Good day, and thank you for standing by. Welcome to the Winnebago Industries Third Quarter Fiscal Year 2023 Earnings 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] 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 third 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 third 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. And as always, thanks to everyone for your interest in Winnebago Industries. I will provide an overview of our fiscal 2023 third quarter earnings results and then pass the call to Bryan Hughes to cover our financial results in more detail. Following Bryan's comments, I will return and offer some closing thoughts before the Q&A portion of the call. Winnebago Industries' third quarter results reflect many of the same macro dynamics we experienced in the second quarter, including subdued consumer demand for RVs and a cautious dealer network, making for challenging RV comparisons to a year-ago period of tremendous growth. And while demand for new marine products in the categories we compete in has also slowed, this business segment continues to be more robust and provide valuable financial diversification within our portfolio, bolstering our consolidated results. We are working extremely hard to anticipate and navigate these trends through the rest of fiscal year, and I am very proud of our Winnebago Industries team members for their hard work, determination and passion during the quarter, and for continuing to reinforce our golden threads of quality, innovation and service. Overall, for our fiscal third quarter, we achieved $900.8 million in net revenues, consolidated gross margin of 16.8% and adjusted earnings per diluted share of $2.13. While our results are down from the historic year-ago period, they remain above pre-pandemic levels and continue to demonstrate the strength of our evolving and diversified portfolio of premium outdoor recreation brands and the dual focus our incredible Winnebago Industries teammates have of taking care of our customers and operating the business with discipline. Our consolidated results were resilient as top-line declines in our RV segments were offset by robust profitability in Towable RVs and continued dollar growth in our Marine businesses. Consistent…

Thanks, Mike, and good morning, everyone. Fiscal third quarter results lap a record performance in the prior year as a result of pandemic-driven demand, which significantly impacted our year-over-year comparisons. Third quarter consolidated revenues were $900.8 million and were 38.2% lower than the $1.5 billion recorded during the third quarter of fiscal 2022, driven by lower unit sales related to RV retail market conditions and higher discounts and allowances compared to the prior year, partially offset by favorable carryover price increases. As Mike mentioned, we continue to benefit from our diverse portfolio of premium brands in multiple segments across the outdoor recreation industry as growth in marine sales mitigated top-line declines in our recreational vehicle segments. The mix of our businesses continues to produce a meaningfully improved consolidated sales result relative to the RV industry. Gross profit for the quarter decreased 44.5% to $151.4 million versus $273 million during the third quarter of 2022. Gross profit margin of 16.8% was 190 basis points lower than last year. These declines were driven by deleverage and higher discounts and allowances compared to prior year. Despite recent headwinds in the industry and as context, gross profit margin remains above pre-pandemic third quarter 2019 levels. Third quarter operating income was $80.5 million and third quarter net income was $59.1 million, down 54.5% and 49.6%, respectively, compared to the prior-year period. Reported earnings per diluted was $1.71 compared to $3.57 in the same period last year. Adjusted earnings per diluted share decreased 48.4% year-over-year from $4.13 to $2.13. Consolidated adjusted EBITDA was $96.4 million for the quarter, which represents a decrease of 49.7% from $191.7 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…

Thanks, Bryan. And now, a few closing comments before we get to the Q&A session. Looking ahead, we will continue to actively manage production levels through ongoing macro challenges and a dynamic demand environment for our outdoor products. We are committed to controlling what we can through ongoing efficiency enhancements, disciplined execution and cost management as we continue our work to drive long-term value creation for all of our stakeholders. Regarding questions we receive from the investment community every quarter about future RV industry's retail and wholesale forecast, here is where we stand today. Winnebago Industries supports the recent RV Industry Association's shipment forecast range for the calendar year 2023 period. And we will withhold comment on the RV Industry Association's 2024 calendar year shipment estimate at this time as we wait to see the remainder of the calendar '23 year play out. On the retail side for RVs, in calendar 2023, we are generally seeing multiple industry stakeholder views aligned currently around 350,000 estimated retail units for this calendar year, and that feels appropriate to us as well at this time. We are entering our fourth and final quarter of fiscal 2023 with a strong balance sheet, having completed multiple inorganic and organic investments in support of future growth strategies and a sequentially improved inventory and working capital position. We are closely tracking and adjusting to market conditions with a focus on profitability, market competitiveness and a preferred lot position for our premium brands with our channel partners. Our ongoing share repurchase activity and regular quarterly dividend underscores our confidence in the long-term strength of our business. Our people are also what sets Winnebago Industries apart from the rest, driving our results and positioning us for long-term success. I am excited about the overall health of the portfolio as we head into the final stretch of fiscal 2023. We are confident in our ability to continue to deliver for all our stakeholders, and 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 for this morning. I will now turn the call back over to the operator, who will open the line to your questions.

