Winnebago Industries, Inc. (WGO) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Winnebago Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Steve Stuber, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone, for joining us today to discuss our fiscal year 2020 third quarter earnings results. I’m joined on the call today by Michael Happe, President and Chief Executive Officer; and Bryan Hughes, Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net and a replay of the call will be available on our website later today. The news release with our third quarter results was issued and posted to our website earlier this morning. Before we start, I’d like to remind you that certain statements made during today’s conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws. The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain and a number of factors, many of which are beyond the company’s control could cause actual results to differ materially from these statements. These factors are identified in our SEC filings, which I encourage you to read. With that, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?

Thank you, Steve, and good morning to everyone on today’s call. It’s hard to believe how much has transpired in the last three months since we held a similar event. We sincerely hope that each of you and your families this morning are staying safe and healthy during these unique times. And we especially appreciate your interest in Winnebago Industries and taking the time to join us this morning. Today, I will briefly share with you what Winnebago Industries has been doing relative to COVID-19 and then provide an overview of our third quarter results and our perspective on the balance of our fiscal year 2020. I’ll then turn the call over to Bryan Hughes, who will provide more details on the financial results. I will then return to offer some closing comments before we conclude the call with our Q&A session. Before we begin today’s discussion, I would like to offer a variety of thanks relative to our ongoing navigation of the coronavirus pandemic. First, Bryan and I want to thank our more than 5,000 employees in the Winnebago Industries family of brands for their impressive response to the COVID-19 environment, as we continue the process of returning to work in a thoughtful and safe manner. In the face of uncertainty and dynamic market conditions, our teammates continue to demonstrate resilience, determination and care daily as we balance productivity and efficiency with safety and health. There have been countless moments of inspiration as our employees make cloth masks, face shields, contribute to fellow Employee Assistance Funds, and engage our communities with acts of charity to help their neighbors. In the face of these challenges, the commitment and dedication of our team have been essential to our ongoing pursuit of the vision to make Winnebago Industries a leading provider of outdoor lifestyle solutions a reality. Secondly, we would like to thank the first responders, healthcare providers, public health officials and local leaders in the communities our employees live, work and play in. These stakeholders have played a vital role in ensuring that the counties, cities and towns we call home are navigating through this pandemic crisis as effectively as possible, and ensuring that those most vulnerable to this challenging virus are protected and cared for as much as possible. Thank you to these everyday heroes. Now prior to the impact of COVID-19, Winnebago Industries was well on its way to driving strong financial results for fiscal year 2020, and building on the momentum we had created the last several years. As we discussed on our last call in mid-March, as COVID-19-related stay-at-home orders were put in place across the country, we began to witness significant disruptions across most of our dealer network, supply chain and to our end consumers. In response, we took immediate and decisive actions to control costs and maintain our financial strength and flexibility by making the tough, but necessary decision, the week of March 23 to temporarily suspend most production activities across all of our facilities. At one point in time, we have more than 4,000 employees unfortunately furloughed. Beginning with our Specialty Vehicles and Chris-Craft businesses in mid-April, our full portfolio of Winnebago Industries businesses eventually resumed production activities in a disciplined and graduated manner during the month of May. As consumers began to emerge from stay-at-home orders and as other COVID-19-related constraints were lifted that affected our dealer networks, our company started the process of adapting to new safety protocols and establishing a new normal operationally as we return to work. The most important aspect of this new reality has been to ensure the health and safety of our employees and other key stakeholders, as we work to ramp up production across our portfolio. This includes educating and training our employees on best practices to prevent the spread of the coronavirus inside and outside the workplace and developing a longer-term plan to manage through potential future waves of the pandemic. This is a daily battle to guard against social complacency and fatigue, along with inconsistent outside leadership messaging and role modeling to embrace the proper protocols that keep our employees and their families safe. Along with our Vice President of Enterprise Operations, Chris West, I have had the opportunity now to visit almost all of our facilities across the company to witness firsthand how our employee health protocols are being blended with the productivity needed to meet rising demand. In fact, I hit the road in one of our Winnebago-branded Class B vans for the trip to Indiana last month, experiencing the feeling so many Americans are now demanding of being outdoors in a safe manner. During this period, we also developed a comprehensive plan to help us identify COVID-19-related supply chain risks and mitigating activities to help our brands manage through the disruption on a sustained basis. Coordination and close communication with our vendors and supply chain partners allowed us to stay in lockstep throughout this process and was a key element in our successful restart in May. While still managing through some delivery challenges here and there, most of our supply chain remains reliably – reliable currently. We are also using the crisis proactively as well to continue to improve the efficiency of our operations to recommit to higher levels of discipline and production planning versus confirmed orders and rightsizing our fixed costs to our future business prospects and profitability aspirations. We have also remained in close contact with our dealers to monitor and assess how the pandemic impacted their businesses and what changes in consumer buying behaviors they are and we’re seeing in real-time. Our dealers have been truly extraordinary during these last 100 days, facing what appeared to be initially an existential crisis in April, adapting quickly to engaging consumers in a digital fashion to meet available demand and then ramping up safely with their teams to meet what has now emerged as an unexpected, but highly welcomed strong wave of first-time RVers and boaters this late spring and summer. We continue to work hard everyday to serve the needs of our dealers in a superlative fashion. And we want to say thank you to those channel partners for their continued support of our brands. Finally, we continue to prioritize a disciplined approach to our financial management of the company, as we closely follow the market to stay ahead of any significant disruptions. As the impact of COVID-19 continues to evolve, we are confident that we have sufficient cash on hand and liquidity to navigate the crisis, while remaining committed to keeping our teams safe as we continue to support our dealer partners and consumers. We are also highly aware of the debt structure we have here at the company and are working diligently with Bryan’s leadership to ensure that our future leverage strategy is considerate of any profitable growth opportunities, but is especially designed to navigate any unanticipated business disruptions that could occur in the future. Undoubtedly, the past few months have been a challenging time for everyone in the outdoors industry and for Winnebago Industries, specifically. Our entire third quarter really straddled the worst of the pandemic’s impact to date within the U.S. I believe we’re the first RV company to report for the months of March through May. If you breakdown RV industry performance on a monthly basis, in March, we saw a 20.2% decline in retail sales compared to the prior year and most notable was April, where the industry experienced a 53% retail decline over the prior year period. I will speak in more detail in the closing comment sections, but we have seen an incredible rebound in retail demand and dealer demand since early May across all our businesses, as you can see by the backlog numbers referenced in our release. In fact, we received this morning our latest retail for the latest week in June and it’s a higher comp percentage as we have seen in the recovery to date. We have continued to revise our production rates on various product lines to ensure that we can meet that demand in a disciplined safe manner in future quarters. We believe the current momentum in the marketplace is seasonally sustainable for the remainder of our fiscal year and potentially through the rest of the calendar year. Turning now to our consolidated results for the third quarter, which again span the most intense portion of the COVID-19 pandemic to date in the U.S. Consolidated revenues for Winnebago Industries were $402.5 million for the third quarter of fiscal 2020, down approximately 24% versus the same period in fiscal 2019. Excluding Newmar, consolidated revenues were $314.5 million, down approximately 41%. Even while dealing with the impacts of COVID-19, our Grand Design business, Newmar branded motorhomes, and our Winnebago-branded Class B products, all continued to build on their trend of gaining market share. Our ability to outperform the market is consistent with trends we were seeing prior to the pandemic and we are optimistic that we will continue to do so in the final quarter of the fiscal year 2020. Year-to-date, operating cash flow was $162 million, an increase of 96% versus the same period in fiscal 2019. As a result of implementing measures to preserve cash, including taking advantage of our highly variable cost structure, curtailing our capital spend and executive and employee compensation cuts, we have been able to grow our cash levels in the quarter another $30 million to an end of May position of approximately $152 million. As important, our $193 million ABL facility remains untapped. Now, let us turn to the segments in more detail. In the Towable segment, revenues of $189 million for the quarter were down 46% from the prior year period, primarily driven by the suspension of manufacturing and the disruption of consumer buying patterns related to the COVID pandemic. The appeal of our Grand Design and Winnebago-branded Towable products has allowed us to once again outpace the industry and gain retail market share. Adjusted EBITDA margin was 8.7% in the quarter, largely reflecting deleverage and cost impacts related to COVID. Towable backlog for the quarter increased approximately 87% in units over the prior year period, reflecting a strong rebound in dealer demand in May, since April was the period most impacted by COVID, driven by strong retail sales recovery in May. In recent quarters, our multi-branded portfolio has proven to be resilient and successful in gaining Towable share regardless of market conditions. While there is clearly uncertainty regarding near-term industry and consumer dynamics, we are confident in our long-term prospects to grow the business and to increase share. Demand for our Towables lineup remains strong and reflects the continued appeal of our brands with consumers. Now, let us turn to the Motorhome segment. With our refreshed lineup of high-quality motorized RVs and the addition of Newmar’s premium brand to our portfolio, we are positioned to more effectively compete in the high-end motorhome market and our Motorhome segment is more balanced and competitive than ever. The acquisition of Newmar has already resulted in gains towards restoring our Motorhome business to a leadership position by adding its highly respected luxury brand to our portfolio. Despite challenges posed by the COVID-19 pandemic, the integration of Newmar into the Winnebago Industries portfolio is proceeding as planned. The company remains focused on ensuring that Newmar further expands its industry-leading position in the high-end motorhome market. In terms of segment results, third quarter Motorhome segment revenues were up approximately 27% from the prior year period. Excluding Newmar, organic revenues decreased approximately 28%, again, due to the COVID-19-related impacts we have discussed. Adjusted EBITDA margin decreased to negative 5.3% in the quarter, largely due to deleverage and cost impacts related to COVID, partially offset by the addition of Newmar and the mix in the Winnebago-branded portfolio, driven by strength in our Class B motorhomes. Our motorhome backlog increased approximately 99% in units from the prior year, due to the addition of Newmar, but also a strong rebound in dealer demand in May, since April was the period most impacted by COVID, driven by strong retail sales in May. The COVID impact to our business was material. It posed a threat to our employees’ health. It forced us to suspend operations and it demanded that we take swift action to preserve our liquidity. During this time, we also took a hard look at our fixed cost structure in the Winnebago-branded Motorhome business. The result of this review led to an eventual severance, in other words, permanent removal of some Winnebago Motorhome personnel. The $1.4 million restructuring charge is noted in our EBITDA to adjusted EBITDA reconciliation. As many of you may recall, we announced the closure of our Junction City manufacturing facility at around this time last year. That decision was made in the interest of cost savings to help improve the overall profitability of the Motorhome segment. Ongoing annual savings of $4 million are expected starting in fiscal year 2021. Our new diesel line in Forest City, Iowa is nearly complete, with new production planned for first quarter of our upcoming fiscal year 2021. Several weeks ago, we made the decision to complete the process and close the Junction City factory service operation. We have worked with dealers in the Pacific Northwest region to take in end customers who would have otherwise used our service facility in Oregon and provide them an alternate high-quality experience. While these decisions are always hard, we believe we continue to make the right decisions in the long-term interest and health of our Motorhome segment. With that overview, I will now turn the call over to our Chief Financial Officer, Bryan Hughes, to review our fiscal 2020 third quarter financials in more detail. Bryan?

