Winnebago Industries Inc

NYSE:WGO

Earnings Call Analysis

Winnebago Q2: Resilient Profits, Innovation Drive

Winnebago Industries reported second quarter net revenues of $703.6 million, despite softer performance across Towable RV, Motorized RV, and marine businesses. Adjusted EBITDA margin retained at 7.1% with a $59 million revenue decline, yielding $0.93 adjusted earnings per share. While performing in line with expectations, there's anticipated industry softness ahead, primarily in Motorhome RV and marine segments. However, the company is positioned for growth, market share capture, and increased profitability and free cash flow, underpinned by new mid-cycle financial targets. RV shipments showed an 11% uptick, signaling industry recovery, despite a 36.5% drop the previous year. Market share dipped slightly to 11.4%, but Motorhome RV classes improved recently. Innovations like Winnebago Connect and partnerships for electric vehicle development underscore the company's focus on sustainable growth and technological leadership.

Winnebago's Fiscal 2024 Second Quarter in Review

Winnebago Industries showcased a resilient performance during their 2024 fiscal second quarter, aligning with their expectations and evidencing profitability despite prevailing economic headwinds. They expected a softened industry in the following quarter, particularly in Motorhome RV and marine segments. However, looking past immediate market conditions, Winnebago is set on a trajectory to grow business, seize market share, and substantially heighten profitability and free cash flows, evident through new mid-cycle financial targets.

Financial Highlights

Financially, Winnebago posted net revenues of $703.6 million, experiencing a predictable decline both sequentially and year-over-year across its Towable RV, Motorized RV, and marine sectors. Despite a $59 million reduction in revenue, the company maintained a steady consolidated adjusted EBITDA margin of 7.1% and recorded adjusted earnings per diluted share of $0.93.

Industry Shipment and Inventory Trends

The company's second quarter witnessed a positive shift in RV industry inventories, with Towable RV shipments displaying an impressive 21% year-over-year increase. Though Motorhome shipments declined, the overall industry demonstrates a shift towards a balanced retail to wholesale replenishment. RV shipments ended lower in 2023 but are projected to recover to about 350,000 units for 2024, suggesting a market correction underway.

Market Share and Segment Performance

Winnebago observed a slight dip in overall RV market share to 11.4%, yet reported gains in specific Motorhome categories such as Class A and Class C rigs. In marine segments, despite general softness, their Barletta pontoon brand continued its ascent in market share, now at 7.9%.

Product Innovation and Technological Advancements

Innovation remains Winnebago's edge, focusing on customer-oriented design and technologies at reasonable costs. This is embodied in their offerings like Lithionics and the cutting-edge Winnebago Connect platform, which are poised to stimulate profitable growth. At the Florida RV Super Show, Winnebago introduced innovative RV models, including the latest EKKO and Revel motorhomes, featuring the new Winnebago Connect system.

Driving Sustainable Growth

Winnebago is capitalizing on the affordability trend, exemplified by Grand Design's new Influence fifth wheel that delivers premium features economically. Venturing further into sustainability, Winnebago's alliance with XOS highlights a commitment to ecological responsibility, leading towards the development of an all-electric chassis for diverse commercial applications.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Second Quarter Fiscal 2024 Winnebago Industries Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the call over to Ray Posadas, Vice President of Investor Relations and Market Intelligence. You may begin.

[Raymond Posadas, executive]

Good morning, everyone, and thank you for joining us to discuss our fiscal 2024 second quarter earnings results. 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. Please note that beginning this quarter, we will be using an earnings slide deck that follows along with our prepared remarks. You may access the deck on the Investor Relations section of our website under quarterly results.

Turning to Slide 2. Let me 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 we encourage you to read.

In addition, on today's call, management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures are available in our earnings press release.

Please turn to Slide 3. Joining me on today's call are Michael Happe, the President and Chief Executive Officer of Winnebago Industries; and Bryan Hughes, our Senior Vice President and Chief Financial Officer. Mike will begin with an overview of our performance during the quarter. Bryan will discuss our financial results and the primary drivers. Mike will share our future mid-cycle organic growth targets and underlying assumptions, then management will be happy to take your questions.

Now please turn to Slide 4 as I turn the call over to Mike.

[Michael Happe, executive]

Thank you, Ray. Good morning, everyone, and thank you for joining us to discuss our second quarter fiscal 2024 financial results. I want to start by thanking the teams across our business.

Winnebago, Grand Design RV, Newmar, Chris-Craft, Barletta and Lithionics. I am incredibly proud of your dedication and commitment to executing on our growth strategy and delivering exceptional outdoor experiences for our RV and marine customers every day.

Before diving deeper into our results, I would like to emphasize the 3 main points that we want you to take away from our call today. First, we performed in line with our expectations during the second quarter of fiscal 2024 and demonstrated resilient profitability. Second, we anticipate industry softness in fiscal Q3, particularly on the Motorhome RV and marine side amid continued dealer caution. And third, as we move beyond the near-term market dynamics, we remain confident in our ability to grow our business, capture market share and substantially increase our profitability and free cash flow. This optimism is reflected in our new future mid-cycle financial targets.

Now let me expand on our fiscal Q2 results. The December through February period is typically a seasonally lighter retail quarter ahead of what historically has been a sequentially stronger spring selling season. As anticipated, dealers continue to closely manage inventory levels in Q2 in the face of a higher interest rate environment and seasonal demand trends.

Despite the macroeconomic challenges, we continue to demonstrate resilient profitability and an unwavering commitment to operational discipline. Net revenues for the second quarter were $703.6 million, reflecting the anticipated sequential and year-over-year softness in the Towable RV, Motorized RV and marine businesses that Brian and I referenced in our first quarter earnings call.

Our consolidated adjusted EBITDA margin of 7.1% was flat on a sequential basis, even with a $59 million decrease in revenue. Overall, we delivered adjusted earnings per diluted share of $0.93. Bryan will review our financial results in more detail shortly. Our performance speaks to our diversified portfolio of premium brands as well as our investments in new products and technologies. Over the past 7.5 years, we have added 4 premium OEM brands to our portfolio and significantly strengthened our mobile power management offerings with the acquisition of Lithionics.

Our enterprise approach remains 1 of collaboration across our brands rather than competition. We are driving growth and profitability through our centers of excellence that further enhance what makes each of our brands great and enables powerful portfolio synergy. In this way, we provide our diverse and passionate customer base with the quality, innovation and service they have come to expect from us.