Thank you. [Operator Instructions] And our first question comes from the line of Craig Kennison with Baird. Please go ahead.

Hey, good morning. Thank you for taking my questions. I guess I wanted to start with RV inventory. How much more RV industry destocking is needed in your view? And what percentage of your RV dealer inventory is still model year 2023?

Good morning, Craig. This is Mike. I'm going to start with the latter part of your two-part question. You stated model year 2023. I'm assuming you may mean model year 2022.

Yes.

That is -- okay. That is the aging inventory that we most often get asked about. On the RV side, we actually feel quite good about where we're at currently with model year 2022 field inventory. If I were to aggregate all three of our brands, we think we're probably somewhere in the 10% to 15% range of total current RV field inventory that is model year 2022, which we believe is considerably lower than the industry average at this time. So that is probably one of the reasons, candidly, we're seeing dealers put a little bit more emphasis on some other competitive brands' 2022 inventory in trying to clear those out before the model year 2024 shipments begin here in the next couple of months. So again, we feel good. In terms of where we're at in the destocking phase, if you noticed in our comments this morning, we referenced support for the RVIA shipment number in calendar '23 of that midpoint of 297,000 units. And we referenced support with roughly 350,000 units of retail in calendar 2023, which obviously mathematically would show about 50,000 units being destocked. We believe we're closer to the end of the destocking phase in the RV industry today than we certainly are to the beginning. And so, our hope is by the end of this calendar year, probably sometime in the late fall as we turn the calendar page into '24 that dealer inventory in total, quantity and mix, will be in good shape as we begin the calendar 2024 year.

Thank you. And then I'll have -- I'll ask the same question really on the Marine category. It looks like you added significantly to dealer inventory. I'm wondering what accounts for that increase? I'm sure you've added dealers. I'm sure there's been some restocking, and you mentioned something about some retail sold units that are still not counted as retail units. Maybe you could just expand on that.

Absolutely. The majority of the field inventory unit increase in the Marine segment is due to the Barletta pontoon business. And there's a couple of factors at play here. One is the Barletta pontoon business is still young, and we continue to expand that business in two distinct ways. First of all, in product. We have recently introduced two new products to the Barletta catalog in the Aria, a more volume-driven lower-priced offering, and the Reserve, which is now the very high end of the Barletta pontoon menu. Both of those brands have seen load in stocking inventory year-to-date versus no shipments on either of those two brands a year ago. Secondly, we continue to expand dealers within the Barletta business. In 2021 and 2022, we virtually halted any dealer geographic expansion of the Barletta brand because of the supply chain challenges that restricted a normal flow of shipments to our existing dealers. We did not think it was fair to set up new Barletta dealers if we couldn't serve our existing dealers well from a supply standpoint. In this 2023 year, we have begun to open up new markets with the Barletta brand, and we have begun shipping stocking inventory to some of those markets as well. The last thing I'll mention with Barletta inventory, and Bryan mentioned this, I believe, in his comments, the unit number you see in field inventory today has roughly 600 units of retail sold but not delivered units for the Barletta brand as of the end of our third quarter. And so we feel even better about the field inventory position in light of those units being subtracted from that field inventory number you see in our materials today.

Yes, just to add to that a little bit, Craig, we're giving that insight primarily so you're thinking about the calculation of turns the right way. It's particularly true every May. The seasonality of the Marine business will always have a chunk of retail sold not yet delivered each May we report. And so that was true last year, it's true this year. Sequentially though, sequentially from February to May, it's going to have an impact on that turns calculation. So, we just wanted to make sure we provided that additional insight, but as you're calculating turns, you're taking that into consideration appropriately.

Great. Thank you.

One moment for our next question, please. And it comes from the line of Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Good morning.

Good morning.

Good morning.

How did retail trend over the quarter? And then, what are you seeing so far in June?

Tristan, good morning. This is Mike. I will speak a bit to the flow of retail in Q3. We won't offer much insight into June at this time. But from a May standpoint, our May retail results for the RV business were slightly improved, but similar to what we saw in April. What was notable was one of the last weeks of the month of May, we saw a much better RV retail week in the last week of May than we had seen in the previous weeks of May. So, if you're looking for green shoots of a little bit stronger year-over-year comparisons, we saw a little bit of that at the end of May. But cumulatively, May was similar, if not, slightly improved versus April RV results. On the Marine side, we did see a further degradation of particularly pontoon retail from a comp year-over-year percentage standpoint in May than we did in April. We still saw a seasonal increase as we generally do, but we did not see retail hold on the pontoon side as much as we would have liked in the month of May. So hope that helps, Tristan.

