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Winnebago Industries Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Winnebago Industries Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker for today, Steve Stuber, Director of Financial Planning, Analysis and Investor Relations. You may begin.
Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss our second quarter earnings results. I'm 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 second quarter 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.
Before I turn the call over, I'd like to mention that we are conducting the call remotely and while we hope the call is executed seamlessly as usual, we may ask all listening to indulge us should we run into any technical difficulty, challenges in connectivity or other distractions that could be encountered as we proceed.
With that, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?
Thank you, Steve, and good morning to everyone on today's call. We especially realize during these challenging times that your attention is being appropriately diverted in many directions, and we sincerely appreciate your interest in Winnebago Industries and spending that valuable time with us this morning.
Before we get into details of the quarter, and what I am sure will be an engaging question-and-answer session about the future, I want to recognize the hard work, flexibility, and steadfast commitment of our approximately 5,500 employees to our vision of making Winnebago Industries a premier outdoor lifestyle company a reality.
All employees within our Winnebago, Grand Design, Newmar, and Chris-Craft businesses as well as in our enterprise functional teams have been critical to the progress of these brands and our overall company. Every individual has contributed in a meaningful way to the results you are about to hear, and every one of these individuals is rightly concerned about what the future will hold for our company, themselves, and their families.
We recognize that uncertainty is real, and as a leadership team we will do everything we can to provide them transparency to that future and fairness as we navigate forward. But most importantly, we will continue to hold their health and safety a top priority while they work within our organization. Thanks again to the entire Winnebago Industries team.
I would like to start our discussion this morning by providing a brief overview of what Winnebago Industries has done and is doing relative to the coronavirus pandemic. I will then provide an overview of our second quarter results and our perspective on the unpredictable balance of fiscal year 2020. Following that, I will turn the call over to our Chief Financial Officer, Bryan Hughes, who will provide more detail on Q2 financials and the current strength of our balance sheet. I will then return to offer some closing comments before concluding the call with a Q&A session.
Now turning to our response to the COVID-19 pandemic. We, at Winnebago Industries, much like every other small or big company and industry around the world have been keenly focused on this rapidly evolving situation. Almost two months ago, as the virus was impacting the Asia-Pacific region, we began to seriously monitor a possible impact on our supply chain network. That initial risk mitigation activity eventually led to a comprehensive crisis management process being set up in our company many weeks ago.
There is a command center team, which includes me and at least five major working groups reporting to it, led by senior leaders from around the company. These work streams have been and are focused on employee health and wellness, supply chain delivery, operational stability, market demand, and financial strength. This defined process has allowed a cross-functional team to work across the enterprise and ensure that information flows positively and that best practices are shared quickly.
We have regular electronic communication forms accessible to broader groups of employees around this crisis management process. We have also been providing our Board of Directors regular updates, including special calls outside of formal board meetings. We believe this crisis management process has put us in the best possible position to have minimized significant disruption throughout our second fiscal quarter, but also now be as prepared as possible for the difficult journey ahead in Q3 and Q4.
I am extremely proud of the task force teams engaged on the front lines of this Black Swan risk item. They have made a real difference. Unfortunately, as of this past Monday, March 23, we made the tough, but necessary decision to temporarily suspend most production activities across all campuses. This will be a phased process throughout this week and we expect full suspension of manufacturing to begin formally next week, which we project to last through April 12. This includes our Winnebago, Grand Design, Newmar, and Chris-Craft operations.
This decision was rooted in a combination of drivers: first, the health of our employees and their families; and second, the significant and quick change in demand for our products from dealers and end customers over the past several weeks. We felt both reasons together necessitated the pause in production so that we can continue to assess appropriate next steps.
However, our company will remain open and perform as allowed by any state-mandated stay-at-home or shelter-in-place directives, essential activities for our dealers and end customers, including remote retail support for the channel along with technical care, warranty administration, and parts fulfillment.
We will also continue to support the employees affected by this temporary production suspension by providing base pay and benefits for the next two weeks. Our leadership teams are also in close contact with our dealers to monitor and assess how the coronavirus pandemic continues to impact their business.
Most RV and marine dealers are open at a minimum for essential activities, such as RV or boat service repair, but some continue to engage in consumers and drive whatever retail business is available in their area.
Finally, we will continue to be disciplined in our financial management of the company as we closely follow the market to stay ahead of any significant disruptions. As the impact of COVID-19 continues to evolve, we are confident in the strength of our business and our balance sheet, and remain committed to keeping our team safe as we support our dealer partners and consumers.
Prior to this evolving situation, the trends we have seen indicate that the RV industry conditions have been showing signs of improvement. We are realizing the benefits of having a diverse portfolio and relentless focus on improving operational efficiency across the organization. While the near term may be uncertain for everyone going forward, we believe Winnebago Industries is in a great position to extend its recent track record of outperforming whatever the broader RV market is over the longer term.
Now, turning to the results of Q2. Overall, we are pleased with our strong results during the first half of fiscal 2020. Our team has worked hard to build on our momentum from the first quarter and we have made tremendous progress towards our goal of enhancing our position as the leader in outdoor lifestyle solutions.
Company revenues were up approximately 45% for the second quarter of fiscal 2020. Excluding a full quarter of contribution from Newmar, consolidated revenues grew approximately 13% over the prior year well ahead of the broader industry performance.
Consistent with the results we posted last quarter, consolidated revenues grew organically at a healthy pace in the second quarter, such that our North American RV market share is now 13.2% on a trailing three-month basis through January, including an increase of 1.8 organic percentage points over the same period last year. We are pleased with our ability to outperform the RV market and expect we will continue to do so in the coming quarters.
Our ability to deliver a strong consistent topline results continues to result in strong operating cash flow. Year-to-date operating cash flow was $119.2 million, up 129.4% allowing us to invest in our businesses, care for our employees, and maintain adequate liquidity and what is now a very challenging environment with the impact from the coronavirus.
Now let's turn to the segments in more detail. In the Towable segment, revenues for the quarter were up 13.1% over the prior year period, primarily driven by overall strength of the Grand Design brand and popularity of several recently redesigned flagship products, including the Reflection, Imagine and Transcend models. The robust consumer demand we are seeing for Grand Design products has allowed us to again outpace the industry in terms of both Towable unit shipments and retail growth.
Adjusted EBITDA margins decreased by 110 basis points, largely reflecting startup costs for increased capacity at both the Grand Design and Winnebago Towables campuses, and a shift in product mix towards travel trailers. Towable backlog for the quarter increased 22.3%, in units versus the prior year reflecting more retail demand for travel trailers.
Our multi-branded Towables portfolio has proven to be resilient and capable of gaining share regardless of market conditions. While the global pandemic creates uncertainty regarding near-term industry and consumer dynamics, we are confident in our ability to grow the business and gain share over the long-term.