Turning to Slide 5. I will comment briefly on inventories and shipment trends. As we enter the back half of 2024, the most recent data suggests that the RV industry is moving in a positive direction from an inventory standpoint, particularly on the Towable side. The RV Industry Association's January wholesale data showed an 11% increase in total RV shipments compared with the prior year period.

Towable RV shipments were higher by 21% year-over-year in January, while Motorhome RVs were down 27%. Historically, the third quarter and fourth quarter of our fiscal year are the destocking quarters for our RV dealers as retail accelerates through the spring and summer selling season.

However, given the current macroeconomic environment, it remains to be seen whether this year's dealer behavior follows normal seasonal patterns. At the industry level, RV shipments ended calendar year 2023 at 313,174 units, down 36.5% from the prior year. For calendar 2024, the RVIA continues to expect RV shipments to increase to a midrange estimate of 350,000 units.

While we remain mindful of continued uncertainty around the timing and/or quantity of Fed rate cuts this year, based on recent trends, we believe that for the full calendar year, the RV industry will return to a one-to-one retail to wholesale replenishment ratio.

On Slide 6, Winnebago Industries saw a modest decline in RV market share. On a trailing 12-month basis through the end of January, our total market share stood at 11.4%. More recently, we've seen improvement in Motorhome RV, particularly Class A and Class C, which are up in the most recent 3- and 6-month periods. Given consumer emphasis on affordability we believe our premium brands are holding up well.

Turning to Slide 7. As we expected, Marine orders were soft in the second quarter as dealers continue to work through elevated industry inventory levels and address the effects of higher interest costs on inventory floor plan expenses while also being mindful of inconsistent retail performance. The bright spot remains the pontoon segment. And within that, our Barletta brand, which continues to gain market share, increasing to 7.9% on a trailing 12-month basis through the end of January.

On Slide 8, in looking across the outdoor recreation markets that we serve, 1 of our true competitive advantages here at Winnebago Industries is what we call purposeful innovation -- delivering customer-centric design and thoughtful and affordable technology to delight customers as they travel, live, work and play. Whether it is our highly differentiated house power solutions from Lithionics or Winnebago Connect, our game-changing intelligent RV platform. These and other technology investments provide us with significant runway for future profitable growth.

Turning to recent highlights at the Florida RV Super Show in January, consumer has got a first-hand look at the innovative new models from Winnebago, Grand Design RV and Newmar. Our flagship Winnebago brand launched 5 all new RVs, including the newest generation of the popular EKKO and Revel motor homes, both of which began shipping in Q2.

Built on Mercedes Sprinter chassis, the Class C EKKO Sprinter-23B and the new Class B Revel are designed with enhanced extended season capabilities for adventure ready outdoor enthusiasts. We also showcast the all-new Winnebago View and Navion motor homes equipped with Winnebago Connect.

With the systems easy to navigate touchscreen, consumers can monitor and control all major RV systems from lighting, climate and energy management to refrigeration, water systems, slide-outs, and door locks. We also offer a subscription service that gives consumers access to a host of other benefits, such as automatic temperature control for pet monitoring and remote diagnostics.

The rollout of Winnebago Connect is in its early stages, but we are excited about the long-term potential of this technology. In the Towable category, Grand Design debuted as exciting new Influence fifth wheel line. Influence offers spaciousness and amenities comparable to Grand Design's industry-leading Solitude fifth wheel, yet packaged at a more affordable price point.

We're also leaning into our commitment to a more sustainable outdoors through new partnerships such as our recent alliance with XOS a leading manufacturer of electric commercial vehicles. At our Winnebago Specialty Vehicles division is partnering with XOS to develop a fully electric chassis that will use XOS battery and electronics technology customized for Winnebago's unique commercial applications, such as medical and dental clinics mobile child advocacy centers and mobile command vehicles.

This agreement underscores the mission of Winnebago Industries Advanced Technology Group in creating new solutions that anticipate the evolving needs of our customers. At Winnebago Industries, our commitment to corporate responsibility is also the cornerstone for sustainable business growth and long-term profitability. So in January, we were especially honored to be named 1 of America's most responsible companies by Newsweek for the second consecutive year.

This recognition underscores the work we have done as an organization to advance our corporate responsibility initiatives. On the marine side, at last month's Miami International Boat Show, Chris-Craft unveiled a special 150th anniversary addition of its iconic Launch 27, 1 of 2 new Chris-Craft products that will be introduced this year.

Meanwhile, our Barletta brand is expanding its reach as the industry's fastest-growing pontoon business. The recent SSI data shows that Barletta continues to take market share. The brand also continues to capture the attention of the industry. The National Marine Manufacturers Association and Boating Writers International, recently recognized Barletta with the 2024 discovered boating Minneapolis Boat Show Innovation Award for its unique center mounted twin engine pontoon boat.

This unique design shifts the engine mount from the outer tubes to the transom allowing an exponentially higher level of performance and functionality. Looking ahead, demand for the RV and boating lifestyles remain strong creating a tailwind in the future that supports the growth of our portfolio of exceptional brands and aligns with our vision to be the trusted leader in premium outdoor recreation.

We continue to focus on those areas within our control, relying on our diversified business model, flexible cost structure and balanced capital allocation strategy to continue to deliver value for our stakeholders.

With that, I will now hand the call over to Bryan Hughes.

[Bryan Hughes, executive]

Thanks, Mike, and good morning, everyone. As a reminder, in my prepared remarks, starting on Slide 9, I will focus on the key drivers of our performance. Please refer to our earnings release and earnings supplement documents for a detailed overview of our key financial results.

Our fiscal 2024 Q2 results reflect the success of our disciplined production and cost management, the strong dealer and supplier network that we have built over time as well as the resilience of our highly variable cost structure. This cost structure is a critical advantage that provides us with production flexibility and enables us to swiftly respond to changing volume and market conditions in today's dynamic environment.

As a result, during the second quarter of fiscal 2024, we were able to partially offset the deleveraging effect of an 18.8% decrease in revenue compared to prior year to deliver 7.1% adjusted EBITDA margin and adjusted diluted EPS of $0.93. The decrease in revenue was driven by lower unit sales due to lower shipments given the current retail market conditions and a shift in product mix resulting in lower average selling prices.