Okay. Thank you. And then, a longer-term kind of philosophical question. How are you looking at your ASPs and kind of affordability given your premium brand and premium portfolio as we kind of enter fiscal year '24?

Obviously, as you stated, we are a portfolio of premium brands. And so, as really part of our business model, we are justifying to dealers and to end customers constantly that price gap between our premium brands products and the lower-priced products in the market. And so there's always healthy tension as to what that step-up difference is between us and a competitive, less premium brand or product offering. And our businesses today are still razor-focused on managing that premium gap. Because of the size that we are in our respective industries, we tend to not always be the price leader in terms of movement. And so therefore, we do our best to monitor competitive pricing activity, street retail price activity through the dealers and adjust pricing accordingly in ways that are traditionally aligned or comfortable with each brand. Some brands we have in our portfolio have a little bit more honed practice of retail discounting or support, and some of our brands tend to shy away from that and focus more on invoice pricing or support to the dealer. So we're watching that carefully given that many around the RV and marine industries have questioned the affordability concerns of the lifestyle with both the price of goods rising and the cost of retail financing, and so our businesses are managing that in various ways. You can see in our results this quarter that, in some cases, within some of our segments, the ASPs went up. And I believe in our Towable RV segment, the ASP actually was a little lower per unit than at least in the recent past. So that's a dynamic topic and one that our businesses are certainly trying to stay on top of.

I'll just add one more thing to that, Tristan. As you can appreciate, the more disciplined you are in your production or capacity utilization and forward-looking that you are, the less of a challenge or problem you create for yourselves in your own finished goods and the need to move products. So, we take great pride in also having a good forward view, a very disciplined approach to our build schedule. And that helps us as well, we believe. But it also does show up in the pricing and the discounting that's necessary for us to do relative to others perhaps.

Got it. Thank you.

One moment for our next question, please. And it comes from the line of Scott Stember with ROTH Capital MKM. Scott, please go ahead.

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

Good morning, Scott.

Yes, good morning, Scott.

In the release, you guys talked about how your margins benefited from some carryover pricing. Can you talk about how we should expect that to flow over into Q4, particularly, I guess, with the final purge of '22 models and if you're expecting any discounting on '23 ahead of the '24 coming up?

Yes, Scott, good morning. This is Bryan. I'll take the initial stab at that and Mike can pile on if needed. We're seeing still inflationary pressures on two segments from a year-over-year perspective. So, the Motorized segment and the Marine segment are both seeing year-over-year inflation. And then, likewise, that carryover pricing, that largely offsets that inflation. On the Towable side, we are seeing year-over-year -- we're starting to see actual declines year-over-year and so some of the pricing will reflect that inflation year-over-year as well or deflation, if you will. On a sequential basis, it's become pretty neutral. So, the cost environment sequentially is flat for both Motorhome and Marine. We're actually seeing on the Towable side some stability as well now sequentially. So I think what you can expect from us going forward is pricing that mimics or follows that year-over-year inflation such that, that net equation is pretty neutral and we expect that likewise for Q4.

All right. And just for modeling purposes, I know you guys don't guide, but obviously, you have some very dynamic market conditions going on right now and lots of reports of June and July, a lot of time being taken down just to make sure we get the 2022s out. But maybe just give us a little help on what to expect from a production standpoint in the fourth quarter? And second part of that is, when will you be starting to produce '24s and shipping them out?

Good morning, Scott. This is Mike. We generally do not share production downtime information specifically. And those decisions, as you might expect, are made on a brand-by-brand basis. It is likely, however, that Q4 of fiscal year '23 will see more down weeks than we saw in Q4 of fiscal '22. We worked very diligently in Q3 to try to move as many of our remaining model year 2023 products across all of our businesses as much as we could. And there is some remaining model year 2023 product that we continue to move, particularly in the RV businesses here in the month of June. But it is important to us that we get rid of our internal model year 2023 product before we start shipping model year 2024 product, because it's highly likely we would see dealer pushback on 2023 pricing if we wanted to start shipping 2024 product too prematurely. In several of our businesses, we have already begun to make model year 2024 product, but we have not yet started to ship in most of those businesses that product yet. But that will be happening here over the course of Q4. We do imagine that Q4 will see some pressure on the top-line due to the fact that dealers are resistant in taking much more model year 2023 product before the model year 2024 product hits the market. That's in line with both their destocking mentality currently, but also their desire to obviously protect their margins and not take any further "aged product". So again, we anticipate Q4 could see some top-line pressure due to that transition, especially in the first half of our Q4 period.

