Motorhome segment revenue in the first quarter and delivered solid profitability, reflecting the continued fundamental strength of our operations and margin profile. The second external factor we are actively managing is the dealer demand for our wholesale towable RV inventory. As I have mentioned previously, each of our reporting segments is experiencing varying forms of channel stocking behavior, which in turn impacts dealer inventory levels, backlog and production schedules in diverse ways across our portfolio. We are especially and closely managing Towable RV production levels to align with normalized dealer inventories in this segment. While our Motorhome and Marine businesses work carefully to replenish dealer inventories that remain low in various sub-segments. We are focused on exercising further rigor and a focus on sustainable long-term value by adjusting production across our businesses to calibrate to the needs of our dealers and consumer demand levels. Our operating model allows us to do that profitably despite some disruption in our supply chain as we adjust our manufacturing to real-time market dynamics. We are proud of how our results in the first quarter demonstrate that Winnebago Industries can and will deliver strong profitability and performance through challenging cycles. Furthermore, the benefits of our diversified and more balanced portfolio were evidenced by the growth in our Motorhome and Marine segments helping to offset the decline in towables. Our Marine segment revenues grew 66% year-over-year in the first quarter and accounted for 14% of our revenue, highlighting the tremendous success of our initiatives in that segment and benefiting from continued strong momentum specifically in the Barletta brand. At the same time, as I mentioned, our Motorhome segment continues its growth trajectory with revenues growing 10% year-over-year as consumers continue to see the value of our products in the market. Our broad portfolio, enterprise synergy and capabilities, and commitment to quality, innovation and experience enhance our resiliency and ensure we are well positioned to create long-term value. With that summary, I will now turn the call over to our Chief Financial Officer, Bryan Hughes, to review our fiscal 2023 first quarter financial results in more detail. Bryan?

Thanks, Mike, and good morning, everyone. First quarter revenues were $952.2 million, reflecting a decrease of approximately 18% compared to $1.2 billion for the fiscal 2022 period. Our top-line performance was driven by a number of factors, which Mike mentioned, including the expected cooling of demand, driving lower unit sales, particularly in the Towable segment. We were also impacted by the Mercedes-Benz AG chassis recall, which prevented us from shipping, selling, or delivering any products included in the recall, and resulted in an estimated negative impact of approximately $50 million in first quarter net sales, as well as related impacts to profitability and working capital, and is expected to have a similar impact in Q2. Gross profit for the quarter decreased 30.1% to $160.4 million compared to $229.4 million during the first quarter of 2022. Gross profit margin of 16.8% was 300 basis points lower than last year, driven by operating leverage, chassis recall-related production inefficiencies, a normalization back to seasonal trends within our Towable segment after extraordinary performance during the prior year period when dealer inventories were at all-time lows, and comparing against the strong Q1 last year where pricing was taken ahead of inflation. Operating income was $85.9 million for the quarter, a decrease of 41.3% compared to $146.4 million for the first quarter of last year. Fiscal 2023 first quarter net income was $60.2 million, 39.6% lower than the $99.6 million recorded in the prior year quarter. Reported earnings per diluted share was $1.73 compared to reported earnings per diluted share of $2.90 in the same period last year. Adjusted earnings for diluted share decreased 41% year-over-year from $3.51 to $2.07. Consolidated adjusted EBITDA decreased 42% to $97 million from $167.2 million in the first quarter of 2022. I would like to call out that we adopted a new accounting standard in the first quarter of 2023, which impacted the accounting treatment for our convertible notes. As a result of this required accounting adoption, we no longer recognize a non-cash discount or related non-cash interest expense from the convertible notes. The new standard also requires the earnings per diluted share calculation to assume conversion of the entire amount of shares underlying the convertible notes and interest charges to be added back to the calculation. Prior year results were not adjusted or otherwise affected by the new accounting standard. 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 by removing the dilutive impact of the convertible notes. In this way, we recognized the economic benefit of the call/spread overlay that we implemented when we issued the convertible notes. Accordingly, we will adjust the diluted shares outstanding in the calculation of adjusted diluted EPS until our share price exceeds the strike price of the warrants, which is at $96.20. Now I'll turn to our segment performance, starting with our Towable segment. Revenues for the Towable segment were $347.3 million for the first quarter, down 46.7% compared to the prior year. This was primarily driven by declines in unit volumes as a result of the ongoing softening of consumer demand as well as the impact of our adjusted production schedules due to normalized dealer inventories. Segment adjusted EBITDA was $36.3 million, down 67.6% from the prior year period. Adjusted EBITDA margin was 10.5%, down 670 basis points year-over-year, but only 30 basis points sequentially and similar to historical levels. As we discussed in our Q4 call, we reinstated our traditional fall programming and are comparing against pricing ahead of inflation last year in Q1. Backlog decreased to $434 million, down 76.9% from the prior year when dealers were focused on increasing their inventories. Turning to our Motorhome segment. We delivered solid first quarter revenue growth of 10.1% to $464.2 million compared to the prior year. Our year-over-year growth was the result of the pricing actions we took in fiscal 2022, which more than offset the negative impact from the chassis recall. Segment adjusted EBITDA was $50.3 million, representing an increase of 0.2% from the prior year. Adjusted EBITDA margin was 10.8%, down 110 basis points, primarily due to production inefficiencies tied to the chassis recall. Finally, let's turn to our Marine segment. In the first quarter, revenues for the Marine segment were $131.4 million, up 65.7% from the prior year as a result of strong unit growth across both Barletta and Chris-Craft. Adjusted EBITDA for the Marine segment was $18.5 million, 74.5% higher than the same period last year, and adjusted EBITDA margin was 14.1%, 80 basis points higher than last year. Dealer inventories continued to build towards more normalized levels in the marine space, and our backlogs were up 23.8% compared to the first quarter of the prior year, reflecting the strong demand for our brands. Moving now to the balance sheet. As of the end of the quarter, we had roughly $590.4 million in outstanding debt, representing a net debt-to-EBITDA ratio of approximately 0.6x. Our healthy balance sheet has continued to allow us to execute our balanced capital allocation strategy, which prioritizes strategic investments in our business to drive growth while returning capital to shareholders. For example, we reached a number of exciting milestones this quarter that will enable future growth across our portfolio. In November, we announced plans to develop a new advanced technology innovation center. We also continued to expand our manufacturing capacity for both of our marine businesses to help meet the pent-up demand for those products. As always, we balance these investments with returning capital to our shareholders and continued to pay our quarterly dividend for the quarter, which as a reminder was increased 50% to $0.27 per share during the fourth quarter of fiscal 2022. With that, I will now turn the call back to Mike to provide some closing comments. Mike, back to you.

