Winnebago Industries, Inc. (WGO) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Winnebago Q4 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Scott Folkers, Vice President of General Counsel and Secretary. Sir, you may begin.

Thank you. Good morning and welcome to the Winnebago Industries' conference call to review the company's results for the fourth quarter and fiscal 2015 periods which ended on August 29, 2015. Conducting the call today is Sarah Nielson, Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net and a replay of the call will be available on our website at approximately 1 PM Central Time today. The news release with our fourth quarter earnings results was posted on our website earlier this morning. If you have any questions about accessing any of this information, please call our Investor Relations department at 641-585-6160 following the call today. Certain statements made in today’s conference call regarding Winnebago industries and its operations may be considered forward-looking statements under the securities law and involve a number of risks and uncertainties. As a result, the company cautions you that forward-looking statements 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 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 turn the call now over to Sarah Nielson. Sarah?

Thanks, Scott. And thank you all for joining our call today. Before I cover the financial details of our 2000 [ph] fiscal fourth quarter, I want to provide an update on the CEO search that the board is conducting, as we just had our quarterly board meeting yesterday. First, the firm that the board engaged early on to help with this process is Spencer Stuart, a global executive search and leadership consulting firm who is providing assistance to the boards search committee. Second, the board is still considering both internal and external candidates that has conducted multiple first and second interviews thus far. Lastly, as it relates to the timing, the board appreciates how important doing this role is which is why they are conducting such a thorough process. As noted in our press release, yesterday the board approved an 11% increase of our quarterly dividend to $0.10 per quarter. Next, I would like to share with you more background on two key initiatives that we carefully evaluated and decided upon during the fourth quarter of fiscal 2015 which we believe will help to reduce our labor constraints and renew our focus on our higher margins motorized business going forward. First, we made the decision to enter the bus business as announced earlier this week and have sold the related inventory and tooling to our distributor partner at cost. In light of the labor constraints that we have experienced this past year, we determine that our resources were better used to focus on the design and manufacturing of our motor homes. Also, we had not achieved profitability within this operation since inception. We’ve recorded 1 million in operating losses in fiscal 2015. Second, we made the decision to cease our aluminum extrusion operation, historically this operation supplied extrusion both internally for our motorized production and externally to outside customers. The external portion accounted for approximately 25 million in annual revenues but its margins were well below our core RV business. The exit of this operation will take some time as we are under contract to outside customers to the first quarter of fiscal 2016. In addition, we need to ensure that we have adequate supply of extrusions externally to fill our motorized requirements. We anticipate that this transition process will be completed by the end of our second quarter. As a result of these two initiatives we hope to better utilize our labor capacity from the bus and extrusion operations from motor home production and to improve the company’s overall margins. Combined, exiting these operations will add approximately 70 employees for motor home production. In addition to these key decisions, we are evaluating our approach and other facets of the business all with the aim of improving our ability to grow revenues, margins and profitability so that we can keep up with the retail demand of our products. We are very encouraged by the continued robust consumer demand for both our motorized and towable products as noted in our earnings release this morning. This strong performance is a testimony to the consumer’s appeal to our product line, many of the new innovative models that we’ve introduced throughout the past few years. Moving back to the financials, fiscal 2015 fourth quarter revenues were up just over 2% mainly driven by strong performance within our towables group where revenues grew nearly 37%. We are very excited with their performance and believe there is significant runaway for additional growth given that our total market share is just under 1%. On the motorized side, fourth quarter revenues were down nominally year-over-year with growth into the class B and C product categories being offset by lower class A revenues. To note, we had an interesting dynamic within the motorized ASP comparison this quarter. A low overall ASPs decrease inside every product class we saw an increase. Overall, ASP was down just under 1% to 91,301 from 91,924 due to higher sales of our class B and C products. Specifically, looking at our fourth quarter ASPs year-over-year, here are the key changes. Class A gas ASP was 97,199 up nearly 4%, Class A diesel ASP was 189, 342 up 9.5%, Class C ASP was 75,636 up nearly 8% and Class B ASP was 71,523 up 0.5 percentage points. On the towable side, travel trailer ASP was 23,501 up just over 23% the result of the introduction of the Spyder, a Toy Hauler product. Our Fifth wheel ASP was 52,086, an increase of nearly 27% due to the increased sales of the Destination and the introduction of the Scorpion another Toy Hauler product. In aggregate, total ASP was 29,461 up over 26%. Fourth quarter motor home dealer inventory increased 2% compared to last year and stood at 472 units at the end of the quarter, however sequentially motorized dealer inventory declined 9.5% compared to the end of the third quarter which we believe reflects the seasonal