Yes, I think the only other detail I would add behind that, Scott, is the Marine segment, in particular, as Mike alluded to, is seeing that slowdown in retail, and we were in pretty heavy inventory build mode in the marine business last year in Q4. So I think the comparisons get tougher as a result of the combination of those two events.

And if I could just sneak one last one in. Your backlog, does that have much, if any, '24 orders? Or is that more just '23s?

It depends by business, Scott. As an example, we had a Newmar dealer meeting in, I believe it was late April, where the Newmar team essentially pitched and took orders on future model year 2024 product. So some of the backlog in the Motorized segment, as an example, includes those Newmar orders on 2024 product, which is generally the first probably six to six months of the Newmar model year 2024 year. I would say the other brands, the product was probably ordered under the guise of a 2023 timing, but that unit will be delivered most likely in Q4 as -- or Q1 as a 2024 model year product. So, even if the order was written as '23, most likely, it will be supplied as of 2024.

Got it. Thanks, again, guys.

Thanks, Scott.

Thank you. One moment for our next question, please. And it comes from the line of Fred Wightman with Wolfe Research. Please proceed.

Hey, guys, good morning. Mike, I'm hoping you could just help us rationalize. You sort of laid out the expectations for softer consumer demand and cautious dealer orders here going forward. But then you also talked about some really strong demand at the end of May. So can you just sort of help us rationalize those two thoughts?

Good morning, Fred. I think it depends on -- one is retail that I referenced in terms of a good single week of retail comp wise that we saw in that last week of May that was promising going into June. Whether that's the sign of a sustained trend in terms of stronger comps year-over-year, less down as an example, is yet to be seen as we continue to travel through the summer selling months. I would say the top-line shipment demand is more predicated in both the RV segments, but also now the Marine segment on dealers' appetite for inventory. As I commented earlier in the Q&A, I do believe we're in the later stages of the destocking cycle here with dealers, especially on the RV side. But dealers continue to be very focused on moving model year '22 product, limiting further exposure of model year '23 and then being very careful about their opening model year 2024 products that they will take. The good news is Winnebago Industries is in excellent shape on model year 2022 product. We are also beginning to see some of those second or third tier branded inventory begin to clear from some of our dealers' lots. And we feel we will be in a good position timing-wise, hopefully, again, later in the calendar year 2023 and especially as we move into calendar 2024, to begin to see some benefits from a more one-to-one shipment to retail reordering cycle that we hope to transition into. So, I can't reconcile a single week of retail in some of the top-line demand dynamics, but we'll just continue to monitor it as best we can.

Fair enough. And then, can you just sort of walk through the different margin performance across the two RV segments? I mean, Towables was pretty good on a year-over-year basis despite all the volume declines, but it looks like Motorized took a step down, and it sounds like part of that is due to the ERP issues. But what exactly explains the different trajectory between the two RV sectors?

Hey, Fred, this is Bryan. I'll take that one. On the Towable side and the Motorized side, the biggest lever by far is volume and the deleverage that happens. I'd say the Towables segment has a higher percentage of variable cost than the Motorized segment. That's by virtue of several factors, but -- that I'm not going to get into. But I think you have to assume a higher variable cost structure on the Towable side than the Motorized. But deleverage and the volume declines associated with it is the biggest driver by far. I'd say the allowances and discounts, we mentioned that in both segments as well. That's the next largest impact. And then the difference that you had in the quarter between Towables and Motorized is Towables had a favorable experience in the warranty costs, continue to see some good results from Grand Design in particular, and the focus on their quality in their production and what that -- how that translates into warranty costs in the long term. So we had some favorable experience there in Q3 for Towables that helped that segment in particular, and that's why we called that out. It helped that segment deliver higher margins. And then as you mentioned, on the Motorized side, we did have the ERP implementation. This is our third phase. First couple of phases were in prior years, and they went quite well. This third phase stood up several of our verticals. One vertical, in particular, struggled with that ERP implementation, and that caused some disruption for us in the quarter. So I called out 1 point to 1.5 points of margin degradation -- EBITDA margin degradation as a result of that implementation. We think we're largely through the worst of it here sitting here today. And so it was something that we felt we should call out though for our quarterly results. Those are the biggest differences. The deleverage dwarfs pretty much all other drivers as it relates to the margin percent.

Got it. Thank you.

One moment for our next question, please. And it comes from the line of Michael Swartz with Truist Securities. Please proceed.

