Winnebago Industries Inc (WGO) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Winnebago first-quarter 2016 earnings conference call.

(Operator Instructions).

As a reminder, this conference is being recorded.

I will now turn the call over to your host, Scott Folkers, Vice President, General Counsel, and Secretary.

Please go ahead.

Thank you.

Good morning and welcome to Winnebago Industries' conference call to review the Company's results for the fiscal 2016 first quarter, which ended on November 28, 2015.

Conducting the call today is Sarah Nielsen, Vice President and Chief Financial Officer.

This call is being broadcast live on our website at investor.wgo.net and a replay of the call will be available on our website at approximately 1 PM Central time today.

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

If you have any questions about accessing any of this information, please call our investor relations department at 641-585-6160 following today's conference call.

Certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties.

As a result, the Company cautions you that forward-looking statements are inherently uncertain and a number of factors, many of which are beyond the Company's control, could cause actual results to differ materially from these statements.

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

Over the past few months, the search committee of the Board of Directors, with the assistance of a leading national talent search firm, has been intently focused on identifying Winnebago's next CEO.

Finding our next CEO has been their top priority and continues to be their top priority, and as soon as we are able to, we will share news on their progress.

With that, I will turn the call over to Sarah Nielsen.

Sarah?

Thanks, Scott.

During the first quarter, we achieved gross profit growth, with gross margin improving 90 basis points to the highest quarterly level in the past two years, despite our continued navigation through labor-related inefficiencies.

Notwithstanding this improvement, net income declined as a result of lower revenues, coupled with higher G&A expenses, due largely to incremental costs related to spending on our ongoing ERP implementation program.

We are encouraged by the continued robust consumer demand environment for our products, as both our motorized and towable retail registrations increased 12% on a rolling 12-month basis.

Demand from our dealer and rental customers are also strong, as evidenced by bookings growth of over 23% for both motorized and towables on a rolling 12-month basis.

We are pleased to announce we have received another annual rental order from Apollo, which is included in our backlog figure.

Motorized dealer inventory at the end of the first quarter of fiscal 2016 was down 2% on a year-over-year basis, while up 1% on a sequential basis.

These minor fluctuations relate to our commentary last quarter regarding our beliefs that we may be at equilibrium between wholesale shipments and retail sales.

Further, we remain comfortable with the level of our dealer inventory based on the retail turn rate, which at the end of the first quarter was 2.2 turns.

Prior to going into specifics regarding our results, I will provide an update on some recent developments related to steps we have taken to work towards alleviating labor constraints within motorized.

As we announced last quarter, we sold the assets of our bus operations and are working to exit our aluminum extrusion operations.

Revenues related to this area in our first quarter were down 25% as our customers started to find other extrusion partners to work with.

We have effectively stopped selling extrusion products to almost all outside customers in the first quarter and have just recently moved various shifts of employees over to motorhome support areas.

We expect to transition the remaining staff upon the full transfer of our internal extrusion needs to an outside supplier, which is anticipated to occur by March.

As a reminder, given that we are nearly finished with the sale of extrusion products to our outside customers, our OEM group will have minimal sales going forward.

Also, during the Louisville RVIA show in early December, we announced an expansion to the West Coast through the purchase of a facility in Junction City, Oregon, for the production of select higher-end Class A diesel products, which will improve both production capacity and efficiency for our Class A gas and Class B products in Forest City, Iowa.

We anticipate a moderate initiation of West Coast production in mid calendar 2016, with full ramp anticipated in the second half of calendar 2017.

Additionally, while at the Louisville show, we showcased several new products and floor plans and received a very strong response from our dealer partners.

Notably, it was our first showing of the Grand Tour 45RL, our new 45-foot Class A diesel product which we will produce on the West Coast, as well as the Fuse, a Class C product on the new Ford Transit cutaway chassis.

On the towable side, we showed the new Winnie Drop product, which was initially introduced in September at the Elkhart, Indiana, open house event.

The reception towards this lower ASP product has been great, and the strong dealer demand is reflected in the lower overall towables ASP for the quarter, which I will review later.

The strong interest in our products at the show further supports our need for capacity expansion.

Moving to the financials, fiscal 2016 first-quarter revenues were down 4.5%, primarily a result of lower revenues within motorized, as unit volumes were down just over 5%.

As with recent quarters, we continue to experience unit growth in our Class B and C products, which was offset by lower sales of Class A units.

This trend reflects the limited motorized labor capacity and the decisions that we've made regarding where to best allocate production capacity.

