Winnebago Industries Inc (WGO) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Winnebago Industries second-quarter fiscal 2015 earnings results conference call.

My name is Shelley and I will be your operator for today.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Miss Sheila Davis, Public Relations and Investor Relations Manager.

Please proceed.

Thank you, Shelley.

Good morning and welcome to Winnebago Industries' conference call to review the Company's results for the second quarter of fiscal 2015 ended February 28, 2015.

Conducting the call today are Randy Potts, Chairman of the Board, Chief Executive Officer and President, and Sarah Nielsen, Vice President, Chief Financial Officer.

The news release with our second-quarter earnings results was posted on our website earlier this morning.

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 p.m.

Central Time today.

If you have any questions about accessing any of this information, please call our Investor Relations Department at 641-585-6803 following the call today.

This presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that forward-looking statements are inherently uncertain.

A number of factors could cause actual results to differ materially from these statements.

These factors are identified in our filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the Company upon request.

I will turn the call now over to Randy Potts.

Randy?

Thanks, Sheila.

We are pleased to announce that year-over-year fiscal 2015 second-quarter revenues and gross profit grew while we also saw an improvement in gross margin.

We achieved these results despite still working through the labor-related constraints and challenges that we discussed last quarter.

To that end, I can report this morning that we are making progress towards mitigating our labor-related challenges which should improve our capacity in the future.

First, we are working on a plan to ensure we are competitive in the local North Iowa job market.

Second, we've signed a purchase agreement for a facility outside of our current labor market which draws upon a larger labor pool.

We plan to employ about 70 people which is approximately 5% of our Forest City workforce in this new facility.

While this perspective facility is essentially move-in ready, there are several factors, including hiring, relocation and others, which will be addressed as we move forward.

We'll provide more information on the progress that we are making on this facility during our next quarterly call.

Moving onto an update on our products, during the second quarter we achieved number one status for our Winnebago Touring Coach line, which has retailed more than any other class B motorhome model in North America.

Additionally the Winnebago Touring Coach line achieved nearly 84% volume growth last calendar year with 551 units retailed in the US, which is just over 25% retail market share compared to 17% market share in 2013.

Moreover, we are very proud that our retro-styled Brave and Tribute have been named RV business 2015 RV of the year.

These products were unveiled during last year's Dealer Days event and were the culmination of Winnebago's strong teamwork and innovation to achieve a model that paid tribute to the design of our original motorhomes but was also very modern and innovative.

We believe these are just a few of the reasons we continue to see increased demand from dealers in terms of their desire to stock more Winnebago products, and from consumers, as evidenced by favorable retail registration statistics.

In our fiscal 2015 second quarter, motorhome retail registrations increased 18% year over year and 30% on a rolling 12-month basis, driven by strong demand across several product categories.

The strong retail demand contributed to an increase in Winnebago's motorhome retail market share of 210 basis points for calendar year 2014.

Our fiscal 2015 second quarter was also the fifth consecutive quarter of profitability in our towables group, generating positive operating income and impressive topline performance, driven by sales growth of nearly 12%.

We are very pleased with the progress of our Towables operation and therefore have decided to purchase the currently leased Towables assembly facilities in Middlebury, Indiana.

This purchase further exemplifies our commitment to growing our market share within the segment and underscores the confidence we have in our ability to execute in the long term.

Additionally, during the second quarter we began to make strategic investments in the areas of procurement and sourcing and materials, as well as information technologies through the implementation of an ERP system.

While we experienced cost related to these projects during the quarter and expect to incur future expenses associated with these initiatives until their conclusion, we believe they will provide the Company with long-term benefits and future cost savings upon completion.

Last, I'd like to add that we are very enthusiastic about our forthcoming Dealer Days on April 8 and 9 in Las Vegas.

At this Company-sponsored event, we will have the opportunity to meet with hundreds of our dealer partners and showcase several new models and exciting product enhancements.

In closing we are encouraged by our results this quarter as well as our progress on the labor front.

We also look forward to capitalizing on the healthy demand that we continue to see in the market.

