Good day, and thank you for standing by. Welcome to the Second Quarter Fiscal 2024 Winnebago Industries Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. 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 to discuss our fiscal 2024 second quarter earnings results. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. The news release with our second quarter results was issued and posted to our website earlier this morning. Please note that beginning this quarter, we will be using an earnings slide deck that follows along with our prepared remarks. You may access the deck on the Investor Relations section of our website under quarterly results. Turning to Slide 2, let me 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 we encourage you to read. In addition, on today's call, management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures are available in our earnings press release. Please turn to Slide 3. Joining me on today's call are Michael Happe, the President and Chief Executive Officer of Winnebago Industries, and Bryan Hughes, our Senior Vice President and Chief Financial Officer. Mike will begin with an overview of our performance during the quarter, Bryan will discuss our financial results and the primary drivers, Mike will share our future mid-cycle organic growth targets and underlying assumptions. Then management will be happy to take your questions. Now please turn to Slide 4 as I turn the call over to Mike.

Thank you, Ray. Good morning, everyone, and thank you for joining us to discuss our second quarter fiscal 2024 financial results. I want to start by thanking the teams across our business, Winnebago, Grand Design RV, Newmar, Chris-Craft, Barletta and Lithionics. I am incredibly proud of your dedication and commitment to executing on our growth strategy and delivering exceptional outdoor experiences for our RV and Marine customers every day. Before diving deeper into our results, I would like to emphasize the three main points that we want you to take away from our call today. First, we performed in line with our expectations during the second quarter of fiscal 2024 and demonstrated resilient profitability. Second, we anticipate industry softness in fiscal Q3, particularly on the Motorhome RV and Marine side, amid continued dealer caution. And third, as we move beyond the near term market dynamics, we remain confident in our ability to grow our business, capture market share, and substantially increase our profitability and free cash flow. This optimism is reflected in our new future mid-cycle financial targets. Now, let me expand on our fiscal Q2 results. The December through February period is typically a seasonally lighter retail quarter ahead of what historically has been a sequentially stronger spring selling season. As anticipated, dealers continued to closely manage inventory levels in Q2 in the face of a higher interest rate environment and seasonal demand trends. Despite the macroeconomic challenges, we continued to demonstrate resilient profitability and an unwavering commitment to operational discipline. Net revenues for the second quarter were $703.6 million, reflecting the anticipated sequential and year-over-year softness in the Towable RV, Motorized RV and Marine businesses that Bryan and I referenced in our first quarter earnings call. Our consolidated adjusted EBITDA margin of 7.1% was flat on a sequential…

Thanks, Mike, and good morning everyone. As a reminder, in my prepared remarks starting on Slide 9, I will focus on the key drivers of our performance. Please refer to our earnings release and earnings supplement documents for a detailed overview of our key financial results. Our fiscal 2024 Q2 results reflect the success of our disciplined production and cost management, the strong dealer and supplier network that we have built over time, as well as the resilience of our highly variable cost structure. This cost structure is a critical advantage that provides us with production flexibility and enables us to swiftly respond to changing volume and market conditions in today's dynamic environment. As a result, during the second quarter of fiscal 2024, we were able to partially offset the deleveraging effect of an 18.8% decrease in revenue compared to prior year to deliver 7.1% adjusted EBITDA margin and adjusted diluted EPS of $0.93. The decrease in revenue was driven by lower unit sales due to lower shipments, given the current retail market conditions and a shift in product mix resulting in lower average selling prices. By extension, our gross profit decreased 28.3% compared to prior year, driven by the deleveraging effect of slowing sales coupled with an unfavorable shift in product mix. Although there was a small sequential decrease in our gross profit margin, our operating margin remained relatively healthy. This resilience can be attributed to a sequential reduction in SG&A expenses. It's also important to note that our SG&A expenses as a percentage of revenue remain elevated compared to historical levels, reflecting our ongoing investments in engineering, digital asset development, and the expansion of our data and IT capabilities. Before covering our performance by segment, I'll highlight a few unusual items that had a financial impact on our…

