Welcome to the Q3 fiscal 2025 Winnebago Industries Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ray Posadas, Vice President of Investor Relations and Market Intelligence. Please go ahead.

Thank you, Tanya. Good morning, everyone, and thank you for joining us to discuss our fiscal 2025 third 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 third quarter results was issued and posted to our website earlier this morning. Please note that the earnings slide deck that follows along with our prepared remarks is also available on the Investors section of our website under quarterly results. Turning to Slide 2. 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 the 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, Senior Vice President and Chief Financial Officer. Mike will begin with an overview of our Q3 performance, Bryan will then discuss the associated drivers of our financial results in addition to sharing our forward view of the market and our fiscal year 2025 guidance. Mike will conclude our prepared remarks, and then management will be happy to take your questions. With that, please turn to Slide 4 as I hand the call over to Mike.

Thanks, Ray. Good morning, everyone. I want to begin by recognizing the resilience our team has shown in navigating a highly challenging market environment. Their dedication to our customers and commitment to our brands have enabled us to stay sharply focused on advancing the strategic priorities that will enhance long-term value for our stakeholders. Our fiscal Q3 performance was consistent with the preliminary results we shared with you earlier this month. Growing macroeconomic uncertainty led to a notable downshift in RV activity from consumers and dealers as the third quarter progressed. These challenges are likely to continue through the remainder of the calendar year, as anticipated by the RV Industry Association's recent reduction in its wholesale shipment forecast for 2025. While the soft market conditions contributed to lower RV margins in both our Towable and Motorhome segments in Q3, we saw disproportionate results in our Winnebago branded Motorhome business. Last fall, we installed new leadership at both our Winnebago Motorhome and Winnebago Towable businesses to strengthen lagging operational performance and reinvigorate their product lineup. Fiscal '25 has seen significant effort to address the root causes of past outcomes. As that work progresses, the rapidly growing interest from both current and prospective Winnebago brand dealer partners in recent months highlights the strong potential of this iconic brand to drive improved margins and meaningful share gains over time. As we navigate an increasingly dynamic market environment, we are focused on executing the areas of the business within our control. As part of the business transformation of the Winnebago Motorhome business, we have taken decisive steps to lower field inventory, improve working capital in the future, align our production schedule to market demand, reduce discretionary expenses and accelerate stronger product value for our customers. Collectively, these actions support a comprehensive margin recapture plan…

Thanks, Mike, and good morning, everyone. As a reminder, in my prepared remarks, 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. Starting with our consolidated results on Slide 8. Net revenues declined modestly in the quarter, primarily due to mix as our new lower ASP Grand Design Transcend series travel trailers outpaced the broader portfolio in terms of units sold. This mix shift was partially offset by targeted price increases. Consolidated unit volume increased year-over-year, primarily reflecting the continued lineup, diversification in our Grand Design Towables business as well as higher volume in the Marine segment. Gross margin declined 130 basis points from Q3 last year, which was primarily attributable to higher warranty experience and product mix, partially offset by operational efficiencies compared to prior year. Adjusted EBITDA margin declined 140 basis points year-over-year, primarily attributable to the lower gross margin. Turning to our towable RV segments on Slide 9. Lower net revenues were largely attributable to a shift in product mix with the addition of new Grand Design travel trailers, primarily the Transcend series. This drove a 2.5% increase in segment unit volume. Adjusted EBITDA margin declined from the prior year, primarily due to higher warranty experience and deleverage, including that associated with product mix partially offset by operational efficiencies. Moving to Motorhome RV results on Slide 10. Third quarter net revenues were down from the prior year, primarily due to lower unit volume related to current market conditions, partially offset by product mix. While the strong performance of Newmar and the successful launch of Grand Design Motorhome's new Lineage brand contributed positively to the product mix, this favorability was more than offset by declines in Winnebago branded…

Thanks, Bryan. Although the macroeconomic backdrop presents near-term challenges, we remain confident in the resilience of our brands and the long-term potential of our end markets. Our commitment to innovation reflected in our new products enables us to consistently deliver exceptional value and elevate every moment outdoors for our customers. The growing appeal of the outdoor lifestyle, especially among younger and more diverse consumers continues to drive strong interest in RVing and boating. This trend supports our view for meaningful growth across our portfolio as market conditions normalize and the industry moves towards a more stable, mid-cycle environment. Now Bryan and I are happy to take your questions this morning. Operator, please open the line for the Q&A session.

