Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Winnebago Earnings Conference Call. My name is Lisa, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Sheila Davis, Public Relations and Investor Relations Manager. Please proceed, ma'am.

Thank you, Lisa. Good morning, and welcome to Winnebago Industries conference call to review the company's results for the first quarter of fiscal 2013 ended December 1, 2012. Conducting the call today are Randy Potts, Chairman of the Board, Chief Executive Officer and President; and Sarah Nielsen, Vice President and Chief Financial Officer. I trust each of you have received a copy of the news release with our earnings results this morning. This call is being broadcast live on our website at winnebagoind.com. A replay of the call will be available on our website at approximately 11:00 a.m. Central Time today. If you have any questions about accessing any of this information, please call our Investor Relations Department at (641) 585-6803 following the conference call. Before we start, it's my duty to inform you this presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements. These factors are identified in our filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the company upon request. I'll now turn the call over to Randy Potts. Randy?

Thanks, Sheila. Welcome, everybody, to our conference call today. Sarah will get into the financial details in a moment. But first, I'll make a few general comments about our first quarter of fiscal 2013. Needless to say, we're very pleased with the quarter. The actions we've taken within our business, combined with improved market conditions, have created momentum. Our motorized sales order backlog grew 243% and towables grew 50% year-over-year, but also grew sequentially by 44% for motorized and 40% for towables. We also saw this growth across the entire product spectrum in both low and high-end products. As this backlog suggests, our products are well received by both dealers and retail customers. And we expect continued success as we introduce new models and floorplans in the future. We followed up on the success of our affordable new Winnebago Vista and Itasca Sunstar 26HE Class A models with new entry-level Class C units: the Winnebago Minnie Winnie and Itasca Spirit. We introduced the first Minnie Winnie and Spirit floorplan this fall at the Dealer Open House in Elkhart, Indiana. We showed a second floorplan just a few weeks ago at the National RV Show in Louisville, Kentucky. Production began on some of the new Minnie Winnie and Spirit models late in the first quarter and will be available for the spring selling season. On the opposite end of the price spectrum, we continued to have tremendous success in our high-line Class A diesel products, particularly the 42-foot tag-axle floorplans. As you might sense, we've become more agile in the creation of new products and plan to keep the momentum going by continuing to bring great new products to the market. We introduced exciting new towable products at Louisville, which were also well received by dealers. The brand-new Winnebago Ultralite trailer was shown for the first time and received Best of Show recognition from both RV PRO magazine and RV-Insight and online RV magazine. Weighing less than 6,000 pounds, it's easily towed with most of today's smaller vehicles. Also, a bright Cherry Red Minnie received a lot of attention, as it joins the Lemon, Lime and White Minnie trailers. We are working through the operational issues that have challenged Winnebago Industries Towables, and we filled important leadership positions within that organization. We believe Towables is now on the right path and will continue to grow going forward. And just one of many positive signs for our business, I'm pleased to point out that our retail and wholesale sales are outpacing the industry as evidenced by our increasing market share. With that, I'll turn the call over to Sarah.

Thank you, Randy. Good morning, everyone. I'm pleased to review with you the financial performance of the company's first quarter of fiscal 2013. Net revenues for the first quarter were $193.6 million, a 47% increase from the first quarter of fiscal 2012. The growth in revenue was a result of a 47.5% increase in motor home deliveries, coupled with a 3.2% increase in average selling price. The growth in our motorized revenues was notably due to the strong demand of one of our new entry-level Class A gas offerings that Randy touched upon earlier. Towable revenues were also up nearly 20%. However, these sales did not contribute to operating profits as we continue to integrate and realign the management structure of the subsidiary. The incremental motor home revenue generated in the quarter allowed us to increase our gross margins for the third consecutive quarter. In the first fiscal quarter of 2013, we achieved a consolidated gross margin of 10.7%, up 430 basis points as compared to a year ago. Strong demand for our products is the key reason for the margin improvement, as it allowed us to better absorb our overhead expenses. Other factors that assisted in the margin expansion included a strong product mix and seasonally lower spending in several overhead expenses, which include utilities and payroll taxes. Our total operating expenses increased on a year-over-year dollar basis up 37%, but when measured as a percentage of net sales, they were down 40 basis points as compared to last year. For the quarter, we earned $9.9 million of operating income, up dramatically from last year. This is another positive outcome from the increased sale volume and again highlights the leverage available in our business model. To further emphasize the leverage of our business, I would point to our flow-through…

[Operator Instructions] Your first question comes from the line of Kathryn Thompson with Thompson Research Group.

