Winnebago Industries (WGO) CEO Michael Happe on Q4 2017 Results - Earnings Call Transcript

| About: Winnebago Industries, (WGO)

Winnebago Industries, Inc. (NYSE:WGO)

Q4 2017 Earnings Conference Call

October 19, 2017, 10:00 AM ET

Executives

Michael Happe - President, Chief Executive Officer

Bryan Hughes - Vice President, Chief Financial Officer

Ashis Bhattacharya - Vice President of Strategic Planning and Development

Analysts

Craig Kennison - Robert W. Baird

Seth Woolf - Northcoast Research

Scott Stember - CL King

Gerrick Johnson - BMO

Mike Swartz - SunTrust

David Whiston - Morningstar

Morris Ajzenman - Griffin Securities

Mike Baudendistel - Stifel

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2017, Winnebago Earnings Conference Call. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Mr. Ashis Bhattacharya, Vice President of Strategic Planning and Development. Sir, you may begin.

Ashis Bhattacharya

Good morning everyone, and thank you for joining us for Winnebago Industries conference call to review the company’s results for the fiscal 2017 fourth quarter, which ended August 26, 2017. I am 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 fourth quarter earnings 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 said, I would now like to turn the call over to our President and CEO, Michael Happe. Mike.

Michael Happe

Thank you, Ashis, and good morning to everyone. We are very appreciative of your interest in Winnebago Industries and for joining us this morning.

I’ll begin today’s call with an overview of the key drivers behind Winnebago Industries fiscal 2017 fourth quarter and full year financial results. We’ll then turn the call over to Bryan Hughes, who will dive more deeply and specifically into those financial numbers. I will return to provide some further context on the dynamic environment unfolding here at Winnebago Industries, as our 4,000 plus team members worked feverishly to restore market and financial leadership to this almost six decade old company.

While we are proud of our progress in fiscal 2017, as we speak we are already in our eighth week of the fiscal 2018 year and extremely focused on our future. More than 13 months ago we set out on our fiscal 2017 year, intent on accelerating our efforts to transform Winnebago Industries into a larger, more balanced, more profitable outdoor lifestyle company, providing a more compelling value proposition to our end customers, our dealers and our investors.

The phrase outdoor lifestyle was intended to both remind our employees in the business of providing high quality, innovative products, that enable extraordinary experiences by our customers in the outdoors, but also to give ourselves the permission to think more broadly about growth possibilities in the future around both the RV and adjacent [ph] lifestyles. Our team responded in fiscal 2017 with a tremendous year of top and bottom line growth.

Full fiscal year 2017 revenues increased 59% year-over-year on strong growth in our Towable segment, reflecting the transformative addition of Grand Design RV to our portfolio and the further acceleration of our Winnebago Branded Towable Fitness unit. As we ended the fiscal year consolidated revenues were fairly evenly split between our Motorized and Towable segments. This is a far cry from the days when more than 90% of our revenue came solely from motorhomes. We are better positioned than ever before to drive growth and to compete for market share across the whole of the growing RV spectrum, using the best brand in the industry Winnebago and the fastest growing brand in RV history, Grand Design.

In addition to expanding our future runway, we also set out in fiscal 2017 to deliver improved profitability. Our overall gross margins improved substantially during the year, with a 410 basis point gross profit improvement specifically in the fourth quarter, driven by a highly favorable product mix within the Towable segment. We saw both organic profit improvement in the Winnebago Branded Towables business and certainly benefited from the acquired growth being delivered by Grand Design. Thanks to the balance in our portfolio and the overall strength in our operating results, we’ve been able to improve several key financial metrics throughout fiscal 2017.

Our cash flow has exceeded our expectation and allowed us to divert some additional funds to pay down our debts ahead of schedule with total debt reduction of nearly $69 million since the first quarter of 2017. We ended the fiscal year with a net debt to adjusted EBITDA ratio below 2.0, slightly surpassing our own internal projections and certainly on track with the deleveraging commitment we made following the GDRV transaction.

We also announced today that our Board of Directors has approved another quarterly dividend of $0.10 per share and additionally approved a renewed $70 million share repurchase program, both further reflective of our financial strength and our commitment to have all the tools necessary to deliver shareholder value over the coming years. Alignment with our Board of Directors about our evolving capital allocation priorities is growing and the tool box is being assembled to provide the flexibility we need. We will certainly remain focused on managing our debt leverage levels, directing capital to invest in profitable growth opportunities and always being aware of the liquidity needed to manage our business in the event of an industry or economic downturn.

Turning now to the segments and a more strategic review of fiscal 2017, before Bryan Hughes dives into the specific financial results, both of our business units in the Towable segment drove more than 40% retail growth for the year, with quarter four retail performance collectively hovering around 50% comp. These figures are apples-to-apples when factoring in Grand Designs organic retail numbers prior to our acquisition.

The Winnebago Towables business spent much of fiscal year 2017 improving its product line-up, its channel partner strategy and its profitability. Focused on quality over quantity, the Winnebago Towables line drove much of its growth from its restructured travel trailer line and creating new found synergy around the Minnie product brand naming franchise.

We are in the process now of further building out the Winnebago Towables product line-up with the September 2017 introduction of a new mid-profile fifth wheel offering called the Minnie Plus. This is a new half ton fifth wheel that builds on the success of the Minnie Plus extended travel trailer introduced last year.

By maintaining consistency in terms of brand and styling across the Minnie line of Towables, we are making it easier for our dealers to strength their knowledge of the Winnebago Towables line and effectively qualify customers to the model that best fits their needs. Internally this streamlined approach is making it easier on our operations, sales and service teams to execute their plans profitably.

Excess is being stripped in favor of efficiency and it is delivering market and financial results. What’s strategically exciting is that we now have a greater opportunity to introduce new customers into the iconic Winnebago Brand at a much more affordable price point vis-à-vis the Winnebago Towables product line up. If we can deliver a superior product in service experience, this Winnebago Towables customer will graduate throughout the Towables line and maybe someday into our Motorized offering, providing organic leads for our core legacy motorhome business.

