Winnebago Industries, Inc. — Fiscal 2022 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended May 28, 2022, compared with May 29, 2021. Winnebago manufactures recreational vehicles and marine products, selling primarily through independent dealers in North America and internationally. The August 31, 2021 acquisition of Barletta Boat Company created the Marine reportable segment.
Key Financial Metrics
| Metric | Q3 FY2022 | Q3 FY2021 | 9M FY2022 | 9M FY2021 |
|---|---|---|---|---|
| Net revenues | $1.458 billion | $960.7 million | $3.779 billion | $2.594 billion |
| Gross profit | $273.0 million | $169.6 million | $719.0 million | $463.2 million |
| Gross margin | 18.7% | 17.7% | 19.0% | 17.9% |
| Operating income | $176.7 million | $102.4 million | $459.9 million | $287.4 million |
| Operating margin | 12.1% | 10.7% | 12.2% | 11.1% |
| Net income | $117.2 million | $71.3 million | $308.0 million | $197.8 million |
| Diluted EPS | $3.57 | $2.05 | $9.18 | $5.83 |
| Adjusted EBITDA | $191.7 million | $109.8 million | $509.7 million | $307.0 million |
Q3 revenue increased 51.8%, gross profit increased 60.9%, operating income increased 72.5%, net income increased 64.4%, and diluted EPS increased 74.1%. Nine-month revenue increased 45.7%, while net income and diluted EPS increased 55.7% and 57.5%, respectively.
Segment Performance
- Towable: Q3 revenue increased 45.0% to $805.6 million and Adjusted EBITDA increased 47.0% to $117.8 million. Unit deliveries increased 5.8%, while average selling price increased 37.5%.
- Motorhome: Q3 revenue increased 34.0% to $516.3 million and Adjusted EBITDA increased 71.9% to $64.4 million. Unit deliveries increased 17.4% and average selling price increased 15.0%.
- Marine: Q3 revenue increased to $126.5 million from $17.2 million and Adjusted EBITDA increased to $19.8 million from $1.6 million, primarily reflecting the Barletta acquisition.
Cash Flow, Liquidity, Debt, and Balance Sheet
- Nine-month operating cash flow was $245.2 million, compared with $148.0 million in the prior-year period.
- Investing cash flow was negative $291.3 million, including $228.2 million for the Barletta acquisition and $63.2 million of capital expenditures.
- Financing cash flow was negative $150.4 million, including $134.2 million of share repurchases and $18.1 million of dividends.
- Cash and cash equivalents declined to $238.1 million from $434.6 million at August 28, 2021. Working capital was $582.7 million versus $651.6 million at fiscal year-end.
- Net long-term debt was $541.5 million, consisting of $300.0 million of 6.25% Senior Secured Notes due 2028 and $300.0 million of 1.5% Convertible Notes due 2025, net of discounts and issuance costs.
- The $192.5 million ABL facility was undrawn at May 28, 2022, leaving $192.5 million of stated availability. Management believes operating cash flow, cash on hand, and available borrowing capacity are sufficient for expected liquidity needs.
- Inventory increased to $486.1 million from $341.5 million, and receivables increased to $373.6 million from $253.8 million, reflecting revenue growth and working-capital investment.
Material Changes and Unusual Items
- Barletta was acquired for total consideration of approximately $286.3 million, including $240.1 million in cash, $22.0 million of discounted common-stock consideration, and contingent consideration.
- The Barletta earnout liability increased to $35.1 million at May 28, 2022. The company recorded a $24.7 million fair-value adjustment during the nine-month period, including $11.8 million in Q3, contributing to non-operating losses.
- Q3 amortization increased by 123.3% to $8.0 million, primarily due to acquisition-related intangible assets.
- Gross margin benefited from price increases, operating leverage, and favorable mix, partially offset by higher material and component costs.
- The company repurchased 2.143 million shares for $129.6 million under its repurchase programs during the first nine months and had $80.0 million remaining under the authorization at quarter-end.
- The company approved a quarterly dividend of $0.18 per share payable June 29, 2022.
Outlook, Commentary, and Risks
Management reported continued strong underlying demand for RV and marine products but noted that retail sales were softening from record prior-year levels. Towable dealer inventories were returning toward normalized levels, while Motorhome and Marine inventories remained below desired levels, potentially supporting future wholesale shipments.
- Supply-chain disruptions, shipping delays, component shortages, and material and fuel-cost inflation constrained production, particularly in Motorhome and Marine.
- Inflation, rising interest rates, lower consumer sentiment, economic uncertainty, and global political developments may reduce demand for discretionary RV and marine products.
- Dealer financing availability, cyclicality and seasonality, inventory management, warranty exposure, product liability, cyber risks, acquisition integration, and impairment of goodwill remain material risks.
- Total contingent dealer repurchase obligations increased to approximately $1.721 billion from $727.7 million at fiscal year-end; the related loss reserve was $1.4 million.
- Management did not provide quantitative full-year revenue or earnings guidance in the filing. It stated that cash resources and available credit are expected to cover operating requirements.
- The company expects to adopt ASU 2020-06 in fiscal 2023 and anticipates that it will increase reported net long-term debt, reduce total equity, and change diluted EPS.
Investor Verification Priorities
- Verify the sustainability of price-driven revenue growth and gross-margin improvement as material, labor, and freight costs evolve.
- Assess whether RV and marine demand, dealer inventories, backlogs, and financing conditions are normalizing or deteriorating.
- Review Barletta integration results, earnout assumptions, contingent consideration payments, and acquisition-related amortization.
- Monitor cash conversion, receivables and inventory growth, capital expenditures, and the impact of share repurchases on liquidity.
- Evaluate refinancing and potential dilution or cash-settlement exposure related to the $300.0 million Convertible Notes due 2025.
- Assess the significance of the $1.721 billion dealer repurchase exposure and whether the $1.4 million reserve remains adequate.