UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On June 8, 2020, Thor Industries, Inc. (the "Company") issued a press release announcing certain financial results for the third quarter ended April 30, 2020. A copy of the Company's press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein. The Company also posted an updated investor slide presentation and a list of investor questions and answers to the "Investors" section of its website. A copy of the Company's slide presentation and investor questions and answers are attached hereto as Exhibit 99.2 and 99.3, respectively, and are incorporated by reference herein.
Item 7.01 Regulation FD Disclosure
The slide presentation attached hereto as Exhibit 99.2, and incorporated by reference herein, also provides updated information on industry wholesale shipments and retail market share. The Company also posted an updated list of investor questions and answers to the "Investors" section of its website. A copy of the Company's investor questions and answers is attached hereto as Exhibit 99.3 and is incorporated by reference herein.
In accordance with general instruction B.2 to Form 8-K, the information set forth in Items 2.02 and 7.01 of this Form 8-K (including Exhibits 99.1, 99.2 and 99.3) shall be deemed "furnished" and not "filed" with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing thereunder or under the Securities Act of 1933, as amended
Item 9.01 Financial Statements and Exhibits
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(d) |
Exhibits |
Exhibit Number |
Description |
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99.1 |
Copy of press release, dated June 8, 2020, issued by the Company. |
99.2 |
Copy of investor slide presentation, posted on the Company's website on June 8, 2020 |
99.3 |
Copy of investor questions and answers posted on the Company's website on June 8, 2020 |
104 |
Cover Page Interactive Date File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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THOR Industries, Inc. |
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Date: |
June 8, 2020 |
By: |
/s/ Colleen Zuhl |
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Name: |
Colleen Zuhl |
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Title: |
Senior Vice President and Chief Financial Officer |
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Exhibit 99.1
Thor Reports a Profit and Positive Net Cash from Operations for the Third Quarter of Fiscal 2020
ELKHART, Ind., June 8, 2020 /PRNewswire/ -- Thor Industries, Inc. (NYSE: THO) today announced results for the third quarter of fiscal 2020, which ended April 30, 2020.
"Despite this being one of the most unusual quarters I have ever experienced, I am pleased to report that we were profitable and generated positive net cash from operations. Our financial position has remained strong as a result of numerous management-led actions that were executed quickly in conjunction with our temporary plant shut-downs in mid-March. Our results are the product of both the highly variable cost structure we have created and our ability to quickly align our production and cost structure to meet fast-changing market conditions," said Bob Martin, President and CEO of Thor Industries. "I would like to thank the team members at Thor Industries and all of our subsidiaries for their incredible dedication and commitment to Thor and for their contributions to our results during this highly uncertain period," added Martin.
COVID-19 Impact
COVID-19 and the related governmental mandates implemented to slow its spread in North America and Europe had a significant negative impact on the Company's results of operations for the third quarter of fiscal 2020. Consolidated net sales, gross profit, North American and European wholesale shipments and retail sales were all negatively affected during the quarter.
For nearly half of the quarter, retail consumers were under strict shelter-in-place requirements in most North American and European locations, limiting their ability to buy the Company's products from our independent dealers. The operations of the Company's independent dealers were likewise disrupted as many of them were required to close their showrooms. Due to these dealer closures, sales and shipments of our products were disrupted in the second half of March and April, two of our normally strongest sales and shipment months. Sales and backlog for May, the first month of our fourth fiscal quarter, improved on a weekly basis as dealers began to reopen their dealerships and consumer demand increased.
During the quarter, the Company initiated numerous actions to actively manage both our costs and liquidity in response to the initial extreme uncertainty created by the pandemic. In mid-March, the Company temporarily suspended production at all of its North American RV production facilities and temporarily suspended a substantial portion of its European RV production. Beginning in March and throughout the remainder of the third quarter, the Company furloughed or laid off a number of valuable team members, primarily in our U.S.-based operations, and many employees across the Company saw a reduction in their cash compensation. In addition, the Company also significantly reduced its discretionary spend and curtailed spending on most capital projects. Due to the high degree of uncertainty that existed initially related to the impact or duration of the various governmental shut-downs, and out of an abundance of caution, the Company drew $250 million against its asset-based line of credit in late March to enhance its liquidity position. In late May, the Company repaid this borrowing.