Thanks, Bryan. In addition to our fiscal Q2 financial results, we also announced future mid cycle organic growth targets this morning. Please turn to Slide 14 for an overview of our targets in comparison with our trailing 12-month financials. Market assumptions underlying the financial targets include North American RV retail volume at a mid cycle fiscal year range of 425,000 to 450,000 units, and US aluminum pontoon retail volume at a mid-cycle fiscal year range of 60,000 to 63,000 units. In reviewing our updated targets, I would like to emphasize the potential for EBITDA margin expansion and free cash flow generation inherent in our business model. As we move towards the mid cycle in coming years, we expect revenue to increase by approximately 51% at the midpoint of our range compared with our fiscal Q2 trailing 12 month results. This translates to a nearly twofold expected increase in adjusted EBITDA and a 56% increase in free cash flow, underscoring our substantial operating leverage. Additionally, we believe there is ample opportunity to broaden our market share in both the RV and the pontoon industry. While we do not anticipate a consistent expansion in basis points every year, we believe these ranges reflect achievable average annualized improvement rates. Finally, in the coming years, we plan to meaningfully expand our philanthropic giving to the communities where our employees live, work and play. We are extremely proud out of our programs that eliminate barriers, promote access and connect all people with the social, mental and physical health benefits of the outdoors. Please turn to Slide 15. I briefly touched on the EBITDA margin expansion opportunity ahead. At the midpoint of our range, we expect our adjusted EBITDA margin to expand by 255 basis points. This is in part driven by improved operating average through…

[Operator Instructions] And our first question comes from Scott Stember of Roth-MKM.

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

Good morning, Scott.

Mike, you talked about expecting in calendar '24 to resume the one for one sell in to sell through, but given the fact that we're probably going to have a bigger than normal air pocket between the model year changeover, what is the timing of that exactly?

Scott, I want to clarify your question. Are you asking about the timing of the one-to-one or are you asking about timing on model year changeover?

No, I'm asking about the -- one for one. I'm basically saying, given that this year people or dealers are going to be waiting on 25 models to be introduced, what is your expectation of a timing of one-for-one?

Yeah. Thanks for the clarification, Scott. I think our statement today is that we believe by the end of the calendar year 2024, that shipments in total could equal retail in total for the year. Obviously, the first half of the year is going to probably be different in composition than the second half of the year, but we believe that, that equilibrium can ultimately be reached in that 12-month period by the end of the year.

Got it. Next is on the warranty expense on the RV side, so maybe talk about what drove that and will there be an extended tail through the next couple of quarters?

Scott, this is Bryan. I don't anticipate that this is a systemic type of issue. I think the analyst community needs to appreciate and acknowledge that when you go through peaks and valleys like the industry is going through right now, sometimes that warranty expense can show up as a ratio to sales, favorable one quarter, unfavorable another quarter. In fact, we had some favorable experience that came as a reduced warranty as a ratio to sales last year in Q2. This year it's elevated versus that. So it's a driver of year-over year-margin, but I don't want to convey that it's a systemic issue here. You also have from time to time some lumpiness in the expenses you manage through some particular campaigns that will come up in our business. So to answer your question specifically, I don't see this as an ongoing elevation. It was a quarterly driver, but not expected to be an ongoing challenge for us.

Got it. And just one last quick one. With some of the mounted challenges in motorized right now, has the timing of the rollout of Grand Design motorized changed at all?

Scott, the timing for Grand Design motorized remains on track versus our expectations over the last year of preparation. We anticipate that our fourth quarter of this fiscal year '24 will see some sales of Grand Design motorized in that period. But the ramp -- majority of the ramp up of Grand Design motorized revenue will happen in fiscal '25, but we will begin shipping motorized at least as of today. We will begin shipping motorized in our fiscal fourth quarter this year.

Got it. That's all I have for now. Thanks.