pattern related to the selling season. Throughout most of fiscal 2015 our dealer inventory levels and order trends reflect many dealers taking stock of our new products as well as dealers undergoing greater stocking of inventory. At this point in the cycle we believe they may be at equilibrium for where we should receive one wholesale order for each unit retailed. Year-over-year, dealer inventory of our Class B and C motor homes increased significantly due to the strong retail demand of these products. Our retail market share for Class B and C products increased approximately 46% and 4% respectively on a trailing 12 months basis through July. Given the solid consumer appeal for these products, we anticipate they will continue to generate increased retail demand in fiscal 2016. Moving the backlog, motorized bookings grew approximately 22% on a rolling 12-month basis compared to last year which is in line with the retail registration growth that we’ve seen over the same period. Fourth quarter profitability was a bit lower than last year a result of several factors. Starting with gross margin, we saw a sequential improvement in the fourth quarter over the third quarter partially the result of improved manufacturing efficiencies within the motorized group, however we know we still have work to do in this area as motorized manufacturing inefficiencies impacted the fourth quarter gross margin approximately 20 basis points year-over-year. To this end, we’ve been making investments and training within our organization refocusing our on boarding programs for new employees as well as implementing safety oriented programs. Also impacting the fourth quarter gross margin comparison was unfavourable trends and warranty expense and the establishment of a warranty recall reserve each of which impacted approximately 40 basis points. Gross margin was favourably impacted by the reinstatements of tariff rebates on certain imported materials by approximately 25 basis points, the realization of cost savings benefits related to our strategic sourcing initiatives by approximately 17 basis points as well as lower commodity related expenses and greater absorption of fixed costs. Compared to last year, fourth quarter operating expenses increased $1.5 million due to incremental cost associated with the ERP implementation and strat sourcing project. Additionally, we incurred costs of 1 million related to a separation agreement due to the retirements of our former CEO; partially offsetting these increases was lower executive confrontation. Both of our strategic initiatives are progressing well. During the fourth quarter, as I mentioned earlier, we realized benefits from our strategic sourcing project. We are optimistic this project will continue to identify future cost saving opportunities and believe it will benefit our gross margin of upto 50 basis points in the back half of fiscal 2016. During fiscal 2015, we invested 5.8 into ERP of which 2.2 million was incremental expense. We are excited to announce the project met its first milestone as our finance department successfully transitioned to the new system at the start of fiscal 2016. Operating cash flow for the fourth quarter doubled to 26.6 million which contributed to our strong balance sheet consisting of 70 million of cash and no debt at the end of August. We are pleased with the generation of 45 million of operating cash flow for the year and with the state of our balance sheet. Notably, this was accomplished during a period where we are making substantial investments for our future. Capital expenditures for the full year of fiscal 2015 was 16.6 million an increase of 58% over the last year and in line with the guidance we provided a year ago. We anticipate CapEx in fiscal 2016 to be 20 million to 30 million, in addition to the normal 8 million to 10 million of maintenance spend for our current facilities we will continue to invest in our ERP system and are also seriously evaluating incremental capacity expansion investments. We hope to have more information on that front soon. Fiscal 2016 is a year where we expect to continue investing and rebuilding for Winnebago’s future. We anticipate flat-to-modest motorized deliveries growth which is in line with RVA projections of 3% growth for the industry. We’ve taken steps to improve motorized labor efficiency and expect to see modest improvements in fiscal 2016. In Towables, we anticipate building on our fiscal 2015 results with continued penetration of our new products and further expansion of our distribution base. We believe, we can again achieve growth in excess of the overall towables market projections for fiscal 2016,also please keep in mind that the exit of the aluminum extrusion operation will further reduce revenues as noted earlier. Additionally, we are optimistic that profitability will improve in fiscal 2016 over fiscal 2015 through margin improvement even on modest revenue growth. Gross margins should be positively impacted due to our strategic sourcing project, continued plant improvement in our manufacturing efficiency as well as the exit from the bus and aluminum extrusion operations. We expect fiscal 2016 operating expense as a percentage of sales to increase slightly year-over-year given the further investments we are making to support growth within the towables and greater spending related to our strategic initiatives. We are anticipating a fiscal 2016 tax rate in the range of 32% to 33% compared to 30.8% for fiscal 2015. In conclusion, in fiscal 2015 we generated strong cash flow while maintaining our profitability and a strong balance sheet during a year of investing for our long term success. We also saw a nice contribution from our towables group as it generated revenue growth of 23% while doubling operating income. In fiscal 2016, we are taking additional measures to position Winnebago for growth and improve margins and profitability in the future. With motorized industry delivery volume still well below peak, along with expanded population of our key demographic market and the positive trajectory of our towables operations, we believe we have a bright future. With that, I would like to open up the line for questions.