Third-Quarter Financial Results
Third-quarter net sales were $1.68 billion, compared to $2.51 billion the third quarter of fiscal 2019. The third-quarter 2020 net sales figure includes $615.3 million in net sales from the European RV segment, $773.4 million in net sales in the North American Towable RV segment and $264.0 million in net sales in the North American Motorized RV segment.
Consolidated gross profit margin was 12.2% for the third quarter of fiscal 2020, compared to 11.7% in the corresponding period a year ago. The increase in percentage is primarily due to the impact in the prior-year period of the one-time purchase accounting adjustments related to the step-up in the value of acquired inventory of $61.4 million in the European recreational vehicle segment, which decreased the 2019 third quarter gross profit margin, partially offset by the current period decrease in net sales, which increased the manufacturing overhead cost percentage to sales in the current-year period compared to the prior-year period.
Net income attributable to Thor and diluted earnings per share for the third quarter of fiscal 2020 were $24.1 million and $0.43, respectively, compared to net income attributable to Thor and diluted earnings per share of $32.7 million and $0.59, respectively, in the prior-year period.
The Company's effective income tax rate for the third quarter of fiscal 2020 was (7.3)%. The Company expects a worldwide effective tax rate for the entire 2020 fiscal year ranging between 14% and 17%, before consideration of any unknown discrete tax items. The global impact of COVID-19 negatively impacted the Company's income before income taxes, which resulted in certain interest income not subject to income tax comprising a higher percentage of pre-tax income and, consequently, a lower effective income tax rate.
Segment Results
Decreases in year over year financial results for the Company's three reportable segments for the third quarter of fiscal 2020 are primarily attributable to the economic impact of the COVID-19 pandemic, which started in the middle of the current-year period.
North American Towable RVs
North American Motorized RVs
The geographic centrality of the North American RV industry in northern Indiana, where the majority of our facilities and many of our suppliers are located, could exacerbate, directly or indirectly, supply chain, workforce and other COVID-19 related risks, including meeting increased production demands.
European RVs
In Europe, the Company has recently experienced some supply constraints from its chassis manufacturers as well as certain component parts from its non-chassis raw material vendors. The Company anticipates these constraints could last until the end of the Company's fiscal year 2020. Where possible, to minimize the impact of these supply chain constraints, the Company has identified a second-source supplier base for most component parts.
"Our business was built with the ability to manage through cyclicality, and our management actions, combined with our highly variable cost model, allowed us to remain profitable and generate positive net cash from operations for the third quarter," said Colleen Zuhl, Thor's Senior Vice President and Chief Financial Officer.
"In the third quarter, as we focused on maximizing liquidity, we borrowed $250 million from our ABL. Given the current strength of the RV market, particularly in North America, and the reopening of many of our independent dealers as well as many campground facilities, the current outlook is much clearer than it was at the end of March and early April. As a result, we have repaid the $250 million draw, and the available balance on our ABL was $396 million as of June 5, 2020.
"Additionally, during the quarter prior to the pandemic affecting our operations, we continued to pay down our acquisition-related Term Loan B ("TLB") debt. In March, we made payments of $45 million on our TLB. Life-to-date, payments on our acquisition-related debt of $2.2 billion totals approximately $543 million.
"We are confident our current liquidity and financial position will allow us to manage through near-term uncertainties that may arise within the RV market or the broader economy," added Zuhl.
Promoting the RV Lifestyle
The Company continues to invest in generating awareness for the RV lifestyle through engaging content and directing consumers to its operating companies for further research and to pursue purchasing options through our extensive dealer body. Thor also conducted and published the RV industry's first comprehensive report detailing North American RV consumer travel and purchase intent since the onset of the pandemic.
Outlook
Bob Martin said, "To be certain, the events of this quarter were unexpected and difficult, but our experienced team members and our highly variable cost model once again proved our ability to quickly navigate through uncertainty and generate positive financial results.
"Today, market indicators in North America are increasingly positive. Every North American dealer I have spoken to in the last few weeks has been very excited about the pace at which sales are picking up. Many of our dealers are reporting a significant improvement in sales from April to May and are excited about the sales potential for June and beyond. Because of this improved outlook and the relaxation of many stay-at-home restrictions, we began to restart production in the first week of May in North America. We have been successful in safely bringing our people back to work, and we are ramping-up production in a measured way in order to keep our team members safe and product quality high, while also fulfilling dealer orders as quickly as possible.
