Good day, ladies and gentlemen. And welcome to the Quarter Two 2014 Winnebago Earnings Conference Call. My name is Sheila, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Sheila Davis, Winnebago Industries Public Relations and Investor Relations Manager. Please proceed, ma’am.

Thank you, Sheila. Good morning. And welcome to Winnebago Industries conference call to review the company's results for the second quarter of fiscal 2014 ended March 1, 2014. Conducting the call today are Randy Potts, Chairman of the Board, Chief Executive Officer and President; and Sarah Nielsen, Vice President and Chief Financial Officer. The news release with our earnings results was posted to our website earlier this morning. This call is being broadcast live on our website at www.wgo.net/investor.html, and a replay of the call will be available on our website at approximately 1 o’clock p.m. Central Daylight Standard Time today. If you have any questions about accessing any of this information, please call our Investor Relations Department at (641) 585-6803 following the conference call. This presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements. These factors are identified in our filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the company upon request. I'll now turn the call over to Randy Potts. Randy?

Thank you, Sheila. We are very pleased to announce that second quarter year-over-year results are greatly improved despite the extremely challenging weather conditions that we faced. To satisfy our motorized backlog, we had scheduled four additional production days during the normal Christmas and New Year's shutdown. The severe weather, however, caused multiple work delays and closures at both our Iowa and Indiana facilities, which led to the loss of several production days and other inefficiencies. Also related to weather were complications with incoming and outgoing materials, as well as higher expenses related to utilities. So while we had substantial volume and revenue growth in the second quarter, the weather-related inefficiencies and expenses did put pressure on our margin growth. I’d be remised if I didn’t take this opportunity to point out how extremely hard our dedicated employees worked to overcome these challenges, thus ensuring a very successful quarter. I’d like to thank them for their commitment particularly over the holiday season. Looking ahead, we remained enthusiastic about our near and long-term outlook. First, retail registrations as measured by our systems grew nearly 20% year-over-year in the second quarter within both motorized and towable. Second, we are seeing success relative to our company’s multitude of ongoing product enhancements and new floorplans. And last, we received great reception from our dealers for our new products the Trend and Viva!, which are the first Class C’s to market built on the Ram ProMaster chassis and the Travato which is the first Class B to market on the Ram ProMaster chassis. Since these products largely begin shipping during the second quarter. We believe we will see higher volumes of them in the second half of this year as they gain traction in the retail market. Based on these developments, we are optimistic regarding our…

Thanks, Randy. The second quarter of fiscal 2014 marked Winnebago’s highest level of revenues since the fourth quarter of fiscal 2007. This is very encouraging to us as the second quarter is typically our lowest revenue quarter. The primarily driver of improved revenue was motorized volume growth of nearly 45% and interestingly to know almost 22% of our second quarter shipment were products not available at this time last year. Such as a lower price point Class A diesel products, Forza and Solei, and our Class C and B products, Trend, Viva! and Travato and the new Ram ProMaster chassis. Our motorized volume growth was partially offset by lower ASPs of 9.8% due to the popularity of these newly developed products. Specifically, looking at our ASPs year-over-year, I will briefly highlight the key changes. In the second quarter, Class A gas was 94,188, up 2% compared to last year. Class A diesel was 175,115, which is almost 17% below last year and significantly influenced by the demand of our newer lower price point products. Class C was 71,075, which is almost 5% lower than last year and also influenced by the shipments of the Trend and Viva! products. Our Class B was 68,797, a decrease of about 12% as a result of our Travato sales, so from a total motorized ASP in aggregate we have an ASP of 100,566 this quarter, which is a decline of almost 10% over last year. Moving over to the towable products, ASPs year-over-year, travel trailers were 19,380 which is down 1.5% from last year. However, our fifth wheels were 42,640, an increase of nearly 40% and influenced by shipments of our new Winnebago Destination fifth wheel. In total, all towable ASPs in aggregate was 23,911, up over 9% this quarter. In light of such…

Thank you. (Operator Instructions) The first question comes from the line of Alvin Concepcion of Citigroup Global Markets. Please proceed.

Thank you, and good morning. It sounded like the operating margins were pretty impressive. I think they were trending around 6.2% if you net out weather, outsourcing and the real estate gain. And if that’s true, that’s some of the highest profitability you’ve had since I think 2005 in this quarter. So I’m wondering if there is anything else that was more temporary in nature to margins or is that trend sustainable.