By extension, our gross profit decreased 28.3% compared to prior year, driven by the deleveraging effect of slowing sales, coupled with an unfavorable shift in product mix. Although there was a small sequential decrease in our gross profit margin, our operating margin remained relatively healthy. This resilience can be attributed to a sequential reduction in SG&A expenses. It's also important to note that our SG&A expenses as a percentage of revenue remain elevated compared to historical levels, reflecting our ongoing investments in engineering, dual asset development and the expansion of our data and IT capabilities.

Before covering our performance by segment, I'll highlight a few unusual items that had a financial impact on our bottom line this quarter. In January, we announced the issuance of $350 million of convertible senior notes due in 2030. We used the proceeds of the offering to refinance approximately $240.7 million of convertible senior notes that had been due in 2025. Associated with this refinancing, we recorded a loss of approximately $32.7 million.

It's important to note that while this loss negatively impacted our GAAP earnings, it did not reduce our taxable income, which therefore caused our reported tax rate for the period to be elevated. Additionally, we incurred a nonrecurring noncash fair value adjustment of $3 million related to a debt investment.

As a result, second quarter fiscal 2024 GAAP net loss was $12.7 million and GAAP loss per share was $0.43. After adjusting for these nonrecurring or nonoperating items, our adjusted earnings per diluted share was $0.93. As a reminder, fiscal Q2 is traditionally a lighter quarter for the industry as it relates to shipments.

However, even with the sequential $59 million decrease in revenue, our variable cost operating model, enabled us to deliver sequentially flat consolidated EBITDA margins of 7.1%. Turning to our performance by segment. Starting with Towable RV on Slide 10. During our last earnings call, we noted that dealers had been reluctant to take on additional inventory given the uncertain retail environment. Dealers remain cautious heading into the spring, preferring to evaluate the spring retail selling season's performance before committing to an increase in their inventory levels.

Due to lower unit volumes related to market conditions and a reduction in average selling price per unit related to product mix and targeted price reductions, partially offset by lower discounts and allowances. Revenues for the Towable RV segment were down 16.9% year-over-year. Towable RV segment adjusted EBITDA was down 31.8% and adjusted EBITDA margin was down 210 basis points year-over-year, primarily due to deleverage and unfavorable warranty experience, which was comparing against favorable warranty experience in the prior year.

These unfavorable drivers were partially offset by lower discounts and allowances. Backlog decreased compared to the prior year due to current market conditions and a cautious dealer network.

Turning to Slide 11. Revenues for the Motorhome RV segment were down 16.2% from the prior year but up slightly sequentially as we launched several new products including the Revel 2.5 and the EKKO on a Mercedes chassis that resonated well with customers. The year-over-year decline was driven by lower unit volumes related to market conditions, higher levels of discounts and allowances compared to prior year and unfavorable product mix, partially offset by price increases related to higher Motorized chassis costs.

Segment adjusted EBITDA was down 38.9% and adjusted EBITDA margin was down 280 basis points versus the prior year due to volume deleverage, higher warranty experience, higher discounts and allowances and operational inefficiencies. Sequentially, our adjusted EBITDA margin increased 130 basis points due to improved labor productivity and cost containment efforts.

Backlog decreased from the prior year due to current market conditions and a cautious dealer network. Please turn to Slide 12. Revenues for the Marine segment were down 38.2% from the prior year as a result of a decline in unit volume related to market conditions, unfavorable product mix due to the launch of lower price point Barletta RVIA and higher levels of discounts and allowances compared to prior year.

Marine segment adjusted EBITDA margin decreased 650 basis points versus the prior year. This was primarily due to volume deleverage and higher discounts and allowances partially offset by lower incentive-based compensation related to operating performance. Backlog for the Marine segment was down from the prior year period due to a cautious dealer network.

Moving now to the balance sheet on Slide 13. As of the end of the quarter, Winnebago Industries had a net debt-to-EBITDA ratio of approximately 1.6x, which is slightly above our targeted range of 0.9x to 1.5x. Maintaining a strong balance sheet remains core to the Winnebago Industries investment thesis and enables us to execute on our well-balanced capital allocation strategy.

As discussed, we completed this quarter a $350 million offering of convertible senior notes for refinancing the 2025 maturities. This successful refinancing underscores our strong operating performance and credit profile and provides us with financial flexibility for future growth. We continue to prioritize digital and strategic investments in our business, like the opening of the ATG Advanced Technology Group Innovation Center, for example, or strategic acquisitions like Lithionics, while returning capital to shareholders.

During the second quarter, we paid a quarterly cash dividend of $0.31 per share. As a reminder, we increased our quarterly dividend by 15% during the first quarter, reflecting the confidence we have in our ability to profitably grow revenues capitalize on new opportunities and gain market share in the coming years. These actions further underscore our commitment to the long-term strength and trajectory of our business.

Before turning the call back to Mike, let me provide some color on our expectations for the fiscal third quarter. Based on current market conditions, with softness in retail sales and dealer reluctance to carry high inventory. We anticipate Q3 consolidated net revenues to be higher sequentially but down mid- to upper single digits on a year-over-year basis.

On our Q1 call in December, we expressed the view that destocking of aged inventory on the towable RV side was largely complete. While the motorhome RV category still had some excess inventory remaining on dealer lots. Recent reports from marine dealers suggest the marine industry also has some destocking left to do. As a result, we anticipate both the Motorhome RV and the Marine segment revenue to be roughly flat sequentially in Q3 versus Q2 as we continue to aggressively manage inventory, while towable RV segment revenue is expected to increase modestly on a sequential basis.

Profitability will continue to be challenged by the deleveraging impact of lower year-over-year sales volumes and we, therefore, expect consolidated margins to be down versus the prior year quarter. We expect that consolidated Q3 profitability will reflect modest improvement sequentially from an EBITDA margin perspective.

Now let me turn the call back to Mike to discuss our future mid-cycle growth targets and provide some closing comments. Mike, back to you.

[Michael Happe, executive]

Thanks, Bryan. In addition to our fiscal Q2 financial results, we also announced future mid-cycle organic growth targets this morning. Please turn to Slide 14 for an overview of our targets in comparison with our trailing 12-month financials.