Thanks very much, Bryan. At our Investor Day last month, we unveiled fiscal 2025 strategic targets on net revenue, RV and pontoon market share, gross margin, adjusted EBITDA yield, free cash flow, and our community giving levels. We believe those targets are appropriate and achievable even as the distractions of the near-term market conditions are present. While there will likely be RV industry shipment contraction in calendar year 2023, we do believe market tailwinds will be present again in that segment by the time we reach the fiscal 2025 year. However, a dramatic rebound in RV shipments is not a dominant assumption in order for us to achieve our 2025 financial targets. We also have stated a clear intent to complement profitable organic growth with strategic inorganic investments and continued operational excellence initiatives that cumulatively drive accretive profitability in competitive differentiation during this three-year period. As it pertains to calendar 2023, RV shipment projections, we now generally agree with the recent RV Industry Association forecast, which anticipated a mid-range estimate of 391,000 wholesale sales. This updated expectation is slightly lower than our previous 400,000 to 410,000 forecast we offered in October. In the meantime, we are continuing to execute our strategic priorities and invest in the areas of our business that will create new growth engines. As Bryan stated, we are expanding our capacity in both of our marine businesses to accelerate our market share potential. We announced last month that we have signed a lease for our ATG Innovation Center, which will be dedicated to applying emerging technologies for next-generation products in all our businesses. This includes the strategic imperative to execute a measured, yet intentional electrification roadmap within our brands that balances scaled adoption opportunities, superior customer experience, and competitive differentiation. Looking ahead, we are confident that Winnebago Industries has significant long-term opportunity for sustained market share gains and profitable growth across our portfolio, leading to enhanced value for our end customers, dealers, employees and shareholders. Before we open-the-line to questions, I want to touch on the continuing progress we are making on our commitment to corporate responsibility. In fact, this traction was recently validated when we were named one of America's most responsible companies by Newsweek Magazine, a first-time honor for Winnebago Industries. On the environmental side, we are actively working on waste, water, energy and product lifecycle targets that we have set for the years 2030 and 2050. On the community side, we are passionately engaged in making the communities our employees live, work and play in better as well as the health of and the access to the outdoors overall. We are doubling down on our fiscal 2025 giving targets compared to our fiscal 2022 actual philanthropy, and we are off to a great start with our recent community campaign this fall, collecting $1.2 million, supporting 270 different non-profit organizations. The heart of our company shines through these types of initiatives. Lastly, we just released earlier this week the fourth edition of our corporate responsibility report. Our most substantive report to date, this publication outlines our aspirations on our ESG priorities and shows specific base levels, frameworks, and progress to achieve those ambitions. I am humbled and inspired by the enthusiasm and commitment of our team to both do well and especially to do good. That concludes our prepared remarks this morning. We hope all of you have a safe and joyous holiday season. I will now turn the call back over to the operator who will open the line up for your questions.

Thank you. And our first question comes from the line of Craig Kennison with Robert W. Baird. Please proceed.

Hey, good morning. Thanks for taking my questions. Question on retail for this year and next year for the industry. I'm wondering where you think 2022 will finish for the industry and what is required in 2023 at retail in order to hit the RVIA range that you think is attainable?