Turning now to the Grand Design brand; we continue to see impressive growth and continued strong dealer demand. Our products in the overall GDRV business model have significant resonance with end customers and dealers that has resulted in both market share growth, but also a double and significant order backlog pile. Market share is improving everyday with recent SSI reports hitting at a fifth wheel position for Grand Design in the market of more than 10 points of share. The Open House event in September in Elkhart was positive for the Grand Design brand as they showed another strong line up of products, including the new Reflection 150 series Fifth Wheel, which further expands the market appeal for the solid line of products.

As announced earlier in fiscal 2017, we are investing eight figures dollar wise of capital in to current capacity expansion on the Grand Design campus. These projects remain on schedule with the first wave of capacity coming online in the fiscal year 2018 late Q2 or early Q3 time period. Most of the revenue benefits will happen in the back half of the ’18 fiscal year and into the fiscal year 2019 year. We are committed to providing Grand Design dealers the very best quality possible, while continuing to strengthen our product line up and improving our ability to react more responsibly and expeditiously to their orders. We aspire to keeping their showrooms and lots more full, while maintaining terms and driving field inventory age even lower.

As we approach the one year anniversary of the Grand Design acquisition in early November, I would like to reiterate how pleased we are that the Grand Design RV team is a part of the Winnebago Industries family. The integration process, while always delicate, has gone relatively smoothly and we have seen synergies in year one modestly exceed our expectations. We have benefited tremendously from the insights and expertise of the Grand Design team and are focused on sharing best practices as appropriate, internally across all of our businesses. We will compete vigorously in the market for share and collaborate strategically internally while ferociously protecting the differentiation between the Grand Design and the Winnebago Brands.

My sincere thanks and appreciation go out to all involved with the Grand Design acquisition and integration, but especially the thousand plus Grand Design RV employees who will fuel the everyday growth and market share capture that is occurring. We are committed to providing the resources necessary to optimize Grand Design’s full potential in the years to come.

Now Winnebago Industries legacy has certainly been centered around its historic motorized business and we are determined more than ever to restore momentum to that segment. In further reviewing this business and the strategies needed for future sustainable success we continue to make decision to simplify our approach in the market underneath our primary motorized flagship brand, Winnebago.

Revenues for the full year were down just under 3% and slightly down more than 4% more for the quarter. These top line results are both a combination of streamlining the product line up and dealer base, but also further validation that we have not done an effective job of yet providing stronger value in key lower price point segments when the market moves there. We must and will get better at that point.

The latest example in Q4 fiscal 2017 was the dilution of share in Class C products, where we are seeing competition become much more aggressive in the value segment of Class C. The impressive growth in shipments in Class A for Winnebago and over the year in Class B could not overcome the headwinds in Q4 unfolding for us in Class C, but more to come on our intentions in Class C in just a short while.

Our Motorized unit retail growth for the quarter and the full fiscal year was positive in the low single digit range, but not strong enough given the momentum of the overall Motorized market to hold their growth share. Our profitability was also impacted by lower than expected volume, higher than expected cost related to continuing manufacturing start up efforts in Junction City, Oregon and a shipped-in product mix to lower margin skews. We remain focused on our efforts to change the trajectory of this segment sooner rather than later, and we are beginning to see some early progress as we begin fiscal year 2018.

As we discussed in our last call, we are rationalizing our brand strategy, removing the cloned, Itasca brand from our business model and motorhomes, we are rationalizing our product line up and we are revisiting our channel partner strategy in every market of the country. Every skew and every market has been analyzed to ensure stronger competitiveness in the future. Fortunately our dealers expressed significant excitement with respect to our new fiscal 2018 Motorized product offerings when viewed at the industry’s Open House event in September. Feedback and orders were materially positive as dealers saw early glimpses of this management team’s commitment to overhaul the Winnebago motorhome line up over time.

We unveiled three significant brand new products this fall; the Class A Diesel Horizon with what might be the most exciting interior introduced in mid-priced diesel motorhomes in many years. The contemporary, modern, clean design approach on the inside and outside, presents a million dollar look at a third of that number.

The Class A Gas Intent is a revolutionary approach to new product development here at Winnebago. Designed from the wheels up in just over nine months, which is light speed compared to our historical development cycle. This collaborative approach by all of our internal development functions has produced the most affordable Class A gas offering ever at Winnebago, while still maintaining many of the core Winnebago characteristics we’re famous for, including our commitment to superior quality and structural integrity.

What’s also exciting about this new Class A Gas Intent product introduction is that we believe strongly that we can leverage both the internal development approach and the platform itself to more expediently address the value gas issue we have in the Class C category. Stay tuned for further updates on this active Class C priority within our engineering department.

Lastly, as it pertains to the new products, our Motorized team also went outside of the box to introduce the new Class B Revel. A one of a kind, off-road, four-by-four experience that is sure to appeal to the active explorers looking to escape the grid and gain even more intimate access to the great outdoors. This new product not only strengthens Winnebago’s reputation overall as the leader in Class B vans, but in reality extends the use case for a sprinter based platform to further attract new users to the RV lifestyle.

Overall, while there is work to do in each of our segments and especially Motorized, we are incredibly pleased with the consolidated progress we made in fiscal 2017 to transform Winnebago Industries into a larger, more profitable enterprise poised for growth in the future.

With that overview, I will now turn the call over to Bryan Hughes to review our fiscal 2017 fourth quarter and full year results in more detail. Bryan.

Bryan Hughes

Thanks, Mike and good morning everyone. Fourth quarter consolidated revenues were $454.9 million, an increase of 73% year-over-year, driven primarily by the Grand Design acquisition and strong organic growth from the Towable segment.

Gross profit was $73.6 million, an increase of 131% year-over-year, with gross profit margins expanding by 410 basis points. This increase was driven by product mix, including the addition of Grand Design, and also included 60 basis points related to the positive trends in our Towable segment, material usage and associated efficiencies that resulted in a $2.9 million favorable inventory adjustment in the fourth quarter.

Fourth quarter operating income was $43.5 million, up over 130% and net income was $24.9 million, an increase of 90%. Reported earnings per share were $0.79 per diluted share, an increase of 61% over our $0.49 of EPS in the fourth quarter of last year. We recorded amortization expense of $2.1 million in the fourth quarter associated with the Grand Design acquisition.

For fiscal 2017 as a whole, consolidated revenues were $1.547 billion, an increase of 59% from fiscal 2016, also driven largely by the Grand Design acquisition. As a reminder, the acquisition took place last November of 2016 and as such, we will continue to have two months of annualization benefit in our first quarter of 2018.