Market assumptions underlying the financial targets include North American RV retail volume at a mid-cycle fiscal year range of 425,000 to 450,000 units and U.S. aluminum pontoon retail volume at a mid-cycle fiscal year range of 60,000 to 63,000 units. In reviewing our updated targets, I would like to emphasize the potential for EBITDA margin expansion and free cash flow generation inherent in our business model. As we move towards the mid-cycle in coming years, we expect revenue to increase by approximately 51% at the midpoint of our range compared with our fiscal Q2 trailing 12-month results.

This translates to a nearly 2x expected increase in adjusted EBITDA and a 56% increase in free cash flow underscoring our substantial operating leverage. Additionally, we believe there is ample opportunity to broaden our market share in both the RV and the pontoon industry. While we do not anticipate a consistent expansion in basis points every year, we believe these ranges reflect achievable average annualized improvement rates.

Finally, in the coming years, we plan to meaningfully expand our philanthropic giving to the communities where our employees live, work and play. We are extremely proud of our programs that eliminate barriers, promote access and connect all people with the social, mental and physical health benefits of the outdoors.

Please turn to Slide 15. I briefly touched on the EBITDA margin expansion opportunity ahead. At the midpoint of our range, we expect our adjusted EBITDA margin to expand by 255 basis points. This is in part driven by improved operating leverage through our flexible, high variable cost operating model as well as expected new product margin improvements and business excellence and operational efficiency initiatives.

We anticipate a substantial increase in free cash flow as illustrated on Slide 16. We expect to generate $325 million to $375 million in free cash flow representing a 56% increase at the midpoint of our range, driven largely by higher profitability. To support our future revenue growth, we expect higher working capital requirements that will be partially offset as we realize efficiencies.

Finally, we expect both maintenance capital and growth capital to remain consistent, each of which would be around 1% of revenue or 2% in total when taken together. Before we turn to your questions this morning, I'll sum up on Slide 17 by highlighting the 3 things I want to leave you with as well as the aspects of our business that makes us unique.

First, as you heard today, we performed in line with our expectations for the second quarter navigating the effects of ongoing softness in the RV and marine markets. We demonstrated resilient profitability and an unwavering commitment to operational discipline that is underscored by our results.

Second, we anticipate continued industry softness in fiscal Q3. Motorhome RV and Marine segment revenues are expected to be roughly flat sequentially, while Towable RV segment revenues are expected to increase modestly on a sequential basis.

Third, as we move beyond near-term market dynamics, we are confident in our ability to grow our business, capture market share and increase our profitability and free cash flow. We expect to capitalize on long-term secular growth trends and a number of combined elements of our business that make us unique. These include the following: we are leveraging an enterprise approach to promote collaboration across a diversified portfolio of industry-leading outdoor lifestyle brands. Each of our brands brings unique attributes and operational strengths and our functional centers of excellence bring out the best in each brand and drive strong portfolio synergy.

We have a proven go-to-market business model that leverages trusted dealer relationships and strong brand equity within consumers. Our commitment to innovation and our investment in our enterprise capabilities are enabling us to capitalize on long-term secular trends despite any short-term fluctuations in demand.

Our flexible integrated operating model and highly variable cost structure is enabling the resiliency that has been demonstrated in our results as we navigate through the current cyclical trough. And finally, we have a healthy balance sheet and a balanced capital allocation strategy that supports future profitable growth, accretive M&A and long-term shareholder returns.

With that, I will turn the call back over to the operator who will open up the line for your questions.

[Operator]

[Operator Instructions] And our first question comes from Scott Stember of ROTH MKM.

[Scott Stember, analyst]

Mike, you talked about expecting in calendar '24 to resume the one-for-one sell-in to sell-through -- but given the fact that we're probably going to have a bigger than normal air pocket between the model year changeover, what is the timing of that exactly?

[Michael Happe, executive]

Scott, I want to clarify your question. Are you asking about the timing of the 1:1? Or are you asking about timing on model year changeover.

[Scott Stember, analyst]

No, I'm asking about the -- on the 1 for 1. I'm basically saying given that this year, or dealers are going to be waiting on models to be introduced, what is your expectation of a timing of 1 for 1?

[Michael Happe, executive]

Yes. Thanks for the clarification, Scott. I think our statement today is that we believe by the end of the calendar year 2024 that shipments in total could equal retail in total for the year. Obviously, the first half of the year is going to probably be different in composition than the second half of the year. But we believe that, that equilibrium can ultimately be reached in that 12-month period by the end of the year.

[Scott Stember, analyst]

Got it. Next is on the warranty expense. And on the RV side, you maybe talk about what drove that? And will there be an extended tail through the next couple of quarters?

[Bryan Hughes, executive]

Yes, Scott, this is Bryan. I don't anticipate that this is a systemic type of issue. I think the analyst community needs to appreciate and acknowledge that when you go through peaks and valleys like the industry is going through right now, sometimes that warranty expense can show up as a ratio to sales favorable 1 quarter unfavorable another quarter.

In fact, we had some favorable experience that came as a reduced warranty as a ratio to sales last year in Q2. This year, it's elevated versus that. So it's a driver of year-over-year margin, but I don't want to convey that it's a systemic issue here. You also have from time to time some lumpiness in the expense as you manage through some particular campaigns that will come up in our business.

So to answer your question specifically, I don't see this as an ongoing elevation. It was a quarterly driver but not expected to be an ongoing challenge for us.

[Scott Stember, analyst]

Got it. And just 1 last quick one. With some of the amount of challenges in motorized right now. Has the timing of the rollout of Grand Design Motorized change at all?

[Michael Happe, executive]

Scott, the timing for Grand Design, Motorized remains on track versus our expectations over the last year of preparation. We anticipate that our fourth quarter of this fiscal year '24, we'll see some sales of Grand Design motorized in that period. But the ramp -- the majority of the ramp-up of Grand Design, motorized revenue will happen in fiscal '25.

But we will begin shipping motorized at least as of today, we will begin shipping motorized in our fiscal fourth quarter this year.

[Operator]

And our next question comes from Tristan Thomas Martin of BMO Capital Markets.

[Tristan Thomas-Martin, analyst]

Can you kind of talk about the cadence of the model year '25 rollout and then also your expectations for ASPs?