Thanks, Mike, and good morning, everyone. As Mike mentioned earlier, the COVID-19 pandemic and the related shutdown of our operations in the quarter, combined with the disruption to consumer purchasing patterns, all weighed heavily on our third quarter results for fiscal 2020. I’ll repeat a few of the key financial metrics that Mike already cited earlier. Consolidated revenues in the third quarter were $402.5 million, a decrease of 23.9%, compared to $528.9 million for the fiscal 2019 period. Excluding Newmar, we saw top line organic revenues declined 40.5% versus the same period last year. Gross profit was $32 million, down from $86.6 million in the fiscal 2019 period. Gross profit margin decreased 840 basis points in the quarter due to deleverage and mix as the more profitable Towable segment slowed more than the Motorhome business did, also impacted by the mix shift from the Newmar acquisition. SG&A included amortization for Newmar of $4.7 million in the quarter. The amortization related to Newmar in Q4 will be approximately $1.4 million. We have historically discussed in public forum, the variable nature of our cost structure, estimating that it was approximately 85% variable, 15% fixed. The highly variable nature of our cost structure was substantiated in the range of 85% through our third quarter results. We were also able to favorably impact our fixed costs to a certain cost containment measures. The operating income line showed a loss of $8.2 million for the third quarter, compared to operating income of $49 million in the third quarter of 2019. We had a net loss of $12.4 million in third quarter, compared to net income of $36.2 million in the third quarter of last year. Reported net loss per diluted share was $0.37, compared to reported earnings per diluted share of $1.14 in the same period last year. We have provided adjusted EPS performance as a comparable metric to clearly illustrate our performance. Adjusted net loss per diluted share was $0.26 in the third quarter, compared to adjusted earnings per share of $1.14 in the same period last year. Excluding approximately, $3.3 million, or $0.10 per share of non-cash interest, $1.4 million, or $0.04 per share of restructuring costs, and a favorable 200,000, or $0.01 per share true-up of Newmar-related acquisition costs. These adjustments when netted for the respective tax impacts, total an $0.11 difference between our reported diluted EPS and our adjusted diluted EPS. Consolidated adjusted EBITDA was $4.1 million for the quarter, compared to $55.9 million last year, a decrease of 92.7% Now, turning to the individual segments. Starting with the Towable segment, revenues for the third quarter were $188.9 million, down from $346.8 million in fiscal 2019. primarily driven by the suspension of manufacturing and the disruption to consumer buying patterns due to COVID-19. Our Towable lineup resilience and popularity with consumers, in particular, Grand Design, has again enabled the brand to gain market share, despite COVID-19-related impacts to consumer buying behavior. Winnebago industries unit share of the North American Towable market on a trailing three-month basis through April 2020, excluding folding in truck campers, was 10.7%, an increase of 2.0 share points over the same period in 2019. Segment adjusted EBITDA for the third quarter was $16.5 million, down 71.2% from $57.2 million in the prior year. Adjusted EBITDA margin was 8.7% in the quarter, driven lower versus the prior year period of 16.5% by deleverage caused by the COVID-19 pandemic. Turning to the Motorhome segment. Our Motorhome revenues were $203.6 million for the quarter, up $43.4 million, or 27.1% over the same period last year. Excluding Newmar. Motorhome revenues were $115.6 million during the third quarter, driven by market share gains from the Revel, Travato, Boldt and the recently introduced SOLOS brand in our market-leading Class B lineup. But this was more than offset by the mine impact of COVID-19. Segment adjusted EBITDA was a loss of $10.8 million for the third quarter, down from $0.4 million in fiscal 2019. The adjusted EBITDA margin was negative 5.3%, primarily driven by deleverage and cost impacts related to COVID-19, partially offset by the addition of Newmar and mix in the Winnebago-branded portfolio, driven by strength in our Class B motorhomes. Turning to our balance sheet. As the – as of the end of the third quarter, the company had outstanding debt of $465 million, net of the convertible note discount of $77.6 million and debt issuance costs of $10.9 million. Working capital was $299.8 million. Our current net debt to adjusted EBITDA ratio was 2.5 times, higher than our previous quarter-end and higher than our targeted range of 0.9 times to 1.5 times. This ratio was impacted by the lower adjusted EBITDA results this quarter that were driven by the unprecedented series of events related to the COVID-19 pandemic. On the other hand, cash flow from operations was $162.4 million for the nine months of fiscal 2020, an increase of $79.6 million over the same period in fiscal 2019, driven by favorable changes in working capital. Our disciplined approach to preserving cash during this period was critical, taking advantage of our highly variable cost structure, implementing other cost containment measures, and eliminating discretionary spending was all highly effective. As Mike mentioned, cash on hand at the end of the quarter rose to $152.5 million, which was $30 million, or 24.4% higher than the pre-COVID February balance of $122 million. We think the positive evolution of our cash balance during third quarter to be a good demonstration of the resilience of our business model and speaks well of our team’s ability to react in the face of a crisis. The effective income tax rate for the third quarter was 25.3%, compared to 19.4% for the same period in fiscal 2019. The increase was primarily due to a pre-tax loss in the current quarter, and the favorable impact in the prior year of R&D tax credits. We expect our annual effective tax rate to be approximately 19% under the current tax code and before consideration of any discrete tax items that could occur in Q4. On May 19, 2020, our Board of Directors approved the quarterly cash dividend of $0.11 per share, payable on July 1, 2020 to common stockholders of record at the close of business on June 17, 2020. Before I turn the call back over to Mike, I want to reiterate our commitment to ensuring that we maintain sufficient liquidity going forward. As mentioned, we ended the third quarter with approximately $153 million of cash and we have access to $193 million ABL that remains untapped. We are confident that the combination of our cash position and our ABL will provide Winnebago Industries with sufficient liquidity to allow us to navigate our go-forward obligations. We also work with our strategic banking partners on an ongoing basis to evaluate our current debt portfolio and determine alternatives to optimize our capital structure. That concludes my review of our quarterly financials. And with that, I will now turn the call back to Mike to provide some closing comments. Mike?