Thank you. One moment for our next question. And our next question comes from Tristan Thomas-Martin of BMO Capital markets.

Hey, good morning.

Good morning.

Can you kind of talk about the cadence of the model year '25 rollout, and then also your expectations for ASPs?

Tristan, I'll speak to the cadence and I'll ask Bryan to speak to some ASP thoughts there. First of all, I will say this. We cannot and will not speak for competitive behavior on model year transitions, but our three RV businesses are planning to transition to model year '25 in the same window that we have executed that in the last several years. So we are not planning a significant pull ahead of model year '25 introductions. That timing does vary a little bit by brand as to when they change those model years over, but we are not anticipating any significant shift forward in our model year shipments.

Yeah, on the ASP, Tristan, you have to look at it segment by segment of course. In Motorhome, it's pretty neutral, not big increases or decreases. For the most part you've got some higher allowances and discounts that are offsetting some pricing initiatives that are meaning to or offset the chassis increases that we've been seeing. So net-net, pretty neutral on Motorhome. On Towables, down high single digits, approaching 10% on an ASP basis. The big news there is really mix more than anything. It shows up as a reduction in ASP, but that's our efforts to introduce products that are targeted at where the customer is at right now. So you do have some negative mix. There's some mild targeted price reductions on certain models. So in other words, some apples to apples reductions. But that range is probably in the 2% to 3% range of that high single digit ASP decline that I referenced. So there's some targeted price declines, but most of it shows up in mix. And then on the marine side, likewise some mix there, we referenced the introduction of the Barletta Aria as an example of us entering that lower price point with that great product. So some of that going on. And then we also reference the allowances and discounts that we are attributing some of that ASP too.

Okay, thank you. And then just, how did retail trend over the quarter? And then how has it been so far in March?

I think you can tell by some of the numbers in the earnings release that our retail has generally been in line with the rest of the industry during the quarter. We've actually felt better about trailing share results here recently in Q2. I would say retail to date on the RV side in Q3, which began with the month of March for us, has been sequentially better, obviously with the seasonal nature of our business, but probably still a little bit behind where most of the industry would like us to see. I know there's been commentary in the industry about when we'll start to see positive retail comps on RVs, and some have speculated it's in the April to May time period. My guess, as we sit here today, is you'll probably see that more in the May time period than the April time period based on what we've seen here in the first three weeks of March.

Okay, thank you.

Thank you. One moment for our next question. And our next question comes from Craig Kennison of Baird.

Hey, good morning. Thanks for the slides and commentary on the mid cycle targets I wanted to ask about -- on Slide 15 you talk about profitability initiatives. Could you shed light on what those might be?

Yeah. Good morning, Craig. This is Mike. Those will cover a range of activities, and I'll offer some examples. We expect to see margin improvement based on certainly recovering volume as we indicated on Slide 15. But we also believe that some of the new products that we have in our pipeline will also demonstrate improved margin over the course of the next three to five years as well. We have ongoing, constant strategic sourcing initiatives in the business. I would say in fiscal year '24 to date, we're tracking somewhere in the neighborhood of $17 million to $20 million of strategic sourcing savings from that particular center of excellence. We anticipate continued success and contribution to margin from that area. And then each of our manufacturing operations around the company are also focused on productivity and efficiency. And as we offered some of these mid cycle targets this morning, on the EBITDA side, we have some estimates internally as to some of the benefits of those productivity and efficiency activities from our manufacturing campuses. So we won't get into specific details there, but it'll be a combination of volume and a combination of new products and a combination of operational supply chain and manufacturing efficiency.

As a follow up, can Lithionics play a meaningful role in EBITDA margin expansion, or is it not large enough to matter In that context?

Lithionics will and can contribute to incremental margin improvement for our overall business. The degree of how much that will be and the timing of that will certainly depend on the growth of Lithionics and the overall adoption of lithium-ion battery packs in the RV, Marine and Specialty Mobile Industry segments. But when we made the Lithionics acquisition now almost a year ago, April of 2023, we indicated that it was not only a strategic acquisition and a technology acquisition, but that we also expected it to have on the bottom line some meaningful financial contribution impact over time. Again, we're not going to assign a value to Lithionics this morning. But yes, we do anticipate that it will begin to contribute a little bit more every year in terms of its bottom line impact.