[Operator Instructions] And our first question comes from Craig Kennison from Baird. Your line is open.

Yes, thank you for taking my question. First question is on your distribution strategy. Could you provide an update on your strategy to expand what you are doing with dealers, and give us an idea of how many dealer locations you have?

Certainly. First from a motorized standpoint when we look at our distribution points at the end of the fiscal year we are now at 2,626 motorized points of distribution and that includes 202 physical locations. From a towable standpoint we now are looking at that in a very similar fashion and at the end of August we had 774 towable product line points of distribution at a 136 towable physical dealer locations, and we share between the two product categories and about 120 of these that are carrying both of our products. So the opportunities from the standpoint of a continued expansion of distribution points is still underway. For towables, it’s probably a more significant story from a percentage growth going into 2016 both from the standpoint of representation of the product and also with new products that have been introduced and will continue to be introduced. On the motorized side, in light of the fact that we are looking at a much larger base and we have made quite a bit of expansion of the point of our time. There still is an objective when you look at our sales group to grow that to 3000 but that’s a long term multiyear strategy still in the works. And so there the pace of growth is much more slower on that front as we sit today.

Thanks, Sarah. And then with respect to your comment that you would expect the replenishment rate of inventory to be close to 1 to 1, is that on a essentially a per dealer basis such that if you actually expand the number of dealer distribution points you could grow inventory faster than that?

Yes, yes very much so.

And then with respect to the CEO transition, I’m sure you have limitations on what you can say, but have you seen it have an impact at all on the dealer relationship. Are they holding back in anyway as they wait for better clarity?

Well we’ve work hard I would say in all areas of our business to be transparent and consistent in our commentary. So from the standpoint of our dealers and our suppliers, and our investors that here's where we are, we are executing and operating very effectively on a day-to-day basis and so its business as usual. We are all very interested in having that resolved, as well as we understands the outside world, but that hasn't been negative dynamic I would say with either from our suppliers or dealers at this point.

Got it. Thanks. I'll be back in queue.

Thank you.

Thank you. And our next question comes from Gerrick Johnson from BMO Capital. Your line is open.

Thank you. Good morning. So, could you just expand upon the warranty expense in the quarter and specifically what's driving that higher?

Well, I've touched upon in my opening remarks. There's really two components of that. And so a piece of that is increased warranty spends. And so when we evaluate on that in consideration of our reserves that had a pressure nearly 40 basis points in the quarter. The second component was recall reserves, so that is one-time in nature. They come up over the period of time. And this is significant enough that we wanted to quantify and talk about it. As it relates to further details on that, we filed the recall with NHTSA which is still on profit. And so, we don't have any further information to share on that until they finish the process. But that's a little bit added color on the two pieces there.