Importantly, the growth we are seeing this year is impressive as it has been balanced by Winnebago Towables new product launches, and especially the ongoing momentum of the core Grand Design RV model lineup, underscoring the strong combined appeal of both brands with consumers. We have been busy introducing Grand Design's Reflection and Imagine model refreshes along with Winnebago Towables new products, the Hike Travel Trailer and the Voyage Fifth Wheel.
The excitement around all of those products was evident during this year's retail show season. While some events across the country have been canceled recently, the bulk of our retail show season is largely behind us, which is a positive considering the recent onset of the coronavirus and the implications on large gatherings such as these shows.
Collectively, all of our businesses around Winnebago Industries have attended over 150 shows in 2020, and the overwhelmingly positive reception of our products by dealers and consumers gives us further confidence in our long-term outlook. Our consolidated retail show performance for the entire company was up multiple double digits this spring.
Turning now to the Motorhome segment. We have made reestablishing a premium leadership position for this business a top priority. We have refreshed our lineup of high-quality motorized RVs with innovative enhancements and designs that are resonating well with consumers. And the addition of Newmar's ultra-premium brand to our portfolio is now allowing us to more effectively compete in the high-end Motorhome market.
The acquisition of Newmar has galvanized our Motorhome segment by adding a highly respected premium brand. The integration process is well underway and progressing as planned. As part of our approach to the integration, we are working to ensure the Newmar team retains committed autonomy to operate the business while still being able to benefit from the support and synergies that comes with being a part of the broader Winnebago Industries organization.
Second quarter Motorhome segment revenues were up 97.7% over the prior year period, driven by a full quarter of contribution from Newmar and strong Winnebago-branded Class B sales. Excluding Newmar, organic revenue growth in the segment was 13.6% over last year.
Adjusted EBITDA margins increased 190 basis points to 4.6% in the quarter, largely due to a strong quarter from the Winnebago-branded business and a full quarter contribution from Newmar. Our Motorhome backlog increased 51.8% in units from the prior year due to the addition of Newmar and the continued strength in Winnebago-branded Class B retail demand.
We've made material strides towards improving the financial strength of our motorized business and before the coronavirus outbreak, we are eager to build on this momentum throughout fiscal year 2020, including leveraging best practices and experience from our talented colleagues at Newmar.
Finally, I'll touch on our Marine business. Second quarter results for Chris-Craft were solid and in line with our expectations as one of the four iconic brands in our portfolio, the Chris-Craft business remains an important platform for Winnebago Industries. They continue to expand the vitality of their product line, especially with the continued extended launch of the GT series. They are making great progress on strengthening and the quality and relationships of their dealer network as well.
Chris-Craft represents the type of premium manufacturer we aspire to be and we continue to learn through the Chris-Craft team about the marine market and the opportunities it holds in the future for our company.
One note specific to Chris-Craft. In previous calls, we had outlined our intent to initiate a capacity expansion project within this business that would provide them the room necessary to continue to build out their exciting multigenerational product development plan. We have made the decision at this time to pause this capacity expansion plan due to obvious reasons concerning the uncertainty of the demand within our end markets. We will continue to monitor the health of the marine market and the confidence of our channel partners within Chris-Craft when deciding in the future to reignite this project.
With that overview, I will now turn the call over to our Chief Financial Officer, Bryan Hughes, to review our fiscal 2020 second quarter financials in more detail. Bryan?
Thanks Mike, and good morning, everyone. Second quarter consolidated revenues were $626.8 million, an increase of 44.9% compared to $432.7 million for the fiscal 2019 period, driven by a full quarter of contribution from Newmar and strong organic growth from both our Towable and Motorhome segments.
As Mike mentioned earlier, excluding Newmar, we saw topline organic growth of 12.9% versus the same period last year. Gross profit was $79.8 million, an increase of 20.1% compared to $66.4 million for the fiscal 2019 period. Gross profit margin declined 270 basis points in the quarter, primarily driven by a change in mix due to the inclusion of a full quarter of Newmar, the impact of inventory step up purchase accounting related to the Newmar acquisition, and startup costs associated with new production facilities at both our Grand Design RV and Winnebago-branded campuses.
Operating income was $29.6 million for the second quarter compared to $28.9 million in the second quarter of 2019. Operating income included Newmar-related impacts for the inventory step up of $3.6 million and a full quarter of amortization of $5.8 million. Net income was $17.3 million, a decrease of 20% versus the same period last year. Reported earnings per diluted share were $0.51 per share, a decrease of 25% compared to reported earnings per diluted share of $0.68 in the same period last year.
As a reminder, we are also reporting diluted earnings per share on an adjusted basis. As we felt this would be helpful and aid and transparently conveying our performance following the Newmar transaction. As such and consistent with fiscal 2020 Q1, we have provided an adjusted EPS performance measure in our press release.
Adjusted earnings per share were $0.67 in the second quarter, an increase of 9.8% versus adjusted diluted earnings per share of $0.61 in the prior period. In the current period, the adjustments exclude inventory step up and the non-cash portion of interest expense totaling $5.4 million or $0.16 per share after-tax.
Adjusted EPS for the prior year second quarter results adjust out the R&D tax credit, which we disclosed last year. Consolidated adjusted EBITDA was $45.4 million for the quarter, compared to $34.5 million last year for an increase of 31.7%.
Now turning to the individual segments. Starting with the Towable segment. Revenues for the second quarter were $283.5 million, up 13.1% from fiscal 2019. As the broader RV market continued to become healthier during Q2, we are extremely pleased with the performance of Grand Design RV and its ability to aggressively grow the topline by consistently gaining share.
On a trailing three months basis through January, Grand Design RVs retail share of the Towable segment now stands at 10%, up 2.6 percentage points versus the same period a year ago.
Segment adjusted EBITDA for the second quarter was $34.7 million, up 3.3% from the prior year. Adjusted EBITDA margins of 12.3% decreased 110 basis points, driven by startup costs at the Grand Design RV and Winnebago-branded facilities and headwinds in the form of product mix that was represented more heavily by travel trailers.
Turning now to the Motorhome segment. Our Motorhome revenues were $325.5 million for the quarter, up 97.7% versus last year. Excluding Newmar, revenues grew 13.6% during the second quarter, primarily due to growth and market share gains in our Class B line-up, including the Revel, Travato and both brands.
Segment adjusted EBITDA was $14.9 million for the second quarter, up 242.9% year-over-year driven by the addition of a full quarter of Newmar operating results and solid improvements and the profitability of the legacy Winnebago Motorhome business. Adjusted EBITDA margin increased by about 200 basis points, primarily driven by strong mix and fewer allowances in the Winnebago-branded business and the mix benefit of Newmar.