And finally, as it relates to Slide 7, Barletta has had just an amazing run, getting almost 8% market share of the pontoon market. Your goal is 13%, which is not a small leap from here. Could you just give us some reasons behind your confidence in expanding share by that much?

Well, first and foremost, our confidence begins with the team at Barletta. We feel we just have a tremendous team of passionate leaders and employees there who are focused every day on the end customer, our channel partners, and building the very best premium pontoons in the market. Craig, our recent market share results with Barletta have been very impressive. In fact, I believe the standalone month that we just received from SSI here recently on pontoons was double digit market share for Barletta in that particular month. And so while the 13% is a trailing 12-month number that we intend to shoot for, and that is aggressive versus what we have indicated here on Slide 7 for trailing 12 months here early in fiscal '24. The recent trailing three-month and standalone month market share numbers are actually approaching double digits. So the gap may not be as far away as we think, but we'll remain humble and paranoid and stay focused on doing the right thing and driving to a top two or three position in that category over time.

Thank you.

Thank you. One moment for our next question. And our next question comes from James Hardiman of Citi.

Hey, good morning, guys, and thanks for taking my questions here. So, wanted to dig in on inventories a little bit. I guess first, it looks like the absolute level of inventories for your business seem like they're in pretty good shape. I think from an industry perspective, the bigger concern seems to be the aging of inventory. Maybe walk us through any numbers you have in terms of the model year '24s versus '23sat this point in the channel, and then any comparisons would be great? Where was that mix last year? Where is that mix historically and where you would like it to be? And then any thoughts on sort of how you compare to the industry would be great. Thanks.

Yeah. Good morning, James. This is Mike. Well, let's start with RV specifically. At the end of February, I would say our model year '24 inventory, especially for our two largest RV businesses from a unit standpoint, Winnebago and Grand Design were approaching the 75% range at the end of February, which meant for those two brands the model year '23 inventory was probably in that 23% to 24% range in the model year. We may have had 1% at the end of February of model year '22 in the field. The numbers on Newmar are a little higher, just based on the type of category that Class A is. But overall, it's probably in that 70% to 75% range on model year '24 and almost 25% range on model year '23, which I think is very similar to what one of our largest competitors recently reported. Now, you actually compare that to a year ago at this time, and those numbers are a little lighter for our Winnebago brand. We're a little bit more aged on the Winnebago brand, but actually on the Grand Design brand, which is our biggest RV business, that mix is actually healthier this year than it was a year ago. If you compare the numbers I just stated on RVs to the pre-COVID periods, both us as an OEM, but probably the industry as a whole is sitting with more aged inventory here in 2024 than we had in, let's say, 2018 or 2019. I anticipate that we'll continue as an industry to work through this cycle. And as we see the overall RV cycle start to pick up and retail begin to regain some momentum, I anticipate over the next three or so years, we'll head back to some of those numbers that…

One other thing I'll add to that, James, is our process related to managing the aging of inventory, which is just to take a very detailed and targeted approach. So if we have incentives that we are introducing, it is targeted at those retail units that we feel we want to help the dealers in partnership with them move off their lot. So we take a unit by unit approach to that. We're tracking every unit, and our incentives are certainly targeted at moving anything that is aging. So I wanted you to be aware of that process as well.

Got it. That's great color, and it sort of dovetails into my next question, right? As you're trying to move those model year '23 units, I'm assuming that that's at least part of what's weighing on the Q3e margin outlook that you gave. And so I guess my question is, you talked about margins being, I guess, somewhat better sequentially, but down year-over-year in Q3, maybe it's too early to make a call on Q4. But is there a chance? How should we think about Q4 margins? Is there a chance that those could grow year-over-year? I'm guessing that it has a lot to do with the effectiveness of clearing out those model year '23s in the meantime.