[Michael Happe, executive]

Tristan, I'll speak to the cadence, and I'll ask Bryan to speak to some ASP thoughts there. First of all, I will say this. We cannot and will not speak for competitive behavior on model year transitions. But our 3 RV businesses are planning to transition to model year '25 in the same window that we have executed that in the last several years.

So we are not planning a significant pull ahead of model year 25 introductions. That timing does vary a little bit by brand as to when they change those model years over. But we are not anticipating any significant shift forward in our model year shipments.

[Bryan Hughes, executive]

Yes. On the ASP, Tristan, you have to look at it segment by segment, of course. In motorhome, it's pretty neutral, right? Not big increases or decreases. For the most part, you've got some higher allowances and discounts that are offsetting some pricing initiatives that are meaning to or offset the chassis increases that we've been seeing. So net-net, pretty neutral on motorhome.

On Towables, down high single digits, approaching 10% on an ASP basis. The big news there is really mix more than anything. It shows up as a reduction in ASP, but that's our efforts to introduce products that are targeted at where the customer is at right now. So you do have some negative mix. There's some mild targeted price reductions on certain models. So in other words, some apples-to-apples reductions.

But that range is probably in the 2% to 3% range, that high single-digit ASP decline that I referenced. So there's some targeted price decline, but most of it shows up in mix. And then on the Marine side, likewise, some mix there. We referenced the introduction of the Barletta as an example of us entering that lower price point with that great product.

So some of that going on, and then we also referenced the allowances and discounts that we are attributing some of that ASP too.

[Tristan Thomas-Martin, analyst]

Okay. And then just how did retail trend over the quarter? And then how has it been so far in March?

[Michael Happe, executive]

I think you can tell by some of the numbers in the earnings release that our retail has generally been in line with the rest of the industry during the quarter. We actually felt better about trailing share results here recently in Q2.

I would say retail to date on the RV side in Q3, which began with the month of March for us, has been sequentially better, obviously, with the seasonal nature of our business, but probably still a little bit behind where most of the industry would like us to see. I know there's been commentary in the industry about when we'll start to see positive retail comps on and some have speculated it's in the April to May time period. My guess, as we sit here today, is you'll probably see that more in the May time period than the April time period based on what we've seen here in the first 3 weeks of March.

[Operator]

Our next question comes from Craig Kennison of Baird.

[Craig Kennison, analyst]

Thanks for the slides and commentary on the mid-cycle targets. I wanted to ask about, on Slide 15, you talk about profitability initiatives. Could you shed light on what those might be?

[Michael Happe, executive]

Craig, this is Mike. Those will cover a range of activities, and I'll offer some examples. We expect to see margin improvement based on certainly recovering volume, as we indicated on Slide 15. But we also believe that some of the new products that we have in our pipeline will also demonstrate improved margin over the course of the next 3 to 5 years as well.

We have ongoing constant strategic sourcing initiatives in the business. We've -- I would say, in fiscal year '24 to date, we're tracking somewhere in the neighborhood of $17 million to $20 million of strategic sourcing savings from that particular center of excellence. We anticipate continued success in contribution to margin from that area. And then each of our manufacturing operations around the company are also focused on productivity and efficiency. And as we offered some of these mid-cycle targets this morning on the EBITDA side, we have some estimates internally as to some of the benefits of those productivity and efficiency activities from our manufacturing campuses. So we won't get into specific details there, but it will be a combination of volume and the combination of new products and a combination of operational supply chain and manufacturing efficiency.

[Craig Kennison, analyst]

As a follow-up, can Lithionics play a meaningful role in EBIT margin expansion? Or is it not large enough to matter in that context?

[Michael Happe, executive]

Lithionics will and can contribute to incremental margin improvement for our overall business. The degree of how much that will be and the timing of that will certainly depend on the growth of Lithionics and the overall adoption of lithium-ion battery packs in the RV, marine and specialty mobile industry segments.

But when we made the Lithionics acquisition now almost 1 year ago, April of 2023, we indicated that it was not only a strategic acquisition and a technology acquisition but that we also expected it to have on the bottom line some meaningful financial contribution impact over time. And so again, we're not going to assign a value to lithic this morning. But yes, we do anticipate that it will begin to contribute a little bit more every year in terms of its bottom line impact.

[Craig Kennison, analyst]

And finally, as it relates to Slide 7, Barletta has had just an amazing run, getting almost 8% market share of the pontoon market. Your goal is 13%, which is not a small leap from here. Could you just give us some reasons behind your confidence in expanding share by that much?

[Michael Happe, executive]

Well, first and foremost, our confidence begins with the team at Barletta. We feel we just have a tremendous team of passionate leaders and employees there who are focused every day on the end customer our channel partners and building the very best Caribbean pontoons in the market.

Craig, our recent market share results with Barletta have been very impressive. In fact, I believe the stand-alone month that we just received from SSI here recently on pontoons was double-digit market share for Barletta in that particular month. And so while the 13% is a trailing 12-month number that we intend to shoot for, and that is aggressive versus what we have indicated here on Slide 7 for trailing 12 months here early in fiscal '24.

The recent trailing 3 months in stand-alone month market share numbers are actually approaching double digits. So the gap may not be as far away as we think, but we'll remain humble and paranoid and stay focused on doing the right thing and driving to a top 2 or 3 position in that category over time.

[Operator]

And our next question comes from James Hardiman of Citi.

[James Hardiman, analyst]

So I wanted to dig in on inventories a little bit. I guess, first, it looks like the absolute level of inventories are for your business, it seems like they're in pretty good shape. I think from an industry perspective, the bigger concern seems to be the aging of inventory. Maybe walk us through any numbers you have in terms of the model year '24s versus '23s at this point in the channel?

And then any comparisons would be great. Where were those -- where was that mix last year where is that mix historically and where you would like it to be? And then any thoughts on sort of how you compare to the industry would be great.

[Michael Happe, executive]

James, this is Mike. Well, let's start with RV specifically. At the end of February, I would say our model year '24 inventory especially for our 2 largest RV businesses from a unit standpoint, Winnebago and Grand Design, we're approaching the 75% range at the end of February, which meant for those 2 brands the model year '23 inventory was probably in that 23% to 24% range. In the model year, we may have had 1% at the end of February of model year '22 in the field.