"In Europe, with over 1,200 dealer-partners in Germany and across the continent, our brands have one of the strongest dealer and service networks, and our long-term outlook for future growth in retail sales remains positive. More and more people are discovering RVs as a way to support their lifestyle of independence and individuality, as well as using the RV as a multi-purpose vehicle to escape urban life and explore outdoor activities and nature. While we are optimistic about the long-term growth of the RV market in Europe, the outlook for European RV retail sales for the remainder of the calendar year depends upon the economic conditions in the countries in which we do business.
"Since the end of our third fiscal quarter, our outlook for the balance of our fiscal year and the calendar year has markedly improved. We're seeing an influx of first-time buyers, which bodes well for the long-term health of the RV industry. When the COVID-19 pandemic started, we saw many people start to work at home. One new trend we are seeing is an evolution from 'work at home' to 'work from anywhere' as RV buyers use their new RVs as their office wherever they are, or wherever they want to be. Our channel checks tell us that many of our independent RV dealers are seeing a significant resurgence in their sales, and their inventory levels, which were already down 20% year-over-year, are further declining. Demand for our products is very strong. Our flexible business model gives us the ability to quickly ramp production in a focused way, and we will ramp production with three primary objectives: the safety of our team members, the quality of our products, and the speed of our production, in that order. We remain steadfast in our confidence in the long-term outlook for not only our business, but the entire RV industry, and we continue to look forward to a bright future." said Martin.
Supplemental Earnings Release Materials
Thor has provided a comprehensive question and answer document, as well as a PowerPoint presentation, relating to its quarterly results and other topics. To view these materials, go to http://ir.thorindustries.com.
About Thor Industries, Inc.
Thor is the sole owner of operating subsidiaries that, combined, represent the world's largest manufacturer of recreational vehicles. For more information on the Company and its products, please go to www.thorindustries.com.
Forward-Looking Statements
This release includes certain statements that are "forward-looking" statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made based on management's current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward-looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others, the extent and impact of the coronavirus pandemic and various governmental mandates imposed due to the pandemic on retail customer demand, our independent dealers, our supply chain, our production and the resulting impact on our consolidated results of operations, financial position, cash flows and liquidity; the effect of raw material and commodity price fluctuations; raw material, commodity or chassis supply restrictions; the impact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred; legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with governmental regulation; legal and compliance issues including those that may arise in conjunction with recently completed transactions; lower consumer confidence and the level of discretionary consumer spending, especially in the wake of the coronavirus pandemic; interest rate fluctuations; the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers; restrictive lending practices; management changes; the success of new and existing products, services and production facilities; consumer preferences; the ability to efficiently utilize existing production facilities; the pace of acquisitions and the successful closing, integration and financial impact thereof; the potential loss of existing customers of acquisitions; our ability to retain key management personnel of acquired companies; a shortage of necessary personnel for production; the loss or reduction of sales to key dealers; disruption of the delivery of units to dealers; increasing costs for freight and transportation; asset impairment charges; cost structure changes; competition; the impact of potential losses under repurchase or financed receivable agreements; the potential impact of the strength of the U.S. dollar on international demand for products priced in U.S. dollars; general economic, market and political conditions in the various countries in which our products are produced and/or sold; the impact of changing emissions and other regulatory standards in the various jurisdictions in which our products are produced and/or sold; and changes to our investment and capital allocation strategies or other facets of our strategic plan. Additional risks and uncertainties surrounding the acquisition of Erwin Hymer Group SE ("EHG") include risks regarding the potential benefits of the acquisition and the anticipated operating synergies, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business. These and other risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2019 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ended April 30, 2020.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this release or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
THOR INDUSTRIES, INC. | |||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE | |||||||||||||||||||||