Yeah, it does. And then certainly, we're citing leverage and deleverage as a biggest driver as we go through the cycle here of year-over-year margin performance. That will continue to be the case going forward, of course. But then to your point, the allowances, the discounts, as we right size our inventory, as we deal with the aged inventory that Mike was just referring to, those allowances and discounts and retail spiffs will start to wane as well. So that should help as we go through the coming quarters.

Do you think it's plausible that margins could grow year-over-year in Q4, or way too early itself?

Yeah, we're going to refrain from commenting on that at this stage.

Fair enough given everything that's going on. I get it. Appreciate the color, guys.

Thanks, James.

Thank you. One moment for our next question. And our next question comes from Bret Jordan of Jefferies.

Hey, good morning, guys.

Good morning, Bret.

Little follow up, I guess on the last question, really around the Marine dealer environment. Should we expect sort of the support -- the promotional support cadence to pick up here into the spring? I guess we're technically two days into spring. Are we going to try to hit summer with clean inventory? Or was what we're seeing sort of consistent with what we're going to see going forward, is there's not going to be a surge in promotion?

Bret, this is Mike. Thanks for the question. I would say arguably we've already seen a surge in support to the market, obviously by the pontoon OEMs, and certainly we've surged a little bit as well. We try to be surgical with that particular support, working on certain age models and with certain dealers. I would say we don't see probably a dramatic shift upward in our support for Barletta as we go into the spring and summer selling seasons. As I indicated in a previous response, Aria’s inventory is higher than it has been in past years in that brand and certainly a little higher than we'd certainly like it today. But we're going to be very rational and the team's market support activities have been, I think right on target as they continue to work with the dealers on that brand. So, no, I don't think we'll see a significant surge by our business, but I can't comment on what the rest of the industry or our competition will do.

Okay. And I guess the question for your chief economist. Sort of the possible timing of mid cycle environment, you talked about a retail comp recovery in May, given the magnitude of the downturn, and I guess maybe the magnitude of the surge that preceded it, are you thinking about mid cycle being something that could happen in '25? Is it ‘26? I mean, it's hard to know, but just looking at the industry and your history with it, how long do you think the recovery might be?

Yeah, Bret, we appreciate the question. In past, let's call it Investor Day target releases, we have assigned specific fiscal years to those targets. As I think everybody who's on this call is well aware, the fluidity and dynamics and volatility of these outdoor recreation industry segments has been high and it's been very difficult for all of us to forecast, both short term and long term exactly what the market is going to give us good or bad. And so one of the reasons we've labeled these targets mid cycle and given you some framing of what that means in terms of industry retail size is that we don't exactly know the timing of when the North American RV industry or the pontoon industry will return to those levels. We certainly are rooting for sooner rather than later, but I would say these organic mid-cycle targets are probably something we hope to achieve over the next three plus years. If that happens sooner, fantastic. But we are trying to be very humble with not assigning a year to it because we just simply don't know at this time. We are quite confident, though, let me reiterate that when the industry does return to those types of retail levels and we're back into that more normal dealer inventory cadence as well in terms of how they bring in products based on retail, we are very confident that those numbers are achievable. And that's why we wanted to give, especially you all today those numbers.

Great. Totally fair. Thank you.

Thank you. Thank you. One moment for our next question. And our next question comes from Fred Wightman of Wolfe Research.

Hey guys, I just wanted to come back to, excuse me, the Tristan's ASP question, Bryan. In your response to that, were you talking about fiscal '24 ASPs? And could you also make any comment on model year '25 ASPs, particularly for the Towable category, how you think those are going to trend on a year-over-year basis, both from a like for like perspective, but also whether the mixed headwinds are expected to persist in the next year too?