Additionally, the lower overall unit volume during the first quarter is due in part to the renewed focus we've placed on line completion rates and production quality in an effort to reduce rework and mitigate future warranty related expenses.

Although consolidated revenues declined, we continue to see very impressive results from our towables group, where revenues increased just over 24% in the quarter.

The growth there was primarily driven by increased unit volume of nearly 50%.

We believe there is plenty of runway left for us to achieve growth in excess of the towables market.

Moving to ASPs, here are the key changes on a year-over-year basis for our motorized group.

Class A gas was $101,535, up nearly 6%.

Class A diesel was $190,842, up 1%.

Class C was $82,914, up nearly 14%, and Class B was $72,886, down 5%.

In aggregate, total motorized ASP was essentially flat for the quarter.

On the towables side, travel trailer ASP was $18,375, down 12%, and fifth wheel ASP was $38,865, down 19%.

In aggregate, total towables ASP was $20,685, down 18% as a result of product mix.

As I mentioned earlier, gross margin improved 90 basis points, attributable to several positive factors.

The most significant positive impact to the quarter was due to improved product mix within motorized, which relates to our production allocation towards higher-margin products.

This had a 170 basis point positive impact compared to the prior year.

Also, we benefited by 50 basis points due to improved towable margins and 40 basis points from lower workers' compensation expense, which was a very significant pressure for us last year in this quarter.

Lastly, we also achieved 20 basis points of realization of cost-savings benefit from our strategic sourcing initiative.

We did have some pressures in the quarter as well.

Gross margin was negatively impacted by 100 basis points from continued labor-related manufacturing inefficiencies within the motorized group and 70 basis points due to unfavorable trend in warranty expense.

With regard to our higher warranty expense, we have instituted a back-to-basics approach, which is highly focused on enhancing quality through improved processes and additional inspection activities.

As I alluded to earlier, this heightened focus somewhat impacted production rates during the quarter.

However, we are optimistic our efforts in this area can mitigate negative warranty expense over time in the future.

Compared to fiscal 2015, operating expenses increased in fiscal 2016's first quarter, due mainly to $1.4 million of incremental G&A expenses associated with our ERP implementation.

With regards to our ERP project, during the first quarter the system went live for finance and towables, and the next two phases of the implementation will involve going live with human resources and payroll areas, and then next to enable our ERP functionality at our newly acquired West Coast facility.

Although the original cost estimate for this project was $12 million to $16 million, we are now increasing this estimate to $25 million.

The factors contributing to the change primarily include our West Coast expansion and the resulting implementation there; also, the integration needed with the ERP system into our product lifecycle management and outside support necessary for our bill of materials simplification.

During fiscal 2016, estimated cumulative spend related to this project is $8.6 million, of which $3.9 million has been expensed.

Our estimate remains that about 60% of the overall project will be capitalized, which leaves 40% or about $10 million in aggregate will be expensed.

We are still planning this project will be completed in fiscal 2017.

As I mentioned earlier, our strategic sourcing project positively impacted gross margin in the first quarter by 20 basis points.

Also, project management for this project was transitioned to internal resources during the quarter, and therefore we do not expect any incremental G&A expenses related to strategic sourcing going forward.

Further, when all the commodities have been through the process, which is anticipated to occur by June 2016, we expect this project will provide gross margin expansion of 30 to 50 basis points.

Our first-quarter tax rate was 33.6%.

We still think that our annual effective rate will be between 32% and 33%, provided that the tax extender legislation is passed.

In closing, we were able to achieve much improved gross margin during the first quarter as a result of better margins in both motorized and towables.

Also, as I have highlighted, we are taking numerous steps to improve labor capacity and set the stage for long-term growth.

With some of the best products in the industry, coupled with the continued favorable demand we have seen, we remain optimistic in our outlook.

With that, will you please open the line for questions?

(Operator Instructions).

Craig Kennison, Baird.

Thank you for taking my questions.

I really wanted to focus on the West Coast expansion.

Maybe start, Sarah, with any information you can share on the cost side.

How should we think about the additional cost of that facility over the next several quarters?

Well, certainly.

When we look at the investments in this new expansion, we have shared that we believe we will be investing $15 million to $20 million in aggregate, the majority of which would be capitalized.

A lot of that will start flowing through from a cash flow perspective in the second quarter of fiscal 2016, but the spending to complete some of the modifications of the building and all the equipment associated with that may flow into future quarters.