Okay, great. And then, in terms of retail, can you talk about what you're seeing in the quarter retail. Are you seeing any lift in the high-end perhaps say, diesel, fifth wheel, things like that?

We continue to have great success from the standpoint of the B and C product, and so we highlighted where the most significant growth has been. A lot of that has been a reflection too of the new product offerings that we brought to the marketplace of the path while, but that is where we're seeing probably the biggest strength from a motorized standpoint. For towables, we're also seeing some positives when we just look at the Winnebago brand specifically in regards to where we're seeing success, we introduced toy hauler products in the fifth wheel category here at are dealer days in April and we had introduced toy hauler products last December and both of those were pretty excited about what they'll do from a resell standpoint going forward. But when we just look at the first six months of the calendar year for travel trailer with the Winnebago branded product we've seen our retail registrations move 43% and on the fifth wheel side it's about 52%. As I mentioned it’s a great opportunity for us overall, I mean, we still in aggregate are very, very small players, but from a profitability standpoint it was a nice help for us inside the quarter as well as revenue growth.

Okay, great. I had a few more but I too will get back in queue. Thank you.

Thank you.

Thank you. And our next question comes from Mike Swartz from SunTrust. Your line is open.

Hey, good morning everyone.

Good morning.

Sarah, thanks for some of the color on your thoughts for fiscal year 2016, but just kind of digging into that a little bit, just in terms of gross margin I know you've caught out some of the things in the fourth quarter that were non-recurring kind of one-time and then some of the things that I would at least assume will pressure you for the next couple of quarters and with getting out some of these businesses, extrusion and all. There's a lot of moving parts, but just kind of as you think about holistically, should you be able to grow gross margin year-over-year in 2016?

When you go back to what we reported a year ago, the first quarter of 2015, we highlighted had our own unique challenges notably workers comp was a pretty big talking point for us a year ago as well as some challenges with production and some of the component parts and supply of some of our source parts that we reported year ago at 10.9% margins. So, I think there is an opportunity that we continue the trend of what we've seen in these past two quarters and we've grown our margins from Q2 to Q3, Q4 and our objective is to continue on that path, so that's where we're focused.

Okay. And then just the commentary on the flat to modest motorized deliveries growth for 2016, I believe that's the way you phrased it. And given some of the commentary around B and C obviously doing very well, you guys are taking a lot of share there. Would that imply that your Class A shipments would be down in 2016?

Well, we been facing capacity constrains over a year now in regards to we have to decide what to build and where to use that capacity. And we've made some intentional choices based on the demand and across margin profile of the product. So I mean, inside of fiscal 2016 we still have that same parameter. We are working in a lot of ways to free up labor capacity and that can allow us incremental unit growth or more and more price fare [ph] is we're looking at our labor hours and how can we most effectively use a labor hours. Because when we review 2015 to 2014 we had fewer labor hours in light of just the constraints in the area. So, for 2016 maybe I'll go back to the units for a second because that's easier to follow. We finish the year. This past year where we produced the net 9,091 unit range and what can we do this next year? So we think we have an opportunity with efforts we're making with Waverley and now the bus and CAPCO or the aluminum extrusion commentary that already provided that can help in that regards. But we also have to successfully retain our employees which we have for the past few months had a positive track record in that regard, but that's the key too, because we don't have all of those elements come together, we won't be able to produce amount of units that we're looking to, but we think we have an opportunity to grow on a modest basis in 2016. And as I also shared, we're seriously looking at other ways to enhance our capacity and that's why from the CapEx standpoint we're sharing some larger numbers and as soon as we have more information on that front we will be sharing that as well.

Okay. That's helpful. And just following up on your last comments there, it seems like CapEx includes potential capacity expansion investments, but does the flat and modest motorized delivery growth also assume that you have greater capacity or that just with the capacity you have today?

That just with the capacity we have today.

Okay, wonderful. Thank you.

You're welcome.

Thank you. And our next question comes from Seth Woolf from Northcoast Research. Your line is open.

Good morning, guys. Thanks for taking my questions.

Good morning.