Three and Nine Months Ended April 30, 2020 and 2019 | |||||||||||||||||||||
($000's except share and per share data) (Unaudited) | |||||||||||||||||||||
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| Three Months Ended April 30, |
| Nine Months Ended April 30, | |||||||||||||||||
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| 2020 | % Net
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| 2019 | % Net
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| 2020 | % Net
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| 2019 | % Net
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Net sales |
| $ | 1,681,735 |
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| $ | 2,506,583 |
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| $ | 5,843,653 |
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| $ | 5,553,135 |
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Gross profit |
| $ | 205,633 | 12.2% |
| $ | 292,430 | 11.7% |
| $ | 770,850 |
| 13.2% |
| $ | 641,282 | 11.5% | ||||
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Selling, general and administrative
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| 128,147 | 7.6% |
| 176,983 | 7.1% |
| 478,968 |
| 8.2% |
| 364,745 | 6.6% | ||||||||
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Amortization of intangible assets |
| 24,079 | 1.4% |
| 25,259 | 1.0% |
| 72,645 |
| 1.2% |
| 50,376 | 0.9% | ||||||||
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Impairment charges |
| — | —% |
| — | —% |
| 10,057 |
| 0.2% |
| — | —% | ||||||||
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Acquisition-related costs |
| — | —% |
| 13,363 | 0.5% |
| — |
| —% |
| 112,511 | 2.0% | ||||||||
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Interest income (expense), net |
| (26,021) | (1.5)% |
| (32,962) | (1.3)% |
| (79,331) |
| (1.4)% |
| (31,800) | (0.6)% | ||||||||
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Other income (expense), net |
| (6,157) | (0.4)% |
| (2,340) | (0.1)% |
| (5,123) |
| (0.1)% |
| (6,937) | (0.1)% | ||||||||
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Income before income taxes |
| 21,229 | 1.3% |
| 41,523 | 1.7% |
| 124,726 |
| 2.1% |
| 74,913 | 1.3% | ||||||||
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Income taxes |
| (1,555) | (0.1)% |
| 10,085 | 0.4% |
| 23,071 |
| 0.4% |
| 34,939 | 0.6% | ||||||||
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Net income |
| 22,784 | 1.4% |
| 31,438 | 1.3% |
| 101,655 |
| 1.7% |
| 39,974 | 0.7% | ||||||||
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Less: net income (loss)
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| (1,284) | (0.1)% |
| (1,246) | —% |
| (2,151) |
| —% |
| (1,246) | —% | ||||||||
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Net income attributable to Thor
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| $ | 24,068 | 1.4% |
| $ | 32,684 | 1.3% |
| $ | 103,806 |
| 1.8% |
| $ | 41,220 | 0.7% | ||||
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Earnings per common share |
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Basic |
| $ | 0.44 |
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| $ | 0.59 | $ | 1.88 |
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| $ | 0.77 |
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Diluted |
| $ | 0.43 |
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| $ | 0.59 | $ | 1.88 |
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| $ | 0.77 |
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Weighted-avg. common shares
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| 55,198,756 |
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| 55,063,473 | 55,163,943 |
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| 53,515,491 |
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Weighted-avg. common shares
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| 55,392,982 |
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| 55,166,067 | 55,337,665 |
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| 53,627,627 |
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(1) Percentages may not add due to rounding differences | |||||||||||||||||||||
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SUMMARY CONDENSED CONSOLIDATED BALANCE SHEETS ($000) (Unaudited) | |||||||||||||||||||||
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| April 30, 2020 |
| July 31, 2019 |
| April 30, 2020 |
| July 31, 2019 |
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Cash and equivalents |
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| $ | 654,965 |
| $ | 451,262 |
| Current liabilities | $ | 1,266,270 |
| $ | 1,448,325 |
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Accounts receivable, net |
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| 514,794 |
| 716,227 |
| Long-term debt | 1,965,981 |
| 1,885,253 |
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Inventories, net |
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| 867,647 |
| 827,988 |
| Other long-term liabilities | 268,527 |
| 231,640 |
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Prepaid expenses and other |
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| 51,372 |
| 41,880 |
| Stockholders' equity | 2,111,512 |
| 2,095,228 |
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Total current assets |
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| 2,088,778 |
| 2,037,357 |
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Property, plant & equipment, net |