Hey, guys. Good morning. Just maybe following up on margins on Fred's comments, but maybe at a more holistic level. Just the last three quarters, we've seen you pretty consistently in this gross margin range of the high 16%s. And that comes despite obviously the volume deleverage and some of the input price aspects and now allowances coming back. So I guess my question is, knowing you don't give guidance, but is kind of 16% -- high 16%s a floor level to think about as we try to model out for fiscal '24 and '25?

Yes. Good morning, Mike. Thanks for the question. This is Bryan. I think the sustainability of our margins, we've demonstrated that over the longer term. I hate to comment on Q4, in particular, as you're thinking about Q4, we're going to continue to have pressures from the retail environment, from the inventory levels, as Mike was just talking about and the associated environment overall for pricing and discounting. That's going to be a headwind that we continue to face in the near term. Now, obviously, over the long term, we're going to differentiate through the focus that we have on quality, on service, a differentiated product through innovation, things such as Lithionics and the upside that, that should deliver to us in the long term will be tailwinds. But I think that near term, between the deleverage and the sales declines that we have, as well as the market pressures on pricing, those headwinds will be tough to maintain in the near term, the kind of margins that we've had historically. So we're going to continue to work very hard at it, finding the operational efficiencies as well and being very disciplined in our production schedules. We think, as I mentioned earlier, that discipline helps to mitigate some of the challenges in the discounts and allowances. But yes, we're still subject to the overall market there. So I think headwinds are going to be pretty prevalent.

Two additional comments, Mike, from my end very quickly. One is, as you may recall, we did communicate last fall that a long-range goal for us in terms of gross margins is 19%. And we -- Bryan and I don't structurally see anything long term that dissuades us from thinking that, that isn't a reasonable target some years down the road, especially in a more healthy demand environment. The other thing I would just like to point out again is at a consolidated level, our portfolio continues to benefit from the work we've done in the last seven or eight years around driving now a very meaningful Towables business and now an increasingly material Marine business. And both of those could still certainly see margin volatility based on the factors that Bryan referenced, especially in the short term. But the general benefits of our diversification from a profitability floor standpoint, that floor has definitely been improved versus pre-COVID Winnebago Industries because of those businesses and our investments through the years.

Okay. Thank you for the color. Maybe just a follow-up. Just on the promotion and kind of discounting allowance front that you've referenced a number of times in this call, can you maybe just give us a little context? Obviously, promotion discounting is higher year-over-year, but a little context of maybe where that stands versus pre-pandemic levels?

Yes, Mike, I would say that to characterize it further a good contact, it's very similar in the levels that we did pre-pandemic. We are not at elevated levels sitting here today versus where we were in 2018 and '19.

Okay. Great. Thank you.

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

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

Good morning, Patrick.

Hey, Pat.

Could you guys talk a little bit more about the current levels of finished goods inventory? And how you guys compare to the peers? Have trends generally improved there to start the year?

Patrick, this is Mike. As you may expect, we don't have great visibility to competitive inventory levels per se. So, we believe that our businesses have been destocking at probably similar levels versus competition, but candidly, percentage-wise, we may be destocking less for these reasons. One, we had less aged inventory as we began calendar year 2023. And secondly, over the course of the last couple of years, because of our market share gains, particularly in the Grand Design business on the RV side, we had a strong rationale for our field inventories growing for periods of time. But we do not believe that our field inventory levels in any way, shape or form are inordinately higher as a percent of either past or forward retail than our competitors. And in fact, and we may be biased here, but we believe they are potentially, in some cases, in better shape. Where we are not advantaged in the extreme short term is if our competitors have higher levels of model year 2022 inventory and there remain second or third tier brands in the market, the dealers are very much emphasizing moving those at the current time. If you look at SSI retail for RV Towables as an example, particularly travel trailers, most of the top 10 brands in the industry were not the brands that gained share in some of the recent SSI results. It was actually brands 11 through 30 that were gaining a little bit of share, and we believe that was a function of those brands being higher in inventory and/or being rationalized off the lot eventually here.

Got it.

Hey, Pat. This is Bryan. Just to follow up a little bit there. Were you asking about our finished goods and our lots?

Yes.

Okay. Yes, because I think Mike was addressing the field inventory. And finished goods just would reiterate that our approach, generally speaking, is a build-to-order approach. That is when we start a chassis in a production or a boat into production, it is tied directly to a dealer order. Our finished goods right now is slightly elevated versus the history because you have situations where we start a production or a unit into production that dealer may subsequently back out of that order. And that has happened more frequently in the recent past than it has versus a year ago, for example. So, our finished goods are up slightly. I'd say they're still in a very comfortable position relative to the industry largely speaking.