Well, we definitely highlighted some of the challenges and experience inside the quarter, but on the positive side with the added revenue and production volumes, that has continued to provide opportunity for us to reduce our fixed cost as a percentage. So I think we really did cover the key items that were unique in nature to try to quantify and separate those. And we’re excited about the future.

We highlighted what were kind of the extraordinary items. I think the most predominant thing that we will always face us the effect of model mix and quarter-to-quarter that will -- always has been an impact and will continue to be, but I think the general trend is real and supportable.

That’s great to hear. And you mentioned you were optimistic about growth in the motorized division, obviously retail sales are supporting that view. But just wondering what else is driving that confidence and how much of an impact do you think weather has had on retail trends to-date?

Yes. We get asked a lot about the impact of weather on the retail business, and it’s just -- it’s very hard to really draw any conclusions on that. I’m sure it has an impact. I’d like to think that the impact just delays a purchase that doesn’t cancel it, because this isn’t something you just decide to do to purchase a new RV one day and not the next, but there is other reasons to be optimistic. Sarah did mention that our Towables operation is performed in the black for the quarter, and we’re working very hard as we said every quarter to get that on the right track, and we’re certainly seeing signs of that.

Great. And just one more for me. Just wondering how you feel about dealer inventory levels in motor homes, maybe you could talk about it on a per dealer basis or in terms of inventory turns, just wondering your level of comfort within today.

Well, those are kind of the common statistics, but Sarah has some other stats she can embellish that with that. We don’t normally use that. I think we shed some good light on this.

Well, we definitely have a significant amount of opportunity with the added level of dealer inventory to see that positively impact retail on a go-forward basis. So much of what we delivered had never been in the marketplace before with our dealers, and so they are going to create new turns or added turns both on a prospective basis. We’ve been adding locations as well in light of new product offerings. And on a year-over-year basis, as I mentioned, that was approximately 12%. So that you asked a good question, because it’s a function too of how much dealer has across the country. And we think there are still continued opportunities because we have so much that some of our dealers don’t have a lot on their lot yet of the new items. But the second quarter was disrupted a little bit by weather. So the product wasn’t reaching the dealers as timely as we would have liked, and you saw that on our balance sheet and receivables. So there is an element too where there hadn’t been really a lot of time for any of that to flow through and it wasn’t the season for a lot of people to be interested in being on a (indiscernible) lot in some of the areas of the country or many areas of the country. But those will be probably my key points in relation to dealer inventory, that’s the highlight.

All right. That’s very helpful. Thank you very much.

You are welcome.

Thank you. And your next question comes from the line of Craig Kennison of Robert W. Baird. Please proceed.

Okay. Thanks. I assume you can hear me?

Yes, we can.

We can, Ken.

Great. So, I wanted to follow-up on the last response, Sarah. It seems like a very interesting bump in the number of distribution point. Could you talk about what you are doing internally or what factors are driving the growth in distribution?

Well, we want to look at the new product offerings that we are launching in the marketplace to have adequate cover. So that’s a key part of it. But I need Randy to share a little thoughts on that.

Well, I think a really good part of it, and what Sarah mentioned is huge. But another big part it is, Scott Degnan in his leadership of sales and marketing has really put an emphasis on plugging holes out there in the marketplace, filling open points and he has directed his organization to be a lot more aggressive towards filling open points and that’s a big part of their numbers.

Is it equal on the motorhome and towable side or it’s just been driven by one of those categories?

Dealerships. Towables has just even more opportunities, but that’s such a young and mature organization for us, we’d expect that. Our motorized dealer base is very, very established and so, Scott has just really put a lot of effort towards identifying what we might have viewed as really smaller opportunities in the past. He is capitalizing on those. He has directed his groups to capitalize on those and I think they will find more.

You displacing other brands at these dealerships, are there new dealerships kind of springing up from what?

It’s all of the above, Craig. It’s never a quite the same scenario. Sometimes it’s new dealerships, sometimes -- it’s very scenario you can imagine.

Okay. And then wanted to follow-up on your retail, which was much stronger than we anticipated. I think you said around 20%. As you know, the industry source here had you for the first two months down about 4%. There is often variation between your results and what the industry source would indicate but that’s a huge gap. Any explanation for why your retail looks so much better?

Well, our retail events and they separate out a lot of things and it comes on a different times. They separate United States, Canada, events from the other RV market. That’s confusing to start with and it all comes out on different times and people run with the first numbers that come out. And they are the first to say that their numbers are incomplete and then it seems that the follow-up that they have when they do fill in the holes never really gets much attention. It’s just the initial announcement that gets the attention. That’s my take, Craig. I can’t speak for them as to why things don’t match up. But we watch our retail registration numbers.