Now, Sarah will review some of our other key business highlights in addition to the financials.

Thank you, Randy.

During the fiscal 2015 second quarter, consolidated net revenues grew 2.5% in large part due to an increase in motorized unit shipments.

Our Towables group also contributed to the overall increase in sales with unit and ASP growth.

When looking at our second-quarter motorized ASPs we saw increases in the average selling price in every single product segment, due to product mix and pricing as compared to last year.

Specifically, Class A gas was up nearly 4% to $97,525, Class C diesel was up nearly 18% to $206,343, Class C was up almost 10% to $78,112, and Class B was up nearly 12% to $76,868.

In summary, however, total motorized ASPs were $100,213 essentially flat to the prior year due to a higher concentration of Class B and C product that both had ASPs of under $80,000.

Moving over to our towable product, travel trailer ASP was $21,002, up over 8%, primarily attributable to the introduction of the Spider, our [towable] hauler product which carries an ASP that's higher.

Our fifth wheel ASP was $50,600, an increase of nearly 19% primarily due to more sales of higher end options models.

In aggregate, towable ASP was $25,748 and almost -- and up almost 8% over the prior year.

In the second quarter our dealer inventory increased 22% compared to last year and stood at 4,778 units as of February 28, 2015.

On a sequential basis, dealer inventory increased 14% when compared to the end of the first quarter.

Compared to both periods, higher dealer inventory reflects in part the strong demand for our new product offerings, as many of our dealers continue to increase their stock of these products.

Specifically, increased stock of Winnebago's new products accounted for six percentage points of the year-over-year dealer inventory increase.

Notably, dealer inventory of our Class B motorhomes has increased significantly in the past year, due to the strong retail demand of our product which was up over 100% on a trailing 12-month basis.

Given the solid consumer demand for these products we anticipate that they will continue to generate increased retail demand.

Also, as we've mentioned before, higher dealer inventory levels are attributable to our efforts to ensure that all of our product offerings are well represented across our dealer network.

To that end, over the past 12 months we've expanded our product line point of distribution and the physical dealer locations by 4% and 7.5%, respectively.

Thus, our dealers are stocked with fresh inventory for the upcoming spring retail selling season, we believe all of these factors point to a positive outlook by dealers who have grown growing confidence towards the industry and the consumer.

Moving to backlog, motorized bookings grew nearly 59% compared to the year ago quarter.

This was the second consecutive sequential increase in our motorized backlog which totaled $2,275, a 7% increase from the level reported at the end of the first quarter.

Backlog decreased on a year-over-year basis, largely due to our increased production rates over the past year which has allowed us to satisfy demand, particularly for some of our newer products.

Further, Class A gas backlog was elevated in the fiscal 2014 second quarter due to an inadequate supply of chassis from Ford.

Over the past four quarters we have had an adequate supply of chassis which has allowed us to fulfill our backlog on a timelier basis.

Year-over-year, fiscal 2015 second-quarter gross margin improved 30 basis points, despite labor-related constraints and the associated expenses that persisted during the second quarter.

As we noted in our earnings release, the increase primarily reflects improve product mix, higher absorption of fixed costs and the absence of weather-related expenses experienced in the last year's second quarter.

We believe margins will continue to improve as we resolve our remaining labor-related constraints and their associated expenses.

Also, we are pleased to announce that we have substantially completed the upgrade to our new $7 million electrodeposition or [ecoat] paint system.

This system is unique to Winnebago, providing us a competitive quality advantage of protection from corrosion which extends the life of our motorhomes.

We expect to benefit from this new process as we continue to ramp the new system in coming months.

Compared to last year, operating expenses increased in the fiscal 2015 second quarter, mainly attributable to higher G&A expenses of $2.5 million, a majority of which are associated with the two important strategic initiatives that commenced during the quarter and that we discussed on our December conference call.

The first strategic initiative relates to the execution of an ERP system implantation which will replace our in-house developed financial and operation legacy systems and provide better support for our changing business needs and plans for future growth.

We believe that this project will deliver long-term cost savings through supply-chain management optimization and operational improvements once completed in addition to a reduction in system maintenance, internal development and support cost.