From the standpoint of expense associated with that, there will be ongoing start-up expenses.

We believe that in the 18 months, if we look at the beginning to when we would like to be completely up and running full force, there is a possibility that we will have $1 million to $2 million of expenses associated with starting up this operation.

We're pretty new into the process.

We have on-site presence.

A key general manager is now on site and we are actively hiring people, and so we will update every quarter on the progress and where we are at and highlight the specific expenses associated with this, notably before we have any associated revenue with the product that we want to produce and ship from that location.

Thanks, and then on the capacity side or revenue side, how much additional capacity will this create and maybe even from a unit perspective?

The way that we are looking at this, maybe to set the stage, this past year we delivered about 1,100 diesel products.

On some of the smaller diesel products, we're still going to be manufacturing in Forest City, so it's the large product that we are going to be moving out there.

And we believe that the Oregon facility will be able to handle that.

Let's say the annual run rate in the next year when we are up and going is in that 500-unit range.

That's what we are planning towards, basically just shifting the business from here to there.

There is additional capacity to build more, but we are still working out layout of the building and planning as best we can to maximize.

That, in our view, would allow us the ability to produce an incremental 750 to 1,000 units here at this factory because we are going to be shifting those resources into units that takes fewer labor hours.

But big picture, that's what we think that can free up for us here.

And can you cover the timing of when you would expect to ramp up to that 500-unit run rate and the 750 to 1,000 in Forest City?

We hope that we are entirely transitioned by the summer of 2017.

So there is going to be a ramp in that whole time frame, a little over a year from now, and if we can accelerate that, we will and we will share that.

But the first stage this coming winter and spring is we're going to be piloting the products out there, getting the people trained and going.

The modifications are a huge part of the process, too, from a building perspective.

And then, as I had mentioned, this is also now a part of our whole ERP implementation, and so we're going to be going live with our new AX functionality here this summer, and so that's actually going to be our first motorized go-live for true production and sales.

And that is currently the thought process from a timing perspective.

So just to be clear, by the summer of 2017 you would expect to be at about a 500-unit run rate and at a 750- to 1,000-unit run rate at your other facility?

That's fair.

And so, just to back into that, when would you begin to -- begin the ramp?

In other words, when would you produce your first couple of units in each location?

As I mentioned, we're going to start piloting, so it is going to be starting inside of our second and third quarter here.

We are hoping that by the summer of 2016 we can be doing a number of units on a daily basis or on a weekly basis there.

And so, there will be a ramp, and so let's say in the fourth quarter of 2016, a small amount, and then we will just be building that up in Q1, Q2, and then finally by third quarter of 2017 at that true run rate where we would like to be.

Thanks, and then just the final question is you're adding capacity.

Your retail was up 3%.

You feel like inventory is going to be 1 to 1. What gives you the confidence that there is actually demand for the additional units?

Are dealers telling you, look, we would love more?

I guess, why now?

We had, I guess, a recent touch point with all of our dealers when we were at the Louisville show.

We had our 45-foot product, which is the product that we want to be building in West Coast first and foremost, and very favorably received.

And so, part of our confidence is that there is part of the market in Class A diesel that we are currently not even really a player and active beyond the 42-foot length.

And so, there is opportunity for us there, and as we transition the rest of our product offering and continue to innovate and develop additional choices, we think that there is a lot of demand just based on the validation at the Louisville event.

And from a Class A gas and a C perspective, we have had to rationalize where our production slots go to for the last 18 months, maybe even a little bit longer than that.

So, we are anxious to be able to have the capacity to address the demand in some of the product categories that we haven't, in our view, adequately addressed in the last year and a half.

Got it.

Thanks so much.

Michael Swartz, SunTrust.

As I look back over the past 12 and 18 months, and this is really a follow-up to Craig's last question, maybe asked a different way, the Class A results backlog that you guys have been reporting has been softer than what we have seen in the wholesale and retail shipments, and it looks like you lost some share in the Class A. Is there a way you can help us think of how much of that undershipment and retail share loss is coming from the decisions you have made internally to prioritize other product versus maybe just not having the right product in the right place?

In our view, a significant part of that is the fact that we have concentrated our production to Class B and C. We are currently a 35% market player in the B space and we really have moved the needle there.

But it is at the loss of having allocation and production capacity for some of these other product categories.

So, part of it is where we've focused our efforts.

Obviously, you always have to be developing and bringing new choices and product offerings to the marketplace, which I think we have a great track record of being innovative and bringing those kinds of products to the market, and we are not stopping at this point in relation to planning for the future in those segments where we want to move the needle.