Yeah. We are looking at it on a daily basis because it’s the key trigger for the warranty to start and so we are looking at wanting that registration that happened as a point of sale. It’s a constant management process and follow-up. And then we also have the opportunity to validate on dealer inventory information when our DMs are on site at the dealership. We do work closely with respect to survey to exchange information and when we look at it on a rolling 12-months basis, there is not significant variance but in any particular month, there can be.

I think it’s a snapshot.

And it can go both ways. I mean, we can have information more timely than they might, but there are instances where sometimes they have information more timely than what we do. We are also working with all the flooring institutions to exchange information on retail registration. So we try to validate that data in many different ways but it’s critical for us to understand our dealer inventory and retail is a key driver of reducing or increasing or dealer inventory. So we will continue to track it and report it from our own internal system. But I understand the question because it’s a bit confusing to what external data point you would have available to you.

Yeah. Thank you. That helps. And then maybe I’ll finish with just more questions on this repurchase agreement. Can you share with us any details on the terms of your rental repurchase agreement and then maybe comment a little more on how we should see that flow through the income statement from, I guess a revenue and profit standpoint?

Yeah. This is an arrangement that’s very typical on other industries that near for the RV industry on a public company basis potentially to be talking about the specifics. In general, we are delivering all the units just on a normal course here on the third quarter. So we will be paid in the normal cost upfront. But on two-thirds of the order, we have an obligation at subsidized price to repurchase it back, assuming certain mileage and other conditions are met. And we anticipate that to happen in the September through December timeframe. I think primarily this will be Q1 and we are working to collaborate with Apollo to have basically places for that product to go after the rental season is over and very close to where those units are at, so they don’t make their way back up to Iowa. And from the standpoint of how that two-thirds will flow through the income statements, we are required to record that as an operating lease and so you have estimated lease revenue being recorded on a ratable basis over the timeframe, so it’s a very different process. We will be having some footnotes and added disclosure on this in our Qs as the transaction flows through, because probably the oddest element of this is it’s going to be a retail registration for us, but it will never be illustrated in dealer inventory or in our wholesale numbers for a portion of the order. But when you amortize it into the financials on a straight-line basis it becomes less of a significant number in a particular quarter and it won’t happen in the third quarter, because the holding period will be really in quarters four and one. But those I guess the key components of how that will work.

So just a follow-up. So next quarter presumably, you would book one-third of 500 or about a 167 units as been shipped. Would you then also book essentially 500 units being retail so you would kind of get credit for all 500 at retail?

Yeah. So all be retail registered, I don’t know if the retail registration will completely take place inside of the third quarter. But they should all be retail registered, I would think by June. So yes, that will create some just very interesting dynamics to the P&L. But if we look at the transaction on the economic basis, that’s how we evaluated the opportunity. We’re pretty excited on working with Apollo and having our product more fully represented in the market on a rental side. But it is going to create some just odd kind of flow through as it relates to the typical sale of a unit.

And do you plan to sort of breakout the unit impact so that we can adjust our inventory in retail and shipment numbers?

Yes, we will. That was our older data, the upfront, and just highlight and be transparent as it flows through the financials.

Is that clear, Craig?

It is clear. And I appreciate that. We have a model that tries to forecast where inventory should be and this has the potential to create 500 retail units and only a 167 shipments and it would kind of [recap on our] (ph) model unless we have the details.

Yes.

Yes. So we want to make sure we’re clear on that. We’re trying to make it as clear and simple as we can, but if it’s not, we need the questions to be asked.

Yes. Great.

To be fair on the balance sheet side, this will be represented as an obligation until we do in fact repurchase the units, so there will be some items on the balance sheet that you’ll see flow through, but again, will be very clear on all the pieces of it. And this is all prospective and forward-looking in nature. It doesn’t affect us here at the end of the second quarter. Except as I highlighted, these orders are not in our backlog as reported today because we won’t be recognizing the revenue on those particular units.

Very helpful. Thank you very much.

You are welcome.

Thanks.

Thank you. And the next question comes from the line of Morris Ajzenman of Griffin Securities. Please proceed.

Hi, guys.

Good morning.

Hi. Question again with the retail registration industry sales, again retail registration is up about 20%. The best I can make it with from the SSI stats in the retail sales. I don’t hold a complete data, but I think it’s running up about half year range for the quarter, I’m not really sure if that’s correct, I think that is ballpark. So what I take from that is on the positive side, the borrowing share, but on the side of the glass being half empty, retail sales for the industry is rising lot less than the overall dealer inventory rising. Is there any concern on your part that? And again you touched on whether it’s really a full impact, but that this might be an indicator of industry sales haven’t been slowed down. Any take on that?