[Operator Instructions] And our first question will be coming from Michael Schwartz of Truist Securities.

Maybe just to start with on the Motorized business and maybe specific to the Winnebago-branded portion of that. I guess talk about some of the steps in more detail that you're taking to write the course there. Are you evaluating whether or not to exit parts or consolidated parts of that business, given some of the changing market dynamics over the past couple of years in Motorized?

Mike, this is Mike Happe and I will speak first here, and Bryan can weigh in with any of his thoughts as well. The turnaround plan for this business has been in motion for some time. And one of the most important decisions we made during the fiscal third quarter here recently was to significantly reduce production of units that we otherwise would likely have had to push to the field with higher sales allowances or discounts than we were comfortable with. And so that decision allowed us then to make some adjustments from a production discipline standpoint and go after some other short- term cost adjustments in the business. So our short-term focus is certainly to move existing inventory to the field in as profitable manner as we can. It is to lower our working capital in the business and produce a higher generation of cash flow, but we have also concurrently been working on improving the value proposition of our legacy products, looking at the overall cost structure and operational efficiency of the entire Winnebago Motorhomes manufacturing and operational footprint. And we have a number of new products being developed in the pipeline that we will introduce to the market at some point that will be new to the product catalog. I won't comment on our intention strategically with this line other than we are incredibly committed to our flagship brand of Winnebago, both in the motorhome and towable space. We intend to compete vigorously and profitably in the future with the Winnebago brand of motorhomes, but we are evaluating many strategic options as to what that business plan looks like in the future, and we will provide all of you in the market more information as we can.

I guess the only thing I would add to that, Mike, excuse me, is that the team is working very hard on, and -- it's obviously a product that's the key here. And the team is working very hard at speed to market with new product introductions. That's been a challenge for this business historically. In some cases, you can see in our product lineup where we dragged right and loaded more content onto some of our products when the market dragged left and look for affordability. So the team is very focused on product development and speed to market right now as a key priority as well.

Okay. That's super helpful. And then just a follow-up on Motorized. If we look at the profitability year-to-date, I want to say it's down something like 500 basis points year-over-year. Is there a way just to frame or parse how much of that is volume related versus maybe some other factors that may be a little more transitory in nature?

In the Motorhome business, specifically, Mike? Is that what you're asking?

Yes.

Yes, it's related to many things. I think the deleverage we've seen over time is certainly a big contributor. But as Mike referenced, a sizable contributor also is the discounting and allowances that are necessary to push the product into the market right now.

[Operator Instructions] Our next question will be coming from Tristan Thomas-Martin of BMO Capital Markets.

I just want to ask about your kind of commentary about the back half of calendar '25. Reading through the line, it sounds like we're not going to get a ton of dealer ordering, retail, you're expecting to remain pressured. So how should we think about kind of the first half of your fiscal year '26. Kind of putting everything together, it kind of seems like you're pointing to flat to maybe down year-over-year.

Tristan, we'll provide more information regarding guidance financially but also expectations from our end for calendar year '26 industry shipments during our October earnings call. So I'm going to be careful about not to necessarily comment on calendar year '26 at this time. I think it's apparent to all of you that all of us in the RV industry have been hoping for a stronger 2025 year and that there would be an inflection point from a recovery standpoint at some point during this year. And for a variety of reasons, many of them outside of the control of those of us in the industry that inflection point does not appear to be happening. And so as you heard on the call, we have tempered our outlook for the remainder of calendar year '25 shipments in the RV space. I would say that sentiment is probably similar on the pontoon space in the marine industry. And we will continue to evaluate the market to see and revise our feelings on when the market can begin to recover. We're focused on, obviously, the health of the field inventory from a quality and quantity standpoint right now and focusing on, obviously, retail share as best we can. But I'll refrain from offering any thoughts on 2026.

Okay. And then just kind of another '26 question on tariffs. The $0.50 to $0.75, is there any way to break it out between kind of what the impact is either by, call it, like what's the motorized chassis impact, maybe what's the impact on outboard engines for Marine and kind of what's the impact on the rest of your RV product lineup.