Turning to our balance sheet. As of the end of the second quarter, the company had outstanding debt of $464.8 million. This is net of convertible note discount of $80.8 million and debt issuance costs of $11.6 million. Working capital was $313.5 million.
Our current net debt to adjusted EBITDA ratio was 1.9x. Cash flow from operations was $119.2 million for the six months of fiscal 2020, an increase of $67.2 million over the same period in fiscal 2019, driven by favorable changes in working capital and good operating performance as well as contributions from the Newmar business.
Lastly, but very important considering the environment we are currently in, cash on hand at the end of the second quarter was $122.9 million providing ample liquidity for the uncertain future we will all face in the coming weeks and months. The effective income tax rate for the second quarter was 18.8% compared to 12.8% for the same period in fiscal 2019.
The fiscal 2020 second quarter rate is higher versus last year due to one-time research and development credits claimed last year. The reduced tax rate in the current period is driven by true-ups to prior year estimates. We expect our annual effective tax rate to be approximately 22% under the current tax code and before consideration of any discrete tax items.
On March 17, 2020, our Board of Directors approved a quarterly cash dividend of $0.11 per share payable on April 29, 2020 to common stockholders of record at the close of the business on April 15, 2020. Also note that this quarter marked the first time that the full 2 million of shares issued as part of the Newmar transaction were outstanding and the dilutive impact to earnings per share compared to the same period last year was approximately $0.04.
Before I turn the call back over to Mike, I want to emphasize that in light of the coronavirus pandemic, we have worked diligently to model several scenarios for the economic impacts of the coronavirus and the resulting impact to our financial performance, all of which will serve our go-forward action planning to ensure we maintain a healthy level of liquidity.
We start from a place of strength and that our cash at the end of the second quarter as mentioned was approximately $123 million and that balance has grown nicely from that point during the first 3.5 weeks of March. Also, recall that we have access to a $193 million ABL credit facility, that remains at this point in time completely untapped.
We believe our cash position and our ABL provide a robust level of liquidity to allow us to meet our commitments over the duration of the reasonable shutdown period. We are working across Winnebago Industries and with our various stakeholders to mitigate risk, develop contingency plans, reduce costs, and above all keep our employees safe and our long-term viability secure.
That concludes my review of our quarterly financials. And with that, I will now turn the call back to Mike to provide some closing comments. Mike?
Thanks Bryan. I would like to conclude our comments this morning with our views on several topics as it relates to our future going forward. When managing a consumer cyclical company like Winnebago Industries, the crystal ball is always a bit more dynamic than in other industries perhaps. We will do our best now to advise you as to how we are thinking about our operations and preparation for what appears to be a variety of scenarios that could play out in the marketplace.
We have appropriately referenced our status as a suspension of production, not a shutdown of the company. We are and will continue to monitor the status of the health crisis carefully and the accompanied financial challenges in the market very carefully every day, every hour, if not more frequently.
First, Winnebago Industries enters this crisis in a solid position across strategic, cultural and financial dimensions. Strategically, we have a sharp focus on what our business priorities are. We have assembled a stable of significant brands that all have momentum in various to broad parts of each of their businesses. We are strengthening our credibility with dealers, suppliers, and end consumers and our market share gains and financial results are proof of that.
We are far from perfect in any of our businesses, but we feel very confident about the strength of our growing portfolio in terms of competitive presence in the market. We see no reason to believe that this will change when we do have the ability to resume normal operations at some time in the future.
Culturally, we have now collected and developed a talented group of leadership across the enterprise. Combined with our dedicated team within the functions and the whole of our operations, our talent and culture is in as good a shape as it has ever been. We have strong experienced leaders from the RV and Marine industries, who have intimate knowledge of the levers to pull in both good and bad times. We have complemented those assets with sharp talent from outside industries who have also succeeded in their careers during times of normalcy and adversity.
The leadership team is highly engaged and collaborative at the present moment. To protect our competitive position in the market, make smart financial and operating decisions about how to ride out a period of crisis, but share knowledge and practices amongst each other so the whole of the team is stronger together than separate.
Financially, while we have leverage on the books, we have also structured the leverage in a considered manner to ride out material periods of disruption. We have been very fortunate to see our cash balance climb significantly during this fiscal year and combined with our available line of credit, provide access to liquidity during a variety of graduated scenarios one could plan for.
We will remain diligent, humble and paranoid as we work with all of our partners to manage this financial position and model many possible scenarios that could put additional stress on our balance sheet. We are working very closely with our Board of Directors and strategic external partners on this dimension of financial strength and will ensure alignment with them on the most important of decisions.
I strongly believe that the appeal of the great outdoors will outlast whatever period of disruption lies ahead of us, whether that is weeks or months. We fully understand there could be lasting and real consequences of the economic disruption happening now in North America and around the world, and we will need to manage through those whatever they maybe. However, we feel that the North American consumer will stay safely engaged with outdoor recreation activities in both the short-term and the long-term.
In fact, some might make the argument that outdoor businesses will receive a material future boost as end customers reevaluate how they want to spend their discretionary time in the future when social distancing practice may become more of a norm than they are today.
Camping, hiking, biking, boating, fishing, you name it. All of those activities and more are tremendous for families and friends to safely create extraordinary experiences and memories in the outdoors in the future. They will return in spades, and consumers will invest in the future in the products they need for those activities.
During this time of pause at Winnebago Industries, we will continue to provide essential services to our dealers and end customers, and we will also work diligently to plan for and prepare for many different scenarios in front of us. From a hopeful return to normal operations in weeks to a possible extended shutdown throughout the spring and parts of the summer, which is not what we are formally projecting at this time. However, there is extensive financial modeling happening today, we will be prepared regardless, hope for the best, plan for the worst.
Our teams are also presently doing the work needed to prepare to drive further variable costs from our business in a professional manner. Many of those costs and expenses are being actively managed today. This includes a comprehensive list of direct and indirect spending within each business and function, including corporate SG&A, corporate expenses, hourly and salary personnel, executive compensation, allocation of capital decisions, and many, many more areas.
We have traditionally not provided specific guidance within our earnings call process and certainly won't start today given the unpredictability of the future. The next 30 days will be critical for us to better understand the magnitude of our remaining opportunity for revenue and profits in fiscal year 2020, and clarity will be provided through a variety of external actions, including legislative decisions, fiscal policy action, government social interaction directives, medical developments and so much more. Our view for these forward-looking thoughts have changed from fiscally and quarterly to monthly and weekly if not daily. These are truly unprecedented times.
Lastly, we are engaged in numerous discussions and how we can help our communities and healthcare providers across the country during this difficult time. I am proud of the recent action our Winnebago Industries foundation took to provide immediate COVID-19 directed financial donations to several organizations in the various communities we have a presence in. In addition, we are also in exploratory conversations with multiple organizations on the possibility of how our current products can be used or modified as helpful solutions from a mobile medical standpoint during this crisis.