Operating income for the fiscal year was $125.1 million, up 90% and net income was $71.3 million, an increase of 57%. Full year earnings per share were $2.32 per diluted share, a 38% increase from $1.68 in fiscal 2016. Full year amortization expense was $24.7 million pre-tax.

As illustrated in our consolidated statements of income, there were a few significant items related to the Grand Design acquisition impacting our fourth quarter and full year fiscal 2017. First, additional transaction cost related to the acquisition were minimal for the quarter at $200,000. For the full year transaction costs were $6.6 million or approximately $0.14 per diluted share net of tax.

Second, as I mentioned previously, amortization expenses related to the definite live intangible assets acquired were $2.1 million pre-tax in the fourth quarter or $0.04 per diluted share net of tax. For the full year amortization expense was $24.7 million or $0.53 per diluted share net of tax. We continue to expect ongoing amortization expense will be approximately $2 million pre-tax per quarter through fiscal 2021.

Finally, interest expense related to the debt associated with the acquisition was $5.3 million pre-tax for the quarter or $0.11 per diluted share net of tax. For the full year interest expense was $16.8 million or $0.36 per diluted share net of tax.

We have provided Non-GAAP EBITDA and adjusted EBITDA performance measures in our press release as a comparable measure to clearly illustrate the effect of the items that I just reviewed. The schedules accompanying the press release show a reconciliation between net income and adjusted EBITDA. As these schedules show, consolidated adjusted EBITDA for the quarter was $47.8 million, an increase of 158% year-over-year. For the full year consolidated adjusted EBITDA was $138.9 million, an increase of 123% year-over-year.

Turning to the individual segments, I will first address the Motorized segments. Motorized revenues were $226.2 million for the fourth quarter, down 4% year-over-year. For full fiscal year 2017, Motorized revenues fell 2.7% year-over-year, reflecting growth in Class A gas, as well as Class B, offset by declines in Class A diesel and Class C. The exit from the aluminum extrusion business has a 0.7 percentage point impact to the full year growth rate.

Segment adjusted EBITDA was $12.2 million for the quarter, down 31% year-over-year. Adjusted EBITDA margins decreased by 210 basis points, primarily driven by pricing adjustments and cost associated with transitioning production to our Junction City, Oregon facility. For the full year, segment adjusted EBITDA was $43.9 million, down 23% year-over-year and adjusted EBITDA margins decreased 140 basis points, driven by the same factors as in the quarter.

Switching now to the Towable segment, revenues were $228.7 million for the quarter, up $202.1 million year-over-year, driven by the addition of $193.4 million in revenue from the Grand Design acquisition, as well as continued strong organic growth from Winnebago-branded Towable products, which increased 33% versus last year.

For the full fiscal year, Towable revenues were $685.2 million, up $595.8 million from fiscal 2016 with $559.7 million in revenue from the Grand Design acquisition and 40% growth in Winnebago-branded Towable products.

Segment adjusted EBITDA for the fourth quarter was $35.6 million, up $34.8 million from the prior year and adjusted EBITDA margins increased 1,250 basis points, driven by higher volumes and a favorable product mix including the inclusion of Grand Design products.

As previously mentioned, Towable margins were also impacted by a $2.9 million favorable inventory adjustment, which had a favorable impact to adjusted EBITDA margins of 125 basis points in the quarter. For the full year the segment adjusted EBITDA was $94.9 million up $90 million over the prior year, and adjusted EBITDA margins increased by 840 basis points.

Turning to our balance sheet, as Mike discussed we continued to make very good progress paying down debts, reducing overall debt by $13 million during the quarter. As of the quarter end, the company had outstanding debt of $274.6 million or $284 million of gross debts and debt issuance cost of $9.4 million.

Working capital was $147 million. The debt to equity ratio was 62.2%, the current ratio was 1.9% the quick ratio was 1.0% and net debt to adjusted EBITDA was 1.8% as of quarter end. Cash flow from operations was $29.8 million in the fourth quarter and $97.1 million for the full year, an improvement of 42% and 84% respectively from the prior period in fiscal 2016.

The overall effective income tax rate for the fourth quarter was 35.1% compared to 31.3% for the same period in fiscal 2016. The increase in effective rate is due primarily to higher pre-tax income associated with the acquisition of Grand Design, without a proportionate increase in tax credits and other favorable permanent items that provide a benefit to the effective tax rate.

As Mike mentioned earlier, our Board of Directors recently approved a quarterly cash dividend of $0.10 per share, payable on November 29, 2017 to common share holders of record as of the close of business on November 15, 2017. Our Board also authorized a $70 million share repurchase program. This represents approximately 5% of our market capitalization.

That concludes my review of our quarterly financials. I will now pass the call back to Mike for some final comments.

Michael Happe

Thank you, Bryan. With fiscal year 2017 now behind us and already mid way through our fiscal 2018 first quarter, I would like to share some thoughts about our approach moving forward.

With regards to the overall industry and macro economic trends, we remain cautiously optimistic that the positive RV industry cycle still has further runway to continue through much of our 2018 fiscal year. Industry shipments and retail remain solid and more importantly dealer sentiment and general consumer confidence remains strong.

Economic conditions in North America remain steady and the key metrics we monitor, including such things as fuel prices, interest rates, the wealth effect, household debt, access to financing, field inventory, credit scores, while each has their own individual movement and characteristics, collectively they are showing an environment for positive further RV sales which is promising.

We are encouraged by the statistics from the RV Industry Association showing more new users coming into the RV lifestyle and the widening appeal of the RV lifestyle due in large attempt to manufacturers increasing value within their products, but also using features to expand the use case appeal to new users to the lifestyle. The new Winnebago Class B 4X4 Revel is a clear example of that. And so we continue to invest in both projects that will enable growth, but also initiatives that should allow us to be more efficient and profitable as our company scales.

At this time we now have three separate capacity expansion project underway at Winnebago Industries. Our new Motorized manufacturing and service facility in Junction City, Oregon has been in the process of being stood up throughout our fiscal 2017 year and fiscal 2018 should see a material increase in the number of diesel units being produced at Oregon versus their previous home in Iowa.