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| 1,079,676 |
| 1,092,471 |
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Goodwill |
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| 1,396,401 |
| 1,358,032 |
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Amortizable intangible assets, net |
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| 888,258 |
| 970,811 |
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Deferred income taxes and other, net |
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| 159,177 |
| 201,775 |
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Total |
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| $ | 5,612,290 |
| $ | 5,660,446 |
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| $ | 5,612,290 |
| $ | 5,660,446 |
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Contact
Investor Relations:
Mark Trinske, Vice President of Investor Relations
mtrinske@thorindustries.com
(574) 970-7912
THIRD QUARTER FISCAL 2020 RESULTS Exhibit 99.2
Forward-Looking Statements This presentation includes certain statements that are “forward-looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made based on management’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward-looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others, the extent and impact of the coronavirus pandemic and various governmental mandates imposed due to the pandemic on retail customer demand, our independent dealers, our supply chain, our production and the resulting impact on our consolidated results of operations, financial position, cash flows and liquidity; the effect of raw material and commodity price fluctuations; raw material, commodity or chassis supply restrictions; the impact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred; legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with governmental regulation; legal and compliance issues including those that may arise in conjunction with recently completed transactions; lower consumer confidence and the level of discretionary consumer spending, especially in the wake of the coronavirus pandemic; interest rate fluctuations; the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers; restrictive lending practices; management changes; the success of new and existing products, services and production facilities; consumer preferences; the ability to efficiently utilize existing production facilities; the pace of acquisitions and the successful closing, integration and financial impact thereof; the potential loss of existing customers of acquisitions; our ability to retain key management personnel of acquired companies; a shortage of necessary personnel for production; the loss or reduction of sales to key dealers; disruption of the delivery of units to dealers; increasing costs for freight and transportation; asset impairment charges; cost structure changes; competition; the impact of potential losses under repurchase or financed receivable agreements; the potential impact of the strength of the U.S. dollar on international demand for products priced in U.S. dollars; general economic, market and political conditions in the various countries in which our products are produced and/or sold; the impact of changing emissions and other regulatory standards in the various jurisdictions in which our products are produced and/or sold; and changes to our investment and capital allocation strategies or other facets of our strategic plan. Additional risks and uncertainties surrounding the acquisition of Erwin Hymer Group SE ("EHG") include risks regarding the potential benefits of the acquisition and the anticipated operating synergies, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business. These and other risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2019 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ended April 30, 2020. We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this presentation or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
Third Quarter Highlights Fiscal Year 2020 $1.68 bn NET SALES In the third fiscal quarter, Thor was profitable and generated positive net cash from operations. Net cash from operations for the year-to-date period was $237.3 million Thor achieved a gross profit margin of 12.2% by responding aggressively to align its cost structure to meet challenging market conditions Life-to-date the Company has paid approximately $543 million on its $2.2 billion of acquisition-related debt ~$543 mm ACQUISITION-RELATED DEBT REDUCTION(1) $0.43 DILUTED EPS 12.2% GROSS MARGIN (1) Since acquisition of the Erwin Hymer Group on February 1, 2019. European 36.6% $615.3 mm NA Motorized 15.7% $264.0 mm NA Towables 46.0% $773.4 mm Other 1.7% $29.0 mm
Third Quarter 2020 Financial Results Net Sales Net sales were $1.68 billion in the third quarter, reflecting the economic impact of the COVID-19 pandemic Gross Profit Gross profit was $205.6 million in the third quarter Gross profit margin improved to 12.2% in the third quarter of fiscal 2020 from 11.7% in the prior-year period, with the increase in percentage primarily due to the impact of the one-time, prior-year period purchase accounting adjustment(1), partially offset by the impact of the decrease in net sales compared to the prior-year period (1) Prior-year period included $61.4 million of purchase accounting adjustments related to the European recreational vehicle segment for the the step-up in value of acquired inventory.