I'd like to focus first on gross margins, which were the highest, at least, we have since Q1 of '08. And you definitely had, obviously, some improvement in the last quarter. As you did in the last conference call, could you break out in a little bit greater detail how much this improvement is driven by pure volume, so in other words fixed cost leverage? Any changes in raw materials and also, lower discounting environment? And if there's something else that we should take in consideration in terms of the gross margin improvement and how we should think about it, going forward?

Kathryn, this is Sarah. In regards to the gross margin improvement, when you look at the 430 basis point improvement, my -- first, I'll comment that the incentive element is really not a factor on a comparative basis to last year. It's also really not sequentially, notably different. So it really is all -- when we look at the key reasons for the improvement, primarily, overhead absorption, we're seeing improvements from a fixed overhead absorption, also, some of the variable costs that have a little bit of an element of fixed to some degree as well. And when I look at 430 basis point improvement, nearly 90% would fall in that category. We did see materials, as a percentage, to be slightly lower than last year as well. And that is going to be a function of the mix of what we're producing and selling, as well as the fact that we're selling the next model year product and comparing to a prior year where there were price increases that were effective at the beginning of the model year. That really started in the fourth quarter and now plays out into the first quarter. So there is a component there. But fixed overhead absorption is a significant component. And then also, to some degree, some of our variable costs on that are more fixed in nature. I'll let Randy maybe follow up, if he has any further comments to that?

No, I think you covered it really well, Sarah. The increased volume certainly helps on the fixed overhead portion of it. And just a lot of positive things going the right way.

So based on backlog, and understanding you have fewer production days off but still, it would stand to say that you should continue to see good, at least, year-over-year margin growth as we look into the next quarter or 2?

Kathryn, that's very fair. And on the topic of discounts and promotional incentives, it will be a factor when we compare to last year in the second quarter of 2012. And that was a time a year ago that was very different from a business perspective or a demand perspective for us. We more encountered it in the first quarter through working fewer days. So that's why the production, on a year-over-year basis, is up so dramatically. But when we continued into the second quarter, we were more aggressive incentive-wise last year. And so in comparison, we could have some very positive comps in light of that.

Yes, assuming things stay robust.

We certainly, in our industry checks, have not seen any meaningful motorized discounting. So you're going to get basically the tailwind of more favorable comps from a discounting standpoint, in addition to higher fixed cost absorption. That's helpful. In terms of, maybe, the backlog kind of is what it is right now. But maybe, could you talk a little bit more about what are lead times to dealers and what is it, typically, from a seasonal standpoint? I understand we really haven't had very many typical years in the past couple of years. But what is it typically, and where do you want to be?

Kathryn, lead times vary dramatically based on what the product is, what product class it is, whether it has paint or not. That's a very big differentiator. I think we've typically said that, on average, lead times are probably around 4 weeks from the time we would bring it in the door to the time it's shippable. Of course, it may take more or less again, depending on the product class. That would be lead times as it would pertain to what it takes for us to process it. Lead times, as far as new orders that would go into our backlog, would be another story. Again, that would be dependent on the product class. There's been a lot of things in the news about Ford having trouble keeping up with the gas Class A chassis. So naturally, those orders are being pushed farther out. While Ford Econoline chassis are readily available, Freightliner lead times, I think, are pretty much in the norm. So it's a real mixed bag. As far as our goal, our goal is to try to have our work in process be as low as practical, which would improve lead times for units that are in process. As far as the goal for the entire order bank, again, even with those issues -- with the supply issues on chassis, some of those orders are placed for forward deliveries, too. So not every -- we're in a position where some of the orders are out there simply because people sensed that we're going to be busy and they want to make sure they have their spot in our production system.

I mean, it's fair to say that the lead time is well more than 4 weeks right now. In aggregate and on average.