Good morning, Craig. This is Mike. So let's start with 2023 and then I'll move back to 2022, which obviously has very little time left in it in terms of a calendar year. From a 2023 standpoint, we believe that retail will probably be very similar to the RVIA wholesale shipment forecast for that particular year. Our hope is that it is slightly above. So if I were to put a range as of today, it would be in that 390,000 to 400,000 retail range for calendar year 2023 with the goal being that the industry can, particularly on the towable side, take out a little bit more inventory over the course of next year. So that is our thinking and as you might imagine those thoughts are subject to updates, obviously as we see the market conditions play out in front of us. I would say for calendar year 2022 retail, again, the period that we're going to be completing here in a few weeks, we're probably in that 440,000 to 450,000 unit range with the retail that is left. Obviously, SSI has not reported yet on November. We have a decent idea of November for our business and then we're a couple of weeks into December. So we're probably in that 440,000 to 450,000 range for calendar year RV – 2022 RV retail.

Great. Thanks, Mike. And then a question on ASP for both categories, it looks like your average selling prices are trending up around 20% or a little bit more. How much of that is mix versus pricing action that you've taken? And then if you could just address the affordability impact for your consumer and whether that weighs on your retail outlook?

Craig, I'll address the latter part of that question and then ask Bryan Hughes to give you his thoughts on the ASP elements. We certainly are thinking a lot about the affordability of the lifestyle today. My first message would be that the RV lifestyle still compares economically favorably to other forms of travel, particularly for singular trips or longer journeys. The cost of airplane tickets, hotels, rental cars certainly is not going backwards. And in fact, those are experiencing some inflation as well. So – and RV road trips continue to compete very favorably cost-wise for the American consumer with trips of other means. But the affordability is something we're watching both in terms of the retail prices that are in the market and now the higher interest rates from a consumer financing side that are in the market today for consumers to take out a loan to acquire those products. And certainly as a premium branded parent company with five great brands, but all of them arguably positioned in the better, best part of the market, we are watching that carefully. So something that I'm sure we'll talk more about as we get more into the spring 2023 period where I think we'll have a better handle on how the consumer is reacting to the prices at that time.

Yes. I guess, and on the ASP side of your question, Craig. If you look at our segment level information, you'll see that as you pointed out the ASPs are up 22%, 23% for both Towable and Motorhome. That's largely driven. As we've talked about in the past, the inflationary pressures that we've been facing. We did price ahead of inflation a bit in last year's Q1 as we commented at that time. But there's not a lot of mix if you look at underneath or within those segments. It's largely net pricing and mix plays a relatively much smaller role in that ASP increase.

Very helpful. Thank you.

And our next question comes from the line of Tristan Thomas with BMO. Please proceed.

Hey, good morning.

Good morning, Tristan.

I just wanted to kind of follow-up on Craig's question. Your dealer inventory is up quite a bit year-over-year as well when they reported. And I don't think November and December is going to remove too many units from the dealer channel. So do you think that – would you prefer wholesale outpace retail, or would you prefer maybe wholesale came in a little bit lighter?

Yes. Good morning, Tristan. This is Mike. That question really has to be answered, it depends framework. And what I mean by that is, obviously, as you're well aware, we have different moving pieces of our business. In the Marine and the Motorhome RV segments of our business, there are still some sub-segments where dealers may be interested in continuing to add to their inventory position, and we have, as you know and Bryan and I both mentioned on the call, a very rare situation here with the Mercedes-Benz recall that has a lot of that Sprinter inventory stuck in place at the present time. But on the towables RV side, I think it would be fair to say that we think both the dealers and probably the OEMs would see little harm in field inventory being reduced a little bit here over the course of the next three to four months, and I won't get further than that because I don't have a crystal ball to anticipate the market condition. So if you look at Winnebago Industries RV dealer inventory at the end of our first quarter fiscal 2023 compared to the end of our first quarter fiscal 2019, our turns today on a trailing basis are higher. The real question is on a forward basis, are we in the right position? But our business has grown meaningfully over the last three, four years. And our inventory actually has not necessarily on the towable side over exceeded that retail growth at all. So we definitely feel there's room for towable inventory in the field to get a little bit lower. And we'll see what happens here over the next three to four months as we head into the spring 2023 selling season.

Okay. Thank you. And then just a question on the Sprinter recall, I think you said remedy in Q1 of next calendar year. Is that a bit longer in the timeframe than you expected? And then if it is, what are you going to do it to offset that?

Yes. So a little bit of history on the Mercedes-Benz recall, this was something that came to our attention late in the October 2022 timeframe. And it took us a little while around a week or so to understand even from Mercedes exactly what the issue was and what the implications were to our business and a potential timeframe for resolution. I don't really want to share many specifics about the challenge Mercedes is facing here other than the timeframe for the specific resolution of the product issue has been something that has moved around. And the estimate that we provided in my script today of resolution projected to be sometime in calendar Q1 of 2023 is our best estimate at this time. But you notice, I'm not saying whether that'll be January or whether that'll be March, the timeframe for resolution is still not as specific as we'd like it to be. So we continue to work with Mercedes as a good OEM customer of theirs to see what we can do to help. From a long-term standpoint, we don't view this as a systemic issue. We believe Mercedes will continue to make quality chassis for their OEM and retail consumers and we'll get back to business operating smoothly at some point in the future. The biggest concern with that issue is retail being frozen or lost while they pursue the resolution. And whether that comes back to have a material impact on the total number of wholesale shipments that OEMs like ourselves can ultimately deliver to the market. So we've been transparent with the financial community as to the Q1 impact, certainly this morning. And also that we project there to be a similar impact in Q2. What we cannot tell you, Tristan, this morning is, what that means for Q3 and Q4 once the issue is resolved, that will largely depend on the retail environment at that time.