The numbers on Newmar are a little higher just based on the type of category that Class A is. But overall, it's probably in that 70% to 75% range on a model year '24 and almost 25% range on model year '23, which I think is very similar to what 1 of our largest competitors recently reported. Now you actually compare that to a year ago at this time, and those numbers are a little lighter for our Winnebago brand. We're a little bit more aged on the Winnebago brand.

But actually on the Grand Design brand, which is our biggest RV business, that mix is actually healthier this year than it was 1 year ago. If you compare the numbers I just stated on RVs to the pre-COVID periods both us as an OEM, but probably the industry as a whole is sitting with more aged inventory here in 2024 than we had in, let's say, 2018 or 2019.

I anticipate that we'll continue as an industry to work through this cycle. And as we see the overall RV cycle start to pick up and retail begin to regain some momentum I anticipate over the next 3 or so years, we'll head back to some of those numbers that we saw pre-COVID in terms of aging mix. So we feel comfortable, James, bottom line on the RV side as to where we're at. We're very focused on it. I would imagine 3 weeks into March.

I don't have the numbers in front of me, but we're probably obviously in a better situation today than we were 3 weeks ago. On the pontoon side, as Brian commented about quarter 3 as we look forward, we have more aged inventory today than certainly, I think the dealers and ourselves would like. But we also have great retail momentum on Barletta as well, and we anticipate continuing to move through that very quickly. So at the end of February there, we were probably closer to 65% model '24, let's say, 35% model '23 in the Barletta business.

And we believe that will work its way down nicely here over especially the spring and summer retail months. Again, those are a little higher than we've seen. But Barletta continues to be a great story and dealers, if they're going to put inventory in any pontoon brand right now, they are choosing Barletta. And they're still being cautious with their overall pontoon inventory, but they continue to shift shipment share and retail share to that brand.

[Bryan Hughes, executive]

One other thing I'd add to that, James, is our process related to managing the aging of inventory, which is just to take a very detailed and targeted approach. So if we have incentives that we are introducing. It is targeted at those retail units that we feel we want to help the dealers in partnership with them, move off their lot. So we take a unit-by-unit approach to that. We're tracking every unit -- and our incentives are certainly targeted at moving anything that is aging. So I wanted you to be aware of that process as well.

[James Hardiman, analyst]

Got it. That's great color, and it sort of dovetails into my next question, right? I mean, as you're trying to move those model year '23 units, I'm assuming that, that's at least part of what's weighing on the Q3 margin outlook that you gave -- and so I guess my question is, you talked about margins being, I guess, somewhat better sequentially, but down year-over-year maybe it's too early to make a call on Q4.

But do you -- is there a chance -- how should we think about Q4 margins? Is there a chance that those could grow year-over-year. I'm guessing that it has a lot to do with the effectiveness of clearing out those model year 2030 in the meantime.

[Bryan Hughes, executive]

Yes, it does. And then certainly, we're citing leverage and deleverage is the biggest driver as we go through the cycle here of year-over-year margin performance. That will continue to be the case going forward, of course. But then to your point, the allowances, the discounts as we rightsize our inventory as we deal with the aged inventory that Mike was just referring to, those allowances and discounts and retail spits will start to wane as well. So that should help as we go through the coming quarters.

[James Hardiman, analyst]

Do you think it's plausible that margins could grow year-over-year in Q4 or way too early itself?

[Bryan Hughes, executive]

Yes. We're going to refrain from commenting on that at this stage.

[James Hardiman, analyst]

Fair enough. Given everything that's going on. I get it.

[Operator]

And our next question comes from Bret Jordan of Jefferies.

[Bret Jordan, analyst]

Little follow-up, I guess, on the last question really around the marine dealer environment. Should we expect sort of the support -- the promotional support cadence to pick up here into the spring? I guess we're technically 2 days in the spring. Are we going to try to hit summer with clean inventory was what we're seeing sort of consistent with what we're going to see going forward is there's not going to be a surge in promotion?

[Michael Happe, executive]

Bret, this is Mike. Thanks for the question. I would say, arguably, we've already seen a surge in support to the market. Obviously, by the pontoon OEMs. And certainly, we've surged a little bit as well. We try to be surgical with that particular support, working on certain age models and with certain dealers I would say we don't see probably a dramatic shift upward in our support for Barletta as we go into the spring and summer selling seasons.

As I indicated in a previous response, our aged inventory is higher than it has been in past years in that brand and certainly a little higher than we'd certainly like it today. But we don't -- we're going to be very rational and -- the team's market support activities have been, I think, right on target as they continue to work with the dealers on that brand. So no, I don't think we'll see a significant surge by our business, but I can't comment on what the rest of the industry or our competition will do.

[Bret Jordan, analyst]

Okay. And I guess a question for your chief economist. Sort of the possible timing of mid-cycle environment, you talked about a comp -- retail comp recovery in May. Given the magnitude of the downturn and I guess, maybe the magnitude of the surge that preceded it. Are you thinking about mid-cycle being something that could happen in the '25? Is it '26? I mean it's hard to know, but just looking at the industry and your history with it, how long do you think the recovery might be?

[Michael Happe, executive]

Yes. Bret, we appreciate the question. In past let's call it, Investor Day target releases, we have assigned specific fiscal years to those targets. As I think everybody who's on this call is well aware, the fluidity and dynamics and volatility of these outdoor recreation industry segments has been high. And it's been very difficult for all of us to forecast both short term and long term, exactly what the market is going to give us good or bad.

And so one of the reasons we've labeled these targets mid-cycle and given you some framing of what that means in terms of industry retail size, is that we don't exactly know the timing of when the North American RV industry or the pontoon industry will return to those levels. We certainly are rooting for sooner rather than later. But I would say these organic mid-cycle targets are probably something we hope to achieve over the next 3-plus years.

If that happens sooner, fantastic. But we are trying to be very humble with not assigning a year to it because we just simply don't know at this time. we are quite confident, though, let me reiterate that when the industry does return to those types of retail levels, and we're back into that more normal dealer inventory cadence as well in terms of how they bring in products based on retail.

We are very confident that those numbers are achievable and that's why we wanted to give, especially you all today those numbers.

[Operator]

And our next question comes from Fred Wightman of Wolfe Research.

[Frederick Wightman, analyst]

I just wanted to come back to Tristan's ASP question, Bryan. In your response to that, were you talking about fiscal '24 ASPs. And could you also make any comment on model year '25 ASPs, particularly for the towable category, how you think those are going to trend on a year-over-year basis, both from a like for like perspective, but also whether the mix headwinds are expected to persist in the next year, too?