So, I just wanted to touch on a couple of things you said. First of all, you talked about, you exiting the aluminum extrusion business and exiting the bus business. I was just wondering number one, what's that does to working capital. And then number two, I think you said 75 jobs are freed to focus on the assembly of motor homes, can you just talk about the production and that is going to provide?

First on a working capital standpoint, it's really a nominal impact. There was a small amount of inventory that we filled now related to bus. That was very small in the grand schemes. And from the standpoint of the extrusion, we're going to have to source the products that we're making for ourselves and so that's a different flow-through of inventory, but we don't really look at to be materially different. As I mentioned we anticipate there'll maybe 70 resources that we can move collectively between those two over to motor homes production. And a way to think about that from a capacity perspective is -- this is always mix dependent, but simplistically if we look at every individual is equivalent to five units, that gives you a mechanism maybe to calculate what that incremental potential could be for production. And I highlighted that we anticipate exiting the aluminum extrusion side in our second fiscal quarters. So, that's a transitional over time, so we don't have those people available all day once. But that is how we are evaluating and looking at it and then kind of a big picture standpoint as to what it can accomplish for us for capacity.

Okay. That's very helpful. And then just speaking about some of your commentary on additional capacity, so is it safe to think that if you'll open up the new facility for production that we could see additional non-core job elements removed, such as this? And if so is there any color or clarity that you can provide on that?

Woolf, you're looking at the vertical integration and that's kind of a piece of your question there, I mean, we're kind of continue to evaluate with those opportunities lie for us. From the standpoint of expansion, we're really – we're needing location and people to grow from a production perspective. And so it's evaluating where does that make sense for us. Now, that also I guess does connect from a vertical standpoint, if its close or far away, does it make sense to continue to do all the things we do or its very targeted to a certain product category maybe more outsourcing just related to that product itself. Does that answer your question?

Yes. That's kind of where I was headed with that is I'm trying to determine if you are going to start using more outside vendors, wouldn't that make sense to just leverage your size across the organization, I think you answered that. So I'll jump in the queue. Thank you.

Yes. Thank you.

Thank you. And our next question comes from Kathryn Thompson from Thompson Research. Your line is open.

Good morning. This is Wenjun sitting in for Kathryn.

Good morning.

Hi. Could you give more color on what droves improved Class A gas backlog this quarter, if any?

You're looking at the growth in the backlog, as we reported in our press release in Class A gas?

Yes, Class A gas.

I guess from the backlog standpoint, that's an order position at a point in time, which really can move around at any point in time. And so its influence regards to how well the product is flowing and the dealer inventory stocking position. And so it was an 18% growth on our Class A gas year-over-year, its 62 units. I don't – it's hard to say specifically any one reason that was the catalyst for that. We had movements in all categories and not in a huge range per say, but I wouldn't have anything I guess specific to comment on that one category of a movement.

Okay, great. And what are the mid to long term implication of product recalls? I mean, have you had a similar product recall in the past and how did the company and consumers response to past recalls?

That's a part of I guess the manufacturing process. Sometimes recalls happen with the supply components that we're putting into the product or sometimes we're the catalyst for the recall. And we diligently follow the process to take care of our consumer and we work hard to improve and lesson learned from what was the root cause, so we don't repeat that. It's pretty typical in industry and so it's not unique or different process that we're following here. It's just an item that we wanted to share from an impact to the margin, so everyone understands what happen this quarter as compared to last quarter.

Great. And lastly, can you comment on the cost related to ERP implementation this quarter. What are the costs more precisely?

As I mentioned in my prepared remarks, we -- inside our quarter, let me maybe start with total investment for ERP was a little over $3 million inside the quarter and we capitalized almost $1.9 million. And from the standpoint of the incremental expense that we incurred specifically through ERP we had about $1.5 million, excuse me $1.1 million expense amounts for that. Its definitely been in elevated level if you look at quarter two to quarter three to quarter four as our efforts becomes more significant and more and more of the company is being impacted in part of process, the spend is increasing and we've shared in the past, it’s a multi-year project and we're looking as that the total costs will be in that $12 million to $16 million range. So, the fourth quarter was our largest spend yet to-date in just in light of that pace of that project that we're picking up.