For a new order, Kathryn, is that what you're saying? If we were to get a new order today?

Yes. And really, what I'm trying to do is get a better sense of not just the total number in terms of backlogs but from a seasonally adjusted basis, if someone were to place an order today, for instance, if on a normal basis, it would take 4 to 6 weeks; now it might be closer to maybe 8 weeks on average. And that's really just what I'm trying to get a sense of magnitude.

I guess, in a very general sense, that's probably a fair assumption, give or take.

Right. And sorry, you all typically give ASPs by product line?

Yes. On comparison to the prior year, as I touched upon earlier, overall, our ASP grew 3.2%. If we break out the categories, the Class A gas, on average selling price for us in the first quarter, was $90,662, as compared to $95,466. So we actually had a decrease in that category of 5%, and that was entirely mix-related due to the great success we've seen at that low-priced entry-level Class A offering. On the Class A diesel side, we had the exact opposite. The average price went up quite a ways from a year ago, also influenced by mix. It was $204,912 versus $187,745, still up over 9%. Our Class A average in total then, was $131,508 as compared to $130,391. For Class C pricing, our average sales price in the quarter was $79,121 versus $77,393. And our Class B ASP was $76,814 versus $74,980. And then, the blended overall average selling price is $111,941 versus $108,448.

Your next question comes from the line of Morris Ajzenman with Griffin Securities.

Follow-up lead time, other questions to that. Talking about employee headcount, and I know in the past you've always said that's easier said than done as far as getting new skilled workers. But where are you in this stage, as far as having sufficient workers, need new workers, and is that going to be a drag on production?

We hired probably 12% more hourly employees in the first quarter, almost similar to what we hired in all of fiscal '12. That's roughly 160 people. And when we look at where we are, based on the schedule in front of us for the second quarter, we have increased our headcount to a sufficient level. We're still supplementing by working overtime in many, many areas of the company, and that was a -- that's been a factor for the last 6 months plus. And we're going to have to continue to hire to support attrition. But in regards to the level of our employment, we're not too far where we think we need to be based on our schedule as we have it laid out. Now that's definitely still fluid. And we're evaluating that every week based on where the order position does move. But I think we're at a reasonable level at this juncture.

Second question, unrelated. Recent trends. Any change in demographics? Rather than the 55 and older, was there younger spending coming in? And then, in incremental basis, what it was traditionally the past? And secondly, any areas of strength or weaknesses geographically in the country?

I can't say that we've seen any substantial changes in demographics. I think it's probably in the -- 5 years ago, we were talking about seeing a younger buyer coming to the market. And I think throughout the recession, we saw that retract some. And while I don't have the data, I speculate that younger buyers are probably still recovering from the housing problems, that type of thing. The market is still -- I mean, even though we're reporting really good news here, we're still looking at a market that's dramatically smaller, overall, than what we were looking at when we were talking about those demographic changes. So I think, until you really see some general market expansion, I don't see a -- I wouldn't expect a big change in demographics. As far -- oh, your other question was regionally?

Yes.

Well, we've always talked about the West struggling, California, notably, and it continues to be tougher out there than to the East. Although, I think it is improving with the market in general.

Your next question comes from the line of David Whiston, Morningstar.

First of all, Sarah, did I hear you right that the extra week added $0.02 EPS in the quarter?

Yes. We looked at the incremental week, it's about an 8% lift. So just in simple math, that equates to about $0.02 per share.

Okay. And on the new credit line, there's a fixed charge ratio covenant that would kick in if you guys repurchased more than 25 million of stocks in the first 12 months. So are you willing to go over that 25 million, given that clause?

Yes. It's all going to be dependent on where we see ourselves. We set that amount where we thought we had some reasonable room to move. But it's more going to be a function of the opportunity we perceive to purchase more stock, and that won't be a barrier for us if we wanted to proceed in that manner.

Okay. Any update on the auction rate security front?

Well, as you can see in the balance sheet that we released, there was a small amount of our assets listed as short term investments. That represents redemption activity that happened inside of December. So what we have seen as of late is, every 6 months, some periodic redemption's at par. But nothing more notable than that has occurred. And so we continue to hold a long-term investment as noted on the balance sheet of nearly $9 million.