[Bryan Hughes, executive]

Yes, thanks a lot, Bret. In my answer earlier, I was really referring to our most recent quarter. The numbers that I was referring to were really Q2 versus the prior year and what we were seeing on a year-over-year basis because I assume that, that's how most of the analyst community is tracking. So that's how I was answering that first question.

I'm going to refrain from commenting extensively on what we're seeing in model year '25. Sitting here today on the Motorhome side, I think we're going to continue to see some pass-through of chassis inflation. On the Towable side, I think we'll continue to see some mix that pushes ASP downward in the near term. And likewise, for our Marine business, we'll continue to see some ASPs influenced by that mix downward as we talked about earlier with the ARIA entering the product lineup.

So I guess that's what I'd say on ASP. The other color I will give because I know the analyst community is highly interested in margin. Our margins are most impacted by deleverage in the lower sales dollars. We are not calling out as a driver of margin, a cost environment that is not being offset appropriately by our pricing initiatives.

So that's a relatively neutral equation, and that is true across our segments that as we introduce new products, for example, that have lower price points associated with them or as that mix shifts lower we're not seeing a negative drawdown in terms of EBITDA yield or margin. So I think that, that's an important attribute of our financial delivery to acknowledge.

[Frederick Wightman, analyst]

Makes sense. And then shifting gears a little bit just for the midterm -- or sorry, the mid-cycle targets. If we look at the market share numbers, specifically, you guys are talking about 13% plus.

If we go back to the targets you talked about in late calendar 2022, I think you talked about something in the 15% range. So can you just help us bridge the gap there? Why is that target coming down a little bit, especially considering that you announced the grand decide motorized platform subsequent to that. So help us understand if the targets or aspirations have maybe come down a bit for RVs and if so, why?

[Michael Happe, executive]

Yes. Thanks, Fred. It's a fair question. And in fact, I think the target language we use today on mid-cycle RV market share was 13% plus. To be quite honest and transparent, we've seen a little bit of regression in our current North American RV market share over the last 1.5 years since we offered those targets.

And so some of that lower target that we released today in the future is somewhat attributable to a little bit of the market share pressure we've seen in the short term. We actually feel that we fared pretty well considering that we've been in a dramatic environment in terms of first hyperinflation and then now an affordability challenge within particularly the RV industry and we're a premium branded premium priced OEM.

And so to hang on to the market share that we have, especially in the last 12 months, we're not satisfied, but we also believe that, that has been pretty reasonable performance. I think as we look forward, we're just more honest about what I just referenced, the affordability challenges and where we sit in the market. And we want to be -- candidly, there's probably a bit of underpromising and overdelivering that's associated with that target.

We still aspire to 15% to 20% market share for the North American RV business someday in the future. But we think we can grab a couple more points here by the time we get back to mid-cycle -- and then anything above that will probably, as you said, be related to strategic growth initiatives like Grand Design, Motorized and the like.

Just a reminder, when we released some of the targets in November of 2022, for the end of, I think it was our fiscal year '25 range. We did include some inorganic additions to those targets that we did not speak in detail at the time. So some of those financial and nonfinancial targets did have some inorganic aspirations in there. These targets this time, in addition to being framed at mid-cycle are organic only. And so any M&A activity that we would do in either RV or marine would be incremental to what we've released this morning.

[Operator]

And our next question comes from Michael Swartz of Truist Securities.

[Michael Swartz, analyst]

Maybe just comment on -- I think in your prepared remarks and the press release, you talked about within the total RV unit you kind of called out lower promotion allowance as being a positive to margins.

And I think 1 of your larger competitors a couple of weeks ago kind of cited higher discounting allowances as weighing on their quarter. Maybe any commentary you can give us why you think there's a divergence in the commentary between yourself and your competitors.

[Michael Happe, executive]

Mike, this is Mike. Thanks for the question. I don't know if I don't know if we really know the true answer to that other than, obviously, Grand Design bears the lion's weight of our Towable segment. And the team has just been, again, very rational and very targeted with the support that we offer the market, particularly around the aging inventory.

So I would hope, Mike, that it's a combination of our inventory position in the field being very reasonable. Our aging inventory being in relatively good shape, all things considered in this environment. And the way we just -- we partner with the dealers to still move products at a price point that allows them to make some money and certainly keeps us profitable as well.

So our Towable segment is very focused. We have 2 brands, 1 big one, 1 small 1 in that segment. So we're pleased to see that, that allowance has tempered a little bit in Q2 versus the last 2 or 3 quarters. But we're going to stay focused on it. That doesn't mean we're turning away from appropriate support. It just means that we're being smart about it. So -- and I won't offer any further comparisons to competition because we candidly just don't know what's going on inside their businesses in that way.

[Michael Swartz, analyst]

Yes. Understood. And then just a second question, I apologize if I missed this, but did you disclosed. I think in the prior quarter, you talked about some of the costs related to Grand Design, motorized and start-up and some inefficiencies in the Motorized business is weighing on the prior quarter. But -- did you quantify what that was this quarter? And then should we still think about the incremental investment for Grand Design, Motorized being in that $10 million to $15 million range for the full fiscal year?

[Bryan Hughes, executive]

Yes, Mike, that's still our expectation. I think what we said a couple of quarters ago was that it would ramp up during our fiscal year here and get to the $4 million to $5 million investment range by Q4.

So we're ramping up and we continue to do so in accordance with our timing that we expected earlier in the year. So you're going from the $1 million we disclosed earlier this year up to a $4 million to $5 million investment by Q4, and we're still on track with that.

[Michael Swartz, analyst]

Okay. And some of the inefficiencies that you called out last quarter, did you experience those in the second quarter as well?

[Bryan Hughes, executive]

We improved from Q2 versus Q1. We're still less efficient in the current year versus last year. So I think we -- a good way to convey that is that we believe we still have an opportunity to further improve our productivity going forward, and it dragged us year-over-year this year versus last.

[Operator]

And our next question comes from Joe Otello of Raymond James.

[Joseph Altobello, analyst]

Most of my questions have been answered here. I did have 2 quick follow-ups. I guess first of the 13% plus RV market share that you guys are targeting by mid-cycle. How much of that is the net impact from the Grand Design Motorized launch.