As we have previously stated, this transaction allows us to use the Winnebago motorhome labor pool in Iowa to focus on our gas motorhome products. Secondly, as mentioned earlier in this call, progress continues on the capacity expansion projects on the Grand Design RV campus in Middlebury, Indiana. This growth project is critical in both, allowing the Grand Design team, the capabilities it needs to work its impressive order backlog down to something more reasonable in terms of serving the dealer, but this expansion also enables Grand Designs ambitions to continue expanding its products catalog in the future. The initial benefits of this expansion should begin to be visible sometime in the middle of our 2018 fiscal year and build over fiscal years 2019 and 2020.

And lastly, as indicated in our press release, our Board of Directors has approved a $12.5 million capacity expansion plan for our Winnebago branded Towable business. With growing backlogs and our intentions to further strengthen that product lineup, this investment will enable us to meet expected increased demand and sustain momentum in the market around this business. This project is not only going to increase our footprint, but will also allow is to create further efficiently in material flow processes and internal vertical integration activities like lamination.

The Winnebago Towable Capital project will be in process through the rest of fiscal year ’18, with financial benefits being realized during the fiscal 2019 year. From a percentage growth standpoint, we have the two fastest growing Towables business in the industry right now and our commitment to those teams is to smartly provide the manufacturing capacity they need to fulfill their demand potential.

In several weeks, on November 2, in New York City, our executive leadership team, and our Chairman of the Board will be hosting an investor day where we will cover many topics, including an in-depth review of our emerging capital allocation, strategy and priorities and some thoughts as to how we view the next three years unfolding here at Winnebago Industries through fiscal year 2020.

We will remain consistent today and at that Investor Relations event in stating the five strategic enterprise priorities that have been in place throughout the transformation of our company. Number one, we will build by high performance culture, creating our own unique blend of leadership talent an environment of accountability around key goals and a spirit of giving that is displayed both through internal business collaboration but also through our external philanthropic efforts.

Number two, we will strengthen and expand the core RV business with the strongest brand ever in the RV industry in Winnebago and the fastest growing brand ever in the RV industry and Grand Design, we will partner with key channel dealers to energize our Motorized business and invest strongly in our Towable segment, driving positive total share increases for Winnebago Industries in the RV space.

Number three, we will elevate excellence in operations. Our three main areas of focus are safety for our employees, unsurpassed product quality for our end customers and productivity improvements benefiting our shareholders. Investments in talent, systems, lean discipline and an overall attitude that anything can be further improved will be key to our journey here.

Number four, we will leverage innovation and digital engagement, creating an advantage for our brands in terms of the connected customer experience. We want to know our customers intimately before, during and after the sale, ultimately creating zealotry for our brands resulting in repeated and referral revenue.

And lastly, number five, we will look to expand the new profitable markets both with and outside of the RV industry when and if the time is right. Our focus today is very clearly on optimizing the assets that we have that are directed towards the North American RV industry. We are also making excellent progress and driving our debt leverage ratio down to more acceptable levels and we are engaging our Broad of Directors, including just this week on our emerging management thoughts about further new business development opportunities for Winnebago Industries.

In the midst of all of our change, our fiscal 2018 year will also include the celebration of Winnebago Industries 60th anniversary on February 12, 2018. We will appropriately celebrate six decades of tremendous impact that Winnebago has not only had on the RV industry but the landscape of North American outdoor recreation. An infinite amount of memories through road trips, vacations, winner getaways, tailgating, excursions, etcetera, etcetera have been enabled because of the products that are our outstanding Winnebago team has created through the years. We are proud of our legacy and we are proud of our team, but we will build on that legacy in the future.

And finally, on behalf of the executive team and our Board of Directors, we would like to thank the Winnebago Industries employee teams in Iowa, Indiana, Oregon, and Minnesota for their commitment to changing the right direction and their commitment to our dealers and our end customers. None of the results or initiatives reviewed in the call this morning would be possible without the collective force and efforts of our 4,000 plus employees. We are sincerely grateful to them and committed to strengthening the company in which they work for.

And now, we will turn it back to the operator for this morning’s Q&A session.

Question-And-Answer Session

Operator

Thank you [Operator Instructions]. And our first question comes from the line of Craig Kennison of Robert W. Baird. Your line is open.

Craig Kennison

Good morning. Thanks for taking my questions. Mike, the Towable backlog is massive. I wonder if you could just talk about your weekly production capacity, especially in Towables and how that might progress throughout the year as more capacity comes online?

Michael Happe

Good morning Craig and thanks for the question. You know I’ll certainly speak directionally to it. I won’t share specific daily manufacturing numbers. But you know as I mentioned in my comments, I mean certainly it’s a double edged sword. We are extremely excited about the orders that the Grand Design and that the Winnebago Towables teams have essentially created through their good work, and the dealers are excited about those products and obviously have placed those orders.

Our approach obviously working the backlog is coming through probably two or three different methods. One is, we continue to be more efficient and productive in output through existing facilities or resources, and a good example of that would be certainly within the Grand Design business. That team has done a tremendous job of improving their daily and weekly output on the same number of lines organically over the course of their first five years of existence. So we work very hard every day through their efforts to increase daily output and we continue to see that progress.

Obviously the second approach will be the onlining of additional new manufacturing capacity through the building of some new facilities, but also the increasing capabilities of some of our vertical integration activities, such as I mentioned in the call, lamination capacity. And so it’s obviously a twofold approach.

It’s something that we probably stress about everyday here, that we could be doing a better job of serving the dealers, and that there is even more retail that’s potentially there to be captured if we can increase that capacity. But the team is working at it and as quickly as we can get some of these manufacturing facilities and new lines onboard, you will start to see some stair steps and hopefully you know getting that backlog worked down.

So it’s a good problem to have, but it is excessive to the degree that you know we are making more than $20 million now of capital commitments to the Towables businesses and working very hard to get those online as soon as possible.

Craig Kennison

Thank you. And then Bryan, you mentioned a $2.9 million benefit to gross margin including some material usage benefit. Could you just shed a little more light on that and whether it’s a one-time impact or something that would be more sustainable. I guess I’m trying to get a feel for what your go-forward margin outlook looks like?