Thanks, Bryan. I would like to conclude our comments this morning with our views of the health of the broader outdoor and specifically RV market, some thoughts on the company’s financial outlook for the balance of the fiscal year and a comment on an area Winnebago Industries is committed to improving in. Despite our third quarter financial results being significantly impacted by COVID-19, we were pleased with the relative performance of our diverse and balanced portfolio during this unprecedented market cycle. We learned a great deal in this short period and it has served as a catalyst to reinforce the strengths of our business model in terms of our manufacturing processes, supply chain relationships, variable cost model, dealer partnerships and especially the resilience of our premium brands. We have much work to do to continue to realize our organic potential competitively, financially and culturally, but we have designed a solid foundation from which to develop a stronger future. Now it is no surprise to any of you on the call, but all recent and current indicators signal a very strong recovery. for outdoor recreation product demand is in process this summer. From camping in RVs to fishing and boats, consumer interest in the outdoors and investments in these discretionary durable goods products have been robust. There have been much discussion about the influx of new consumers to these outdoor spaces, both in terms of purchases, but also in the more experiential rental and sharing sides of the outdoor business. As the States continue to carefully manage the openness of their communities and activities, Americans are voting with their wallet and time that the outdoors is the place to be extraordinary and safe experiences with select family and friends in the outdoors. These are positive developments for our industries in the short-term, and as importantly, set the stage for possible continued healthy market conditions for our products in 2021 as well. Today’s customers are tomorrow’s advocates. During the month of May, RV retail results turned positive year-over-year for our company, and that momentum has only continued to sequentially increase into June as has our backlog position. While travel trailers in the Towable segment and Class Bs in the Motorhome segment have certainly led the way, we are also seeing our other product categories grow in the right direction as well. Our luxury brands, Newmar and Chris-Craft, have seen some of their strongest retail and order weeks in memory occur in recent times. This is not only a first-time buyer and value by our market at present, we are seeing aspirational and step-up buying occur as well. All our businesses are scrutinizing their robust backlogs, production plans, lead times for delivery and adjusting rates and schedules as necessary to safely meet demand in the future. There is no one answer as to what our production rates are or will be in the future, as they continue to be very dynamic and disciplined relative to what’s happening in the market. The outlook for the RV industry certainly has been volatile these past several months. The next several months will witness OEMs and suppliers trying to keep pace with dealer demand as a result of consumers flocking to the RV space and dealers trying to shore up low inventory levels. Dealer inventories were further improved by the OEM shutdown period in April and have continued to stay low, as retail trends have in some markets overwhelmed lot inventory at some retailers. We are not seeing signs of dealers looking to abnormally increase their inventory levels above and beyond current retail trends. We anticipate that the industry should see collective positive retail trends for most of the remainder of calendar year 2020. With wholesale shipments trending slightly above retail in the summer and early fall period, as dealers work to elevate inventories a bit. The weight of this trend will favor the Towable segment versus the broader Motorhome segment, but there should be winners in both categories. We believe that our brands in Winnebago Industries can collectively continue to take market share. However, we cannot comment at this time on what a reasonable overperformance number or range might be, given the volatility of the market. And we see no systemic reason that our business – within our business that says profitability will not return to where we wanted it to be pre-COVID-19. It will take time, but it can’t and it will return to those levels that we see stable healthy market conditions in the quarters ahead. We do recognize that the challenges the country is facing related to coronavirus are still driving a degree of uncertainty around an economic recovery. Many of you are aware of the increasing number of daily cases occurring in many states around the U.S. Please know and understand that any unforeseen economic impact would most definitely change the perspectives I just shared, such as a second wave of COVID that may have an impact like what we saw before. We are especially focused within our workplace on how to identify possible COVID cases or exposure to COVID cases as quickly as possible. And we execute appropriate contact tracing and quarantining of necessary to mitigate the possibility of an outbreak in our facilities and keep our team safe. And we know that the variable cost management playbook that Bryan described can be turned to again by our businesses if necessary. In closing on our business, we remain focused on safely returning to full operations across all of our campuses. In doing so, the health and safety of Winnebago Industries’ employees and our business partners will remain a top priority for our management team. We are committed to being decisive and taking the necessary actions to protect our employees. Our commitment to our core strategic enterprise priorities remains intact. And we are focused on ensuring we continue to provide innovative and high-quality products to our channel partners across all our brands. We are proactively taking steps to adapt to this evolving situation and are looking to not only survive the current environment, but to thrive in what is for all of us a new normal going forward. As mentioned earlier, this new normal will require us to be diligent and how we manage our expense structure and our ongoing liquidity. Our disciplined approach to managing our manufacturing production rates to retail demand, maintaining a highly variable cost structure and evolving and strengthening our balance sheet is a strength and positions us well to create shareholder value as we come to the end of fiscal 2020 and move into 2021. One last overall comment. As many of you know, we have a small office in the Twin Cities area of Minneapolis and St. Paul. This region has garnered much attention this summer with the senseless and tragic death of George Floyd in our community. And while less than 2% of our total Winnebago Industries’ employees live and work in the Twin Cities area, the systemic issue of racial injustice and discrimination is present across all the geographic communities our company has a presence in and is relevant to all Americans. It is unacceptable. And we together as citizens and neighbors must make positive, peaceful change in the right direction. We are extremely proud of the progress we have made in Winnebago Industries to improve our business from a strategic and financial perspective. I firmly believe we are better in many dimensions than we have ever been. We are attracting more consumers than ever to our brands, and that end customer base is becoming increasingly diverse. The outdoors is appealing to people of various backgrounds and it must appeal to people of various backgrounds going forward. But this alone is not enough. In early June, our leadership issued statements to our employees and publicly on our corporate website that essentially said, we can and we must do better. Leadership, and especially me, need to do a much better job as business leaders and community members in accelerating an improved culture of diversity and inclusion within our company. Our progress in this arena has not been strong enough yet amidst all of our other priorities. Our employees are talented and engaged, caring and determined. But we can and will improve in how our leadership team and all our value teammates across the enterprise better reflect our evolving customer base, how we ensure a work environment which provides equitable opportunities to all employees to reach their potential, and we provide a healthy environment for the unique opinions and backgrounds for those that are present on our team. We look forward to humbly listening and learning, to partnering and planning and putting words into action in the future in our company. My hope is that our peers in the outdoor industry will commit with us at Winnebago Industries to do the same, doing better and together elevating our industries, but importantly, strengthening our unity in the communities. There is much work to do. But I would be remiss in not mentioning this critical subject this morning as an imperative now going forward. Thanks very much for your time. And thanks again to the Winnebago Industries’ team for their tremendous work. I will now turn the line back over to the operator to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Craig Kennison with Baird. Your line is now open.