Okay, great. Thank you so much.

You're welcome.

Thank you. And our next question comes from Morris Ajzenman with Griffin Securities. Your line is open.

Good morning.

Good morning.

Just the follow-up to previous question, we've talked about -- and we know the past years you're facing capacity constraints and you had to make choices and you basically said, you had to kind of choose which product to produce. Let's take that back to Class A gas and Class A diesel, I'm clearly we've had some very difficult years there in deliveries. How much of that disappointment is due to called market share loss and having the right products? And how much is due to making a decision to produce Class B and Class C if that's what happened over Class A gas and diesel?

It will be I guess, its conjecture on my part to break apart the two reasons, I mean, it is I think a fair to say that it's both. I mean, we made a conscious effort to produce more of the B and C product this past year and that's took productions away from producing Class A gas and diesel. These units are much more labor intensive as well. And so for every - it has a compounding effect in regards to how that impact the production schedules. We have great opportunity to move the needle in Class A gas and Class A diesel on a perspective basis and that's also we're looking at where it can be most effectively produce these products, its been a significant topic and conversations as we plan for our future, but its hard to I would say, between the two reasons, but it is very much a function of both.

And looking into this current fiscal year, you will be having some employees you're shifting over i.e., from aluminum extrusion trying to get, but there are throughput. Will that help Class A gas and Class A diesel for this coming year from that perspective?

It potentially could, I mean, we're going to have to kind of monitor kind of quarter by quarter, what makes the most sense from a production plans. When we plan in an aggregate for the year we're looking a lot at the labor resources we have to allocate and assuming a certain mix, but it’s a market where we want to be very reactive to what the deals want, what the consumers want. So, we want to be able to change as needed in them, so it potentially could but its hard to predict how all that will play out as we set today for the whole fiscal year for 2016.

And then, again, Class A gas and Class A diesel are you both confident looking to this year versus last year's positive trends?

Hi. Again I guess, I would look at that. We have great opportunity. We're going to bringing product at the key events coming up on this calendar yet and showing new offerings. So we're are not stopping on the product innovation and development side.

Well, last question and I'll get back in queue. Any numbers – any help you can give us on the rental business with Apollo, how it played at this quarter versus last year?

On the fourth quarter, we did have the last delivery of Apollo occur, which is a little bit different than the previous year, because all of that business have been finalized by the end of the third quarter. So, we delivered 175 units to Apollo inside this fourth quarter. I think it's been a great partnership between us and them and they've a successful rental season, so we're excited about long term opportunities working with this rental partner.

Thank you.

You're welcome.

Thank you. And our next question comes from David Whiston from Morningstar. Your line is open.

Thanks. Good morning. Your answer to I think Morris's first question, you mentioned the BMC units are much more labor intensive. Could you talk about why that it is?

No. I apologize if that's what it sounded like. My point was that on the Class A both gas and diesel much more labor intensive product. So, from the standpoint of allocation resources and determining what we're going to do, it just is a part of the planning process. So, the Bs and Cs are less labor involved than the Class A product.

Okay. Sorry, maybe I miss heard. It sounds like both more space and more people is constraint right now is one drastically bigger than other though?

Can you repeat that both people and what?

More space in terms of capacity constraint you keep talking about. I'm just trying to gauge, do you need more space or do you need more people or both there is one need really more prevalent than the other?

It's not a space issue. We can run the lines that we have today faster. It is primarily a people issue. I would say some products can be challenging for us depending on the size of the product with our current facility, but we have the opportunity to produce more units in our existing factories for most of the product, the really, really big Class A diesels are probably the biggest challenge we have space wise but not for gas and Cs and Bs.

Okay. And just shifting over to the bus business, few years ago you guys were really excited about the potential there and obviously it hasn't worked out. Was it the demand didn't materialize or you just really bogged down with the labor issue?