Got it. That's helpful. Thank you. And then, I guess as you look into the competitive landscape, and you mentioned some shifts recently, has pricing remained generally rational from what you guys can see on the competitive landscape?

I would say we would state that pricing has been rational. But all players in the industry are considering opportunities to address the affordability concerns, particularly on the RV side. And so, you are seeing at times new models introduced from various OEMs that are trying to ensure that consumers have an affordable entrance into their product lineups. And so that can happen through decontenting a product, taking off a few features or functions, thus removing some costs for the build material and being able to put a cheaper price unit in the market, or, in some cases, OEMs are extending their product lineups a little bit lower like we did with Aria on the Barletta pontoon business to price points that maybe they haven't had a presence in before. Our businesses will continue to focus on, yes, still offering premium options to the competition through our brands, but our brands are also working intentionally to provide products that our dealers can use to reach consumers who may be more price sensitive. And I think you'll see some evidence of that and some announcements and displays of that in the coming months as our businesses continue forward with those plans. I would imagine you'll see some of that product at the Open House event in Elkhart in September.

Great. That's all for us. Thanks guys.

Thank you.

Thank you. One moment for our next question, please. And it comes with David Whiston with Morningstar. Please proceed.

Thanks. Good morning. Just curious with the Lithionics deal done, do you still have any significant R&D tech holes that you're looking to fill possibly via M&A?

Good morning, David. This is Mike. As we've stated, the Lithionics acquisition was a new form of acquisition for Winnebago Industries, at least in our recent history, in the sense that it was obviously an investment in a strategic technology vertical that we believe is an important area for the future, that being the electrification of house power and, candidly, the further minimization of components like gas or diesel generators in RVs or boats in the future. We are currently assessing the rest of our electrical ecosystem from a supply chain standpoint to ensure that we have access to components, which we believe are important to advantaging our products and brands, differentiating us in the future and offering the consumer great experiences as, again, more products become electrified, especially on house power. And so, we have no news to announce. That could be anything from just having a stronger second or third source of components in that electrical ecosystem or it could be considering further vertical investments in the future. But we believe that is a key area of our business model to assess and protect and create an advantage in going forward here over the next decade for sure.

Okay. And Marine, have you noticed any difference between -- any major difference between the Chris-Craft and the Barletta customers' consumer confidence right now?

They are two different customers for the most part. There could be a few Chris-Craft customers that also own pontoons, particularly in the freshwater markets. But as we've stated before, the Chris-Craft customer is exceptionally affluent, often paying cash, a high majority of the time for their purchases. They have a general ability to make investments in high-end discretionary outdoor products during even very difficult down-cycle moments. But even that business has seen pressure in terms of retail performance as well. And that may be due to a number of factors, whether it's the volatility of the stock markets or it's the fact that some of those consumers may personally be involved in businesses that are tightening their belt as well. And they want to lead by example, even personally. The Barletta business is definitely a more price-conscious consumer, albeit it's a higher-end consumer in the pontoon segment, but you see more middle-income families and folks that don't have the ability to spend what a Chris-Craft customer can. We see more retail financing on pontoons. And again, the cost of retail financing at a rate standpoint is probably 2 times to 2.5 times higher than it was a year ago. So, that being said, the Barletta business is still quite resilient for the reasons we mentioned earlier in the call. Our market share has now risen to around 7.5% in recent months on aluminum pontoons. And so it's still a business that is swimming a little bit against the current in terms of share in a positive sense, but we still have to be very conscious with the affordability factor on that line over time as well.

I guess just extending on that, I mean, given the Chris-Craft customers wealth, stock market is now doing quite well again, and we still haven't had this recession that everyone keeps waiting for, it just doesn't seem to be happening. And the Barletta continues to overperform relative to your expectations. I mean, it's probably fair to say you're not too worried about your Marine business relative to the RVs, right?

Well, as Bryan indicated a little bit earlier, I do think you're going to see the marine industry overall travel a little bit further deeper into the downcycle than it has to date. And we anticipate continuing to see some pressure, at least probably in the next couple of quarters to that end, especially as dealers continue to rationalize their inventories. We are ecstatic about the two brands that we have in the marine industry in Chris-Craft and Barletta. And most of you on the call know, we've expressed a continued interest to assess and potentially invest in further marine assets. But for the long term, both of these businesses have bright prospects. We're investing in people, technology, infrastructure to ensure that under healthy market conditions, they can outpace the competition. So, in many respects, they've stayed a little bit ahead of the RV businesses here recently. But I think there's some further pressure in Marine to go through before we reach a downcycle trough there and start to find some tailwinds again someday.