We have a deep history especially in our specialty vehicles business of providing mobile medical products to various entities throughout the years. We are also pursuing the opportunity of using our extensive industrial sewing capabilities across many facilities to manufacture Level 1 procedural medical mask for use by local medical organizations in the states and communities we have our presence in.
This is a fast evolving topic here at the company and one that we cannot confirm final direction on, given further details to be worked out in the days ahead, but we are indeed actively exploring that possibility. We do not anticipate either the mobile medical vehicle opportunities or the exploration of making medical mask to be financially material currently.
Thank you, again, for your time this morning. The speed of change on so many external variables is quite a challenge to all of us. We are generally focused on three items in terms of navigating forward; urgency, preparation, and agility. I am proud of our teams for their performance in the second quarter of fiscal year 2020 and how they have leaned into the adversity that is now upon us.
We will now turn the call back over to the operator and begin the Q&A session. Thank you.
[Operator Instructions] Our first question comes from the line of Craig Kennison with Baird. Your line is open.
Good morning, and thank you. Bryan, question for you. You mentioned some scenarios that you're planning for. If you look at some of the more dire scenarios, how does cash flow and liquidity look? And then as a follow-up, with that $193 million ABL available, have you considered simply drawing on that just in case?
Yes. Thanks, Craig. We don't give forward guidance, as you know. As I commented, we are looking at many scenarios and the things that we're focusing on are ultimately our cash position as well as the other key metrics that we have, profitability, EBITDA, et cetera. I won't comment further about the extent of the duration of the scenarios. But as you can imagine or appreciate, we're looking at all cases and looking at various levers that we can pull. Mike suggested many of those levers that we're evaluating in his comments.
It comes back to our position of where we're at today, which we feel very good about, Craig. And if you look back to how we've structured our debt, it was with some conservatism certainly in mind, the recent Newmar deal that we did where we executed the unsecured convertible bond is one example. We feel very good about landing that deal with a leverage ratio right around 2, 2.1. So, we've done things in the past that I think positioned us well sitting here today.
As it relates to the ABL, we are in conversations with our banking partners. We do not feel at this stage that it'd be advantageous for us to draw on that. We're certainly mindful that other companies are taking action against their credit facilities. We've evaluated our position and feel that it's prudent to not incur that additional cost of that financing at this time. But as it's a very fluid situation, we'll continue to evaluate as time progresses here and as the impacts of the coronavirus are seen over that time period.
Thanks for that Bryan. And then Mike, you mentioned the health of your dealers, which is critical and very important to you. Could you talk about what any credit partners might be doing to support dealers during what could be a tough period for them from a cash flow standpoint?
Thank you, Craig. Can you clarify that again? What types of partners did you reference?
I'm wondering whether any of your partners in the RV Industry, the credit partners in particular, any banks, whether they're providing any sort of financial support to your dealer network such that the dealers can survive this outbreak?
Yes. Thank you for the clarification there. And Bryan Hughes, I would invite you to complement my answer as needed here. Craig, we are in constant conversations with especially those financial institutions that provide floorplan mechanisms to our dealers, and as you can imagine, several of these entities have deep experience from other cyclical, especially down periods within the RV and/or Marine business in the past.
And I can't speak for them, but I can tell you that we are encouraged that there is appropriate and thorough conversations being had between the inventory finance companies and the dealers about the state of their businesses. They are monitoring the health of our collective dealers very actively, and there are conversations within some of those institutions about possible moves they could make that would provide further financial support for a period of time to the dealers.
I won't get into any specifics there out of respect to some of those organizations, but we are encouraged that there is at least that thought process and those discussions happening. We continue to check in regularly with the health of our dealers from our perspective and not just in terms of retail velocities, resale velocity or traffic that they're seeing, but also if any of them have concerns for their health as well. And as you can imagine, this crisis has come upon the dealers in a relatively quick timeframe in the last two weeks, and they are all continuing to, on a daily basis, evaluate their own financial status.
Bryan, would you add anything else to my response?
Yes, just a couple of comments, Mike. I think a lot of the audience on the call here understands and appreciates that the position of the dealers and as it relates to their inventory levels has come into balance very nicely, and so we entered this Black Swan Event here with the coronavirus with a much healthier dealer network as it relates to the inventory balances.
Specific to the question about have the banking partners on floorplan financing come forward with some help here, the answer to that is yes. Recently, in fact, in the last 24 hours there have been announcements to the dealer network of suspension of curtailment payments as well as interest payments for two months, and in some cases even longer. So those banking partners have already publicly stepped forward to help to address the situation that the dealer network will be in here. And I suspect that, that likewise will be a fluid situation that those partners will continue to evaluate over time.
Thanks, and best wishes.
Thank you. Our next question comes from the line of Scott Stember with C.L. King. Your line is open.
Good morning. Hope everybody is doing well and thanks for taking my questions as well.
Good morning, Scott.
Hey. Good morning, Scott.
Yes. On the flip side of Craig’s question about different scenarios that you're planning for. On the other side of it, assuming we're looking at three to four weeks, you talked about at this point not wanting to tap into the ABL. When you talk about that, are you talking about over the next three to four weeks? And also maybe just again, I know you guys don’t want to give any guidance at this point, but under that scenario planning, assuming that we are in a less draconian scenario, can you just talk about generally speaking about profitability or lack thereof over that period of time?
Yes, I'll speak first to the ABL. Scott, as fluid as the situation is right now, we'll continuously evaluate where we see things playing out and how that might impact our decisions around our credit facilities. So we remain very open ended there. As I mentioned earlier in response to Craig’s question, our current position is that it would not be prudent for us to incur that extra cost associated with increasing our levels of debt. And so we feel that that's the right decision for now, but we're going to keep our options open there, certainly, and we’ll evaluate from day-to-day as things may change. So I guess, that's ideal.
As it relates to our profitability, we will look, of course, as you would expect this to in a situation where we have made the decision to suspend our operations and effectively over that that two, three week period, we will as a result have limited wholesales. We will continue to have some. The dealers will remain open and we will continue as it's safe to do so to ship out of our finished goods to supply those dealers.
But obviously, our revenue stream would be dramatically impacted during that suspension of operations. And we evaluate during that period what our cash flow looks like, cash outflow or burn rate as you would expect us to look at. And we don't give a forward-looking view of that, but we're certainly evaluating that. And then as Mike alluded to, looking at all the appropriate ways to likewise minimize that cash burn and reduce costs. So that's what I would say to address that question, Scott.
Got it. Fair enough. Thank you. And then on the inventory front, I know, it looks like you guys were in excellent shape, even with the acquisition of Newmar at the end of the quarter. Maybe just talk about in a real-time basis, what you're looking at in inventories? And when this thing does clear up, where do you expect to be, in what position? And so, I guess, assuming a base case scenario.