We have to time it with the capacity and having existing and new products to all execute as we are discussing here.

But it is a huge function of where we have put our time and energy in production, and that is our objective, to alleviate that constraint so we can satisfy demand across all product categories.

Okay, and then just following up on that, it doesn't sound like there is an inventory issue in the channel.

You are not undershipping because there is too much out there.

It is just where you are reallocating your resources.

Yes, in our view.

Okay.

And then with the new capacity coming online, it sounds like you're going to start producing there mid-2016, calendar 2016.

Should we think about the Class A production schedule or just wholesale shipment rate as being depressed until we can get more capacity online?

Is that the right way to think about it?

Yes, I think it is.

Okay.

Okay, that's helpful.

And then just on the ERP side, Sarah, I'm sorry, could you go through and just reiterate what your expectations are from a cost perspective on that program over the next 12, 18 months?

Oh, certainly.

So as I mentioned, in light of our expansion on the West Coast we do have incremental costs associated with our ERP implementation, and then there is other two key areas that in light of -- we worked on this now almost for a year.

We have a better perspective of the time and energy and cost it is going to take to go live.

And so, we have moved our overall estimate from the $16 million that was the upper end of our range before to $25 million.

That is going to be a function of incremental West Coast ERP implementation expense.

A piece of that is related to integrating to our product lifecycle management system here, and then also the complexity of our builds have proven to take more time and energy than we originally planned, so that is going to take some more dollars.

We're still looking at a 60%/40% capitalization versus expense split.

When you look at how it played out in -- on a cumulative basis now, we have spent about $8.6 million, of which $4.7 million has been capitalized and about $3.9 million expensed.

The run rate as we highlighted this quarter was $1.4 million.

That was a little bit up over our Q4 expense rate.

We were at $1.3 million there.

And so, we're really in the midst of it.

With a number of things that went live inside the quarter, a number of areas that will go live in the second quarter, we are probably going to be at this run rate here for the next few quarters on the expense side of it.

But those are the key pieces of information we wanted to share on the call today, and we will be filing our Q in the next week and, as always, have disclosure there on all these facts, too.

Okay, wonderful.

Thank you, Sarah.

David Whiston, Morningstar.

I had a few issues I want to touch base with you on.

Can you first talk about why you are saying you have a favorable mix in motorized, even though Class A deliveries were down 19%?

There is a different margin profile inside of all of our categories, and so in light of the constraints we've faced, we've really maximized our production slots to the best margin products in the Class B and C categories, and in Class A. And so, that is contributing to that substantial 170 basis point improvement that I mentioned earlier.

So, it is not just the fact -- there is really great margin profiles in every single class of product that we build.

Okay.

And on the warranty issue, I have covered you guys awhile and I have never really heard you talk about this until recently.

What has been happening that wasn't happening before?

And somewhat related to that is, are you having an issue where perhaps you have been hiring some people that you wouldn't normally have hired and that is causing some defects?

With the substantial growth that we experienced over the last couple of years, we have hired a significant amount of new people, and it is having ensured that we have adequately trained all the new employees.

We talked a little bit about this in the last few quarters, that we have taken a concentrated effort to ensure our training is adequate because that's a key part of having good completion rates off the line.

When you look at overall warranty as a percentage of revenues, we have historically been less than half of what some of the competitors in the space would be.

We have ticked up a little bit, but we are still not at that level.

But it is something that we want to ensure that we are taking the effort here now to address it going forward.

Another element of this is we introduced a significant amount of new product into the channel, and the complexity in all those new products also can put a strain on our resources and that circles back to training as well.

But we are focused on ensuring that we have the right training and the unit is complete coming off the line to the best of our ability, and then we have the right inspection occurring so that the units going to our dealers we can stand proud for.

And would you say there is still a lot more work to do on the training or is a lot of that already completed by now?

I think we have made substantial efforts and improvements there.

I mean, it is always ongoing, based on the people coming in and coming -- we are working on reducing turnover at all levels, in all areas of the facilities, and there has been great improvement in the areas where we saw probably the most significant issues.

Some of it is a function of people, too, and having the right plant managers and line managers in place, and so we have accomplished a lot here in the last three to six months.

Thanks.

That's helpful.

And just one more question, on free cash flow.

The drain from inventory, it was better by about $14 million year over year.

I was just curious.

Is that a function of mix this quarter or was there something in last year's quarter that was a bit more abnormal in the buildup?