Okay. So it doesn't sound like we're going to try to transition everyone over to ProMaster Chassis, we're just going to kind of stay the course and hope it resolves.

Yes. Again, we continue to partner with Mercedes technically on the issue. We continue to work with our dealers to try to provide them other products that they can retail to their consumers that are interested in similar size platforms, but the final details of the resolution program and ultimately the financial impact to ourselves or our dealers is still a work in process at this time.

Okay. Got it. Thanks so much.

Thanks.

Thank you. One moment for our next question, please. It comes from the line of Scott Stember with MKM Partners. Please proceed.

Good morning, everyone, and thanks for taking my questions as well.

Good morning, Scott.

Mike, you were talking about one of the bigger headwinds is dealer inventories for towables and the whole right-sizing process. Could you maybe expand on that a little bit as far as 2022 models that are in the field, and if you guys are feeling any need to have to discount more than normal notably on Grand Design?

Yes. Scott, thank you for your question. I'll break my answer down into two parts. First, retail; and then second, wholesale, and I'll start with the latter wholesale. Our two businesses, Grand Design RV and the Winnebago branded Towables in this segment have not provided what I would consider to be abnormally steep discounts to our dealers from a historical perspective to move product at this time. We came to the open house in the September/October timeframe with fall programs that we stated at the time we’re similar to our pre-pandemic fall programs in terms of benefits to the dealers. And we generally used the structure of the fall programs on both of those businesses throughout the rest of Q1 through November to ship product to the market. From a retail standpoint, we are certainly watching retail inventory carefully. The good news is that the market was pretty healthy in 2021. And the first probably 1/3 to 40% of 2022 and so subsequently, you did not have significant piles of excess or old inventory that were stuck at retail when the market started to slow down. But as inventories, as we've admitted in the Towables segment are healthy and ample, we do watch the aging inventory on our products. We have the ability through reporting here to look at inventory in different age brackets in the field. And each of our businesses then determines whether they work with the dealers when aging inventory is excessive. I would not say that at this particular time, the aging inventory in our Towable segment is a major problem. It could certainly turn into that over the course of 2023 if retail conditions are not as we imagined, and we would then have to deal with it at this time. But from a historical standpoint, as we sit here today, we do not have overly excessive aging inventory on towables in the field. But I can tell you that dealers and OEMs certainly have a sense of anxiety with the uncertain economic conditions, and we'll be monitoring that carefully. But Q1 did not include any significant retail support programs for aging inventory from our Towables businesses.

Got it. And regarding 2023 orders, we know coming out of Open House that there really wasn't a lot that took place, but dealers are going to have to have some 2023 product on their lots. Can you just talk about whether the order activity has picked up, and also in Q2, sequentially, what are we looking like, particularly on towables from a production standpoint?

So order activity, like a number of other questions, varies by category. Order activity in the Marine and the Motorhome space has remained reasonable. And what I mean by that is, as dealers are adjusting to the retail conditions in the Motorhome RV and the Marine markets, they are ordering in what we would call a rational reasonable level. And on those two businesses, you still see a healthy backlog as projected by our dealers, which again, we attempt to cleanse as regularly as we can to make sure it has integrity for our production planning purposes. From a Towables RV standpoint, Scott, we have not seen a meaningful difference in probably order taking here in the last 60 days. It remains lower than certainly the last couple of years at this time, which would be expected. And dealers are very cognizant of the inventory they're sitting on. The economic conditions around them with inflation, general inflation and rising interest rates, and they continue to be conservative with their Towable RV ordering pattern. So we really don't share specific information on production planning for current or future quarters that we're in. I can just tell you that daily, if not almost hourly, we continue to discuss with all of our businesses and brands the rightsizing of our production schedules to the market conditions and the wholesale appetite that our channel partners have. So we are acting accordingly in all of our businesses. Certainly, some more aggressively than others, Towable RV at the top of that list to make sure that we do not overproduce in the future.

Got it. If I could just slip one last one in. Looking at the total backlog, it looks like units in absolute value are down about the same amount. So is it fair to assume that on what is being ordered, that the pricing is reflecting the realities of what's going on in the market right now?

Yes. I would tell you that – and this is a good opportunity, Scott, to talk about inflation that we're seeing or not seen and how it relates to our pricing. Certainly, historically, we adjusted pricing preferably one time a year at the model year change. And then as we got into conditions in 2021 and 2022 with unexpected and rapid inflation. As all of you know, we were forced to take multiple price increases during a model year in order to try to keep up. And as Bryan Hughes has explained many times, there's been a sort of a timing element to that as to whether you're ahead of or behind the inflation that you're facing. We are seeing generally very moderate inflation in our business today with the exception of motorized chassis, which is where we're seeing our most significant inflation still sequentially and overall, in most of our other categories, our inflation is pretty moderate right now. I would not call it deflationary, but it has moderated to a meaningful degree. Subsequently, our pricing actions outside of the model year changes from 2022 to 2023. Our businesses, generally across the board have not felt the need to have to take price increases here recently above and beyond what they've priced at the model year change. We don't share a ton of information for competitive reasons on this call about our pricing behaviors. And so I won't comment on anything we have planned. But I would tell you the wholesale programs, particularly around Towable RVs continue to be sort of framed in the fall program context that our businesses took to Open House.