Yes. Scott, I'll speak to that. This is Mike. On my computer screen in front of me this morning, I have a business-by-business view of such things as retail orders, backlog. We are tracking those on a daily basis. We can slice and dice that appropriately. We feel fortunate that even as we started this calendar year that we felt our inventory was in good position and not just in terms of total quantity, but also in terms of the mix of aging.
And while we have spots like any other RV or Marine business in terms of dealer inventory not being as current as we'd like it to always be. Our teams have continued throughout the beginning of this calendar year to continue to work on that as the spring retail ramps up. So as we entered this crisis, we feel that the dealer inventory in most of our business is appropriate. There are some pockets of aged inventory that we will continue to monitor and work on.
And if we were to have suspension of shipments for an extended period of time, our hope is that whatever retail is happening out in the market continues to improve both the quantity, but also the quality of the dealer inventory foundation, so that when we come back, we are in a good position going forward in terms of what the dealers have. And as you know, that will depend as part as well as to what future retail demand will look like at that time.
So again, we monitor all of those things on a daily basis and we continue to ship some products this week as our operations are winding down. As Bryan indicated in his comments, that's been helpful in terms of further cash flow generation. But part of our decision to suspend operations temporarily was that we did not want to be putting more product into the market that would put a burden on our dealers financially or essentially begin to just sit there with low retail appetite for a period of time.
So it was not just a decision hopefully made out of the best interest of our business, but also because we just did not think it was the right decision for us to keep shipping product to the dealers as well at this time. We are hopeful that that will resume in the near future. And again, we feel our dealer inventory is in good shape, but that will be pending whatever retail demand is available to us at that time.
Got it. And just last question, Mike, maybe you could just talk about this. As you discussed earlier about your belief that the industry could potentially benefit, I guess, if open-air and outdoor types of recreation pick back up and I guess we saw some of this after 9/11. But at least heading into the last week, when we've heard about certain states are shutting down Campgrounds. Could you talk about what you were hearing just, I guess, since the COVID virus hit, what you are hearing at the Campground related to increased velocity of bookings, just to give us a sense of what you've heard?
Yes. Absolutely, Scott. And again, we're not directly in the Campground business, but we have good sources there. There was a nice article by Toby O'Rourke, the CEO of KOA here recently, where she offered some extensive comments in terms of her views on what's happening. Again, this really started to impact arguably the North American outdoor areas, literally, probably within the last three weeks from a materiality standpoint.
I would argue that the weekend of March, probably, March 7 and 8 was when we started to hear from our dealers that the traffic was potentially starting to slow a little bit and we also began to hear from some of the camping organizations during the week of March 9 that Monday, that they were beginning to see some light cancellations within their businesses. And as you all know this has quickly unfolded over the last two weeks, so that the retail impact to the dealers, but also the access of consumers currently to private or public campgrounds started to change dramatically for different reasons.
As an example, when the country's borders began to tighten up, you may have seen Canadians, as an example, making a move to position themselves closer to the Canadian border, if not, cross it back home and you did see some of the stay-at-home or shelter-in-place directives begin to have an impact on the private campgrounds. The public campgrounds have been intermittently accessible depending on either the federal or state level. It has been challenging to manage those, but our industry associations are doing the best they can, and not only campgrounds, but also marinas across the country as well.
My comments about returning to strength in the future, we genuinely feel that the emotional and real appeal of the outdoors for end consumers remains as strong as ever and in some ways, maybe strengthened because of the time people will spent appropriately and safely doing social distancing and quarantine practices.
I do couch my comments in some way that we recognized there will be economic implications to the crisis we're going through as well. That will also have an effect on the appetite of consumers to buy products like ours, RVs and boats, to spend time in that outdoor. So we believe we'll see pluses and minuses, but we do believe the RV and boating industries will return to strength at the appropriate time in the future.
Got it. Thanks so much.
Thank you. Our next question comes from the line of Steve O'Hara with Sidoti. Your line is open.
Hello. Sorry about that. Can you hear me? Yes, I guess, first, just curious, I mean your comments, Mike, I guess we're talking about the potential for kind of 3Q and 4Q to be challenging obviously and obviously nobody knows the duration of this, and I mean, I guess the outline that you have currently obviously things could change pretty quickly for good or bad. But could you just talk about, if things kind of get back under way, if you do resume production on the current plan and demand kind of comes back relatively quickly, can you just talk about how quickly you get back up to speed in terms of producing units and if a competitor decides to move faster in terms of them restarting operations, does that change your plan at all where it kind of force your hand?
Yes. Steve, good morning, thanks for the comments and your questions. Let me start with the latter. We are currently discussing, as you can imagine, the conditions under which we will be comfortable with resuming operations in the future. Because we anticipated over this last weekend that there would be significant stay-at-home, shelter-in-place directives and viewed the reality of the pandemic outbreak as being multi-week in nature, we felt it was best to announce the suspension we did in terms of being suspended within manufacturing through Sunday, April 12, which I believe is Easter Sunday.
While we are hopeful that we can resume operations on Monday, April 13, we also recognize that decision is one that will be fluid here for a little while further and that decision will be made out of primarily two factors. One, our ability to keep our employees healthy and safe in the manufacturing environments, depending on the protocol suggested by organizations like CDC and what we're allowed to do potentially within each of the states or counties that we have a presence in. We will also balance that with what we would hope to see, which is a stabilization of market conditions around retail, but also dealer sentiment as well.
As I mentioned in my last answer, the anxiety rose very quickly among all of us, but especially the dealer community between the weekends of March 7 and 8 through this last weekend. To the degree that not only did they see traffic in retail begin to slowdown in some cases, but we also saw a materially meaningful change in their appetite to place new orders or take possession of the orders that they already had in their books.
We have seen few cancellations, but we have had many discussions with dealers about moving out the ordering of products until the time in the market has stabilized. I will be very candid on this call that competitive reaction to resuming operations will not be one of our top two priorities. We will certainly be mindful of it and keep an eye on that. But we will do what we believe is in the best interest of our own business.
Now resuming operations has some complexity involved in that as well. As you're aware, in both the RV and marine spaces, we've seen now multiple OEMs make a similar decision and we've seen operations impacted by some of the states social distancing directives, and thus we will need to monitor the health of our supplier base, especially in being able to resume operations. We are doing what we think is prudent in terms of not consuming or taking any excess inventory on to our campuses. Many of our suppliers have had to alter or suspend some of their own operations as well.
So when we make the decision to resume manufacturing, in part, that will also – the timing of that will also be influenced by our ability to work with our supply base to get the supply chain back to a minimally operational level and I'm sure Winnebago Industries will be working through that just as our peer companies in the outdoor lifestyle space or competitors.