Yes, here's the way that I will frame the comments that Bryan delivered in the prepared part of this call. We felt it was important for us to begin to share with you some of the net risk that we continue to see on the tariff front. As you all know, this is a very fluid topic. April 2, obviously brought awareness to this at a higher level. There have been negotiations between the U.S. and several countries that have been made public since then. We anticipate sometime in mid-July to have a more formal update from the administration on the topic of tariffs and their negotiations with other countries. But we are doing everything we can currently with our supply base to attempt to mitigate the cost of tariffs. And our teams are doing a productive job of that. I won't go into details there. Less than 10% of the volume unit-wise of our bill of materials comes from outside the country, but the dollar exposure to tariffs is much higher. Motorized chassis is a good example of that. Other elements potentially with steel and aluminum, electronics, appliances and the like. And so that exposure is a little bit higher than I think people have thought it might be for us. Our model year 2026 pricing, which has been released by almost all of our businesses does reflect some tariff pricing in it to cover the short-term tariff risk that we are seeing for the remainder of fiscal year '25 and the early parts of fiscal year '26. But as we sit here today, and as Bryan articulated, there remains a net tariff unmitigated risk that we are working hard to reduce. And we wanted to share that risk with all of you today, and we will provide an update on that topic in October as well. But it comes from different countries, it comes from different components. But the team is working hard across the board on several mitigation tactics.

Our next question will be coming from Joe Altobello of Raymond James.

I wanted to go back to your comments earlier, Mike, about the Winnebago Motorhome segment. It sounds like, and correct me if I'm wrong, that your strategy here is rather than play the discounting game to kind of focus on innovation toward the lower end in terms of price points in that category. I guess, first, is that accurate? And second, if yes, how long do you think that takes?

Joe, on the topic of sales allowance and discounts, the motorized category in the RV industry is very competitive today regardless of the turnaround work that's happening in the Winnebago Motorhome business. So it is taking a higher-than-historical level of discounting to move product to the market today regardless, I think, of the sort of the status of that business and that will likely continue for some time from a competitive standpoint within the industry. My sense is most of our competitors are sitting as we are a bit on a number of available chassis. And so from a working capital and production standpoint, they have a vested interest in trying to move that to the market and get the benefit of cash. I would say on the topic of where the product line is fitted in the future, as Bryan inferred, it is very important for us to make sure that the value proposition of Winnebago-branded Motorhomes is in a stronger position tomorrow than it is today. And Chris West and his leadership team are working vigorously to improve the value proposition of legacy products and as they come to market in the future with brand new products that those have an appropriate value to them as well in addition to any innovation or differentiation that may be associated with that. But yes, we need to improve the value proposition on Winnebago-branded Motorhomes in the future and the team is working to that end.

Got it. Very helpful. And just kind of a follow-up on that in terms of demand trends. You mentioned March was encouraging, April and May not so much. It sounds like what you're seeing in June is more of a continuation of what you saw in the latter part of the quarter rather than any sort of improvement? Is that accurate?

Joe, from a macro standpoint, the first 3 weeks of June are still producing a negative retail comp versus the first 3 weeks of June a year ago in our business. It does vary though by a segment and/or brand. We do have some bright lights in that, that are performing higher than our company average and that run rate the first 3 weeks of June is actually trending for us slightly better than what we saw in the month of May from a macro standpoint. So it's not great in the sense that it's an across-the-board positive comp across all of our brands in category segments. But it has gotten a little bit better with our internal information versus our internal May information. And so that's a good thing. It's stable to slightly better in June, but I will not suggest that things have turned incredibly positive at this time.

And our next question will be coming from Craig Kennison of Baird.

Mike, I'm wondering if you would comment on some of the tax proposals finding their way through Congress, especially as it relates to interest rate deductibility.

Craig. I will comment on what we believe is happening as of this morning. There are a number of things we're monitoring, one of which is the floor plan interest deduction for dealers on towable products that was inadvertently omitted from previous legislation many years ago. We believe that the bill that's being debated and discussed on the Hill potentially resolve that issue, if things can continue forward as is here over the next week or so. We also understand that and have been tracking, what I'll call, sort of auto loan interest deductibility and that has been shifting between the House version that came first and then later generations of now the Senate version of the bill. And as many of you know, some of that is limited in terms of types of categories. Right now, we believe some of the motorized RVs on the smaller side could be included in that, but we're not sure that towable RVs or larger motorhomes may be a part of that. That could change. That interest deductibility also is tied to, I think, filer income and has some caps to it as well. So we'll watch to see what is finalized here over the next week or 2. And certainly, if consumers can be supported or advantaged in any way, shape or form, to make the purchase of RVs a little bit more affordable that's welcome news. And on the dealer side, we think it's incredibly important for dealers to get the benefit of towable floor plan interest deductibility back into their operating model as soon as possible.