Hey, thanks for taking my questions. I wanted to ask, Mike, if you could put a numerical estimate on retail growth in May and June for either Winnebago or the industry?

Yes. Good morning, Craig. I’m a bit nervous in giving you that numerical estimate because of how dynamic things continue to be and some of the uncertainty about what the future could be. I can share with you and everyone else on the call this though that, our April retail drop was relatively similar to the rest of the industry. In fact, there wasn’t as huge a gap in performance as we’ve seen in past months within our company and that to us essentially indicated that, because especially of the disruption to businesses and consumers with stay-at-home orders that the drop in retail was pretty equitable across the industry. However, we did see beginning in late April and especially the first week of May, a significant and steady recovery sequentially throughout that month and it continues into the month of June. And as I mentioned early in my comments this morning, we just received retail for week ending this last Saturday or Sunday, and it was our highest comp year-over-year that we’ve seen in the recovery. I would share with you this that, I think, the industry has a chance in the month of May to be around even in retail performance. We’ll see what the SSI report say when they come out. And in the month of June, I believe that retail performance for the industry will be solidly in the up double-digit range. I don’t want to comment much further, probably past June or July. As I also commented, I do believe that the retail momentum can sustain itself through the summer. And I’m hopeful that the retail momentum can positively comp through the rest of the calendar year. I think, we’re all a bit nervous about potentially the fall and winter as it pertains to the impacts of ongoing evolution of the virus and maybe flu conditions as well. We do believe that wholesale shipments will, in over a period of time, exceed retail as dealers begin to stock inventory at a little bit higher level, as OEMs catch up to the retail demand as well. So – but I – we’re a little leery right now, Craig, to give you an estimate numerically on what the future will be. But I do believe June, as an example, will be up double digits for the industry in retail. And I believe Winnebago Industries performance will continue to show a market share advantage when those numbers are reported in the future.

Thank you. And then as a follow-up, maybe I’m sure you’re seeing an influx of first-time buyers. I’m wondering if you can quantify the mix of first-time buyers, and then specifically, what Winnebago can do to convert those people who seemed to be testing this industry as a lifestyle and convert them into permanent long-term customers?

Yes. The topic of first-time buyers has certainly been one that has been visible within the industry and in the media and we do believe it’s a real phenomenon. We do not track that specifically on our retail registration cards. This has probably challenged us that we can do a better job in that area. Our feedback on new first-time buyers in the industry is mostly anecdotal, as we talk to our dealers around the country. And as you can imagine, they have a good idea of that and it especially presents itself when a consumer doesn’t come in talking about trading in a unit or trading up from a unit. We have a broad lineup as you all know. We sell everything from $20,000 travel trailers to $1.2 million luxury RVs and $3.25 million boats, and so that the percentage of first-time buyers varies by product segment within our business. But on average, we believed in past years that, that has tended to run around 30% to 35% of the buyers in the past several years have been first-time buyers. We believe in several categories, especially in the Towable segment, that, that number has increased materially, potentially closer to 45% or 50%, and maybe even higher in some of the lower price point categories. It’s not that high, though, on some of the higher priced or potentially Motorhome categories. So, again, the number for us is a blend of different factors, but I definitely believe that it is trending higher. We believe that’s a good thing in the short-term, certainly with the retail demand we’re seeing, but we – and I’ll answer your second question here. We believe that can be a very positive thing in the future as well if we can get these consumers to stick in the the RVing or the boating lifestyle. The best thing that Winnebago Industries can do to ensure that the consumers stay in the lifestyle is to build a high-quality product. And we believe that’s one of our differentiating elements of our business model versus most of our competition. We certainly fall down at times. But we believe a high majority of the time, we produce a quality product that our customers can count on. The second thing we can do is work very carefully with our dealers and closely with our dealers to ensure that the service experience when something does go wrong is a satisfactory one for that end consumer. And that ranges – in – from everything from technician training to available documentation on the components within our products to especially delivering parts in a timely manner to our dealers. So I believe that we build a high quality product, which I believe our brands do. And we can partner with our dealers to offer an acceptable service experience that we’ll continue to see a majority of those consumers like we have in the last decade stay in the lifestyle.

Great. Thanks, Mike.

Thank you, Craig.

Thank you. Our next question comes from the line of Scott Stember with CL King. Your line is now open.

Great. Thanks, guys, for taking my questions.

Good morning, Scott.

Good morning, Scott.

Maybe we could talk about the core Winnebago motorized product, As and Cs. You talked about it. You alluded to the fact that it seems that, that part of the business is also recovering right now. Maybe just talk about, again, how Cs are doing in recent weeks and gas As and traditional Winnebago diesel?