Bryan Hughes

Yes, of course. So here is how I would talk about it, as we have grown in the Towables business and as we brought capacity on and lines on, we established material usage factors that estimate the consumption of material through the manufacturing processes, right, of course. We did a 100% physical count in the fourth quarter and our Towables business that substantiated the more efficient usage of those materials or in other words lowered the scrap or waste in the process than had been assumed on these new lines.

So, really nice performance by the Towables teams in the production areas to drive that efficiency. It’s a favorable lift for the quarter, but for the full year I view it as the true efficiencies being reflected in the numbers.

Craig Kennison

Okay, thank you.

Michael Happe

Thank you, Craig.

Operator

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

Seth Woolf

Hey, good morning and thanks for taking my question. Mike, I just -- I guess I wanted to get your thoughts. I mean there has been talk in the marketplace about you know rising labor rates, and OEMs kind of having to adjust pricing you know to be compensated for the additional cost that they are getting from the suppliers, maybe keeping a little bit for themselves. So just as you think about the supply dynamics in the industry and then you got FEMA coming and buying some units from the dealers. Is there any reason to think that there would be any pushback on those, these price increases?

Michael Happe

Well, first of all good morning Seth. Thanks for your question. Let me kind of break that down into a couple of pieces if I might. So material cost pressures you know coming either from the commodity market or through the suppliers, certainly we see some of that and I won’t get specific into some of the numbers as to how much and where, but we’ve had some pretty honest and straightforward and difficult conversations with some of our suppliers about some of the material cost increases that they are seeing, and as much as possible we certainly are trying to work those, work the impact of those cost increases down, and we do that through a number of ways.

One, challenging the suppler as to whether they can be more productive; number two, we sometimes invite the suppliers into our facilities and say “hey, let’s try to find efficiencies together;” and then number three, we will combat that with some of our own sort of strategic sourcing initiatives that we’ve been working on for the last couple of years here. So I would say some of the material cost pressures you know have been real. They are in the noise within our sort of gross margin improvement. So we are still making tremendous headway in spite of some of that.

The labor pressure and you see most of that in the Indiana market, where much of the RV talent is centralized. I would tell you we are in a really good position in labor and combating wage pressure for this primary reason. We have two of the fastest growing businesses out in that Indiana market and we are attracting employees who want to work for businesses that have current momentum and the runway that many prospective employee candidates feel that we have. And so in the way that they are compensated, growth is very important and so it helps us to offset the need to you know per se raise any of the labor wages significantly because we are having people come to us, especially around our grand design brand, that want to work.

So in terms of the market Seth, believe me, we would love to be able to earn as much price as we can from our dealers and the end customers. The competition continues to be both rational, but also fierce, and so I think we have to find smart ways to raise average selling price, improve gross margin with any pricing actions in the market. And historically through my career and I think this has been part of Winnebago’s DNA as well, I think one of the best ways to do that is through differentiation and innovation. And when we can introduce something like the Winnebago Revel, which is a one of a kind product right now in the market, we should be able to gain more gross margin on that product that we might otherwise in the more crowed commodity like you know vehicle offering.

So again, we are trying to do the best we can to offset some of the pressures. It's more on the material side and we are trying to do I guess what we can do to smartly find gross margin improvement through pricing and particularly new products in the market.

Seth Woolf

Okay, thank you. I guess just one more real quick one and then I have a question for Bryan. But you emphasized more – you put more emphasis on the Open House this year, because of you know the growing presence of Towables and you had the new motorhome models that you introduced. But does that mean that – can we still expect to see some new model introductions at Louisville this year or have you kind of just put out everything into the Open House.

Michael Happe

Well, I wouldn’t say we put everything into Open House, but I probably won’t tip my hand via this call versus you know anything will introduce or show the rest of the year. I think we will introduce new products when they are right to introduce. There may be a time when we are ready to make an announcement that doesn’t happen around a trade show, because we feel the timing is right, the product is right and we want to get started.

We felt very good about our Open House week across all three of our business units in Elkhart at Open House. The teams did an excellent job showing strong product lines, our dealers were very excited about the new product that they saw from each of the business units, and in term of establishing sort of Winnebago Industries as a third anchor in the industry behind our two biggest competitors, I think we were successful there. So the teams met their order goals and we are now on to executing against those orders for the year, but by no means are we done introducing new products in our businesses. We will continue to unveil those when the time is right.

Seth Woolf

Excellent, and then real quick just Bryan, I know there is a lot of moving parts in OpEx line this year, but as we go forward, I mean it even looks like it’s all kind of elevated from what we’ve seen in the last three or four years. How should we think about you know what that looks like in FY ’18 and beyond and what’s – perhaps what’s the best leverage point with sales growth kind of going forward?

Bryan Hughes

There is as you I think are alluding to Seth, there’s a lot of noise in SG&A, most notably from bringing on the Grand Design P&L and a slightly different makeup for the cost structure. You know most of the increases are obviously related to that. We also have personnel coast, including variable compensations/bonus that are up year-over-year because of the strong performance this year. We had the favorable legal settlement that we called out in our adjusted EBITDA last year, so that’s driving a year-over-year increase.

So there is the new office building that we opened in Minneapolis, building out a team for a growing company and making those types of investments. There is a lot of things going on obviously that are frankly helping to contribute to our success. So we’ll continue to make the prudent investments where we need to and mange expenses aggressively as every good company should do. But there is a lot of things going on there and so that’s how I would answer your question for now.

Seth Woolf

Okay, thanks guys. Great quarter.

Michael Happe

Thank you, Seth.

Operator

Thank you. And our next question is from the line of Scott Stember of CL King. Your line is open.

Scott Stember

Good morning guys.

Michael Happe

Good morning Scott.

Bryan Hughes

Good morning.

Scott Stember

Can you maybe talk about the Open House? You alluded to the fact that the deals were very excited Mike about the intent and some of the newer product. Can you maybe just talk about, granted its only one product, but how much of leverage with the Winnebago brand do you think you can get just from that to get more of your product on certain dealers’ shelves, before you even come out with a Class C model?

Michael Happe

Well, I mean those conversations are certainly ongoing right now. We unveiled the Winnebago Branded Class A Gas Intent at third week of September in Elkhart and dealer reaction to it was positive and we collected a fair number of orders certainly that week against it, but we also come out of that week and for the last three or four weeks have been visiting with dealers in various markets about their intentions around that model and really some of the other new products. So that work is ongoing.