Got it. Thanks so much.

Thank you. One moment for our next question, please. It comes from Michael Swartz with Truist. Please go ahead.

Hey guys. Good morning. Just wanted to talk about Towable margins, and I think you've said a number of times that kind of – you're seeing a return to normal seasonality. So I guess I'm trying to understand in the quarter, just maybe the year-over-year change in margins. I think you benefited last year from price cost. But maybe talk about the moving pieces and kind of bridging that gap. I think there was a 600 basis point, 700 basis point contraction year-over-year? And then maybe how to think about that over the next couple of quarters, whether that's sequentially or year-over-year?

Yes. Good morning, Mike. This is Bryan. I'll address that one upfront and Mike can add on. I'd go back first to our comments last year for Q1, really strong EBITDA margins we had in towables in excess of 17% was certainly an outlier relative to the more typical lower seasonal Q1 that we would report on. And at the time, we had referenced pricing that was probably a little ahead of anticipated inflation. So that was certainly something that elevated the prior year. On top of that, if you take just the deleverage equation when you're faced with the top-line reductions that we were faced with in Q1 and using that 85% to 90% variable cost structure, that explains the bulk of the difference. So we probably had a little inflationary impact year-over-year relative to pricing because of the timing that we've talked about. And then largely, the rest was that deleverage that we would experience. So those are the two primary drivers. But the end result in EBITDA margin for towables is a more typical Q1 EBITDA margin if you look back into our history and pretty similar to Q4 and also sequentially more in line with each other as well.

Okay. And maybe just to clarify, I mean, going forward, the way to think about maybe the margin progression would look similar to what we saw pre-COVID is that just I mean maybe not in terms of magnitude, but just quarter-to-quarter flow. Is that the way to think about it?

That's our current expectation, Mike. As Mike was alluding to earlier, we're obviously going to be keeping a very close eye on how retail performs and how dealer inventory is performing as well, including aging. And so our current expectation, though, is that will follow a similar seasonality or quarter-by-quarter low at EBITDA margin. That's our expectation currently.

Okay. That's great. Thank you. Another question on margins, just in the quarter, I'm trying to understand, SG&A as a percentage of sales did come in a little above what I had modeled, and I think what most people in the Street had modeled. Was that a factor of just segment mix, i.e., Marine and Motorized outperforming Towable? Or was there something maybe investment related or just cost related in the quarter that elevated SG&A expense?

Yes, absolutely both. I think it's fair to say that our Motorhome businesses have in general a greater SG&A fixed component than does the towables. And so you do have a mix dynamic going on there. But then we would certainly also call out, as Mike did in his comments, we continue to make strategic investments that we know to be the right thing to do for the business long-term. And doing our best to hold on those that are most important, while obviously, managing SG&A as aggressively as possible on those things that are less strategic in nature. So I think you hit the two main points that I would have provided in my answer within your question.

Okay. Great. Thanks a lot.

Thank you. One moment for our next question, please. It comes from Fred Wightman with Wolfe Research. Please proceed.

Hey guys. Thanks for the question. I just wanted to follow-up on some of the ASP conversations. And I guess that you guys have been pricing to offset rising inputs, but is some of those bigger material costs potentially moving favorable. Would the plan be to pass that through to the consumer to the dealer? Or sort of, I guess, conceptually, how would you look to treat that?

Fred, this is Mike. I'll respond to that. Again, we generally don't share forward-looking pricing strategies or intentions. And we respect that at times, maybe some of our competitors choose to do so. But we've always maintained through the years that we are not a cost-plus pricing business that we are a market-based pricing business and that market-based pricing is ultimately set on a number of elements. Hopefully, long-term, based on the differentiation and innovation we bring to market that consumers are willing to pay for. So certainly, if we were to see significant deflationary elements within our build materials and our COGS, we would consider what that means, not just in the context of those of those costs, but also what our competitors might be contemplating as well and retail conditions. So we won't share specifically this morning any pricing intentions, but you can be assured that our businesses are certainly talking about a variety of scenarios depending on how inflation or lack of affects our business in the future. So our ambition is to always balance market share and sustainable profitability. We're neither overly focused, I would argue, on one to the negative dilution of the other. We try to find that sweet spot where we can drive market share that we think is right for who we are. But we also want to be candidly one of the most profitable OEMs in the industries we compete in as well so that we can reinvest in our future and continue to create strength.

Fair enough. And you guys gave us the chassis recall impact on the top line. Is there a way to sort of frame up the margin impact in the quarter? I mean you guys still posted double-digit adjusted EBITDA margin in the motorized category despite the chassis. I assume that there's a drag baked in there, too, but could you size that for us?

I'm sorry. Yes, we prefer not to disclose by chassis or by model there. So for competitive reasons, as you can probably appreciate.

Okay. Fair enough. Thanks.