Yes. Well, first of all, Scott, I do want to address Class Cs. If you look at the supplemental information with our release this morning, you will see in the Motorized segment a significant drop on Class Cs. And I want to point out that, certainly, the volume this year is not only impacted by what transpired in the quarter relative to COVID-19, but we also saw a pretty significant shift in rental order disruption in the quarter as well. The majority of our Class – of our rental business historically has been Class C business. And that was disrupted pretty significantly in this quarter. In fact, we had several rental players who cancelled or pushed out some orders there. Now, as I look at recent Class C retail for the Winnebago brand, the numbers are significantly better at retail than what you see in the report that we released today for the third quarter. Our retail increases in the month of May, late May and into June on Class Cs are solidly favorable by double-digit percentages at retail, positive ones. So that, that category is certainly healthy we believe in the market currently. And we believe that our shipments will recover from the low level that we experienced in the third quarter. We also have the introduction of several Super C models from our new – Newmar business that are happening as we speak as well and we are beginning to retail those in the marketplace as well here in the last 30 to 45 days. The Motorhome business has definitely been slower in recovering at retail than Towable here in the last six to seven weeks. However, it is beginning to recover very nicely. And I’ll just share this data point that the Newmar business had perhaps one of its highest single weeks of retail in recent memory, a long time here just recently earlier this month. Our Chris-Craft business, just to give you an idea as to the sort of the luxury brands rebounding, our Chris-Craft May retail was the highest its been since we’ve owned Chris-Craft in a single month, and it was higher than any other months that they’re aware of here in the last five years. So while the recovery started with those value products and those opening price point products, we are beginning to see consumers across the spectrum begin to step up. I think the health of the stock market and the equities market, Scott, has been quite helpful with the Class A segment and some of the recovery we’re now starting to see there. I think, people with balances certainly retirement portfolios, investment portfolios are more comfortable with the status of the market and willing to make investments now in some of those high-end Motorhome or Boat segments, given increased confidence in how the market is performing.

Got it. And when factoring in some of the restructuring that you guys alluded to earlier, maybe talk about where do you see Motorhome profit going forward? Are there any incremental savings from some of these maneuvers that we should look out for?

Well, we’ve highlighted and mentioned again today, the savings you’ll see from the decision on Junction City. And I also commented generally that we don’t see anything systemically within our business that says we can’t return to the profitability levels that we had projected going into the pandemic. As you all know, we’ve been working on Motorhome segment competitiveness and profitability for sometime. And we continue to make the moves that we think are right for that business that includes increasing the percentage of variable cost in that business versus fixed, which means we’ve been addressing the fixed element of the business. And very candidly, as I also indicated, we are also scrutinizing the amount of labor we need in that business as our manufacturing continuous improvement initiatives have taken hold and productivity increases. We have strong goals for profitability to improve in the Winnebago-branded Motorhome segment. And if you’ll recall, the Newmar business brings accretive profitability in the Motorhome segment. And once again, we get back to some semblance of stability and normalcy there as well. We think you’ll continue to see the profitability of that segment improve. Could it ever reach the level of Towables segment, it’s probably a more difficult challenge. But Scott, we see no reason why we can’t. Again, as things start to stabilize here, we don’t see any reason why we can’t get back to continuing to improve the profitability of our Motorhome segment.

Got it. And just one last quick question. New product development for 2000 – or product introductions for 2021. How will that be done this year? Will there be an open house?

I know discussions are ongoing within the industry about the open house event in September in Elkhart, and I don’t think anything has been completely finalized or firmed up. But I would imagine, communication around that topic will be forthcoming here in future weeks. We are evaluating obviously our presence in all retail or trade shows this summer and fall to make sure that our employees who represent our brands and certainly, our dealers and our end consumers can be safe in those environments. We have not taken our foot off the pedal on new product development at Winnebago Industries in the last hundred days. That was one of the decisions we made very early on with our business unit leaders was that we’ll do everything we can obviously to manage the business financially in a – an exhaustive manner, but that we wanted to stay aggressive on the product development side. So we are not seeing delays in new product introductions in the coming months or the next fiscal year or two as a result of the pandemic. If anything, I would tell you in conversations I’ve had with a few of our business leaders in the last week. I think the creative juices are flowing about how we can design some new products that take advantage of the new consumers coming into the outdoor space and what those consumers are generally looking for. So we continue to be optimistic about our ability to bring high-value, innovative products to the market.

Got it. That’s all I have. Thank you.

Thank you, Scott.

Thank you. Our next question comes from the line of Steve O’Hara with Sidoti & Company. Your line is now open. Stephen O’Hara: Hi, thanks for taking the question.

Good morning, Steve.

Good morning, Steve. Stephen O’Hara: Good morning. Just – I was curious about Class B. I mean, obviously, that was pretty strong in the quarter in terms of units. I mean, is there – I guess, I can understand why Class A would be up with Newmar coming in, you explained Class C, but Class B seemed very strong relative to even Towable. I mean, I know that’s been a standout for you guys, or was there something else going on in the quarter that kind of led you or made you able to keep producing where you couldn’t in others or can you just tell me what happened there? Thank you.

Yes. Steve, thank you for the question and good morning. If you recall, there’s probably two factors at play here. And to be transparent on one of them, if you recall, and I’m sure many do on the line today, we had been experiencing some significant chassis availability issues a year ago and for periods or – even leading up to that. And those – that – those availability issues a year ago are probably in part embedded in the numbers that you see in the release for third quarter last year. We have been seen better chassis availability in Class B, as we began the calendar year 2020. And in our third quarter of fiscal 2020, we have the ability to make product and retail demand was significant, especially in – our wholesale demand was significant, especially in the months of March and May, when we were shipping product. We believe that the majority of the the increase though is driven by the competitiveness of the line. We have some great products in the Travato, the Revel, the introduction of our new pop-top camper van of the SOLOS has been a hit, the van I drove to Indiana was the Boldt. That was a great experience. So we continue to execute well with our dealers on a line of vans that resonate very well with consumers. And we know that this is becoming a more crowded segment, and others in the industry certainly have aspirations to compete well in this arena, but our team is very focused. And I can only tell you that there are significant new products in the pipeline that are coming to attempt to sustain our level of competitiveness going forward. Stephen O’Hara: Okay. And then maybe last one, if I could squeeze one more in. In terms of the outbreak and you’re restarting facilities, things like that, can you just talk about whether you’ve had outbreaks at facilities? And then, how long does it take to kind of get operations back up to the new normal once again, if you have an outbreak in a facility? And this, obviously, you got to start-up again, slowly, I would think. And how will you think about that process, maybe going forward? I think it’s something it’s probably going to be with us a long time or at least for the next six months, we’ll say, at least, and the cost surrounding that, obviously, there’s a human cost, but I guess, maybe just on the business costs? Thank you.

Yes. I’ll talk about the process of keeping our employees safe and then ask Bryan to comment on any of the costs relative to COVID-19 that we’ve been seen in the business. But, Steve, I want to thank you for the question, because I want to reiterate to everyone that this is the most important topic in our business right now. I know many of you will certainly want to know if we can meet the demand and capture maximum revenue. But our number one imperative here at the company right now is making sure that our employees are safe and it has to be going forward. And so it does affect everything we’re doing right now. We’ve been very fortunate. We’ve had some tremendous leaders of different work streams within the company, who have been guiding us through the protocols necessary to keep our employees safe. We have more than 4,000 manufacturing employees. Our office environment is – and by the way, most of those 4,000 manufacturing employees are coming to work everyday, trying to help us meet that demand. Our office employees are less consistently in the office, because many of them can do their work from home and we continue to embrace allowing them to do that. But everyday is a battle in the plants to make sure that we adhere to the protocols and we have done a myriad of things. Obviously, PPE is in place, that our employees are required to wear in the manufacturing environment or in common spaces in the office. We obviously are asking our employees to be incredibly honest with us about how they’re feeling, how their health has been, who they’ve been exposed to, temperature checks are required in all parts of our business. Work has been redesigned, workstations, to create more social distancing, to reduce the amount of time that people are spending potentially in close proximity to their teammates. In many areas, we are tracking people’s movements to ensure that we know who they are in touch with. And I don’t mean that in a way that invades privacy, but we want to know who our employees are in close contact with in the work environment, so that if a case develops that we can make sure that we understand who might have been exposed. I’m happy to report that the number of cases in Winnebago Industries relative to our employees, but relative to what we’re seeing in the geographic areas that we have a presence in, tends to be running much better than what the local communities have been seen. And the answer to your question is no. We have not seen any outbreaks in a particular area of the company that has caused us to shut that area or department down for an extended period of time. If we do have someone who test positive for COVID, or we suspect maybe at risk of having the virus, there are significant protocols for sanitization and cleaning in the area that, that employee was at. But as you can imagine, this is an ongoing challenge. We actually feel that in most cases, our employees are safer in the work environment than they might be at home or in the community, where sometimes the adherence to protocols in public are not as consistently executed. So ongoing battle. I think our team is doing a good job. And I’ll have Bryan comment on some of the costs that are related to the COVID.