Well, I think we’re all looking to the spring selling season to tell us where this market goes. There’s no denying that there has to be sell through of this product that’s been wholesaled. I think it’s a simple as that. It is real that a lot of our dealer inventory increase is products. I mean that simply weren’t on the market, weren’t on dealers lots in the last spring/summer selling season. So just the effect of all these things, the additional dealers points we have, the new products that are our there that weren’t before, the availability of certain models that we’re short in supply of last year, that will be out there. This year, we’re going to have to see if that how it all works out. So like you said, glass half full/half empty, time will tell which one it is.

Okay. Fair enough. And in past quarters, when towable wasn’t doing so well, that it’s going that great, but it’s doing better, you broke up the operating loss. Can you breakout the operating profit for this quarter versus last year loss?

Yes. So last year it was a sizable loss and we definitely spent some time talking about that on our call a year ago. We lost approximately $850,000 in the quarter, just reported our operating income was approximately $50,000. So, we were very happy to have a black quarter and to see that growing the revenue stream, revenue was up approximately 15% and we're seeing part of that a function of shipments and part of that ASP growth with fifth wheel offerings, gaining some traction in the marketplace. So it's a good comp and a good trend, but we're focused on day-by-day making progress and having just be sustainable going forward.

My last question and I'll get back in queue. Do you want to give us any sort of projection where -- what do we now, half way through this fiscal year and what you think the free cash flow could be for entire year?

Well, definitely a key part of -- the use of cash, we -- I commented on it, did well, there has been the impacts inside of this most recently reported quarter was a growth in the receivables. When you look at from our thoughts on a full year basis, we have opportunities to generate operating cash flow in relation to movements and both receivables and to a lesser degree in the inventory categories because we didn't have a significant movement in inventories inside the quarter, but we've been building product to shift for the rental, this is our big rental shipments quarter and quarter three. So we have an opportunity to improve upon what we have reported a year ago from an operating or free cash flow standpoint. Now we did comment on the use of cash in some of our other areas. When you look at investing and financing, we've spent more and continue to plan to spend more on CapEx reinvesting into the business. So that is going to be at a higher level in the last six months for the year than it was in the first six months and definitely up over last year and we have been more active on the stock repurchase front. So we are using that cash that we plan to generate from operating activities and some other areas.

Thank you.

You're welcome.

Thank you. There are no more questions at this time. (Operator Instructions) And the next question comes from the line of David Whiston of Morningstar. Please proceed.

Good morning. Can you hear me?

Yes.

Yes.

Good morning to you.

Good morning. Just wanted to follow up on the last comment by Sarah on the share buybacks. Given that, it sounds like you are going to have a lot of favorable cash inflow in our current quarters. Are you looking to be much more aggressive with buybacks for the rest of the fiscal year where you’ve perhaps held back in the last quarter?

Well, we definitely were more active in the second quarter than we have been in the first. We’ll continue to evaluate that. As I mentioned, we do have some planned CapEx set at a higher level that we will be using on cash flow. But at this point, we will just continue to evaluate based on those parameters we've been following in the first six months. So we have an established grid and we incorporate our view on the future into that mix but it is also continued on the other uses of what our cash could be invested in. But -- so I don't have any specific items to announce on that front, but we still have 18.4 remaining on the authorization that we've been repurchasing under. So there is availability yet if we choose to repurchase more shares.

We did invest almost $16 million in the second quarter.

Great. And this maybe a bit early but do you think higher CapEx spend is going to continue next fiscal year?

Yes, that is a bit early. We have some pretty sizable things that we've been working and planning on. So I think 2014 is a bigger year.

I can't think of any reasons '15 would be bigger than '14.

No, that’s there.

But it would probably -- it would be up from where we've been in the last five years.

Okay, that's very helpful. Thank you.

Thank you.

Thank you. There are no more questions. I'd like to turn the call over to Randy for closing remarks.

Okay, thank you. We're very proud of our performance in the second quarter especially in light of the many challenges we discussed. We also have a lot of opportunities ahead of us and we're excited to introduce the newest products to our dealers in Las Vegas in just a couple of weeks. Thank you everybody for joining our call today. We look forward to speaking with you again when we report our third quarter conference call at our third quarter fiscal call for the results on Thursday, June 26th.

Thank you for participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.