So we don't control our fate in resuming operations completely. We'll need to work carefully with our supply base and make sure our employees feel comfortable and make sure the dealers are ready to resume the acceptance of product from us on a regular basis.
Okay. And then just maybe going back to Craig's question on the, I guess, repurchase agreements or whatever you call them, in terms of the floorplan financing arrangements. Can you just remind me, during the financial crisis, maybe, what the total impact was and then maybe during 9/11 if you have it on hand? I don't know if you know that off hand. But is there any way to think about what the issue was last or how big the issue was last time and maybe kind of get a sense for what it could be this time, I guess?
And then, I mean, I assume that your inventories, I think, were kind of bloated going into the financial crisis, but I think you've kind of had a good period of drawdown here. But, what's a good way to think about what it was last time? Thank you.
Yes, I can take that one, Mike. Yes, Steve, if you look back at the two recessionary periods that you just referenced. We did a very good job. And obviously, those are both prior to the current management of Mike and I. But the company did a very good job of managing with the dealers that inventory on their lots. And then with the floorplan finance folks as well to stay in front of that.
And if you look at the financial impact, it was, what I would characterize as, de minimis even in the throes of that financial crisis of 2007, 2008 and 2009. So we'll continue to do the same. We manage it dealer-by-dealer, even unit-by-unit to make sure that we're helping to move those units that need to be moved and do what we can to partner with our dealers through that time. But to answer your question, very specifically, the financial impact or the impact to our financial statements was, as I would characterize it, de minimis.
Okay. Thank you very much. Appreciate the time.
Thank you. Our next question comes from the line of Gerrick Johnson with BMO Capital Markets. Your line is open. Mr. Johnson, check to see if you're on mute.
Hi, thank you. I had to unmute there, sorry. So Mike, you still think you can outperform the rest of the industry when we emerge from what we're going through. Are you anticipating any changes in the structure of demand? You sell some better or best product, I would say, would you be thinking that there might be a demand shift toward more value-oriented products or what kind of demand changes would you expect coming out of this?
Yes. Good morning, Gerrick. Thanks for the question. That's a fair one certainly, and my answer this morning is probably, I'm not sure yet. Again, this is unfolding quickly. We'll need to monitor access to retail financing very carefully, certainly coming out of the crisis and where a potential demand hit will mostly impact. While this is an economic situation, it is borne out of more of a natural disaster of sorts in terms of the pandemic and subsequently there may be less structural financial issues for some of our customers than there were in past significant RV downturns. And I can only hypothesize on that.
So we will have to see. I'm probably not ready to offer an educated guess yet as to which parts of our line would be more stable than others. Certainly, there is a natural inclination to think that products that have a lower price point would be less affected, but I guess I'm not ready to finalize a thought on that yet.
Yes, makes sense, thank you.
If I may, Mike, let me add on to that. I think one thing that you will see, Gerrick, is dealers in times like this, they make choices on their lots as well, and typically what they will do is they will favor the strongest brands, the best brands in the industry and allocate space on their lots for those best brands. I think our momentum that we have in on the retail side, the quality of brands that we have in Grand Design and Winnebago and Newmar and Chris-Craft will serve us really well as it relates to the decisions by the dealers of where to allocate lot space.
So well, as Mike said, the retail customer, it's a bit of a, to be determined. Past practice would suggest that the dealers will certainly be allocating toward or in favor of our brands at times like this. So another thing to be thinking about there. That certainly has an influence then on the retail side of things as well.
Okay, great. And lastly, one question on, if dealers go out of business, go bankrupt, is there a responsibility to buyback sort of net of inventory and what could that liability be?
Yes. We monitor that dealer-by-dealer, Gerrick. And so – in inventory or item-by-item, really. And so we would aggressively manage that through this time period, there is a disclosure within our Q that you can reference. I think you'll be seeing that in the next 24 hours here. You can reference that as what the total exposure is. Like I said, to Steve's question earlier though, we'll manage that aggressively as we do and have done in prior recessionary periods or events, if you will, and expect that we'll be able to manage through that. But for reference, though, I just wanted to make sure you realize that that was one of our disclosures in the Q.
Okay. I'll check it out. Thank you.
Thank you. Our next question comes from the line of Mike Swartz with SunTrust. Your line is open.
Hey. Good morning, everyone. Just quick question on – as it pertains to the quarter, maybe this is for Bryan. In terms of some of the start-up or inefficiencies you saw coming out of the Towable facilities in the quarter. I guess they were a little more than most would have anticipated. Could you talk about the impact that that had to gross margin in the quarter? And then I know, looking forward, there is a lot of moving pieces. I guess, how long would you anticipate those inefficiencies lasting for, if we were just in a normalized production environment over the next quarter or two?
Yes. Thanks Mike. Yes. So if you look at our total margins – I'm going to step back a little bit and first talk to the total margin impact of 270 basis points that we've disclosed. Think of it this way, about two-thirds of that margin erosion versus last year is really driven by the Newmar acquisition, be it in the mix impact that it has to the overall portfolio as well as the purchase accounting or more specifically the inventory step-up impact.
So two-thirds of that 270 basis points, you should think about simplistically as driven by that. The other one-third is kind of the balance of the impacts we've referenced, product mix, certainly in the quarter that had an impact and then, as you point out, the impact of the start-up costs. Our experience historically – this is not a new thing for us.
Grand Design, as you know, has been standing up production facilities over the last three years to try to keep pace with the demand, a very healthy demand that we've had. It is a pretty quick stand up. Now obviously that will be impacted by the most recent environment that we're operating in, and so we will fight that, but your question was really hitting a normal run rate scenario, what happens and I would say that it – we overcome those inefficiencies very quickly.
The Grand Design team knows how to do this. The Winnebago and Towables business also stood up a new facility to accommodate some of their new product lines and they likewise would expect to overcome those start-up inefficiencies in pretty short order, within the next quarter, I would say, is our past experience there, again assuming that we return to some normalcy here. Hopefully that helps address your questions.
Yes, that was very helpful. I appreciate that. And then I don't know who wants to take this Bryan or Mike, but just in terms of maybe your flexibility around capital in your cost structure, and I think you've mentioned that you're deferring some of the investment around the Chris-Craft facility relative to that $35 million to $40 million in CapEx that you've called out for 2020. I guess how much of that is more discretionary and maybe you could pull back a little if things were to get worse?
Yes, I think, I'll take that one, Mike, first and then you can add on if you find helpful. We spent, I think, just under $20 million in capital. I don't have the – that's my recollection of the cash flow statement. I think that we'll be able to pull back pretty dramatically. We've got the spending that we have completed for the start up of the facility on Grand Design's campus. So that spending has pretty much come to a conclusion.