Yes, last year during this quarter we experienced a number of challenges, and so I think that's a fair way to look at that in regards to where we were a year ago was not ideal.

Okay, thank you.

Matthew Paige, Gabelli & Co.

Thanks for taking my call, Sarah.

I think, first, can you just talk about in light of rising rate environment how does that impact your Class A market outlook, particularly on the diesel side?

That's a good question.

We've spent a lot of time over the past years all anticipating when the interest rate movement would actually occur.

This is very, very small in the grand scheme, and so I think it is more of a question is how fast or how many basis points we are talking about.

But this specifically, I don't think, is significant.

I guess it's more a function of we are finally back to normal after eight years of no rate, in that range, of any movement on our interest rates.

They are still very, very low.

So, I don't think this is a significant impact from an outlook standpoint.

I think it would be more significant if we were talking a more substantial number.

Our inventories that the dealers purchase are typically floored, so it is a cost they have to manage, and then at the retail level as well.

But our outlook is still positive and in line with what RVA is looking for in this next year.

It is low single-digit growth, but I think that is achievable.

Great.

And then, when you talk about staff transitioning away from the extrusion functions into other areas in the plant, how easily can staff transition?

We work really hard to find the right places to move the people because the whole goal here was to keep these people and use them in other ways.

Right now, the big -- the first transition has been in off-shift work, and so we were able to find second and third shifts where we needed people and make those transitions.

We knew that there would probably be some that retired as a result of this change, but we are seeing success in regards to being able to smoothly do this and that's the objective.

Right.

And then, do you have an update on the CEO search?

Scott Folkers had shared a couple comments on that, so I will maybe let him speak.

Again, at this point in time the Board continues to conduct a search for our next CEO with a great deal of diligence and energy, and as soon as we have any additional information on that, we will be doing a release.

Right, and then one last thing for me is we have been without a CEO for a couple months.

Has it had any impact on any strategic planning that you would like to do?

Is there something that you would have liked to have gotten done, but are waiting for a CEO to be found?

We have been very busy in the last four or five months, notably with the West Coast expansion.

It has been something that we have been considering for an extended period of time, so I would say no.

That hasn't precluded us from moving forward.

That's a tactical solution for us.

It has some strategic implications, for sure, but we have needed to address the labor constraints for well over a year, and we are pretty excited about finding a location in the country that has a wealth of RV experienced people and a facility that -- granted, there are some modifications to be made, but it is a great facility.

So we're pretty excited about that, and we're busy with a number of other big projects as well.

ERP is huge in relation to the level of effort and the opportunity that presents.

So, we are working hard and it is not holding us back.

All right, great.

I appreciate the time.

Kathryn Thompson, Thompson Research Group.

Thanks for taking my questions today and we have appreciated the color that you have given throughout the call on the plant out west.

But I was just going to follow up with a few just additional conceptual questions about the plant.

One, it's our understanding that motorhomes were already being manufactured at this facility previously.

So when you think about retooling that facility, how much will it be a completely retool, so really getting up and looking more like a Winnebago facility in Iowa, versus more of a tweaking?

So, I was just really trying to understand the mechanics of that retooling process.

Thank you.

Oh, sure, certainly.

As it relates to what has been going on in this facility, really it has been utilized as a service facility for Country Coach product that was built prior to their bankruptcy.

So, it hasn't been actively used for true production in this period of time, other than maybe piloting.

And when you look at what had been the campus for this Company, we bought a portion of what related to the campus, but some of those other buildings had already been sold over the years.

So, in our efforts to lay out and design, we are not interested in re-doing what we do here in Forest City.

It is an opportunity to look at what is the most efficient way to approach that because the facilities we have in Iowa were built long, long ago and meant for mass production of a much smaller product.

So, it is giving us an opportunity to really approach it differently, but there isn't much in there right now.

There is some equipment that came along with it -- paint booths and a few other items, but there are some pretty important things that we need for equipment to get up and running, and I guess those would be maybe the key points to answer your question, Kathryn.

Yes, that's helpful.

And then, just conceptually, assuming that you are looking at facilities across the US, how is it -- what were the attributes to this facility versus other properties that you were looking for that led you to pull the trigger with this strategy?

Labor was a pretty significant part of the evaluation in looking at what was a potential for us there, in light of the constraints we faced here, and having a pool of experienced professionals that have a lot of talent because they used to have a lot of motorhome production in that area, so that was very key.