Thank you. One moment for our next question, please. It comes from Bret Jordan with Jefferies. Please proceed.

Hey. Good morning, guys.

Good morning, Bret.

On the marine side, could you talk a little bit about the supply chain? I mean, obviously, power availability has been a big issue in the last 18 months. Is that something that is opening up? And I guess, is marine going to see a better first half of the calendar?

From a supply chain standpoint, on the marine side, over the last couple of years, we've certainly seen issues across different categories. But Bret, as you're probably aware, one of the most important, but also one of the categories that experienced some constraints was the actual engine side of the business. Over the last year, year and a half, we made a very conscious decision to put most of our eggs from a motor/engine standpoint on the marine businesses into the Mercury basket. And that's for a number of reasons. First and foremost, the supply chain challenges that we had with Mercury's primary competitor were very disruptive to our business. Secondly, we really think Mercury has done an excellent job from an engine technology and innovation standpoint and continues to set the pace of competition, particularly on outboards, and that's the category I'm really talking about here, outboard engines versus the others. We have seen Mercury continue to improve as a supplier for a number of different reasons. And so as we enter calendar year 2023, we have a higher level of confidence that the supply chain rhythm related to those components is going to be much more stable than it was in the past year, year and a half. Obviously, we'll take as many engines as the market, though is willing to absorb from us in terms of wholesale shipments relative to retail. But your question does give me an opportunity to state again how pleased we are with the Barletta pontoon business that we acquired now about 15, 16 months ago, how well it's performing and just the reaction that we continue to get from retail consumers to that brand's product line compared to the other choices they have in the market and the profitability of our Marine segment, particularly around Barletta's growth, Bryan and I have been very pleased with as well. So around 15% of our revenues this quarter came from the Marine segment. And I think the profitability was probably closer to 20%. That is a meaningful step forward versus prior first quarters and prior fiscal years in terms of the balance and diversification of our portfolio. And the two things I think outsiders continue to underestimate about our business is our profitability resilience across our entire business, but also our strategic intent and execution to diversify our portfolio. And this was another quarter where the hard work that we've done in the last three, four years has paid off in terms of having a solid quarter in light of market conditions.

Okay. Great. And then quick housekeeping. Do you know if the RVIA forecast includes a recession?

Bret, I think you'd have to talk to somebody at RVIA on that. I know they produce a range. We chose the midpoint here is what we generally aligned to during this particular release period. But we have representation on the statistics committee, but I can tell you the 391 number for calendar year 2023 is probably not connected to any sort of hard recession in the U.S. economy.

Okay. Great. Thank you.

Thank you. One moment for our next question, please. It comes from the line of Joe Altobello with Raymond James. Please proceed.

Thanks. Hey, guys. Good morning. Just going back to the marine side for a second. It looks like you added about 1,100 units into the channel here in Q1. How long would you expect that pipeline fill opportunity to extend here in fiscal 2023?

Joe, good morning. This is Mike. So there's going to be a number of factors which ultimately result in answering that question. And on this call, I won't be able to give you a precise answer, and I'll explain why. Certainly, the overall macro conditions around the marine industry are things we're watching carefully. While the marine industry has been a little healthier than the RV industry in the last year, and certain categories like pontoons, have been trending much healthier as of late than the Towable RV segment specifically. We do not believe, as you would expect, we do not believe that the marine industry nor some of its sub-segments are immune to any of the macroeconomic pressures that consumers are facing. Inventory is building in the marine industry across a number of different categories. And that is similar to Barletta. But the positive elements, which make it difficult for me to answer your question are the following. Barletta is a five-year-old business. We have not put the Barletta brand in all of the markets around the country that we believe that we can have a presence in. There are dozens of open markets that we have documented that we believe the Barletta brand can have a presence in today that they still do not have a presence in now. And partly because we prioritize our existing dealers when the supply chain constraints were very real as opposed to setting up new dealers. The other element that's difficult for us to put timing on your question is we are introducing two new lines to the Barletta business. Today, we only go after about 40% of the addressable pontoon market, and yet that business has grown to a top five player with only three existing lines or brands underneath the Barletta umbrella. We are adding a new lower-priced still premium lower-priced line called the ARIA. And we are also adding a line on the high end called the reserve, both of which have been introduced to the dealer base for the future. And as we stated, we have invested in capacity expansion for that brand, which is ongoing. So we believe that Barletta, and we'll have to do this in a very disciplined way can swim a little bit against the tide as the marine industry normalizes as well because of their market share momentum, their line expansion product-wise and their dealer expansion. And so we're going to be very disciplined, though. We have to watch, obviously, the temptation to overbuild and overstock, but that timing is going to be different than what you'll see in our other segments for sure.

That's helpful, Mike. I appreciate that. And then maybe moving over to RVs. It looks like your dealer turns, you mentioned this earlier about 2.8x. You're running about 2x pre-COVID, running about 4x post-COVID. It sounds like you expect that to stay within that 2.5x to 3x range, here in 2023. Is that a fair assessment?