You know this Motorized turnaround per se is, you know it’s very – the words are tough to chooses only because there is a lot of moving pieces and we are not – you know obviously new products are going to be critical to us starting to regain share on Motorized. We have to introduce not only more affordable products, but products that have more innovation and differentiation and stronger value around the line. We have to have better line structure.

So really when we have a conversation with the dealer, it’s not just all about the Class A Gas Intent. We are really rationalizing our dealer strategy to try to find what we feel are the very best dealers in each market across the country that fit not only who we are today, but where we are going in the next several years, and so those conversations are usually much more comprehensive than any particularly new product.

Is the Class A Gas Intent Scott helpful to those conversations, yes. We’ve had several dealers that we haven’t done businesses with for some time and have wanted to reinitiate some contact in part because of that product, but also because of I think some of the things they are seeing at Winnebago that they think over time are going to be positive.

But you know I have been very clear and I think maybe not convincingly so always on these calls, but we are having to take at times one step backwards in Motorized to go two steps forward someday and believe me we are working hard at this thing and we were very excited in Elkhart at Open House to show some of the new products that the team’s been working on. So lots more to come on that and we’ll see how it goes throughout fiscal ’18.

Scott Stember

Got it. You talked about Class C. It sounds like that’s in this logical area for us to look for some models, but what about a little bit further down on the Class C food chain. There are some competitive models out there that go for less than the intent, is that for a gain as well?

Michael Happe

Yeah, I think one of the things Scott, anytime you obviously create business strategy is you have to decide who you are and who you aren’t. You know Winnebago’s reputation is certainly built more around the higher quality, more premium motorhomes and I think what you’re going to see over time from Winnebago motorhomes is we’ll have a much cleaner good, better, best product line structure within each of the four categories. It will make sense to our dealers as to where the different product names fit, so that they can qualify a customer to you know either good, better or best; the step-ups between those series will be more rationalized.

And again, getting out of sort of the cloning business you know over time and we still do a little bit of that, but we’re not doing it with any new products going forward. You know that’s going to help dealers have a little bit more elbow room within the markets to make some more money and to again, not have to compete with sort of like product across the market. So lots of work going on there in all the product lines, but back to your question, it is not our intent to be the opening price point leader in every category. That’s not who we are and while we know there will be some volume there, we’ll have to find other ways to drive market share as opposed to focusing most of our efforts on solely the opening price point.

There are larger, bigger competitors that are probably better suited to that. We want to be more offensive at the entry level price points, but I am not sure we want to be the best in the industry there. We want to be the best in the industry probably again in differentiation, innovation and really serving the dealer and the end customer with a total cost of ownership that is lower and ease of doing business that’s higher.

Scott Stember

Got it. And last question is about margins, just two pronged. Maybe just talk about Oregon. I know that that’s weighed on your business this last year. Is there a way to quantify the level of cost that will start to peel off in 2018 as the ramp up takes place; and then on the other side of it, you know you talked about just you know on the Towable side of the business, you know these new facilities that are coming up. Maybe just talk about start up costs and what we could look for there and that’s it, thank you.

Michael Happe

Well, so let’s start if you don’t mind with the latter part of your question first, the Towables facilities. So during the last call, I think after our Q3 results we announced the Grand Design capacity expansion and mentioned that that was a $10 million plus investment. Much of that work has been ongoing now for several months and as I mentioned on the call, you’ll start to see capacity coming online mid-way through our fiscal ’18 year, but it will be kind of staggered in terms of the way it comes online. So most of the capital investment or expense related to that will happen in our fiscal 2018 year and you’ll start to see the revenue benefits from the Grand Design capacity expansion in the back half of ’18 and into ’19 and ’20.

For the Winnebago Towables Division, it’s a little bit more delayed story. You know similar to the question Craig asked earlier, we’re working everyday to increase our output there within the organic facilities. But really in fiscal 2018, that’s $12.5 million I reference, that will be spent in all of fiscal ’18 and then the revenue impact will really happen early in the fiscal ’19 year, and so it’s going to take us a little while there.

We’ve built our plan for fiscal ’18 around organic productivity increases at Winnebago Towables. So the team is working hard to get there organically, but our ’19 numbers should be reflective of some increased capacity there.

The Oregon stand up has taken longer and been more expensive than we have projected and you know I am frustrated at that; I know our team is frustrated at that, but we won’t rush this. These are you know products that $300,000 to $500,000. They are beautiful products. I think you’re going to see most of the start-up costs really start to fall off here in the next quarter or two and we should start to see really the revenue and hopefully profitability benefits at some point of that happen in the back half of the year, maybe into ’19. So that’s taken far too long versus our own internal projections you know from several years ago, but we’re nearing the end of I think those start up costs.

Scott Stember

And just one follow-up, I thought you mentioned the $10 million for the Towable facilities. Just that this sounds like Grand Design alone. How much of that have you quantified would be expensed versus capital expenditures?

Bryan Hughes

Its capital Scott.

Scott Stember

Okay, got it. Perfect, that’s all I have. Thanks and congrats on a great year and a quarter.

Michael Happe

Thank you, Scott.

Operator

Thank you. Our next question is from the line of Steve O’Hara of Sidoti. Your line is open. Mr. O’Hara, your line is open.

Michael Happe

Let’s move on operator. He must have dropped.

Operator

Okay, the next question comes from the line of Gerrick Johnson of BMO. Your line is open.

Gerrick Johnson

Hey, good morning. I just want to follow-up on Scott’s last question about the CapEx, OpEx split. So the full $22.5 million that’s between Winnebago and Grand Design capacity expansions in Elkhart, that’s Indiana I should say, that’s all capital expenditure?

Michael Happe

Correct, it is and we use a 20 year life on that.

Gerrick Johnson

Okay, and so those start-up costs associated with that, would we assume that OpEx would run a little higher for start-up costs or maybe the costs gets old?

Bryan Hughes

You know there is not a lot of start-up cost you know related to that. Maybe some other expenses that you do, but I would say that there’s not a significant amount of those to be honest. It’s mostly capital and most of the other resources are already in the house.

Gerrick Johnson

Okay, great, great, that makes sense. On gross margin, you know a big increase there, a lot of it Grand Designs coming online. So if Grand Design were in your portfolio last year, what would sort of a like for like gross margin look like? Would you still be up significantly or maybe in order of magnitude what gross margin would look like if you add on Grand Design last year?