Being on the West Coast, on that side of the country, was also appealing because in addition to producing there, that affords us the ability to have a service center so we can service Winnebago branded product as well.

So, those are some of the key thought processes and factors in our evaluation.

Okay, and then, finally, just a clarification on Class A backlog decline.

How much of that is just the continued inability to meet demand versus perhaps just slightly slower fundamental demand?

Does that make sense in terms of [operates] question?

Yes, it is hard to maybe make a split to say it is -- this is how much of the reason.

When you look at the backlog, it is self-fulfilling, to some degree, in regards to where we have been devoting our production slots.

And then in our view, too, a piece of it is having the 45-foot product availability and offering to our dealer partners.

And they had a chance to see that new product just a few weeks ago, and that's first and foremost what we want to get up and running in our new facility.

So, it is a combination of both of those, but it is hard to say how much one reason is over the other.

Okay, perfect.

That's very helpful.

Thanks very much and good luck as you go into calendar 2016.

(Operator Instructions).

Brian Rath, Walthausen & Co.

Thanks for taking my questions.

The first one I had was just on the increase in G&A.

I think you called out the $1.4 million from ERP, but it looks like year over year that the increase was closer to $2.5 million.

So I'm just curious what else is in that G&A step-up.

The majority of the remaining increase are search fees associated with the process the Board is going through for the new CEO.

Is that close to the full other $1 million that increased year over year?

That is the most significant component.

If you look at some of the other drivers there, from a strategic sourcing perspective we had two thousand -- $200,000 of spend associated with that project before we internalized that project management of that process.

We also have a little bit increased legal expense.

That can fluctuate from quarter to quarter.

But when you look at the most significant driver, it would be first and foremost the ERP spend of $1.4 million, which we didn't have that at all a year ago, and the associated search fees in Q1.

And then, on the gross margin, [steve manchauski] has talked a little bit about the benefit from product mix, and looking at the backlog we see a similar shift in mix.

So should we assume that we will see that continued benefit for the remaining part of the year from that product mix?

Yes, we definitely have an opportunity, and when we look forward, last year in our second quarter our consolidated gross margin was 10.3%, so it was a very low margin.

Seasonally, the second quarter is probably -- usually our lowest margin quarter inside of a year, in light of the number of production days and some of the seasonality of it.

But we very much have an opportunity with the product mix side.

We are excited about the -- if we can also make headway on the better efficient use of our labor, that was a pretty sizable pressure for us inside the quarter, and continuing to see the benefit of strategic sourcing, as we touched upon.

So, there is a number of ways we can continue to see better margins in the coming quarters than we did a year ago at this time.

Okay.

And switching to the Junction City facility, you talked about $15 million to $20 million of spend to bring that facility to be ready for production.

Can you break that down into the buckets of where that spend is mainly going to be?

Is it on equipment?

Is it on the facility layout?

Can you just break out how that spend will be allocated?

Approximately -- probably a little over half of that $20 million we anticipate in aggregate will be related to the land and building.

So, a piece of that we have already purchased.

We are looking at potentially more investment needed, incremental buildings from a service standpoint.

And then, the other significant piece would be the associated ERP implementation and necessary IT equipment that we would need out there for getting us up and running, and the next most sizable component would be the equipment and building modifications.

So if you order it in one, two, and three, that would be how I would lay out the key components of that spend.

All right, so of that $15 million to $20 million, that includes ERP spending, which also, then, is included in the step-up in your full estimate to $25 million for ERP?

They're both inclusive of that facility?

Yes.

Okay.

And then, just lastly on the CEO search, to the extent you are able to comment, just curious, has there been scenarios where the Board has taken a certain candidate down a path and has backed out?

Has there been a disruption to where a candidate was chosen by the Board and didn't succeed?

Or can you say there is currently -- is it down to a single candidate, two candidates, or just how close are we to getting that announcement?

Anything you can comment on would be helpful.

And I appreciate your curiosity and probably no one is more curious than we are, but again, at this point in time, the Board has indicated that they are continuing their search for a CEO.

And again, as soon as we have the information, we will get the information out to you.

That's about all we can say at this point.

Okay, thanks.

That's all I have.

I am showing no further questions.

I will now turn the call back over to Sarah Nielsen for closing remarks.

Thank you for your continued support and interest in Winnebago Industries.

We look forward to reviewing our second-quarter results with you on Thursday, March 24, at 9 AM Central.

Happy holidays.

Thank you, ladies and gentlemen.

That does conclude today's conference.

You may all disconnect, and everyone, have a great day.