Okay. Thank you.

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

Thanks. Hey, guys. Good morning. I just want to go back to your comments earlier regarding Towable pricing. I think you mentioned that costs are coming down and that pricing should fall. I assume you don't mean that like-for-like MSRPs will be coming down in model year '24, but rather that your realized ASP may be going down, given higher discounts and allowances and maybe the mix to lower-priced models. Just want to get a better sense of how you're thinking about pricing in '24.

Joe, this is Mike. I'll address that first and Bryan, please support as needed. We are very focused on ensuring that we have competitive pricing in the market for both our Grand Design and Winnebago Towables businesses. And as Bryan alluded to, where the bill of material and cost trends allow us to consider lowering invoice price to the dealer as part of our model year 2024 strategies, we will very seriously consider that. We cannot depend solely on the dealer to absorb the margin hit to hit the street retails that may be necessary to keep our market share where we want it on those two businesses. The Winnebago brand has tended to be a little bit more promotional and rebate active whereas the Grand Design business has been a little bit more pure historically in terms of focusing on making sure we have the right invoice price. So both of those invoices may reach similar places in different ways, but we will be active in adjusting invoice price, particularly on Grand Design, if we need to, to make sure that the ultimate retail that we need to be at in the market is competitive. And particularly on the Winnebago brand where we need to be promotionally active as well, we'll consider that. So, I would say we need to remain on the offensive in terms of market share stability and someday progression again. And that does mean that we have to probably be more agile from a pricing standpoint as we see costs shift.

Got it. Very helpful. And maybe just to shift over to the credit environment. Have you seen any changes lately? Are you hearing of any lenders exiting either the RV or Marine spaces?

On the retail side or the floorplan financing side, we are not seeing any exits. It seems to be a pretty stable environment. We're certainly seeing costs go up or interest rates go up in the range of 400 points probably on the retail side, not quite as much on the floorplan financing side, but it could get to that point. So certainly, you're seeing pressure from the cost side availability and willingness to lend. We have been expecting to see some tightening on the retail side. I think you're seeing a little bit of that in terms of FICO score and creditworthiness and retail lenders maybe being a little bit more selective. But we are not hearing these anecdotal examples from dealers where they had a sale in hand and it fell through to the financing, not often. So it seems to be that the availability of credit is still there. It's just at a more costly level.

Got it. Okay. Thank you, guys.

Thanks, Joe.

Thank you. One moment for our next question, please. And it comes from the line of James Hardiman with Citi. Please proceed.

Hi, good morning. Thanks for taking my call. I think most of my questions have been answered, but maybe help me connect the dots here. Obviously, the RVIA numbers have come down quite a bit since your last update. It sounds like you agree with those numbers. But I'm trying to figure out how, if at all, your own expectations for your own business have changed in recent months?

Good morning, James. This is Mike. Yes, I would say what we expressed this morning correlates closely to obviously, the internal discussions we're having with our businesses about current market conditions in calendar 2023. Our fiscal year ends, as all of you know, at the end of August. And subsequently, we are very much in the annual planning process for our fiscal year '24 period. And we're having internal discussions of some significance on how we think the market will act, not just through calendar '23, but through obviously, most of calendar year 2024. And we're not ready to share any observations or, I guess, forecasts or projections about that period at this time. But I think the bigger discussion, James, is potentially less what '23 is going to look like at this point. We don't see a ton changing inflection-wise in '23 versus the current momentum. But what we do believe is we're nearing a point here in the next six months, especially on the RV business, where most, if not all, of that destocking appetite from dealers will probably be filled. And then now you're talking about the timing to potentially turn the corner and see market conditions be more supportive of a one-for-one refill environment on the RV side. And that then changes the math a bit obviously on wholesale shipments going forward, if we can see some level of retail stability and then over time, obviously, see retail continue to grow again. So, we're optimistic that the industry has ridden through this downcycle in a relatively healthy manner. I think OEMs, suppliers and dealers have been rational and probably as disciplined as we've seen in this downcycle than in most or any previous down cycles. And that should bode well for a relatively quick turn back to some wholesale velocity once retail is stable and the inventories are finished being rightsized. So, I'm optimistic -- continue to be optimistic about our prospects in the future. I'm also very bullish on consumer engagement in the outdoors. We tried to highlight that throughout the call, several slides in our supplement deck. Consumer engagement in the outdoors is strong. And while that's not necessarily resulting today in the type of retail or wholesale activity that we'd like to see, that underlying foundational momentum is still there, and we anticipate that we'll be able to tap into that in the not-too-distant future in a way that's more meaningful to our financial results.