We have, as Mike alluded to, pushed the pause button on the Chris-Craft expansion until that end market becomes a little clearer. As we get through this epidemic or pandemic situation. And I would suspect that we, as a company, will clampdown on CapEx as I think everybody will be doing, to manage our cash flow very aggressively. So you can expect to see that year-to-date run rate of $20 million over six months come down dramatically here until we understand the full extent of the impact here economically of the coronavirus.
Okay, great. That's helpful. And then one last question just for Mike. I know you've put out there in terms of market share gains for the next 12 months, you've said previously you expect to exceed the market by 10 to 15 points. I know there's a lot of uncertainty going forward, but maybe give us a sense of how that was trending prior to some of the softness in retail demand that we've seen in recent weeks.
Yes. Thank you, Mike. I would say the drivers for the trends have been consistent beginning with Grand Design Towables, Winnebago-branded Class B Motorhomes and now the retail momentum of Newmar that is a part of our portfolio. Those are the three real drivers to our retail momentum and certainly outperforming the industry on a macro basis. You could make the argument that in the last three months, we've seen an acceleration of the over-performance at retail and that is where we're most focused on.
We are less worried about over-performance from a shipment standpoint because we need to be very diligent with our field inventory levels. We are most interested in maintaining that retail momentum. So whereas, we had seen that retail over-performance being in the 10 to 15 point range consistently for really most of the last probably year and a half. I would argue that that actually has increased in the last three months, probably closer to the 15% to 20% range in terms of over-performance.
Now we understand that we have very legitimate competitors in the RV space and they will do everything in their power to come at us and be more competitive in certain categories. And so our teams are very focused on continuing to keep their businesses fresh and their dealer relationships strong and all the other ways we take care of the end consumer and the dealer.
So we are pleased and we are hopeful that when whatever new normal emerges here in the future that that retail over-performance will continue to be present. I just can't tell you, Mike, at what level that will be, given potentially some of the changes in the market.
Understood. Thanks a lot guys.
Thank you. Our next question comes from the line of Brett Andress with KeyBanc Capital Markets. Your line is open.
Hey, good morning. So, Mike, a question on FEMA and disaster relief. Have you or any of your dealers been contacted by FEMA as it relates to supplying RV's and I guess what has the scope of those conversations been, if any?
Yes. Good morning, Brett. We are seeing multiple organizations reach out primarily to dealers, in some cases, manufacturers to inquire about the possibility of our products to be used for a variety of purposes, less temporary housing, but oftentimes the questions are around mobile medical uses such as potentially mobile testing or a place for healthcare professionals to rest or shower or what have you during this challenging time.
FEMA has been, I would say, much less aggressive in terms of the scale of their involvement than they were in some of the natural disasters such as Hurricane Katrina in New Orleans many years ago. So I would state that most of the inquiries are going to the dealers.
Now that being said, our industry association has been in contact with the federal government and specifically the coronavirus task force with a direct commitment and offer as to what we can do as an industry and I would imagine, most of the companies in the industry are also engaged with a variety of state officials.
I know I've had several conversations with state leaders in the last week where I've personally offered our assistance on a local level as to how our people or products could play a role. So I would say FEMA active, but less so, than maybe your traditional natural disaster, which creates a huge need for temporary housing and these conversations are happening more on a local and state level and for a broader variety of use cases.
Got it. Very, very helpful. And then just one more quick one. I guess how much or what percentage of your dealer base are actually selling units at this point, given everything that's going on?
Yes, we do not have a precise number for that. As you're aware, there are a list of states that have put out directives in terms of stay-at-home or shelter-in-place. We've been working with our industry association, and each of those states and with other helpful entities like NAM, the National Association of Manufacturers, to try to ensure that our RV and marine dealers have the ability to provide at a minimum essential services through this period, such as service repair.
But in most cases, we are advocating that if there are consumers that would still like to purchase a product and use that product in a safe and reasonable manner that those entities be encouraged to operate. I think I use the term most in my comments and I'm hopeful that it's a high majority of the dealers that remain open for business in some form. It just may vary between full retail engagement to limited service offerings. But we are not – with our hundreds of dealers across our enterprise in our different businesses, I do not have an exact number on that right at this moment.
Understood. Thank you.
Thank you. Our next question comes from the line of Mark Jordan with Jefferies. Your line is open.
Good morning and thank you for taking my question here. This one's for you, Mike. So in conversations with some of your suppliers, have there been any concerns raised regarding the potential for supply chain disruption?
Yes. Good morning and thanks for the question. As I indicated in my prepared comments, we have been working with the team inside our company for several months now to monitor and manage the probable risk of disruption in the supply chain network. And we were very fortunate in that, probably up until early March, we were pleasantly surprised and pleased that – and this is due to the good works of our teams as well, make no bones about that, but we were pleased that we have had minimal supply chain disruptions really through the early part of March. That environment has changed materially in the last several weeks.
And there are numerous reasons for that. I'll give you a couple of examples. Certainly, one is the state's stay-at-home or shelter-in-place directives which have limited some of the operations of key suppliers and/or at least caused confusion about how those suppliers should run their businesses in this time. We've seen impact in Europe with some of our suppliers over in Europe that we get either chassis and/or other components from, because they either have plants in affected countries or their own sub-supply network that comes from some affected countries including those such as Italy and Germany.
And then another example would be the announcement of the Big 3 automakers here a week or so ago to suspend their own operations. That had a little bit of a ripple effect. And then lastly on the marine side, you have seen the engine manufacturers particularly Brunswick with Mercury and some others have to make some changes to their engine production and availability as well.
So we have seen a dramatic and material increase of the, I guess, the cases we're managing and in some cases we have alternatives in the event we are to resume operations in the near future. In other cases, it will be more challenging to replace that particular supplier component with a reasonable alternative. So we are very concerned/focused on that as we continue to go forward. So it is now upon us and I would imagine most durable good companies are dealing with that across their supply chains as well.
Okay, great. Thank you very much for taking my question and stay safe.
Thank you. Our next question comes from the line of Brandon Rolle with Northcoast Research. Your line is open.
Good morning. I just had two questions. First, could you back out the Newmar inventory out of ending Motorhome inventory just for the comparability year-over-year? And then, two, could you also comment on your total liability to buyback inventory from dealers if they were to go under and how that compares versus last quarter? Thank you.
Yes. Brandon on the Newmar inventory, I don't have that in front of me. I don't think that we're going to continue to disclose within our Motorhome segment, some of those breakout specifically to Newmar. That's just not something we're going to do for competitive reasons. So I'm going to take a pass on that one. As it relates to the total liability, that is certainly within our 10-Q. It has been disclosed historically and so you can pull that from the 10-Q.
The total liability, as you can appreciate, that we have disclosed there is for every units out in the channel and so it's a big number, make no mistake about it, as I've stated in response to some of the questions earlier on that repurchase topic. We have, even in the very significant events of 2001 and more recently the financial crisis of 2007 to 2008, has managed through with our dealers, those situations very well, and such that the financial impact of that repurchase obligation has been minimal, what I characterize as de minimis.