So if you look at those numbers on a trailing basis, I would tell you that Bryan and I, we really have thought for some time now that as dealers came out of the frenetic sort of pandemic-inspired retail period that they got used to great margins and low working capital. And we have felt for some time that they would try to run their business on the RV side at probably somewhere to a half turn higher and so I think your range is right overall. It does vary by segment, Motorhome versus Towable. But if the industry was running to 2.5 in the past, we do believe dealers are going to try to run at 2.5 to 3 in the future. But that will be dependent, to some degree, as you know, Joe, on the volatility of the retail market. So yes, I mean, we expect about a half turn higher when the dust settles and we have to adjust our production planning processes to be able to fulfill the dealers adequately when turns are a half turn higher. But it's still very chaotic today. I'm not sure it has settled yet.

Okay. Great. Thank you, guys.

Thank you. One moment for our next question, please. It comes from the line of James Hardiman with Citi. Please go ahead.

Hey, good morning. Thanks for fitting me in here. So really appreciate the comments on both wholesale and retail. I think everybody at this point sort of agrees earnings power for fiscal 2023 is going to be down materially as the industry sort of normalizes versus the last couple of years. I guess my question is, if retail and wholesale for the industry play out the way that you expect, do you think that sets the stage for you to, again, grow the top and bottom lines as we look to fiscal 2024. And obviously, there's a lot of moving pieces there, right? Where are inventories as we finish 2023? How are you thinking about ASPs promotional environment, all of that. But ultimately, do you think we're going to exit the next year in a healthy enough place that you'll be able to grow again?

So James, first of all, good morning. Thank you for the question. As you saw at our Investor Day, a month or so ago, we absolutely have ambitions to grow. We certainly put both net sales and market share targets out for our overall business at higher levels than they are today. The path to overall growth will still continue to be a combination of organic growth, and we believe some smart, well-considered inorganic growth as well. The timing of both of those will be very interesting to see how it plays out because the organic growth will be tied largely to two factors: one, market conditions; and second, our ability to create growth opportunities in the business. I mentioned how we could do that on Barletta. I would say on the RV side, it will have to be through new products and innovation, as much as anything. The inorganic timing, as James, I know you know, is hard to predict. So we certainly have higher market share ambitions, as we've stated during our Investor Day presentation. And in order to reach those by the end of our fiscal 2025 year, we will need to make steady progress over the next three years. That element has been a little bit neutral here as of late for a variety of headwind factors, but we do anticipate that turning back positive at some point down the road. So I just can't comment on sort of when some of that can happen. But we're a very financially healthy company as well, although we stay paranoid about that status. And with Bryan's leadership, we make sure that we're structured in a very careful way. But we have the capability to make some inorganic investments as well strategically to match who we want to look like three to five to 10 years down the road. And so you'll see that happen as well.

That's helpful. And maybe to one of the last points you just made there, the sort of market share environment. Obviously, market share has been a big part of your growth algorithm for a number of years now. That's maybe stalled out a little bit here as of late. Maybe an update. I know a big part of that is this whole sort of clearing out of Tier 3 product, where do we stand with that? And is there an opportunity this fiscal year to sort of move beyond that and maybe outgrow the industry or under decline in the industry? I guess this is a better way to put that.

Yes. No. Our expectations for our businesses is that over time, we continue to take reasonable market share gains for who we are as a premium OEM. Most of the pressure we've been seeing on market share has been in two spaces. Towable RVs with the, what you cited, James, with the second and third-tier inventory in the field, but also some of the affordability questions that were raised earlier. In the very near-term, consumers are very price conscious. And on the RV side, we've also obviously seen other competition come to the market with Class Bs. We have been predicting that for years that it was going to be hard for Winnebago Industries to hold 45% to 50% share when most of our other competitors years ago were not candidly engaged in that category to the degree they are now. But each of our brands and businesses, both on the RV and the Marine side, have product plans, distribution plans and candidly, marketing and digital plans to make our brands more relevant, more appealing to our end consumers and then hopefully, obviously, with our dealers as well. So again, we watch market share carefully. We don't talk a lot about dollar share because it's very difficult to track. I would suggest that our dollar share candidly, is probably doing better than our unit share here in the more recent past because of our ability in the last year to pass through the pricing increases that we were able to do. So again, it's a balance of market share and profitability that we continue to pursue.

Got it. I appreciate the candor here. Obviously, it's a difficult time to predict much, if anything, given the macro uncertainty, but good luck now we're getting. Thanks guys.

Thank you. One moment for our next question, please. It comes from the line of John Healy with Northcoast Research. Please proceed.

Thank you, and thanks for taking my question. Wanted to just get your big picture thoughts, Mike. Just when I look at your comments that you talked about retail of 390 to 400 or so for 2023, if look at that shipment number, you take the lower end of the range. To me, that doesn't imply that there's a ton of inventory that is worked down in the industry. So I would just kind of love to understand your logic. And if those numbers kind of shake out? Are we still somewhat elevated going into 2024? I'm just trying to understand kind of some of the logic that kind of goes behind the thought process.