Yes. Thanks, Mike. Yes, one other comment on the risk that’s presented to us on a daily basis. You got to recall, and many of you are aware of this. But on each of our campuses, we have separate and distinct facilities, so we’re further dispersed even within a campus and that also helps to mitigate that risk of a contagion. And so, just one other comment there. As it relates to the costs ongoing, it’s really limited going forward here to the PPE or the protective equipment that we’re issuing new employees, which is pretty de minimis. The workflow itself that Mike referenced has not reduced our productivity or – and set another way, our number of units produced per day, so we have not introduced inefficiencies in that regard either. And so when I look at the all-in costs, go forward, it’s really pretty material, Steve, and I don’t expect a margin impact – a notable margin impact as a result of costs that we’ve introduced to help keep our people safe. Stephen O’Hara: Okay, all right. Thanks. It’s very good color. I appreciate it.

Thank you. Our next question comes from the line of Mike Swartz with SunTrust. Your line is now open.

Hey, good morning, guys. Mike, just wanted to start with some comments that you made earlier. Just maybe a little clarification on how you’re thinking about retail for the remainder of the calendar year or the calendar year in total? I’m just trying to understand that when you said positive, were you talking about for the remainder of the calendar year? Are you saying for the calendar year in its entirety? Was that an industry number or Winnebago number that you were discussing?

Yes. I’m hopeful that industry retail for the remainder of our fiscal year and for the remainder of the calendar year will be positive. I’d have to go back with Steve here and do the math on the whole of those periods. But I believe that the industry retail for the remainder of our fiscal year and the calendar year 2020 should be positive. And as I mentioned in my answer to Craig’s question, in the short-term here, we are seeing retail running at a significantly double-digit higher level in the – in this year’s period than a year ago. And so, I also indicated that I believe Winnebago Industries can continue to compete effectively and hopefully gain share in those two periods as well, the rest of our fiscal year and the rest of our calendar year. We’ve had a lot of conversation with analysts or other stakeholders as to whether there will be pressure on Winnebago’s market share performance, given we have less of a presence in the opening price point segments, the travel trailer segments, especially and we’ll see how that turns out. But we also have some areas where like Class Bs and some others where we think Fifth Wheels, we have been outperforming. So we’ll see what the net is going forward. So, Mike, I hope that’s helpful. I – as I indicated earlier, I’m a little leery to sit here today and tell you exactly, we’re running a variety of models high, medium, low here in our company. I know RVIA has started to go that direction as well with their models. We – with every week that passes, that we continue to see great retail demand, I become more optimistic that, environment can be sustained for a longer period going forward. But I think it’s premature for us to comment on what 2021 will look like when there are still some pretty significant macroeconomic challenges ahead of this country in, I think, the calendar third and fourth quarters and this health crisis has not completely played itself out yet as well. So – but our backlogs would certainly indicate increased confidence from dealers that the future market environment is going to be strong.

That’s helpful. And then perfect segue. This – the other question I had just clarification was that you made the comment your backlog was higher at current than what we saw in the end of May. Any quantification or from a relative standpoint, what that looks like today?

More, higher. No, we won’t share a specific number, but it’s been like retail. It’s just continued to increase with every week as the dealers continue to try to place products. And I know many of you are probably wondering how our lead times are to our dealers. They vary by category. But we are now seeing the lead times to meet some of the latest orders in the backlog. Those are pretty extended now into, in some cases, on some products for three or four-month range. So, all of the OEMs, working with our suppliers are trying to carefully certainly ramp up safely, production rates where appropriate. It does vary by product segment in line across the company. And I will give our suppliers a lot of credit that they continue to do a very good job in giving us timely deliveries on most of our components. We continue to see hiccups here or there. But everybody is trying to work safely and – in the RV and boat industry meet this rising time.

Thanks, Mike.

Thank you.

Thank you. Our next question comes from the line of Brett Andress with KeyBanc Capital. Your line is now open.

Hey, good morning.

Good morning, Brett.

Mike, just a question on the sustainability of this demand that you mentioned earlier. So I think many of us have compared the demand to the multi-year growth that happened around the September 2001 timeframe, and all the airlines disruption that, that caused? So I guess, do you think that using history in that context is a fair analog for thinking about demand sustainability here?

Yes. Thank you, Brett. Good morning. I certainly wasn’t in the RV industry during the time period that you referenced. I know some people that, that were and they educate me frequently on some of that history. I do believe there are some really positive dynamics that lead to a probability for sustainment going forward. Some of them are unique to this time, and you referenced one of them in the sense of people getting on airplanes, cruise ships, staying in hotels, the interest from the end the consumer is definitely lower than it has been, potentially since, unfortunately, 9/11. But even in today’s environment, it’s different, the 9/11. And while we’re starting to see some appetite for traveling in those ways come back slowly. Many surveys and studies in the last 30 to 45 days have shown that camping, fishing, RVing, boating are definitely being preferred as this year’s flavor and maybe next year’s flavor for the way a family and individuals will spend their discretionary time. Interest rates, fuel prices, again, the stability, it seems that has returned to the stock market. There’s a lot of really positive signs from an economic indicator standpoint. Truck sales are recovering. So, that all seems to bode well. That being said, as I continue to mention, uncertainty around the health crisis and some of the other shoes that may be yet to fall in terms of the American economy, remain potentially in front of us. But yes, as I just said, I’m increasingly optimistic that this recovery has legs. And the other thing that I know will be touched on with you all is the field inventory position and the dealer base is in really good position right now relative to what appears to be future retail demand. And obviously, the industry worked on that during the back-half of 2018 and 2019. Going into calendar 2020, I think, the industry was in a much better position field inventory-wise with the dealers. And when the OEM shutdown for four to six weeks in April and retail kept going albeit at a much lower level during that time period, you saw another chunk of inventory gets sucked out of the field. And so with retail coming back faster, dealers are clamoring for product as they should be. And long-term, there’s a chance for dealer inventories and turns to be at a level, where some careful restocking of the dealer base will happen in addition to just meeting retail demand right now. So for all those reasons, I’m optimistic about the RV industry and the boating industry here for the foreseeable future. And these first-time buyers could be a wave that sets the industry up for good years going forward, as well as they potentially step up. I’m – Bryan and I are cautiously monitoring the macro and economic and health environment to continually – continuously monitor if there are any disruptive trends that could blow what I just said up. We hope that’s not the case. But I think we have to be honest that anything can happen considering what we went through in March and April.

All right. Thank you.