Yeah. Thanks a lot, Fred. In my answer earlier, I was really referring to our most recent quarter. The numbers that I was referring to were really Q2 versus the prior year and what we were seeing on a year-over-year basis because I assume that that's how most of the analyst community is tracking. So that's how I was answering that first question. I'm going to refrain from commenting extensively on what we're seeing in model year '25. Sitting here today on the Motorhome side, I think we're going to continue to see some pass through of chassis inflation. On the Towable side, I think we'll continue to see some mix that pushes ASP downward in the near term. And likewise for our Marine business, we'll continue to see some ASPs influenced by that mix downward, as we talked about earlier with the Aria entering the product lineup. So I guess that's what I'd say on ASP. The other color I will give because I know the analyst community is highly interested in margin. Our margins are most impacted by deleverage and the lower sales dollars. We are not calling out as a driver of margin, a cost environment that is not being offset appropriately by our pricing initiatives. So that's a relatively neutral equation, and that is true across our segments, that as we introduce new products, for example, that have lower price points associated with them or as that mix shifts lower, we're not seeing a negative drawdown in terms of EBITDA yield or margin. So I think that that's an important attribute of our financial delivery to acknowledge.

Makes sense. And then shifting gears a little bit just for the midterm or the mid cycle targets. If we look at the market share numbers specifically, you guys are talking about 13% plus. If we go back to the targets you talked about in late calendar 2022, I think you talked about something in the 15% range. So can you just help us bridge the gap there? Why is that target coming down a little bit, especially considering that you announced the Grand Design motorized platform subsequent to that, so just help us understand if the targets or aspirations have maybe come down a bit for RVs and if so, why?

Yeah, thanks, Fred. It's a fair question. In fact, I think the target language we use today on mid cycle RV market share was 13% plus. To be quite honest and transparent, we've seen a little bit of regression in our current North American RV market share over the last year and a half since we offered those targets. And so some of that lower target that we released today and the future is somewhat attributable to a little bit of the market share pressure we've seen in the short term. We actually feel that we fared pretty well considering that we've been in a dramatic environment in terms of first hyperinflation and then now an affordability challenge within particularly the RV industry. And we're a premium branded, premium priced OEM. And so to hang on to the market share that we have, especially in the last 12 months, we're not satisfied, but we also believe that that has been pretty reasonable performance. I think as we look forward, we're just more honest about what I just referenced, the affordability challenges and where we sit in the market. And we want to be -- candidly there's probably a bit of under promising and over delivering that's associated with that target. We still aspire to 15% to 20% market share for the North American RV business someday in the future, but we think we can grab a couple more points here by the time we get back to mid-cycle, and then anything above that will probably, as you said, be related to strategic growth initiatives like Grand Design motorized and the like. Just a reminder. When we released some of the targets in November of 2022 for the end of, I think it was our fiscal year '25 range, we did include some inorganic additions to those targets that we did not speak in detail at the time. So some of those financial and non-financial targets did have some inorganic aspirations in there. These targets this time, in addition to being framed mid cycle, are organic only. And so any M&A activity that we would do in either RV or Marine would be incremental to what we've released this morning.

Understood. Thank you.

Thank you. One moment for our next question. And our next question comes from Michael Swartz of Truist Securities.

Hey, everyone. Good morning. Maybe just comment on -- I think in your prepared remarks and in the press release you talked about within the total RV unit, you kind of called out lower promotion, allowances as being a positive to margins. And I think one of your larger competitors a couple of weeks ago kind of cited higher discounting and allowances as weighing on their quarter. Maybe any commentary you can give us why you think there's a divergence in the commentary between yourself and your competitor?

Mike, this is Mike. Good morning. Thanks for the question. I don't know if we really know the true answer to that, other than obviously Grand Design bears the lion's weight of our Towable segment, and the team is just being, again, very rational and very targeted with the support that we offer the market, particularly around the aging inventory. So I would hope, Mike, that it's a combination of our inventory position in the field being very reasonable, our aging inventory being in relatively good shape, all things considered in this environment, and the way we partner with the dealers to still move products at a price point that allows them to make some money and certainly keeps us profitable as well. So our Towable segment is very focused. We have two brands, one big one, one small one in that segment. So we're pleased to see that allowance has tempered a little bit in Q2 versus the last two or three quarters. But we're going to stay focused on it. That doesn't mean we're turning away from appropriate support. It just means that we're being smart about can't. So I won't offer any further comparisons to competition because we candidly just don't know what's going on inside their businesses in that way.