Michael Happe

Yeah, we’re not going to get into that disclosure frankly, but there is improvement still going on as you probably would expect from the scale of the business, as well as just of the Towables business, as well as other efficiencies driven by the team performing very well. So we’re not going to quantify that. I can‘t get into that, but there are organic improvements that are occurring.

Gerrick Johnson

Okay, I have two more. One quick one, a little bit more open ended. How should we present your financials in our model going forward? Should we be pulling out the GDRV amortization and transaction costs or not or how would you like that presented?

Michael Happe

For the purposes of your reporting?

Gerrick Johnson

Yeah, yeah you know when we’re putting out our numbers for you guys, your targets to hit on first, second quarter, do you want us to be pulling out the amortization or keeping that in. How would you like us to do that?

Michael Happe

Yeah, as you think we’re showing the adjusted EBITDA which obviously excludes the amortization component and so that’s how or a big reason why we’re using that disclosure. Otherwise we intend to fully include in terms of if we have to disclose operating income, it would be fully burdened with amortization expense.

Gerrick Johnson

Okay, great. And my last one is a little more open ended. What’s up with Class A? That was up pretty significantly. Why was that up so strongly in the quarter?

Bryan Hughes

Well, I mean that’s something we’ve been working on for a while now. You know we had done some work with the Vista line specifically and we had a very strong retail year in fiscal year 2017 on the Vista. I think most of the increase in shipments was there. We were pleased to see that because you know I think the rumors were pretty rampant in the market that we were coming with a more affordable Class A gas product. So to have a, you know really a positive you know shipment period in the fourth quarter on Class A prior to the launch of this entry level Class A Gas Intent, we were pleased with it.

You know as we said in the call, you know we weren’t as pleased with what was – you know the Class C numbers were not very strong and that’s where we have work to do and we’re working on it, but its – you know the Class A gas side, we think we are in a better place than we have been in quite some time, but you’ve got to stay on it because the competition will continue to move on you.

Gerrick Johnson

Alright, great. Thank you very much.

Michael Happe

Thank you, Gerrick.

Operator

Thank you. And the next question is from the line of Mike Swartz of SunTrust. Your line is open.

Mike Swartz

Hey, good morning guys. I just wanted to follow up on Gerrick’s question and you had professed or mention the Class C at the start of that and I think even in your opening remarks you had mentioned how maybe you had fallen a little behind in Class C due to some of the competitive activity in new products, etcetera. Is that something that you’re calling out that you just saw start in the fourth quarter? Is that something that’s been going on throughout the year?

Michael Happe

Well, you know our retail on Class C for the full fiscal 2017 year was actually slightly positive, but that’s not as good as it needs to be because the market has been pretty hot there and so you know again, this RV market and for those of us that are still relatively new to the RV industry, you know things can move very quickly. You know competitors can embrace or introduce new models pretty quickly and dealers will embrace new products and customers will move to those.

And so you know it’s funny, in the Motorized business we have a pretty wide product line up. You know one of the lightest Motorized product line ups in the entire industry belongs to the Winnebago brand and I would say our ability to work across the whole of the line and to try to keep all the balls in the air in a competitive fashion, we’ve not been very good at that over the last three to five years, and I think you’re seeing some hangover benefits – excuse me, impact of that within our business model.

I can tell you very directly that that will change in terms of what we call multi generational product planning. Every product manager, every product team that we have in the Motorized business is responsible for being on top of where the market is going to go. The customer trends through the voice of customer, but really dictating over time the pace of competition and so that’s another example where sort of the legacy Winnebago product development model just was not keeping up with the market and so now we have to race to keep up.

The good news is with the Class A Gas Intent new product development project, we got something to market in literally eight or nine months, which hadn’t been done in a long time here at Winnebago, and so we will really try to replicate that model on sort of white paper you know ground up product development across the rest of our businesses and we’ll certainly extend platforms in common parts where we can as well.

So listen, you know that’s – the downturn is our issue not anybody else’s. We own it and we’ll fix it over time and you guys will hold us accountable to that but our teams will need to bring some stronger product to the market here.

Mike Swartz

And then just last question on I think Mike you talked about just being a little more strategic I guess on distribution within the motorhome business. Could you talk about what that exactly means? Does that mean more dealers, fewer product or fewer dealers and maybe a deeper product portfolio.

Michael Happe

I think what we’re looking for Mike is that we want channel relationships that are largely strategic in a sense that we have a channel partner that is committed to the Winnebago journey we’re on with reenergizing and turning around this Motorized brand and that we can commit to them as well. So in some markets it means less dealers in terms of sort of the number of sort of principals in the market. That may not mean less outlets, but we’re just going to be very selective as to the dealers that we do do business with.

In other markets it might mean that we made some wholesale changes and as I referenced in my call, there are a few other dealers that we’re going to begin doing business with again that haven’t been working with Winnebago for some time. So it’s really a mixture.

We are just trying to emphasize that you know we want to pick the very best dealers that match our business strategy, not just in the Motorized business, but in Winnebago Towables and Grand Design. Each of the three business leaders is empowered to drive the channel strategy that they believe best fits their business model and then where there’s overlap, certainly you know we’ll try to take advantage of that with the dealers excitement around carrying a couple of pieces, but you know that’s why I mentioned some of the neutrality or slight reverse we’ve been in in Motorized is certainly due to us you know stepping back as well and rationalizing our dealer strategy and saying ‘hey, who do we truly want to be doing business with in the future?’ And then you know the transition to get to that point you know sometimes comes with some ups and downs.

Mike Swartz

Fair enough. Thanks for the color.

Michael Happe

Thank you, Mike.

Operator

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

David Whiston

Thanks, good morning. Just two questions, first is on the balance sheet. Your press release state your emphasizing debt pay downs and I guess I was under the impression you did not ultimately want to return to a debt free balance sheet. So can you just talk about how aggressive you want to be on that in fiscal ’18, assuming the economy stays where it is?

Michael Happe

Yes, no your exactly right and you understand us right Dave. We do not aspire to be zero debt on the balance sheet, but we are still working towards what we would do as a more optimal structure. So we’ll share more of that at our investor day meeting, what our range that we’re targeting is. But suffice it to say in 2018 we’ll still be aggressively paying debt down.