And finally, probably more for Randy. But any concern about higher taxes next year in 2014, 2015 reducing spending on motor homes?

Well, sure. I try not to worry about what I can't control. But naturally, you could rationalize that if we do see tax increases on a certain class of individual, that could affect their discretionary spending patterns. But I have to wait and see.

[Operator Instructions] Your next question comes from the line of Barry Vogel with Barry Vogel & Associates.

The first question I have for you, Randy, is one of the most interesting statistics that came out of your press release, in my opinion, was the fact that motor home inventories are still flat at around 2,000 units, which it's been quite many, many, many quarters.

Yes.

Which means that your retail activity must be extremely strong for the inventory at your dealer level to not to go up. Is that a correct assumption?

Absolutely.

Having said that, Sarah, could you hone in a little bit of better color on your retail registrations or agencies only, separately, for September and October?

Well, when we look at our retail registrations, we're looking at that in regards to -- and there's a table that we incorporate into our Q each quarter that illustrates where our retail registrations are. And it's collectively, though, and we're looking at retail registrations in the -- inside the quarter. As compared to last year, it was up 34.5% for our company specifically. And that's going to also include the month of November, as it relates to unreported staff survey information. When you look at staff surveys, as reported to them, month of October, you see that we are gaining market share. From a Class A gas perspective, we're at 23.5%, that's up from 22.1% a year ago at that same time. Class A diesel, we have also moved the needle, we're up to 19.3% as compared to 17.5%. And Class C, we've moved, we're now at 17.9% as compared to 17.1%. From a B standpoint, we have a bigger story there in light of the fact that we had very low dealer inventories and not a lot of product available to be retailed a year ago. And so that Class B retail market share is now 16.2% and last year it was 6.3%. But overall, we're seeing growth in retail in every category. And it's really evident, also, when you look at our backlog position.

The numbers you just gave were for October, correct?

Those are all October, yes.

That's very helpful. Now...

Let me clarify, Barry. It's year-to-date through October, but...

Those numbers you just gave us were year-to-date?

Calendar year-to-date.

Yes, calendar year-to-date through October.

So the first 10 months of the year?

Right.

Okay. And could you give us a little color on the comment about chassis constraints?

Well, as I mentioned to Kathryn, the most notable one has to do with Ford gas Class A, the frame rail chassis. And that's even been in the news lately. I think RV Business or RV PRO did a little article on that earlier this week. And there is a general increase in demand for that chassis across the industry. And naturally, we're working those folks very hard to get all we can, as soon as we can, because it is probably -- well, it is our biggest chassis constraint. And as I mentioned, the Ford chopped vans, the Class C, the Econoline product is readily available. Freightliner, I think, is holding their end of the market up very well there. They're supplying as needed. And of course, our longer lead time chassis, which would be the Mercedes chassis, isn't a constraint for us, but it does require more planning than the rest because it's built abroad.

Now is that Ford Class A gas chassis that you just mentioned, is that the most important chassis in the industry for gas product?

That's probably -- well, it's the most widely used chassis in the industry for gas A bodies, absolutely.

Okay. Now as far -- Sarah, as far as operating rates, can you give us some idea in the quarter what the operating rate was for your motorized operation as well as your towables?

Are you looking at it from a capacity perspective or a weekly production rate? What are you...?

Capacity.

We are completely utilizing our capacity to its full extent and have been hiring here inside the quarter. If we wanted to talk about physical plant capacity, if we had more employees and all of the materials we needed, we used 60% of the physical capacity. But we've been in a mode of increasing our weekly production rates all throughout the summer and into the fall, and that's also the plan is in place for the second quarter, in light of where our demand is at.

Right. And so as that continues, your percentage of your physical capacity would go up, correct?

Yes.

And where are you in your Towables operating rate as a percentage of physical capacity?

They have a physical capacity to produce, as we characterize it, in the 8,000 range. They're using a pretty small percentage of their overall physical capacity. If I look at it on a rolling 12-month basis through the first quarter, we have wholesaled about 2,500 units. So as a percentage, they're probably more in the 30% range of actually utilizing their physical capacity.

Okay. And as far as the operating loss which you alluded to for Towables, can you give us some idea -- because it wasn't that large quarterly last year, but you did lose money last year. Can you give us an idea of what it was in the quarter?