Thank you. Our next question comes from the line of Fred Wightman with Wolfe Research. Your line is now open.

Hey, guys, good morning. Just on the supply chain side, I think that Mike, you had mentioned some delivery challenges in your prepared remarks, but it seems like the supply chain is holding up. And you had touched on sort of the Class B chassis situation. But can you just talk about overall chassis availability and sort of the broader Motorized segment? Are you seeing any issues there with some of your suppliers?

Yes. I will confirm your initial part of your question, which supply chain availability broadly is hanging in there. With all respect to the people in the trenches in our company that manage the production process and work with our suppliers on a daily basis. There are hiccups that we manage through and work through respectfully with our suppliers. But the supply chain, by and large, has done a good job helping us recover. The area that we have seen the most disruption and continues to be motorized chassis and it has varied from manufacturer to manufacturer. The supplier that had given us a lot of issues a year-and-a-half ago on Class B vans has improved in their availability to our company. We have seen unfortunately, though, some other suppliers on motorized chassis have some challenges restarting their businesses, especially if they have operations in Mexico, either for parts or components for those chassis, or if they’re assembling those chassis in their entirety in that region. And so, the auto industry probably came out of the blocks a little bit slower than some of the other RV suppliers. And for that reason, we’ve had some production disruptions here in the last three to four weeks relative to motorized chassis. But I don’t view those as, again, systemic or things that will be structurally issues for a long period of time. I think there are transitional challenges everybody is trying to restart their business and match production to what they’re seeing demand-wise in the market.

Okay, great. That’s really helpful. And this is sort of a follow-up to a few other questions, but I’m going to ask it in a slightly different way. I mean, if we look at the positive retail commentary that you’ve given on today’s call, a lot of first-time buyers entering the category, I mean, how should we be thinking about wholesale production for the industry relative to that prior peak in terms of just over 500,000 units? Are we talking about 5% above that, 10% above that? If we wanted to dream the dream, what could that look like, you think for the overall industry?

Yes. I respect the question. And I know we all remember the year that the industry shipped over 500,000 units. I’m not sure all of those 500,000 units were responsibly shipped to the market. But if we continue to see the RV lifestyle, especially in favor versus other means of travel or vacationing, and I know what’s been discussed in the last month or two as well, this continued trend in work from anywhere, work from the road, using these products for multiple use cases, you can certainly make a case that you’re – you could see a very healthy wholesale environment for the next several years. We’re not going to come anywhere close to 500,000 units for calendar year 2020 as an industry. And – but is there a possibility of the health environment improves and the economic environment continues to improve that the industry can return to those levels someday. Well, certainly, that would be a hope. But I think our company is staying very focused on first and foremost, safety; secondly, product quality; third, matching product, our production rates to demand and trying to increase our output on the products that are moving in the market. So we’re going to – we’re not going to take advantage of this opportunity to push products on dealers that they don’t want. We’re not going to make open production with – that doesn’t have a name on it and hope it sells. We are going to continue to stay disciplined, that may put our company at a slight disadvantage in this environment of losing some shipment share. But I believe over the long-term, we’ll continue to perform well in retail and that pull environment will lead us to the right number from a shipment standpoint. But in Spirit, I agree with the optimism. But I think it’s going to take a little while to get to back to $0.5 million units of RV shipped a year.

Perfect. Thanks so much.

Thank you. Our next question comes from the line of Bret Jordan with Jefferies. Your line is now open.

Hey, good morning, guys.

Good morning, Bret.

Hey, a little bit, I guess, sort of more of a dive into the new consumer. And you look at the average new buyer and you sort of compare them to the legacy RV buyer, is this a higher FICO score consumer or lower? Are these people who might have previously spent their vacation dollars doing something else and are now shipped into this lifestyle? Or are these people who are now maybe feeling liquid, given stimulus checks and coming with money in their pocket from that source?

Yes. Bret, thanks for the question. I’m not sure we know enough about the first-time buyers to answer all of those questions that you listed there. I – my personal opinion is that they’re trending to be a little bit younger. They’re tending to be more family-oriented. I don’t think we’re seeing people use government stimulus checks to get into the lifestyle. I think those – checks for those folks that received them were used more pragmatically for current debt or current living expenses. We have seen retail finance companies be extremely thorough in the creditworthiness of the consumers. But yet, we’re seeing significant retail happening. And so those retail finance entities are lending money to those people that are looking to buy. So I just don’t know we know enough yet as to exactly the composition, but I’m thinking a little bit younger, a little bit more family-oriented, and people that definitely have the ability to make a down payment or the credit nature to get into the the industry. Bryan, would you comment on any of the retail finance environment that you’ve been able to learn from our…

Yes. That too is somewhat anecdotal. But what we’re hearing is that the availability of credit is still certainly there. I’m not hearing of instances where people are being turned away from a retail sale, because they couldn’t get a credit app finalized. But as you kind of alluded to Mike, we are hearing expectations on slightly higher credit scores and then probably even more relevant, a longer process as the providers of credit, focus on validation of employment and ongoing financial stability of the applicants. So those are really the anecdotal comments that we’re hearing.

Okay. And I guess, the timing, you talked about your lead times in some categories getting extended sort of three, four months. At what point in the summer, I know it’s pushing into July, so those would maybe be delivered early fall. Do either the consumers or the dealers start to get concerned about either missing the use in 2020 or holding inventory from a dealer standpoint into the fall? Like when do we think and maybe it’s extended this time, because it’s such a shift in the cycle? But at what point do you think you’re going to see a sort of a seasonal slowdown in that order book just given the delivery time and the coming winter?

Yes, I think, it’s a really interesting question, because many of us believe the timing of the experiential season for camping and outdoor activities is going to be extended this year. In some parts of the country, it’s a relatively short window. Here in Minnesota, you got about 12 good weekends from end of May to the beginning of September to fit a lot of your outdoor activity in. But I believe you’re going to see across the country, people spending more time outdoors for longer periods of time and later into the calendar year. And we are hopeful that because of that, you will see consumers be open about being able to take product later in the calendar year than they generally have. So we’ll see how that seasonality curve maybe adjust out in calendar year 2020 because of what’s happening, I believe it will materially. KOA did a study that they released in early May that, that hinted at that, I believe, so we don’t know yet. But when you start seeing lead times for products that are three to four months, the dealers definitely get anxious as they should, because the consumers are anxious to hear those lead times as well. So there’ll be some natural tension with that, that will probably govern a little bit of the retail growth. And I’m sure all companies like ours will continue to try to find ways to safely lower those lead times as we can. The more sustainable this is, you’ll certainly start to see OEMs consider more significant capital investments and capacity adjustments going forward. But, again, we’re hoping for a long outdoor season in 2020. And if we do not have an immunization drug before we hit 2021, we’re hopeful that the outdoor season gets going early in calendar year 2021 and lasts for a long time in that period as well.

Okay, great. Thank you.

Thank you.

Thank you. Our next question comes from the line of David Whiston with Morningstar. Your line is now open.

Thanks. Good morning. Mike, it sounds like you’re maybe a bit more cautiously have a bit more caution than your initial outlook on unit demand for the rest of the year implied. And unemployment to me, I mean, best case scenario probably goes down in a high single digits from here. And I guess, I know you’ve got premium brands that can insulate you to a point. But just I mean, how sustainable is all this, given unemployment staying at that high? Eventually, it’s got impact consumer confidence, no?