[Michael Happe, executive]

Joe, this is Mike. I probably won't offer a specific number because we don't that would lead to some reverse math calculations on how big we think that business will be, and we don't disclose that by brand category, but it is -- it will contribute no doubt to that number.

We knew Grand Design motorized was in play when we offered our last targets in 2022. So yes, I mean, the Grand Design Motorized strategy will be a material contribution to our financial and share future here at the company. So I won't offer specifically what that number will be. But you'll see the majority of that ramp up in fiscal year '25 through '27.

We'll get some units out the door here in fiscal fourth quarter. But we have a very robust strategy for Grand Design motorized over the next 3 to 4 years. And we have high confidence that the Grand Design Motorized team can execute their business plan.

[Joseph Altobello, analyst]

Understood. And just to follow up on that. The EBITDA margin target of 11% to 11.5% I assume that, that assumes that your Motorhome margins remain in the high single digits.

[Michael Happe, executive]

Yes. We very much believe that, as Bryan inferred here with a response a little while ago that there is upside on our motorized margins from where we stand today both in terms of the benefits of volume in the existing businesses, but we anticipate that Grand Design Motorized will also be a financially acceptable and good contributor to that segment yield going forward as well.

So all 3 of our brands, Winnebago, Newmar and Grand Design, we believe can operate in that zone that you talked about. I mean long term, we've been very public with saying that we expect all of our businesses and all of our segments to be double-digit adjusted EBITDA yield in the future. And so that's our long-term aspiration. And we expect that the Motorized segment will work its way there over time.

[Operator]

And our next question comes from Brandon Rolle of D.A. Davidson.

[Brandon Rollé, analyst]

First, just on getting back to the pricing conversation, 1 of your largest competitors had mentioned they were going back to their supplier partners to identify opportunities to reduce costs where possible. One, have you had those conversations as of late; and two, how they progressed? And three, which segments within your business right now? Do you feel like need the most price reductions or need to improve their affordability, the most improved retail sales?

[Michael Happe, executive]

Brandon, this is Mike. We have great relationships with our supply chain partners. We have less scale than our 2 largest RV competitors do. We have less scale candidly, than some of the other larger marine players. And so we have a little less leverage to throw a route in terms of volume to be able to negotiate component and material pricing.

But we're very proactive in those discussions and certainly work well with our suppliers to we believe, have fair pricing. So we will continue to do that. And believe me, as we continue to organically and inorganically create scale in this company, we will expect that the benefits of that will come from our suppliers as well.

As far as which parts of the portfolio need those cost reductions, listen, we've been very upfront that probably the single greatest current cost pain point in our business model today is motorized chassis. And I think for the whole of the industry, if we are to improve the affordability of motorized RVs going forward, we will need to see motorized chassis pricing begin to stabilize -- and then we will need to work closely with those chassis partners to see what we can do to improve costs going forward. But that is probably the biggest challenge in our business right now in terms of addressing affordability.

[Bryan Hughes, executive]

I'll add just a little bit on to that, Brandon. Some of our -- not all, but some of our purchases or categories of supply are contractually tied to certain indexes or commodities. We've seen a lot more stability in the commodity space, steel, aluminum, lumber, notably. And so as a result, we're seeing likewise some stability in the cost input. So not nearly the volatility that we've seen over the past couple of years.

So smoothing out of costs, we're not seeing that being a big driver going forward. We'll continue, obviously, as Mike alluded to, negotiate appropriately with our vendors where we think we have an opportunity for that.

[Operator]

And our next question comes from David Whiston of Morningstar.

[David Whiston, analyst]

Just curious in terms of the continued hesitation by dealers, and I understand they want to get their inventory rightsized. But are interest rates still the 1 of their most primary concerns? And if so, how many rate cuts does the RV industry really need to see before we see any kind of meaningful change or improvement in consumer and dealer confidence.

[Michael Happe, executive]

David, this is Mike. Yes, interest rates and obviously, the associated costs to our end consumers are amongst the top 2 or 3 factors that they say are inhibiting stronger retail or slowing down retail as we speak. It is interesting this spring. We are hearing some signs that in consumers are beginning to understand that rates are going to be a little higher or meaningfully higher here into the future for a while than they were 2 or 3 years ago.

And so could there be some acceptance by consumers that this is where rates will be for a little while. And if they want to get into the RV or boat lifestyle, they just have to deal with that and find a way to afford that. We could see a little bit of that. But there is no doubt that both of our businesses are interest rate sensitive in terms of consumer appetite and decision-making for our products at retail and any rate cuts at this point, we believe we'll have both a real effect from an affordability standpoint, but they'll also potentially have an effect on consumer buying confidence in terms of where things are headed going forward.

We were pleased that the Fed yesterday signaled that in the back half of the year, we could still see as many as 3 Fed funds rate cuts. And while David, I can't give you an exact number as to the quantity of cuts or how large they are, a quarter basis -- 25 percentage or of 50 basis points. Any movement will help. And we'll take 3 for sure. If that happens, we think that will offer a little bit of a trigger to consumers becoming more active again.

[David Whiston, analyst]

That's helpful. And then on Marine, is there any major difference in confidence between the perhaps ultra-wealthy Chris-Craft customer and the pontoon customer?

[Michael Happe, executive]

I would say the -- that thin air that Chris-Craft operates in is a -- first and foremost, they're a cash buyer, 95% of the time. But they're also pretty smart in these tricky economic times as well. And so the retail that we've seen on Chris-Craft has been less robust than what we've seen on Barletta, probably for a variety of reasons.

Barletta has got momentum for -- because of a number of factors, dealer confidence. We're entering open markets. We're introducing great products. Chris-Craft is a more mature business with a very targeted, highly affluent customers. So there's not a lot of crossover between those customers and they act a little bit differently during similar periods of the cycle.

But we anticipate that as the marine cycle comes back, not only will Barletta grow, as we indicated with our long-range target of 13% market share. But we also anticipate that Chris-Craft business will grow going forward as well.

[Operator]

This concludes our question-and-answer session. At this time, I would like to turn it back to Ray Posadas for closing remarks.

[Raymond Posadas, executive]

That is the end of our second quarter earnings call. Thank you, everyone, for joining us. We look forward to keeping you updated on our progress in the future. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating, and you may now disconnect.