Yes. Good morning, John. I would say the logic emanates from a bottom-up point of view in this way. We really look at the Towable RV retail. We look at the Motorhome RV retail. We break it down into fifth wheels and travel trailers Class A, B and C. And there will be categories that we believe over the next year as a stable relatively healthy retail environment persists, which could see some actual inventory climb. I've mentioned many times before, we haven't dwelled on it during this call. That we've been under pressure, as an example, on certain parts of our Class A business from a supply chain standpoint. And we have not been able to be as competitive as we would like to be on shipment share on Class As because of challenges around some certain key components. As that relieves itself, we have a choice in the future to work with our dealers to continue to raise some field inventory on certain elements of that sub-segment. As the Class B business grows, as electric products are introduced to the market, there are various spots where we believe field inventory can actually in the RV industry rise carefully. That then is offset by places, particularly around sort of the mainstream Towable RV segments where we believe dealers would prefer to probably have less of those. So just a reminder that the numbers we give you are always macro and there are various moving pieces to them, and that's our best guess at this time. But we'll see how it plays out.

Understood. And then just on capital allocation question. When you look at kind of a 400,000 retail environment, does that make you comfortable – is that environment comfortable enough for you that you guys would look at acquisitions or look at buyback? Or do you scale back those things given the retail environment for the next 12 months or so.

I'll ask Bryan to take that.

Great question. Well, it's going to be a dynamic environment as we've been talking about throughout the call. I have stated before, and I'll reiterate it. Our capital allocation priorities really don't change given the environment. We're going to continue to focus on growth. Organically and inorganically, make sure our liquidity is sufficient, particularly at times like this where there's a higher level of uncertainty we'll target that range of 0.9x to 1.5x in terms of our leverage ratio and then returning cash to shareholders. And it's all dependent on the environment that we're in and our forward view of the environment, which we've talked about throughout the call as to how we allocate. So I think that, that's the primary comments that we would make. We did pay a cash dividend that was up 50% in this quarter. We held back on share repurchases for a couple of reasons. First, Q1 is historically a seasonally low cash generating quarter. And last year was the strong exception to that. But historically, Q1 is relatively lower than it was this year. And then second, as we talked about our free cash flow was impacted by working capital increases driven by continued supply disruptions and the Mercedes-Benz recall specifically. So our free cash flow generated in Q1 was certainly something that influenced our decisions around share repurchases in Q1 here. So I think that's the context that I would provide as it relates to capital allocation. And Mike, I'll turn it back to you if you want to add anything further.

No further comments.

Thank you, guys, and have a great holiday season.

Thank you, John.

Thank you. One moment for our next question, please. It comes from Brandon Rolle with D.A. Davidson. Please proceed.

Thank you for taking my questions and fitting me in here. Just quickly on margins, I think you had talked about the margin progression earlier in the call. Historically, it seems like there's – with the exception of last year during 2Q 2022, seems like there's a step up in margins for the Towable and Motorhome segments. Do you think margins have bottomed there?

Yes. We feel good about the increases that we've made to the Motorhome business over time, Brandon, we've talked about that in past quarters and how our current expectation is to maintain that double-digit EBITDA margin. And so you can see that over time over the last several quarters now, we've been able to accomplish that and even in more challenged times like what we're seeing now, we were able to maintain that double-digit EBITDA margin in the Motorhome business. So that's where we've seen the most notable change over the last three years now. On the Towables side, I talked about that earlier in our expectation that the seasonally low Q1 here is in line with what we've seen historically and in line with really our expectations. So a bright side to the margin story is certainly marine as you saw in Q1, marine is performing very well relative to the portfolio. And so we're liking everything that we're seeing in the marine and really in line with what we had expected to see when we brought Barletta into the portfolio. So that has played out in line with our expectations and what we anticipated. So a good story there.

Great. And just one last one. On the Motorhome side, you had talked about orders being reasonable. It looks like just from the data you provided, implied orders might have been down about 80% versus 2019 levels. Kind of how do you feel – is that reflective of kind of where demand is right now? Or is the channel filling up quicker than expected? Thanks.

Yes, Brandon, this is Mike. I guess the term reasonable is in light of the volatility in the world around us. Again, certainly, dealers are paying close attention to their overall inventory levels. I would tell you in the month of November, we got no new orders on Mercedes chassis as an example. And that was certainly different than a year ago. Almost a third of our field inventory on Winnebago-branded Motorhomes is on Mercedes chassis. And so it's hard to take orders when the dealers essentially know that, that's something that they can't really see forward to. So yes, I mean, it is chaotic in the way that a small dealer, a large dealer is looking at a variety of these categories. But again, relative in this order from positive to less positive Marine orders, Motorhome orders, Towable orders is the way that I would rank those. So we'll see what happens as dealers get into the retail selling season. We are coming up on show season here over the next three, four months. That begins in earnest after the holidays with a number of different shows, including the Florida RV SuperShow down in Tampa, I think the third week of January. And so we'll learn a lot in many ways over the next 60, 75 days about our prospects for the rest of fiscal year 2023 and calendar 2023 and subsequently, I think orders will definitely respond to whatever the retail activity is as we make the turn of the calendar year.

Great. Thank you so much.

Thanks.

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

Thank you, everyone, for joining our call today. From the Winnebago Industries team, we wish you and your families a happy holiday season and look forward to connecting in the new year. Thank you.

And thank you, ladies and gentlemen. This concludes today's call. Thank you for participating, and you may now disconnect.