Yes. I mean, again, that’s the right question to ask, David, and good morning. We’re monitoring that carefully. I think what will be important in determining the relevance of the unemployment level to our business will be what that unemployment pool looks like and their affinity for our products. And certainly, if you see unemployment settle in the high single digits to low double digits, that’s not a good place to be in long-term. And that’s why we’re just being very honest with everyone that we continue to monitor a metric like that and try to see what the long-term impact of that could be. But that being said, there are less choices for people whether they’re employed or not to spend their savings or their discretionary income to have great memories with families and friends those that they feel comfortable hanging with. And I think our industries compete very well. Certainly, our brands are usually not always the first-time buyers brands, sometimes they are. But sometimes we earn the second, third, fourth or fifth purchase, and we hope once they get into our brands that they’re here to stay. So, again, we believe that the RV and boating industry has done a good job through the years of especially the RV side of keeping enough value products in the product portfolio to attract buyers that have the means to invest in the lifestyle. And then I think it’s the discerning brands opportunity to step them up either on the retail line or in future years. So, again, I think, we’re more bullish than what the RVIA shipment forecast says. I don’t think we’re all that different from some of the rhetoric you’ve heard from some of the other peers in the RV industry or boating industry about the retail environment in calendar year 2020. I think wholesale shipments will be in part dictated by OEM’s ability to keep up and raise production rates safely. We’re just not ready to get too far ahead of ourselves with any thoughts on calendar year 2021 quite yet. We’ll probably be more comfortable on our next earnings call with some thoughts there.

Okay, thanks. That makes sense. And just one more question, can you benefit more than you already are or perhaps are not from the rental and sharing market, perhaps even to the point that you would want to invest in a digital firm that’s doing the sharing business or start your own?

Yes. As we commented in our prepared comments that, that sharing economy and that rental economy is experiencing all-time high interest right now. I’m sure many of us on are listening to this call have had friends or neighbors or family members that have looked at some of those sharing platforms and/or went to a dealer and rented an RV or have reservations in the – later in the summer to do so. So yes, there’s high demand for that. We believe that, that’s a net positive that anyone who gets exposed to our lifestyle via inexperience has a higher probability of being interested in investing in the lifestyle in a permanent way going forward. Used inventory is extremely low right now in the market. Dealers, they want more used inventory. They can’t get their hands on enough. When they have it, it flies off the shelf. I spoke with a boat dealer recently, who had a used product where he had three customers bidding for that used product. And he was able to sell that product at a higher level than what kind of the used book value was. We’re not going to share any or offer any comments on what our business development plans would be in terms of investing in platforms like that, but we do work carefully with some of those sharing platforms and we certainly work carefully with our dealers as to what their rental fleets could look like here going forward. So, we anticipate that the whole industry will benefit from that. And again, we offer a quality lineup of brands for those discerning people on the lifestyle. And we think we can compete effectively for the part of the market that we want going forward.

Okay. Thank you.

Thank you, David.

Thank you. Our next question comes from the line of Tim Conder with Wells Fargo. Your line is now open.

Thank you. And gentlemen, you’ve answered a lot of questions and provided a lot of detail. We greatly appreciate that. A couple though, I did want to follow-up on back to the chassis. Specifically, when do you think this will be resolved for yourselves for the industry? Any color you can add there to your previous comments? And then the industry, Mike, again, it sounds like the industry continues to struggle to meet current demand. So when one, do we think we get to that point? And then two, it sounds like you’re saying and please just clarify if you could that it will be the fall before we can get to the point of rebuilding and restocking to the appropriate level in the channel?

Yes. Let me start – good morning, Tim. Let me start with your motorized chassis question. I think many of those issues may be recently behind those based on some of the information I’m hearing from on our team that works on the motorized chassis relationships. We’re carefully monitoring that. But I think some of the issues we had that disrupted some of our production here in the last three, four weeks was due primarily to some of the restart issues some of these manufacturers had coming off of their own shutdowns. And especially, as I indicated in an earlier comment, those that may have had a presence outside of the country that had some particular challenges and restarting operations as quickly as they would have liked. We have great relationships with those motorized chassis suppliers, and they’re doing everything they can to increase their rates and meet our demand. But it varies by supplier as to sort of the rhythm of that availability and the intensity of those challenges. But again, as we sit here today, we don’t see any catastrophic challenges there in the near future. I do think the OEMs are racing to keep up with demand and I can’t speak for some of the other competitors in the space. I just know that everyday, our teams are challenging, whether their production rates are right based on mix and based on total backlog and confirmed orders. And we have continued across the Board to – on most lines increase our production rate pretty continuously. There have been some exceptions to that, as we’ve manage through some things. But I would say, our business unit and operations leaders are thinking more about raising rates every day than they are about taking them backwards. I do believe it’s going to be later this summer or fall when some of the OEM production capacity can catch up to potentially be in a position to stock back some of the inventory levels in the dealer environment to a higher level. That will vary by segment, that will vary by manufacturer. But I think in macro, we’re going to spend the majority of summer racing to keep up with retail demand with our dealers and it’ll be later in the year when we – as we see retail naturally seasonally slow unit-wise that we’ll be able to, I think, work with the dealers to reset their inventory levels to where they think they want them to be going into the back-half of the year.

Okay. And then gentlemen, one last question sort of related to the portfolio and your balance sheet. Again, cash flow, looking good, even through the trough here of the pandemic impact at this point. So how do you think – it sounds like you’re looking at other actions to further shore that up? And then along within context of that, how do you think about your current portfolio overall of products, or I should say, areas that you’re in?

Are you referring to our capital structure in that question, Tim, or our economic portfolio?

Well, in capital structure one, which are maybe any considerations, any color you can give at this point on that as to further hone and improve your balance sheet, which, again, is heading in the right direction, definitely. But also just with assets, the assets that are in the portfolio. Would there be any consideration to rebalancing, divesting, downsizing, some areas, obviously, you’re adding. Just any color along that line as it would relate to maybe even kind of marry the two there?

Yes. We continue to monitor our liquidity certainly. And we feel, as we stated in our prepared comments, pretty comfortable with our progress through the quarter and the increase in cash we experienced. And as we’ve cited, we also have the ABL to turn to where needed. I guess, the only other comment I’d make and I alluded to it, we’re always meeting with our strategic banking partners, evaluating our current performance, our near-term and longer-term forward views of performance and cash generation, monitoring with them the capital markets to determine, are there opportunities for us to tap into those capital markets to just further improve our position, both in the near-term and the longer-term and optimize that capital structure. So, those conversations continue. They have been live all along. They are heightened during the last 100 days. But they continue even in light of the strengthening industry performance of late how that translates into our view of the portfolio. And as you know, Tim, we never comment on business development activities or the funnel. We like our portfolio of brands, certainly. We’ve made that very clear. And we’ll continue to evaluate as we always do, how those brands are positioned and how we might further strengthen the portfolio through the brands or consider other brands that might make sense. But I guess, that’s the limit of what I would elaborate on there unless Mike has something to add to that portfolio question. No. All right. Thank you, Tim.

Thank you.

Thank you. This concludes today’s question-and-answer session. I would now like to turn the call back to Steve Stuber for closing remarks.

Thank you, operator, and thank you again, everyone, for joining our call today. We really do appreciate you spending your valuable time with us. And we hope that you and your family stay healthy and enjoy the outdoors this summer. Have a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.