David Whiston

Okay, and on the overall consumer environment, the talks your having with your dealers, are customers coming into the dealerships, are they just all cautioned to the wind, things are great or are they thinking well its good, but it’s not really going to get better. Is there any kind of apprehension there or there is really no fear right now?

Bryan Hughes

Well, I’m not sure I’d ever label anything as no fear, but I would tend to say David that its still – we still believe that consumer sentiment around the RV market is healthy and so we continue to see new users come into the RV market. I believe a majority of the shipments this year were from new users into the RV lifestyle and so you know we continue to see people that want to get into the lifestyle, we continue to see customers that want to upgrade within the lifestyle and our dealers continue to place orders under the assumption that that will remain healthy for a little while longer for sure.

So you know dealer turns, you know the field inventory levels and we focus on turns primarily because especially with our Towables businesses growing as quickly as they are, you are just going to naturally see the number of units going up in field inventory, but so long as our turns are healthy in those businesses or within the acceptable range that we monitor, then we feel confident that things are stable.

So again, no canaries in the coal mine collectively. Every now and then you might see a data point that causes you to think a little bit more, but I would say the general sentiment from dealers and consumers is that you know they believe that this is a market that has some legs left in it and that’s one of the reasons why you see us continuing to invest, especially in capacity expansion.

David Whiston

Okay, thank you.

Bryan Hughes

Thank you, David.

Operator

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

Morris Ajzenman

Good morning. Just a follow up on Class C. You clearly highlighted the competitive pressures as it related to a lower price point product. How long do you believe you’ll be before the company can really compete effectively as a way for market share or any other metric you want to pick? Will fiscal ’18 show improvement or will it take longer for that to have traction when we can see better results as related to Class C?

Michael Happe

Well Morris, good morning. Thanks for your question. Again, I won’t get into any specifics in terms of tipping off our competitors, but it took us several years on Class A gas to respond to the entry level momentum that was taking share from us. It will take less time than you know what happened on Class A gas. So all I can tell you is that we are actively engaged in that, but we’re also actively engaged in new products you know and the other parts of that particular Motorized business.

So you know the Class C business also has some presence in the rental markets you know which Winnebago has good share of as well. We think the rental markets are continuing to do well and companies that are in those rental markets continue to expand. So you know it’s a combination of trying to gain back some of that share, but it will be – the answer I’ll give you is that it will be more competitive sooner than we were in sort of trying to fight the Class A pressures. So stay tuned, but we’re definitely working on something.

Morris Ajzenman

Okay, and as far as Class A is concerned, totally showing improvements there. This coming fiscal year will that improvement accelerate in your eyes?

Michael Happe

Well, I can’t tell you what the market will do, but we certainly think with the restructuring of the lineup, with the new Class A Gas Intent, with repositioning the Vista above that and some of the other products, I think it’s fair to say that we have expectations for 2018 that are stronger that how we performed in 2017. So the team is aware of that and we wouldn’t have made the investments in a new product line if they weren’t expected to deliver those types of results. So yes, we hope to sustain some better momentum in Class A going forward and again, we’ll see how we do, but we defiantly have a new product to go to market with.

Morris Ajzenman

Last question; I think following Katrina there was a large order or many orders in FEMA for motorhomes and those sort of RVs. Are you seeing that? Will that be wrapping up in this quarter as an interim event?

Michael Happe

I’ll speak very directly to that; you will not see really any material impact to Winnebago Industries financial results due to any actions from FEMA. You know they have certainly worked with dealers in the market to identify inventory that could be helpful. FEMA though has placed much more emphasis on alternate forms of temporary housing than just RVs during this particular fall late summer and fall process and while they defiantly have been engaging some members of the RV community, Winnebago in most of those storm recovery periods, it’s the Towable side of the business versus the Motorized and is targeted by agencies like FEMA for temporary housing for storm victims.

We have not been a huge player in Towables and still relative to the broader market we are still a pretty small player in Towables. So the impact of any FEMA activities had been minimal in terms of benefiting us. We’ve engaged our employees; certainly they contribute to the Red Cross and other organizations, but really going forward we are not factoring in any significant lift from FEMA to our results. We’ll create better results with things that we control ourselves.

Morris Ajzenman

Thank you.

Michael Happe

Thank you, Morris.

Operator

Thank you, and our next question is from the line of Mike Baudendistel of Stifel. Your line is open.

Mike Baudendistel

Thank you. You gave some good detail on when you think revenue is going to come online from new Grand Design products. Just taking out a few years, do you think the opportunity in Travel Trailers and Grand Design could be as be or bigger than the fifth wheel revenue for Grand Design?

Michael Happe

Well certainly Travel Trailers are a bigger part of the Towables market than fifth wheels, primarily because they are more affordable and the price points are lower. So you know it’s really probably a question of dollars versus share.

You know we have high confidence in the Grand Design team that’s showing the Winnebago family. They’ve continued to execute on an extremely high level since the acquisition and our commitment to them Mike is that we give them the resources they need to kind of fulfill the business plan that they have the road map that they have down on paper. And so whatever Grand Design decides to focus on and we certainly you know talk with from a corporate level on that, we think they have an opportunity to create you know share in the market and share probably will improve over time.

And part of that just goes back to the overall business model that they operate the Grand Design brand under. We feel very confident that that business model is scalable and we’ve been pretty open and honest. You know we didn’t buy Grand Design just to be a fifth wheel brand. We bought Grand Design because we through it was a great RV brand and so we believe they have a great further.

Mike Baudendistel

Great. That makes sense and just was about to ask you, over what period of time do you expect to repurchase this shares and the authorization?

Michael Happe

Yeah, we haven’t specified. Okay, so it’s a long term undefined term Mike and that’s kind of approach for now.

Mike Baudendistel

Great. Thanks very much. That’s all I had.

Michael Happe

Thank you.

Bryan Hughes

Thank you.

Operator

Thank you. And at this time I’m showing no further questions. I like to turn the call back over to Mr. Ashis Bhattacharya for closing remarks.

Ashis Bhattacharya

Thanks everyone for joining our call today. I hope your autumn is off to a great start and we look forward to seeing many of you at your Investor Day in New York City in a couple of weeks on the Second of November. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everybody have a great day.

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