And our next question will be coming from Scott Stember of ROTH MKM.

Mike, you were talking about some price increases going through related to tariffs already for the '26 product. Two questions there. Is this the, I guess, below to mid-single-digit bogey that you talked about earlier, does that include all of that? And the other part is what is the reaction -- if some of these products have been retailing, what has the consumer reaction been to these price increases?

Scott, the model year '26 pricing that we have taken so far this summer varies from low to mid-single digits by brand within our portfolio. That pricing in most cases does include some pricing as it relates to known, near-term tariffs and the costs that we're experiencing. So that cost increase is a base plus what we know today to be some of our tariff exposure. As you know, there is ample inventory in the market on our product categories, motorized RVs, towable RVs and boats. And the dealers probably have roughly half a year of inventory, maybe not the perfect mix that allows them to continue to selling to consumers here for a while without showing the full impact of any tariff-related pricing that may be passed on to them by the OEMs. What Bryan alluded to this morning in terms of our exposure -- potential exposure for fiscal '26 is tariff costs that are not yet mitigated from supply chain tactics and/or have probably been fully priced for in our current model year '26 pricing. And so that's just an acknowledgment that there could be another shoe to drop there. But our intention and hope is that we battle and reduce that exposure through good conversations and tactics from a supply chain and supplier standpoint before we have to price for it. What we don't quite yet understand is whether there will be any meaningful volume impacts from slightly higher pricing related to tariffs within our businesses. I think that is a topic that will show itself over time, and we'll see what happens there.

Got it. And just last one on Marine. You guys obviously doing the complete opposite of what it looks like the rest of the industry is doing, particularly for pontoons. Maybe also talk about Chris-Craft, how things are trending there? And just -- is this just a totally idiosyncratic to Winnebago? Or is there anything else that's going on that is helping both brands just really kill it right now?

Well, I think both brands, first and foremost, are led by quality leaders and teams and their businesses are generally under control from an operational standpoint. Chris-Craft specifically has been working hard on stronger product values lower in their lineup as well. Many of you know that earlier this calendar year, we introduced the Sportster series at Chris-Craft, which allowed consumers to get into that brand for somewhere at the low point of $175,000 to $185,000, and they have continued to introduce a few models that are pretty effective on the lower half of their product lineup. They've also been successful with their dealer relationships and have been very, very disciplined on managing dealer inventory as well. So we're pleased with both the slight retail share pickup at Chris-Craft plus the dealer inventory discipline that they're showing as well. Barletta is just a really strong story and continues to be so. The #3 brand now in aluminum pontoons, the May SSI for pontoons just came out yesterday. They picked up share both in the month of May, I think, about 100 basis points more than a year ago and also have picked up share on a calendar year-to-date basis as well. Again, they continue to tweak their lineup in many ways, too many to list in my comments right now, but particularly that Aria lineup continues to do very well for them. This is the third year of the Aria lineup, which is their lower-priced series within their catalog. They continue to tweak that with some new haul redesigns and some other elements, and that continues to perform well. So we're very pleased with where the Marine businesses are at today, they're battling successfully, and we just need to stay very focused there, do the right thing by our dealers, deliver great value and take care of our customers and just be disciplined with the production and the adjustments we're making to the product line to stay in line with what the consumer wants.

And our last question will be coming from James Hardiman of Citi.

Just wanted to sort of unpack the inventory conversation, 1.8 turns coming out of the third quarter, that's flat in the second quarter, flat with a year ago. So I'd love to see that. You talked about 2 turns being sort of your long-term goal. Do you think that's the number that we'll get to finish this year similar to where we were last year? And then I guess sort of more broadly, it seems like you guys are maybe doing a better job than some of your peers. I don't know. Is that a good place to be? Or do you still have to deal with maybe higher inventories on a relative basis from some of your peers?