Yes. The operating loss for Towables was nearly $1.4 million in the quarter. So it was larger as compared to where we were a year ago. A lot of the challenges experienced there were related to warranty and inventory types of adjustments. So it was a drag for us, overall.

Would you say that that's going to come down sharply to a breakeven level sometime during the year?

Yes.

Okay. And as far as your current plans for capital expenditures and depreciation and amortization for this year?

We're looking at CapEx for the year to be in that $6 million range, and depreciation expense maybe slightly under that, in the $5 million range.

Okay. And as far as your share buyback program, you've been pretty aggressive, relatively speaking to the past, and you averaged about a little bit more than $12 a share. Do you have any inside price constraints that you're not going to pay more than a certain amount for shares?

Well, we have an analysis or a grid that we reevaluate on a periodic basis. So yes, we do set those parameters, but those are not going to stay the same. We use them for a period of time and then, recalibrate. So that's the formula that we're using. As we commented on during our October, our fourth quarter conference call, we made purchases on the open market. And then also, during our blackout period, we have filed 10b5-1 agreements. So we have the ability, also, to buy during a blackout. And we did fully utilize that last quarter. And we've had a plan in place for this quarter as well. And so we definitely, to your exact point, been more active in this in the last 6 months, 5 months.

But when you use that plan, do you set a price ceiling?

Yes, and a floor.

Right. So you have a set -- it's a range?

Yes, we have a range. And -- yes.

Well, I must admit, at one point, people thought you were dead. I think that, that was premature.

We did, too, Barry.

Your next question is a follow-up from the line of Mr. Morris Ajzenman.

Barry kind of went through the Towables, which was going to be my question. It's still a very small part of the company, but when you look at it, it's near your growth. And you spoke about last quarter and this quarter, some operational issues and now you've grown some inventory and warranty. And then, you alluded, sometime this year, things -- they're under control. I mean, where are we with the, I guess, the new team operating that unit? And once that gets sorted out, I think you've always stated in the past, that's an area you wanted to look to expand and to grade it. Can you just kind of give us just -- where are we now with these issues because it started really well a number of quarters back, and I guess, the last few quarters have been very difficult. Just kind of rehash what's happened there and when you really believe we're going to start seeing additive results from this from a profitability perspective, et cetera, et cetera?

Well, I'm very disappointed in how things have gone with that piece of the business, obviously. And we're not waiting for it to fix itself. We've made a tremendous amount of changes as we've said. We brought a lot of new people on board. It's already making a difference operationally. We talked about the unit that we showed at Louisville, the Winnebago Ultralite, and that was -- that kind of served to reinvigorate the enthusiasm around the business. So we're getting -- the good news is, we still have a lot of opportunity there, as shown by the way that product was received, that and some others. But we've got to go back and get some of the details right, so we make money on those sales. And we've had a lot of sales, and that's what we were very excited about as we reported on that business earlier in the year. It's just we didn't have some things in control that we thought we did. And those sales weren't as profitable as they needed to be, as you can tell. So we've got to go back, cross the t's, dot the i's. The orders are there, the opportunity is still there, we just have to make sure we've got all the details right this time. And you learn from your mistakes and we've got a lot of things in place to assure us back in Forest City that those folks in Middlebury have it right this time.

And from our perspective, not trying to really pin you down but, would this current second quarter still be difficult from an operating basis? Will the third quarter start having back in the black? And what sort of timetable where you'll start contributing to the bottom line?

Yes, the back half of this fiscal year is when we see things align and turn it around.

There are no additional questions. At this time, I would like to turn the presentation back over to Mr. Randy Potts.

Thank you. As you can tell, there's optimism in the air here at Winnebago Industries. We're improving how we do business, becoming more agile, responsive and efficient. We've launched new and innovative products and even more are on the way. We also believe we're seeing positive signs in the marketplace. Dealer inventory continues to be relatively low, the inventory on the dealers' lots is fresh and the RV market continues to recover. I'd like to thank everybody for joining the Winnebago Industries conference call today. And I look forward to talking with you again on March 28, when we report our results for the second quarter of fiscal 2013.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.