Winnebago(WGO) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements Consolidated financial statements for the period ended February 24, 2024, show significant declines in revenues, profitability, and operating cash flow Consolidated Statements of Income Q2 FY2024 saw a net loss and H1 net income declined significantly due to decreased revenues and a note repurchase loss Consolidated Income Statement Highlights (YoY) | Financial Metric (in millions, except EPS) | Three Months Ended Feb 24, 2024 | Three Months Ended Feb 25, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $703.6 | $866.7 | -18.8% | | Gross Profit | $105.3 | $146.8 | -28.3% | | Operating Income | $35.4 | $76.8 | -53.8% | | Net (Loss) Income | $(12.7) | $52.8 | NM | | Diluted (Loss) Earnings Per Share | $(0.43) | $1.52 | NM | | Financial Metric (in millions, except EPS) | Six Months Ended Feb 24, 2024 | Six Months Ended Feb 25, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $1,466.6 | $1,818.9 | -19.4% | | Gross Profit | $221.1 | $307.2 | -28.0% | | Operating Income | $74.5 | $162.7 | -54.2% | | Net Income | $13.1 | $113.0 | -88.4% | | Diluted Earnings Per Share | $0.44 | $3.25 | -86.5% | - A loss on note repurchase of $32.7 million was recorded in the second quarter of fiscal 2024, significantly impacting pre-tax and net income[7] Consolidated Balance Sheets As of February 24, 2024, total assets remained stable, while liabilities increased, reducing shareholders' equity Key Balance Sheet Items (in millions) | Balance Sheet Item | Feb 24, 2024 (Unaudited) | Aug 26, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $265.7 | $309.9 | | Inventories, net | $465.8 | $470.6 | | Total current assets | $1,002.2 | $996.7 | | Total assets | $2,433.9 | $2,432.4 | | Long-term debt, net | $694.8 | $592.4 | | Total liabilities | $1,109.3 | $1,064.3 | | Total shareholders' equity | $1,324.6 | $1,368.1 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased for the six months ended February 24, 2024, primarily due to lower net income Cash Flow Summary (Six Months Ended, in millions) | Cash Flow Activity | Feb 24, 2024 | Feb 25, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3.8 | $16.8 | | Net cash used in investing activities | $(25.5) | $(48.6) | | Net cash used in financing activities | $(22.5) | $(21.1) | | Net decrease in cash and cash equivalents | $(44.2) | $(52.9) | Notes to Consolidated Financial Statements Notes detail segment performance, debt refinancing, and revenue disaggregation, highlighting declines across all segments and a note repurchase loss - The company's reportable segments are Towable RV, Motorhome RV, and Marine, with Corporate / All Other including specialty vehicles and the Lithionics battery business[28][29] - In January 2024, the company issued $350.0 million of 3.25% Convertible Notes due 2030 and repurchased $240.7 million of its 2025 Convertible Notes, incurring a $32.7 million loss on the repurchase[59][77] - The effective tax rate for Q2 FY2024 was (126.1)%, compared to 24.3% in Q2 FY2023, primarily due to the non-deductible loss on the note repurchase[94] - The total contingent liability under dealer repurchase agreements increased to approximately $2.04 billion at February 24, 2024, from $1.82 billion at August 26, 2023[86] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes financial performance decline to challenging macroeconomic conditions impacting all segments, while maintaining strong liquidity Overview and Known Trends The company's business faces challenges from macroeconomic factors like inflation and high interest rates, impacting consumer spending and dealer inventory - Business is challenged by macroeconomic conditions (inflation, high interest rates) impacting consumer spending and dealer inventory management[103] - These trends resulted in decreased sales from lower unit volumes in the first six months of Fiscal 2024[103] - Management believes in the long-term health of consumer demand for RV and marine products despite current economic uncertainty[104] Results of Operations - Q2 FY2024 vs Q2 FY2023 Q2 FY2024 saw consolidated net revenues decrease 18.8%, gross profit margin contract, and a net loss due to a significant note repurchase loss Consolidated Performance Summary - Q2 FY2024 (in millions) | Metric | Q2 FY2024 | Q2 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $703.6 | $866.7 | (18.8)% | | Gross profit | $105.3 | $146.8 | (28.3)% | | Operating income | $35.4 | $76.8 | (53.8)% | | Net (loss) income | $(12.7) | $52.8 | NM | | Adjusted EBITDA | $49.8 | $88.4 | (43.7)% | Results of Operations - H1 FY2024 vs H1 FY2023 H1 FY2024 net revenues fell 19.4%, gross profit margin decreased, and net income plummeted 88.4% due to lower sales and the note repurchase loss Consolidated Performance Summary - H1 FY2024 (in millions) | Metric | H1 FY2024 | H1 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $1,466.6 | $1,818.9 | (19.4)% | | Gross profit | $221.1 | $307.2 | (28.0)% | | Operating income | $74.5 | $162.7 | (54.2)% | | Net income | $13.1 | $113.0 | (88.4)% | | Adjusted EBITDA | $103.9 | $185.4 | (44.0)% | Reportable Segment Performance All segments reported significant declines in revenue and profitability for Q2 and H1 FY2024, driven by lower unit deliveries and pricing pressures Q2 FY2024 Segment Performance (YoY, in millions) | Segment | Net Revenues | % Change | Adjusted EBITDA | % Change | | :--- | :--- | :--- | :--- | :--- | | Towable RV | $284.7 | (16.9)% | $26.8 | (31.8)% | | Motorhome RV | $338.4 | (16.2)% | $26.0 | (38.9)% | | Marine | $69.8 | (38.2)% | $4.4 | (69.7)% | H1 FY2024 Segment Performance (YoY, in millions) | Segment | Net Revenues | % Change | Adjusted EBITDA | % Change | | :--- | :--- | :--- | :--- | :--- | | Towable RV | $615.5 | (10.8)% | $59.9 | (20.8)% | | Motorhome RV | $672.8 | (22.5)% | $47.3 | (49.0)% | | Marine | $157.1 | (35.7)% | $11.6 | (64.8)% | Backlog as of Feb 24, 2024 (YoY) | Segment | Backlog Units | % Change | Backlog Dollars (M) | % Change | | :--- | :--- | :--- | :--- | :--- | | Towable RV | 5,273 | (9.7)% | $222.3 | (20.1)% | | Motorhome RV | 2,582 | (51.7)% | $452.2 | (48.2)% | | Marine | 1,194 | (52.4)% | $102.9 | (56.9)% | Analysis of Financial Condition, Liquidity, and Resources The company maintains a solid liquidity position with cash and an undrawn ABL Credit Facility, while continuing share repurchases and dividends - As of Feb 24, 2024, the company had $265.7 million in cash and cash equivalents and a fully available $350.0 million ABL Credit Facility[142][143] - In H1 FY2024, the company repurchased approximately 671,000 shares for $40.0 million, with $260.0 million remaining available under the current share repurchase authorization[147] - On March 13, 2024, the Board of Directors approved a quarterly cash dividend of $0.31 per share[148] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rates, which is minimal as its ABL Credit Facility was undrawn - The ABL Credit Facility is the company's only floating-rate debt instrument and was undrawn as of February 24, 2024, minimizing interest rate risk[155] Controls and Procedures Management concluded disclosure controls and procedures were effective as of February 24, 2024, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[156] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[157] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings incidental to its business, not expected to have a material adverse effect - The company is involved in ordinary and routine litigation incidental to the business, which is not expected to have a material adverse effect[89][159] Risk Factors No material changes occurred to the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended August 26, 2023[160] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its publicly announced program in Q2 FY2024, with $260.0 million remaining available Share Repurchase Activity - Q2 FY2024 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization (millions) | | :--- | :--- | :--- | :--- | :--- | | 11/26/23 - 12/30/23 | 0 | $— | 0 | $260.0 | | 12/31/23 - 1/27/24 | 0 | $— | 0 | $260.0 | | 1/28/24 - 2/24/24 | 239 | $66.40 | 0 | $260.0 | - The 239 shares repurchased were from employees to satisfy tax obligations on vested shares and were not part of the publicly announced program[161] Other Information On March 18, 2024, the company amended its ABL Credit Facility to modify springing maturity provisions for its 2025 Convertible Notes - On March 18, 2024, the company amended its ABL Credit Facility to modify the springing maturity provisions related to its 2025 Convertible Notes[163] - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter[162] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and the credit agreement amendment