So again, I reference our 10-Q on that, you'll see the disclosure there and we can certainly follow-up with you offline, if you have any other questions or need us to direct you to the specific place where you can find it.
Okay. Thanks.
Brandon, this is Mike. I may just complement Bryan’s answer as well in this way. Like most Americans, we are monitoring the movement through or – and on Capitol Hill of the legislative action this week which may provide small and medium businesses, access to the liquidity or assistance that they would need to do whatever they can to keep their businesses vibrant and alive going forward, in addition to the health of their employees. And so we will monitor that, some of the work that's being done currently is probably less applicable to Winnebago Industries.
There will certainly be some elements of the bill that's passed here Phase III that could be relevant to our own company. But I am most interested in that bill in terms of the support it could offer small and medium-sized businesses which would include many of our dealers and/or suppliers, so that they can get the assistance they need during this time of uncertainty to make the right decisions to go forward. So that would be the other thing I would offer as we are pleased to see progress on that this morning and are hopeful that, that continues now to the house for further approval later in the week.
Okay, great. Thank you.
Thank you. Our next question comes from the line of David Whiston with Morningstar. Your line is open.
Thanks, good morning. I wanted to go back to that supply chain question in particular and get a bit more specific on chassis, because I believe both Ford and Daimler supply you guys. So my question is, if you guys reopen well before they do, do you know if you have at least a few weeks of chassis already in stock to weather that storm?
David, good morning. This is Mike. Yes, in the specific case of both of those suppliers, we do have an amount of chassis that are on our properties and/or available to us in the supply chain to allow us to restart operations. So we did not wind down or are not winding down operations this week with a – covered on most supplies for our businesses.
Remember that it is not unusual in the RV industry for manufacturers to take one or two weeks down around certain holidays and/or in the event of some seasonality and variation in retail or shipment demand. What is unique about this situation is obviously relevant to the question you asked, those decisions by OEMs generally aren't ramped up in supply chain challenges like the ones that we continue to navigate through.
But yes, we do have chassis for both our motorized business and also the chassis frames for our Towable businesses that would allow us to do a restart of certain models and certain brands of products. But as you would expect, there would be a time in the future where that supply chain flow of new inbound chassis would need to get going again.
Thanks, that's helpful. And then – this is probably for whoever wants to take it, but on the dividend, the annual payout is about $14.8 million. Given your cash position to me, it looks like the dividend is just pretty safe. But I think the number one question I would get from clients over the next month or two is going to be, is that dividend safe? Is there any assurances you can give to your investors that it is safe right now at least?
Yes, Mike, I'll comment on that first and then you can follow-up. As you saw in our press release, we moved forward by declaring the regular dividend $0.11 per share, when our Board met on March 17 and that's payable later here in April. It's such a fluid situation really, David, that we'll continue to analyze that from a capital allocation standpoint and react accordingly based on how things are playing out in the marketplace and based on what we believe to be the duration of the shutdown period or the suspension of assembly operations and all the things that we've talked about on this call, obviously the supply chain impacts, demand impacts. First and foremost is the safety of our employees and the impact that, that has.
So it's a fluid situation. We'll continue to evaluate all cash requirements, evaluating the things that we are fully obligated to, such as principal paydowns on our Term Loan B, which are 3.75 per quarter, the interest payments, obviously the cash required from interest payments. And then we'll look at dividends in light of all those factors. And so, as I think all shareholders would expect us to be doing. So no commitments at this stage as to what we're going to do in the future. We'll just continue to evaluate that cash outflow given the environment that we find ourselves in.
Okay. That's helpful. And I know the backlog looked pretty good in the press release. But since it's all started in early March, have you had a lot of mass cancellations from dealers?
Yes, David, this is Mike. I will take that. As I referenced before, I literally have the screen up on my computer right now that shows orders that are coming in from dealers by business and the backlog. And so we saw enough meaningful movement in retail traffic, actual retail and dealer sentiment around orders that obviously led us to make in part the decision on the production suspension.
But what's mostly happened is that dealers are not canceling orders at the present time. They are refraining from putting many new orders, as many new orders into the system as we have been normally seeing. And they are communicating to us that they would, at times, like to push out some of the deliveries of the orders into the future. And those conversations are happening certainly by business.
So our backlog today has not dramatically changed, as probably since the Q2 numbers, I'd have to go compare it. I would tell you the first two weeks of March, our backlog continue to grow at a very similar pace as to what we referenced through the end of quarter two in the release today. And so it's really just been within the last week that we've started to see the backlog comp, year-over-year, moderate a bit as dealers have pressed pause as well.
So again I think dealers are like us. With our brands and businesses, they are riding this out for a few weeks and suspending most major decisions tied to their own capital or cash investments. And once we see how the next two or three weeks goes, we'll have a much clearer picture of how our dealers will behave and then subsequently how we will change any of our behaviors in the future.
Okay, thanks. And if I may, just one more question for Bryan. This is on Newmar. In the beginning of the press release, you guys called it a 270 bp on gross margin, partly due to – including Newmar's inventory or including Newmar and just given the – you talked about how it's so accretive to EBITDA margin. So I was just surprised that would be a gross margin headwind and I believe this is excluding the inventory purchasing adjustment. So can you just explain why the gross margin would be hurt within Newmar?
Yes. David, as we stated, when we did the deal Newmar, we knew would be dilutive to the overall portfolio. So for Winnebago and for others in the industry, frankly, Towables business has a stronger EBITDA margin than does the Motorhome business. And so we knew going into this, that we would have a mix impact to profitability to the overall portfolio by bringing Newmar on.
However, as we also talked about at that time of the deal, it would be accretive to the Motorhome segment specifically and beneficial in a number of ways to our legacy Motorhome business, including just from an overall profitability perspective. And so that's really what we're speaking to there, there is a mix impact from that. The 270 basis points that we disclosed at gross margin from a year-over-year perspective was also impacted by that inventory step-up.
So when I combine those two things, the mix impact from adding Newmar into the portfolio, overall, as well as the inventory step-up, that is what I'm trying to explain as two-thirds of the impact on that 270 basis points overall. Hopefully that's helpful.
Yes. Thank you. I appreciate it.
Thank you. I'm showing no further questions at this time. I would now turn the call back to Steve for closing remarks.
Thank you, operator, and thank you, again, everyone for joining our call today. As Mike mentioned earlier on in his comment, we really appreciate you spending your valuable time with us today during these challenging times. We hope that you, your colleagues and your families stay healthy.
Ladies and gentlemen, this concludes today's conference. Thank you for your participating. You may now disconnect. Everyone, have a wonderful day.