Notably, it is our view that the cost to support our legacy systems would greatly increase in future years, due to the outdated programming language used if we did not migrate to the new system.

Our current estimate for completion of this project is $12 million to $16 million over a three-year timeframe which include software, external implementation assistance, and an increase in internal staffing directly related to this initiative.

We currently estimate that approximately 40% of the total cost will be immediately expensed over the life of the project and 60% will be capitalized.

As a result, we expect up to $3 million of incremental G&A expense in fiscal 2015, of which $652,000 was incurred in our second fiscal quarter.

The second initiative is the strategic sourcing project with the objective of obtaining long-term material cost savings through standardizing our purchasing processes, optimizing our supplier relationships and improving our current sourcing methodology.

We have engaged external support with deep domain expertise to help us conduct this project, and as a result we expect to incur up to $2.8 million in G&A expense for this assistance of which $827,000 was incurred in the second quarter.

We expect to incur approximately $700,000 of incremental G&A expense for the remainder of fiscal 2015, and the balance in fiscal 2016.

The project is planned to be completed in June 2016 based on current internal staffing support.

When fully implemented, we anticipate this investment will provide gross margin expansion of 30 to 50 basis points.

[Funding] (technical difficulty) higher G&A expenses for the quarter were increased legal cost of approximately $500,000, most of which related to protecting the Company's brand name in Australia as well as higher equipment maintenance costs.

Looking forward we expect to incur more normalized levels of legal and equipment maintenance costs.

Operating cash flow in the second quarter was affected by higher receivables of approximately $13 million.

At the end of the second quarter we also had elevated inventory levels, partly the result of the rental build season.

In the second half of fiscal 2015, we expect to generate positive cash flow through the continued strength of our operating results as well as favorable changes in working capital.

Moving to rentals, I'll briefly follow up from last year's Apollo transaction, which was a win-win for both us and Apollo.

In the second quarter, our investments in operating leases and our operating lease repurchase obligation both decreased to zero, reflecting the sale of units by Apollo directly into the used market and the resulting release of us from our obligation for the repurchase.

Based on the success of this rental transaction, we received an order of similar size from Apollo for the rental season and we are currently working on production for the units in the 2015 fleet.

On the towables front, we are extremely encouraged with the group strong performance and are pleased to announce our decision to purchase a currently leased towables assembly facility in Middlebury, Indiana for approximately $5.4 million.

As Randy pointed out, the purchase demonstrates our commitment to growing Winnebago's market share within towables while also providing us with reduced facility operating costs as a projected annual depreciation expenses are less than the annual cost to lease the facility.

This purchase is included in our planned capital expenditures at $15 million to $20 million for fiscal 2015.

Finally, I'd like to reiterate that we are very positive on the long-term outlook for our motorized and towables businesses and believe our Company has opportunities for future growth which, combined with our strategic initiatives underway, should help us improve our margins and profitability.

With that, please open the line for questions.

(Operator Instructions).

Kathryn Thompson, Thompson Research Group.

Thanks for taking my questions today, and also wanted in particular to say, Sheila, best of luck in retirement.

We've very much enjoyed working with you over the years.

Thank you.

That's very sweet.

First question is just a follow-up on the ERP implementation.

How much of the SG&A -- you outlined $1.5 million from four different items in the earnings release today, but how much of the SG&A was impacted by the ERP implantation, and how should we think about modeling that on a go forward basis?

Let's frame it in the entire IT modernization cost, not just ERP.

Sure, Kathryn.

First to clarify, the $1.5 million is specifically related just to the two projects.

So in total, G&A went up $2.5 million, so from an ERP-specific perspective, we had $652,000 of expense in this quarter.

And we expect in total for the year we're going to have $3 million less than $652,000 already incurred is the balance, estimated now between quarters three and four.

We also incurred costs associated with the strategic sourcing project, that I touched upon, and that was a little over $800,000.

And then the remaining $1 million of increase primarily was a function of the legal expense that's up about $500,000 and the equipment maintenance cost.