Yeah, understood. Thank you for the commentary and color. And then just a second question. I apologize if I missed this, but did you disclose, I think in the prior quarter you talked about some of the costs related to Grand Design motorized, the startup, and some inefficiencies in the motorized businesses weighing on the prior quarter? But did you quantify what that was this quarter? And then should we still think about the incremental investment for Grand Design motorized being in that $10 million to $15 million range for the full fiscal year?

Yeah, Mike, that's still our expectation. I think what we said a couple of quarters ago was that would ramp up during our fiscal year here and get to the $4 million to $5 million investment range by Q4. So we're ramping up and we continue to do so in accordance with our timing that we expected earlier in the year. So you're going from -- the $1 million we disclosed earlier this year up to a $4 million to $5 million investment by Q4. And we're still on track with that.

Okay. And some of the inefficiencies that you called out last quarter, did you experience those in the second quarter as well?

We improved from Q2 versus Q1. We're still less efficient in the current year versus last year. So I think a good way to convey that is that we believe we still have an opportunity to further improve our productivity going forward. And it dragged us year-over-year this year versus last.

Got you All right, great. Thank you.

Thank you. One moment for our next question. And our next question comes from Joe Altobello of Raymond James.

Thanks. Hey, guys. Good morning. Most of my questions have been answered here. I did have two quick follow ups. I guess first, of the 13% plus RV market share that you guys are targeting by mid cycle, how much of that is the net impact from the Grand Design motorized launch?

Joe, good morning. This is Mike. I probably won't offer a specific number because that would lead to some reverse math calculations on how big we think that business will be and we don't disclose that by brand category, but it will contribute no doubt to that number. We knew Grand Design motorized was in play when we offered our last targets in 2022. So I mean the Grand Design motorized strategy will be a material contribution to our financial and share future here at the Company. So I won't offer specifically what that number will be, but you'll see the majority of that ramp up in fiscal years '25 through '27. We'll get some units out the door here in fiscal '24 fourth quarter. But we have a very robust strategy for Grand Design motorized over the next three to four years, and we have high confidence that the Grand Design motorized team can execute their business plan.

Understood. Just to follow up on that, the EBITDA margin target of 11% to 11.5%. I assume that -- that assumes that your Motorhome margins remained in the high single digits?

Yeah, we very much believe that, as Bryan inferred here with a response a little while ago that there is upside on our motorized margins from where we stand today, both in terms of the benefits of volume in the existing businesses. But we anticipate that Grand Design motorized will also be a financially acceptable and good contributor to that segment yield going forward as well. So all three of our brands, Winnebago, Newmar and Grand Design, we believe can operate in that zone that you talked about. I mean long term, we've been very public with saying that we expect all of our businesses and all of our segments to be double-digit adjusted EBITDA yield in the future. And so that's our long term aspiration and we expect that the Motorized segment will work its way there over time.

Okay, great. Thank you.

Thank you. One moment for our next question. And our next question comes from Brandon Rolle of DA Davidson.

Good morning. Thank you for taking my questions. First, just on getting back to the pricing conversation, one of your largest competitors had mentioned they were going back to their supplier partners to identify opportunities to reduce costs where possible. One, have you had those conversations as of late? And two, how have they progressed? And three, which segments within your business right now do you feel like need the most price reductions or need to improve their affordability the most to improve retail sales? Thank you.