I think it was a multitude of factors from the standpoint of labor, you hit a good point there, trying to split efforts and priorities, attention et cetera with that product and are growing on product on the motorized side, because in the same time frame we really doubled the amount of deliveries that we've produced out of this factory. So, that was a piece of it. But we think that it's in our best interest that to just focus on the motorized side and it's important to know and kind of move on and that's what we've done.

Okay. Thanks very much.

You're welcome.

Thank you. And our next question comes from Matthew Paige from Gabelli & Company. Your line is open.

Hey, good morning. Thanks for taking my call.

Good morning.

I guess my first question just kind of take it back towards the Class A for a second. How are you thinking about the Class A market? Where do you see the market going given your diesel backlog was down pretty sharply in the quarter?

From a Class A standpoint, I mean it remains strong and its continuing to move towards a lower price point from our retail standpoint. It’s a great opportunity. We want to better capitalize going forward. As mentioned some of our long term thought process for planning looks at the way we manufacture our Class A diesel and how it fits in this factory. So that's something that we're working on and we'll be addressing. Also it's focusing on all of the products. Right now we've made a conscious effort for production allocation on Bs and Cs, so addressing our capacity constraints is the piece of it. But we are still going to be sharing new floor plans and new product on a perspective basis in these categories and that's the key for growth as we have to have the right product.

Great. And I guess my other question is what is your philosophy when you're looking for your CEO? Are you looking for someone who is going to fit into your plan for the company as it stands now or what your ideal candidate be someone more independently minded and come in and have their own thoughts?

I think from a board standpoint they are most focused on looking for a candidate that has both strategic and operational acumen. They want somebody that has growth oriented leadership skills and M&A experience. So that’s the qualities that they have highlighted and which they are looking for. And as I mentioned they are both looking at an internal and external candidates. So they are considering it a good internal candidate that already knows and fits within the culture or is it somebody from the outside, so I think they are open to either.

Great. Thanks for the time, I’ll pass it on.

Thank you.

Thank you. And we do have a follow up from Gerrick Johnson from BMO Capital. Your line is open.

She had it right the first time. Hey, one more question on the buses. I think you mentioned that it was operating at a – was at a $1 million of loss, did you comment on the revenue that the bus business was doing?

No, I did not mention that. That’s part of why we haven’t seen profitability in that operation is that we just haven’t had a strong amount of revenues this year or in the past few years, so it’s not a material amount of revenue.

Okay. That’s all I had. Thank you.

Thank you.

Thank you. [Operator Instructions] And our next follow up question comes from Seth Woolf from North Coast research. Your line is open. Please check to make sure your phone isn’t on mute.

Hi guys, sorry about that.

That’s okay.

I just had a big picture question on the towables business. You talked a lot about motorized. You gave a lot of clarity and talked about kind of what you're seeing especially with the dealers. I was wondering if you could comment on if you still see the same dynamic in the towables business being -- sell-in and sell-out equalling each other. And then secondarily, I know you said you expect to outpace the growth of the towables market with your business, but I was curious if you could provide any additional color given that, with the dealer ramp and all of the new products, it seems like that should be a given. Thank you.

From a towable standpoint I guess maybe first to address to dealer inventory. We think there is an opportunity there that’s different than the motorized side just because of our very small piece of that market at this juncture. So as we expand distribution points I mean physical location there’s an opportunity to grow our dealer inventory and it has to obviously be turning at the right pace. But so there’s an opportunity in that front. From the standpoint of our opportunity in 2016 overall as I mentioned on the prepared remarks we think we can kind of continue that the path that we saw play out in 2015 we had 23% revenue growth in 2015 and we are hoping to see a similar level of growth or more in 2016 because of the expanded distribution and new product offerings, both creating that growth for that piece of the business, so pretty excited about what that opportunity is for us in this next year.

Okay, thank you and good luck.

Thank you.

Thank you. And I’m showing no further questions in queue. I would like to turn the conference over to Miss Sarah Nielson.

Thank you. Thank you all for the great questions and your continued interest in Winnebago Industries. We’d like to extend the same gratitude to everyone listening in this morning. We look forward to reviewing our fiscal 2016 first quarter results with you on Thursday December 17 at 09:00 AM.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.