Okay.

The ERP is really the big piece of three legs of an IT modernization effort.

So, some of those costs are starting to tail off.

But they are still in there so we don't necessarily bring them to the front.

Okay.

Last quarter, you talked a little bit about just a product quality with a particular supplier or particular part.

Any update on that from prior quarter, and are you mostly through that issue?

The particular issues that were extraordinarily painful in the first quarter have subsided.

But in the nature of the RV business and the type of supply base we have, we are always challenged with some type of supply issues, whether it's just lack of supply or quality issues with particular components.

And the second quarter saw those types of issues on a more normal basis.

We are always dealing with some of that, we are today as we speak.

But nothing on the scale of what we saw in the first quarter.

Great.

And I think I know the answer to this, but just to be clear based on your prepared comments, the current quarter numbers don't include any of the Class C rentals or those associated with Apollo Group.

You will only start working on those in the upcoming quarters?

Some of those were in work in process and finished goods but not in revenues.

We've been starting to build to be prepared to execute, in the next few months, but that's a good question.

And you're right, that's prospective for us.

Okay.

And then finally, could you give a little bit more color on how performances have been at retail shows in early 2015?

In particular focusing in on Class As and Class A gas because that has been underperformed a little bit.

Just would be interested to hear how acceptance has been of new products.

Thank you very much.

The shows have done very well.

Class A gas is really -- we've seen a little dip in our retail performance, but wholesale remains very robust.

I don't see any specific trends there.

Our Vista SunStar line is very robust.

I think maybe more notable, it's just really the softening of the diesel pusher market.

When it comes to unit volume, slight dip in diesel pushers has a lot more impact, revenue and margin-wise then gas As.

But we don't see any issues at all with the performance of our gas As at this point.

Perfect.

All right, thank you for taking my questions today, and Sheila, best of luck.

Craig Kennison, Robert W. Baird.

Good morning, thank you for taking my questions as well.

Sarah, can I ask you to repeat the metrics you cited, regarding your dealer penetration and growth in inventory at the dealer level?

Sure.

I wanted to kind of highlight it into three key reasons of the increase.

Part of it is a function of -- that the new products sell into the marketplace, and so when you look at on a year-over-year basis, about 6% of the growth is a function of just the new products at the dealers that wouldn't have been there a year ago.

I did highlight in particular the B -- one of that is a fairly new product offering, one we had out in the marketplace for a while because that category in itself, when you look at dealer inventory, year-over-year growing to the [Mason to the] pads, that Class B segment accounted for a significant portion of that.

And that has been really a story of retail growth when we look at that category in and of itself.

Also from the standpoint of the distribution efforts, it's both on the brand distribution points, ensuring that we have fair and adequate representation across all of our products, and so, year-over-year that's approximately a 4% increase of dealer distribution products second quarter to second quarter.

And then from a physical standpoint, we still have more doors from that time parameter and that's up approximately 7.5%.

Thank you.

So it would seem that you are gaining share of distribution.

Are you seeing that translate into sort of share of retail yet or is it too soon to see that manifest itself?

I definitely would link that to the retail registration growth that has transpired inside of the quarter specifically of 18%.

On a year-over-year basis, when you're looking at a growth of 30% there's more factors in that full timeframe, part of the rental increase in our business is in that 12-month number.

But I do believe that that's helping the retail metrics for us inside of the quarter.

And would you say that some existing dealers are choosing to take on more lines because they'd rather take it on themselves than maybe allow some other dealer to take on that line?

I'm sure there's that instance.

I think every situation is going to have kind of a unique story.

But it kind of depends on the geographic area, and the size of the retail market and opportunity that that dealer sees.

Okay.

Then shifting gears here just to demand, are you seeing any localized impact from the price of oil, and also could you comment on trends in Canada, given currency movements?

We've been asked that question about oil a lot, ever since the price of oil has fallen.

And I can't say we can specifically link anything to that intuitively, I think it would be very good news for our business.

These -- our products consume oil-based fuel, and that should be a tailwind for us.