Yeah. Good morning, Brandon. This is Mike. We have great relationships with our supply chain partners. We have less scale than our two largest RV competitors do. We have less scale candidly than some of the other larger marine players. And so we have a little less leverage to throw around in terms of volume to be able to negotiate component and material pricing. But we're very proactive in those discussions and certainly work well with our suppliers to, we believe, have fair pricing. So we will continue to do that. And believe me, as we continue to organically and inorganically create scale in this company, we will expect that the benefits of that will come from our suppliers as well. As far as which parts of the portfolio need those cost reductions. Listen, we've been very upfront that probably the single greatest current cost pain point in our business model today is motorized chassis. And I think for the whole of the industry, if we are to improve the affordability of motorized RVs going forward, we will need to see motorized chassis pricing begin to stabilize and then we will need to work closely with those chassis partners to see what we can do to improve costs going forward. But that is probably the biggest challenge in our business right now in terms of addressing affordability.

I'll add just a little bit onto that, Brandon. Some of our -- not all, but some of our purchases or categories of supply are contractually tied to certain indexes or commodities. We've seen a lot more stability in the commodity space, steel, aluminum, lumber, notably. And so as a result, we're seeing, likewise some stability in the cost input. So not nearly the volatility that we've seen over the past couple of years. So smoothing out of costs, we're not seeing that being a big driver going forward. We'll continue, obviously, as Mike alluded to, negotiate appropriately with our vendors where we think we have an opportunity for that.

Great. Thank you.

Thank you. One moment for our next question. And our next question comes from David Whiston of Morningstar.

Thanks. Good morning. Just curious, in terms of the continued hesitation by dealers, and I understand they want to get their inventory right sized, but are interest rates still one of their most primary concerns? And if so, how many rate cuts does the RV industry really need to see before we see any kind of meaningful change or improvement in consumer and dealer confidence?

Yeah. Good morning, David. This is Mike. Yes, interest rates and obviously the associated costs to our end consumers are amongst the top two or three factors that they say are inhibiting stronger retail or slowing down retail as we speak. It is interesting, this spring we are hearing some signs that end consumers are beginning to understand that rates are going to be a little higher or meaningfully higher here into the future for a while than they were two or three years ago. And so could there be some acceptance by consumers that this is where rates will be for a little while, and if they want to get into the RV or boat lifestyle, they just have to deal with that and find a way to afford that. We could see a little bit of that, but there is no doubt that both of our businesses are interest rate sensitive in terms of consumer appetite and decision making for our products at retail. And any rate cuts at this point we believe will have both a real effect from an affordability standpoint, but they'll also potentially have an effect on consumer buying confidence in terms of where things are headed going forward. We were pleased that the Fed yesterday signaled that in the back half of the year we could still see as many as three Fed funds rate cuts. And while, David, I can't give you an exact number as to the quantity of cuts or how large they are, a quarter percentage or 50 basis points, any movement will help. And we'll take three for sure. If that happens, we think that will offer a little bit of a trigger to consumers becoming more active again.

Thanks. That's helpful. And then on marine, is there any major difference in confidence between the, perhaps ultra wealthy Chris-Craft customer and the pontoon customer?

I would say that thin air that Chris-Craft operates in is a -- first and foremost, they're a cash buyer 95% of the time, but they're also pretty smart in these tricky economic times as well. And so the retail that we've seen on Chris-Craft has been less robust than what we've seen on Barletta, probably for a variety of reasons. Barletta has got momentum because of a number of factors, dealer confidence, we're entering open markets, we're introducing great products. Chris-Craft is a more mature business with a very targeted, highly affluent customer. So there's not a lot of crossover between those customers and they act a little bit differently during similar periods of the cycle. But we anticipate that as the marine cycle comes back, not only will Barletta grow as we indicated with our long range target of 13% market share, but we also anticipate that that Chris-Craft business will grow going forward as well.

Great. Thank you.

Thank you. This concludes our question-and-answer session. At this time, I would like to turn it back to Ray Posadas for closing remarks.

That is the end of our second quarter earnings call. Thank you everyone for joining us. We look forward to keeping you updated on our progress in the future. Thank you.

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