That's really helpful. Makes a lot of sense. And so, if I sort of piece together what you said here, it sounds like by the end of the year, you're hoping that things are a little bit more normal, more of a one-to-one wholesale-to-retail. But if I think about the nearer term, right, your fourth quarter and the next few months, it sounds like what you're saying is -- and what we're hearing everywhere is that the focus is going to be clearing out these model year '22s and lower tier brands, of which you have very little -- very few of those units left to sell. And so, how should we expect that to manifest itself in terms of some of the numbers? It seems like maybe we should expect your retail share to be lower in this quarter as dealers focus on stuff, that you don't have, but as they replenish maybe your shipment share is higher, or am I making too much of a leap there?

James, our shipment share actually in the last three to six months has been trending a little bit higher than previous years, which we believe is a good foreshadowing of potential retail share increase at some point in the future. I think both Bryan and I have commented in different ways on the call that there are various reasons why our market share is what it is in the short term. In some cases, we continue to gain share in certain spots. And in other cases, we've lost a little share. Some of that are due to potentially reasons that aren't as much in our control as we'd like. And other reasons for any share dilution that are in our control, we're working vigorously hard to address. And I mentioned that in the first half of my comments this morning. We're not going to comment specifically, obviously, for Q4 on the top-line. But I think you've heard from both Bryan and I this morning that the top-line conditions for Q4 for both the RV and Marine segment could be a little bit more challenged than they were on a year-over-year basis than in Q3. And that's probably what will limit our statement to today.

Got it. That's really good color. Thank you.

Thank you.

Thank you. One moment please for our next question. And it comes from the line of Brandon Rolle with D.A. Davidson. Please proceed.

Good morning. Thank you for taking my questions. I think you had mentioned earlier in your prepared remarks, you were watching dealer consolidation. Obviously, Camping World has been very aggressive acquiring dealerships. Do you feel like your absence from their dealer network could limit your market share upside in the upcoming years? Thanks.

Yes, good morning, Brandon. This is Mike. We continue to watch dealer consolidation very intently in all of our businesses. So we're seeing dealer consolidation on the Marine side as well, maybe not to the degree we've seen it recently on the RV side. Each of our businesses has frontline relationships with all of our dealers. Camping World specifically does business with our Winnebago brand in dozens of markets today. And we do not have a presence with the Grand Design brand or the Newmar brand in Camping World stores at this time. But each of our businesses does have an open dialogue and relationship with Camping World as they do with other dealer groups. And we really take those conversations on a market-by-market basis in many cases. We respect what Camping World and other large dealer groups are attempting to do to create successful businesses and where there's an opportunity to have a win-win relationship between any retailer and any of our brands, we are very open to considering that. So I would tell you that there is no hard and fast line here at Winnebago Industries that we will or we won't do business with certain dealers. Our business unit leaders are on point to make the best decisions in the interest of our company, but also try to find win-win solutions with all of the dealer groups on a market-by-market basis. And so we're watching all of those trends carefully and have active discussions with many dealer groups as to how we can help each other succeed.

Great. And just finally, on the excess model year '23 inventory at the factory level, I guess how does that promotional activity for those units evolve, say, throughout the end of June, if dealers still don't want inventory? And obviously, it seems like the industry is going to move ahead with model year '24 sometime in early to mid-July. How aggressive promotionally could you get there to move those units ahead of the '24 shipments? Thanks.

Yes. As Bryan indicated earlier, the amount of discounting, whether it's to move our open inventory or to support actions in the field is generally in line with what we saw back pre-pandemic. And so, we don't anticipate probably material change in that sort of sales allowance line or sort of off-invoice line to move the remainder of our model year 2023 inventory. As Bryan stated, we're not excessively high on model year 2023 inventory at this time. Our businesses did a really good job in moving that in Q3. They continue to do a good job of moving that here early in Q4. And I think we'll be able to move through most of that with reasonable support as we introduce our model year 2024 inventory. That's actually a commitment from our businesses to our dealers as well, is to work with them to take care of that, so that we can both make a smooth transition to 2024 products. So I don't think you'll see abnormal impact to our financials because of that topic alone.

Thank you.

Thank you. And this concludes the Q&A portion of today's conference. I'd like to turn the call back over to management for any final thoughts.

Thank you. This is the end of our third quarter earnings call. Thank you to everyone for joining us. Enjoy your day.

Thank you, ladies and gentlemen. This concludes the conference, and you may now disconnect.