Additionally our products are driven to their destination, so it helps delivery cost, and a lot of the components, a lot of materials we use in the construction, plastics, the manufacturing of steel all involves oil.

So I've got to believe it's providing a good base for the state of business.

As far as Canada, you know, winter is a very small market for RVs in Canada.

So I think it's too soon to tell what the state of business will be going forward.

We've got to wait until the fall happens, and if you look at January retails in Canada, they are just so small.

It's hard to draw any conclusions from that.

That's fair.

And Sarah, with respect to the rental orders, would you expect them to be booked in Q3 like you did last year?

The timing of the deliveries will cost both Q3 and Q4.

So there is one of the booked -- they do a defined number on certain time frames, and there is one of those deliveries set to occur inside of June of our fiscal fourth quarter.

So from a modeling perspective, should we be concerned that some revenue that would've appeared last year in Q3 will be spread across Q3 and Q4 then?

There will be a shift to some degree.

We are still finalizing all the specifics, and as we have more information to share we will do our best to ensure that we communicate that, so, to your point, that you can understand how that will impact the performance between the two quarters.

Great.

Let me just say, Sheila, it has been a pleasure to work with you as well you than just a great supporter of ours, and a great investor relations representative.

We'll miss you.

Thank you.

Morris Ajzenman, Griffin Securities.

Good morning, guys.

Returning to the Class A diesel again, you touched on it before, but it's not difficult to do the math.

But year-over-year on a revenue basis is down $35 [million].

Does that definitely continue to be a difficult comparison going on the next handful of quarters the best you can foresee, or just help us understand how that plays out.

Because clearly it has a material impact on the revenue generation and profitability and, now, on a comparative basis.

Let me put three things out there, and that might help paint a picture.

Some of the comps are based against a year ago when we were launching some new diesel pusher products.

And our diesel pusher business on top of the overall diesel pusher business being more robust, we have launched a whole new product segment.

And we were getting a lot of business there, really just kind of filling the channel.

So that's one of the comp -- one thing notable to the comparison.

Another is a general softening of the diesel pusher market.

I think industrywide that has softened.

And third, we have some holes to fill.

We have lost some ground within the market, there's no denying that.

We clearly understand that.

And we have strategies designed to address that going forward.

So does that help?

Yes.

But again, looking into the second half of the fiscal year will continue to be difficult comparisons from your perspective for Class A diesel?

I don't want to get into a guidance position, but this market moves pretty slowly.

So --

Fair enough.

One could reason that.

And one last question.

I guess maybe you, Randy, or Sarah.

On bookings growth was very strong year-over-year.

Is that correct, up 59%?

Yes.

And then, the backlog, again being down year-over-year again is no longer short of the chassis.

How should we read into this, though?

That booking growth -- clearly you're churning out the orders much more quickly.

But with that sort of booking growth, can we expect to see backlog is starting to rise in the June quarters, or again do we have the chassis issue impacting third and fourth quarter over February of last year where the backlog was up -- it's called exaggerated?

Notably in Class A gas line on the year ago you'll see we have over 1,100 units in our backlog.

We still were challenged as that related to have adequate supply, and we've since corrected that.

when we look at what's transpired over this last year and we increased our production rates on the rolling 12 months of over 15%, and we have now the capability that some more timely -- deliver the product inside the quarter, but it is fair in the last six months that level of growth of production has really slowed.

In the first half we produced on average about 5% more product that we did a year ago because of the labor challenges that we've touched upon the last two quarters.

So that's really what our focus is.

We have to have adequate resources or adequate facilities outside of this labor pool to help grow the business.

And with additional capacity in that matter, there's opportunities to see those orders books continue to grow as well.

Thank you.

And I'll toss my hat in the ring to Sheila, enjoy your retirement.

Thank you, Morris.

Mike Swartz, SunTrust Robinson Humphrey.

Good morning, everyone.

Randy, I just wanted to follow up on the commentary on the diesel pusher market, and I guess as I understood, that market has been a little softer a year or so.

Are you saying that there has been incremental softness over the past two or three months, and how does inventory decisions on that product line stand at dealers today?