Thanks, James, for the questions. A couple of things to unpack there. One is, we are comfortable with 2 turns as an appropriate target. I would say if you talk to most dealers in the industry, that would be the minimum number that they're shooting for as well. And so we think that very much aligns with what our dealers would like from their OEM partners. We're not there yet, but we are potentially sacrificing a little bit of ship and share in the spirit of trying to remain disciplined and try to target that 2 turn level for most of our brands and businesses. It does vary by category. Towables tends to be a little higher. In some cases, turns wise, Motorhomes tend to be a little bit lower, but we think that's the right number. I don't think you're going to see that number by the end of our fourth quarter fiscal '25, but it is something we'll continue to pursue during fiscal '26. I'm not sure our larger competitors are sharing that intention through behavior lately. We have been a little bit surprised by the shipment velocity before this morning's RV Industry Association Shipment Summary. Shipments earlier in the calendar year were a little bit more aggressive than I think we thought the market needed, but that's our competitors prerogative to do what they think they should do. It does increase some of the competitive discounting elements in the market when that happens and you run the risk of seeing aging inventory down the road if the retail side of the business doesn't keep up with that shipment supply. So this morning's May shipment report by RVIA was not unexpected to us. Our preliminary earnings announcement on June 5, pretty much essentially inferred that the later parts…

Got it. And just maybe as a follow-up there. So the [ 325 ], call it, the midpoint of your wholesale assumption for the industry, what's the retail assumption that's built into that? Do you think there's going to be an inventory build and inventory drawdown this year. And then maybe if I could just sneak in, just a big picture tariff question, not even a big picture. The $0.50 to $0.75 that you called out for those of us that are sort of math challenged, what kind of a price increase would you need to offset that $0.50 to $0.75.

First, I'll address that one. It varies depending on whether we're aiming for dollars or percentages, right? But there's probably another $30 million, $40 million of costs that we're trying to mitigate through pricing. So you can convert that into percentage terms pretty easily. All right. And then the first question, again, James?

Relative to the [ 325 ] midpoint of how you're thinking about wholesale, what's your retail assumption?

Yes. Right now, it's very close to that, if not reflecting a little bit of a destock still in the current year, just to help further the dealers' desire for higher turns that Michael was just talking about.

We do have a follow-up from Tristan Thomas-Martin of BMO Capital Markets.

I just wanted to sneak one in there on kind of Motorized. Newmar has done pretty well in a pretty challenged backdrop. I'm kind of curious if you could flag what they're doing specifically and then how if it's possible, maybe port some of those kind of changes over to the core Winnebago Motorized brand.

Yes. Tristan, we agree that the Newmar business has been driving some good results, both from a retail share standpoint but candidly, also from a profitability contribution standpoint. We don't share specific brand profitability contribution, but I can just tell you that the Newmar business is as healthy today, profitability-wise, yield -- from a yield standpoint as -- at any time since we have owned them since 2019. And that emanates from primarily having a very strong product line. Their Class A diesel business continues to be very healthy. I think their Class A diesel share, the latest numbers are up to somewhere in the 33% plus range. We've seen Class A diesel share increases now for, I believe, at least 4 consecutive years. They have expanded their Super C lineup, the Super C category has been growing in popularity over the last 5 to 10 years. Newmar entered that about 5 or 6 years ago with a model or 2, but they've continued to tweak those legacy models and add some new Super C elements to their product catalog here as of late. And then they've recently just introduced a compact luxury Class C called the Freedom Aire at their April dealer meeting that, as we said in our prepared comments, they're taking orders for here shortly, and we'll be shipping to the market most likely in Q1 of fiscal '26. They've also done a really good job from a dealer inventory management. The field inventory at Newmar is half of what it was unit-wise when we bought them in 2019. But the business is healthier. And I just spoke to a large Newmar dealer yesterday who reiterated that the Newmar team was doing the right thing by the dealers in many ways and that they remain committed to that brand. So it's just -- it's a good team. It's a great brand. It's the products in the right place. They're taking care of the dealers and the consumers. And we're going to stay very focused to try to make sure that, that behavior continues. The Class A category has not been growing in size, as many of you know but that's one of the reasons why we're expanding the Newmar catalog. They have permission to play in the motorized space and the way they do their business will allow them to win in the market over time. So we just have to stay focused and disciplined there, but it's a really nice story sort of underneath the surface here within our portfolio.

And I would now like to turn the call back to Ray Posadas for closing remarks.

Thank you, Tanya. That is the end of our third quarter earnings call. Thank you to everyone for joining us. We look forward to further updating you on future calls. Enjoy the rest of your day.

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