I'm not sure I completely understand your first phrase of that question.

But incremental softness, what would the comparison be that you're looking for?

I guess, have things gotten [worked] from the last 2 to 3 months is the way I should've phrased it.

I don't have that specific comparison in front of me.

We could sure follow up with you as far as what the retail numbers are doing in diesel in that timeframe.

We are dealing with it here in a more general perspective, unless you have that, Sarah, specifically last few months performance of diesel?

I'd have to break that out separately.

Maybe to follow up on your point though, there is a seasonality of the diesel that a little bit different in certain geographic areas of the country.

So there's opportunities inside the -- falling into the winter to see strength in diesel performance in Florida for Arizona and California areas.

As it relates to some of the opportunities we feel we have, it's in regards to certain product segments that we don't necessarily have product competing and where we see some of the volume on the upper end.

We've made headway in that regard in the last year, but there is more steps that could be taken when we look at the success of some of the products in the marketplace.

From the standpoint of dealer inventory, I think we have adequate amount of dealer inventory.

When you look at the growth of our inventory levels and the year-over-year comparison, diesel is actually slightly down to where we were a year ago.

So it hasn't been a buildup of inventory at the dealerships for diesel, and on a calendar year basis, when you look at the stats for us that typically we saw our Class A diesel market share grow 10 basis points for the calendar year ended 2014 to 2013, so we slightly increased our piece of the pie for that year.

We didn't see the same dynamics in January, but that's just one month.

Michael, I will say that if you look at the history of the diesel A body gas A body mix in the industry, it varies over time from diesel being -- I want to say typically in volume a little under like a 40/60 split.

We were at a point where diesels, a few years ago, actually got higher than gas which is a little unusual.

And yes, asked Sheila to pull the slide up.

And that is changing.

That separation currently is 63%, 64% gas and 36% diesel.

It was much closer a few years ago.

So there's -- and again, you just don't know where it's going to go from here.

It does change.

I did just get some information here that industrywide in 2014, diesel sales were flat in 2015 January, they are down 28%.

So there is a change going on, it's just hard to tell where it's going to go and when.

Okay, great.

Thanks for the color on that.

And second question I have is just on understanding some of these costs flowing through and some of the projects you have going on right now, kind of I had to margins in the near term.

How should we think about I guess the payback of the return on this project as we look out 12 to 24 months, and I know there's quite a few projects you have.

Could you give a little more granularity on when we should start to see some of the margin benefits going forward?

The one that we have highlighted that quantification, and it's probably the nearest term would be strategic sourcing.

We are currently looking to end that project about a year from now.

If we can support it internally at a faster pace, we will.

But current plans are that it's going to take us out until next year in the June timeframe.

And the objective there is 30 to 50 basis points of margin improvement related to that concentrated effort.

When you look at the ERP implementation, that is one that is a longer project.

We are currently planning that to be a three-year project.

We have various phases and waves associated with that, so we have logically laid out what will be changed in which order and when.

So, some of the benefits can start to happen inside that timeframe but we still have the implementation spend associated with the project going on as well.

First and foremost, we really need to make these investments so we will have the right tools to support our growth in the future.

And we know that if we do nothing, the cost to support our legacy systems are going to continue to increase just because we are using outdated programming language.

It's hard to -- once we have the key people here that were part of the programming, leave the Company to recruit folks to take their place is going to be a challenge.

And it's not something that we face alone, by any means.

So there's a mitigation of really an escalation of costs in the future that's part of the whole project as well.

But we are looking to be able to work more smartly and free up some of the resources on a go-forward basis as we implement and have parts of the system put into place, and that also is helpful from a labor standpoint because we don't have a finite -- infinite amount of people to recruit from in this area either.

So as soon as we have more defined metrics that we can share, we will.

We started the project in January, and there's been a lot of work done.

But there's so much more to do so we are pretty early on into that engagement.

Great, thanks for all the color, and again, Sheila, congratulations and best of luck.

Thank you.

David Whiston, Morningstar.

Thanks, good morning.

First question on your ecoat system.

Just curious I don't know if you could speak too much for the rest of the industry but why hasn't any motor homemaker done this before?

Most of our competitors source their fabricated steel parts externally.

And a lot of those suppliers use this or a similar process.

We've determined, and I guess long-held that metal fabrication, supplying the internal supply of those components is one of our strengths, one of our core competencies.

And in fact, when we were going through the transition of a few of these installations, we did outsource some of those metal -- fabricated metal components, and it was a great expense to do that.

So that's why we do it internally.

And this system, this isn't a new process to us, but the fundamental process is one that we've had for over 30 years.

But it was an installation done in the early '80s, and it was just one of those bills that had come due.

And we've replaced it.

This is something that we've talked about for 15 years, the day was going to come when we had to do this.

And we just put a lot of planning into it and really bit the bullet, and this is the team that's finally accomplished this.

It is a big accomplishment, it's a big expenditure, but logistically it's also a very big accomplishment.

There is a lot of things that had to be done.

So going forward, this system is going to serve the Company for the next 25 years.

It's going to be more efficient, it's going to produce a better product with less labor, less energy consumption.

So it's good to have it behind us.

And it's one of those bills that had to be paid.

That's helpful.

Moving on to the balance sheet, Sarah, you guys did tap -- it looks like you tapped your credit line Q2 and repaid it all, and your cash balance is getting low even though you are entering the key spring selling season.

Do you think internally you can avoid tapping the revolver in Q3?

You can see that we have a lot of working capital tied up at the end of February in inventory and receivables.

And so, during Q2, there were small amounts a few different points in time that culminated in what you see in the cash flow statement.

Which, we've had that line of credit in place for working capital needs all along, so that's the intended purpose of it.

Inside of the back half of fiscal 2015, we looked at we have an opportunity to generate a lot of cash as we flow through on the rental product that we've built in advance for the Q3 deliveries.

The timing of the receivables is a function of when we ship product inside of a quarter.

And we definitely had a lot of volume of products shipped inside of the latter part of the quarter, which does grow those receivables and we timely -- that they're collected in a very short time duration shipments.

So I guess [I could be] a little more color and insight in the liquidity near term.

Thanks.

And last question, can I assume that subprime customers are a pretty low portion of Winnebago's business?

I'm just trying to get some more color because there was a lot of discussion on the light vehicle side, just want to see where that is on the motorhome side.

Let's hope so.

When we look at the consumers that typically buy our product, and it's even I think a distinction between a Winnebago-branded product in the marketplace and maybe some of the others, we generally have consumers that are fairly high net worth or creditworthy.

There's always the risk from a lending perspective that some of the leniency that were in place from part of the recession kind of creeped back in.

To be honest with you, I haven't heard that word subprime in about three years.

I don't think that's the case.

We don't lend the money, we don't work with the retail lending, so (multiple speakers)

Touch base with the key players on a routine basis just to hear what's going on so --

First time I've even had that question asked.

This is your Q&A session, but I'm curious about where you've heard that?

Just to be clear I'm not hearing that on the motorhome side, I am mostly an auto analyst.

It's a big discussion on the light vehicle side, so I just wanted to check in on the motorhome side.

And I figured it was not a big issue because subprime customers aren't going to be buying effectively a second home on wheels, but I just wanted to double check.

I think one thing, back to Sarah's point, this has always been good paper.

Even in the recession.

Not a lot of the subprime stuff was getting into RVs.

It got pulled into the whole debacle, but I think the lenders will tell you that that RV, that motorized RVs paper was really good.

And a lot of them wish they are just kept it through the recession, because there weren't many defaults that way.

In the scale of things.

Okay, great.

Sorry for the confusion there.

No problem.

That concludes the Q&A session.

I would now like to turn the call over to Mr. Potts for the closing remarks.

Thank you very much for your continued interest in Winnebago Industries and for joining us on the call today.

We look forward to speaking with you again when we report our third-quarter results on June 25.

Thank you.

Thank you very much.

This concludes today's conference.

Thank you for your participation, you may now disconnect and have a great day.