Temporarily suspended production at all of its North American RV production facilities and a substantial portion of its European RV production in late March Aligned cost structure with volumes and demand environment Enacted employee furloughs or pay reductions for hourly and salaried employees CEO compensation reduced to zero, Named Executive Officers cash compensation reduced by at least 40% and Board of Directors compensation also reduced by 40% Reduced discretionary spending COVID-19 Response and Actions Generated positive cash flow with net cash from operations for the year-to-date period of $237.3 million Focused on preserving liquidity — estimated full-year FY 2020 capital spending outlook reduced from $135 million to approximately $100 million Subsequent to quarter end, repaid $250 million of ABL borrowings based on increased confidence in business outlook Cash on-hand remains strong and unused availability under the ABL of approximately $396 million at June 5, 2020 Minimal required principle payments on the Company’s outstanding debt obligations, averaging less than $5 million per quarter Cost Reduction Cash Flow Strong Financial Position
Third Quarter 2020 North American Towable Segment Net Sales Net sales of North American Towable RVs in the third quarter of fiscal 2020 showed the impact of the COVID-19 pandemic on current-period sales, decreasing 37.5% Gross Profit Margin Gross profit margin was in line with the prior fiscal third quarter, and was primarily driven by the impact of lower net sales, partially offset by reduced material and labor costs as a percent of sales $857.9 mm in Backlog North American Towable backlog at April 30, 2020 was on par with the prior-year period
Net Sales Fiscal 2020 third quarter net sales of North American Motorized RVs reflected the impact of the COVID-19 pandemic on current-period sales which decreased by 42.5% compared to the prior year Third Quarter 2020 North American Motorized Segment Gross Profit Margin Gross profit margin remained relatively unchanged in the fiscal third quarter as the Company reduced material and labor costs, partially offsetting the impact of lower net sales $548.0 mm in Backlog North American Motorized backlog increased approximately $34.2 million, or 6.7%, during the third quarter
$615.3 mm in Net Sales European RV segment net sales for the fiscal third quarter were down 19.8% from $767.5 million in the prior-year period, and included the impact of the COVID-19 pandemic Third Quarter 2020 European Segment $62.6 mm in Gross Profit Gross profit improved to $62.6 million, or 10.2% of net sales, primarily due to the impact of the one-time, prior-year period purchase accounting adjustment(1), partially offset by the impact of the decrease in net sales compared to the prior-year period $803.5 mm in Backlog Thor’s European RV backlog increased $116.1 million, or 16.9%, in the third quarter Other 10.5% $65.0 mm Campervan 17.0% $104.5 mm Caravans 10.7% $65.8 mm Motorcaravan 61.8% $380.0 mm (1) Prior-year period included $61.4 million of purchase accounting adjustments related to the European recreational vehicle segment.
(1) Source: Statistical Surveys, Inc., U.S. and Canada, CYTD through March 31, 2020 and 2019 (2) Source: Recreation Vehicle Industry Association, CYTD through April 2020 (3) Source: The Conference Board, Consumer Confidence Survey® 2020 Industry Wholesale Shipments by Type (2) Consumer Confidence vs. RV Retail Registrations Calendar Year-to-Date RV Market Share (1) RV Industry Overview — North America 2019 2018 Total Share % Total Share % THOR Industries 32,468 40.8 % 40,101 44.5 % Forest River 28,312 35.6 % 31,040 34.4 % Grand Design 6,778 8.5 % 5,640 6.3 % Winnebago 2,931 3.7 % 3,175 3.5 % REV Group 1,124 1.4 % 1,353 1.5 % Gulfstream 863 1.1 % 946 1.0 % Subtotal 72,476 91.1 % 82,255 91.2 % All Others 7,042 8.9 % 7,925 8.8 % Grand Total 79,518 100.0 % 90,180 100.0 % THOR Forest River Winnebago Grand Design REV Group Gulfstream All Others 2020 Towable 69,881 units 2020 Motorized 9,637 units 2019 Motorized 10,997 units 2019 Towable 79,183 units 38.2% 41.2% 36.0% 45.6% 38.0% 18.4% 9.7% 1.3% 8.7% 1.1% 21.1% 7.2% 15.1% 8.6% 7.1% 36.1% 1.1% 1.5% 15.6% 22.1% 18.4% 7.9% Note: 2020 represented above includes the trailing twelve months of registrations ended March
RV Industry Overview — North America RV Wholesale Market Trends (Units 000's) Towable RV Wholesale Market Trends (Units 000's) YTD Shipments (Units) Mar. 2020 Mar. 2019 Unit Change % Change 100,404 99,976 428 +0.4% YTD Shipments (Units) Mar. 2020 Mar. 2019 Unit Change % Change 90,327 87,253 3,074 +3.5% Motorized RV Wholesale Market Trends (Units 000's) YTD Shipments (Units) Mar. 2020 Mar. 2019 Unit Change % Change 10,077 12,723 (2,646) (20.8)% Historical Data: Recreation Vehicle Industry Association (RVIA) 5-year CAGR: 2.6% 5-year CAGR: 2.8% 5-year CAGR: 1.2%
RV Industry Overview — Europe Source: European Caravan Federation, 2019 and 2020 calendar quarters ended March 31; European retail registration data available at www.CIVD.de Source: Statistical Surveys (www.statisticalsurveys.com) Country Caravans Motorcaravans Total YTD March 31, % YTD March 31, % YTD March 31, % 2020 2019 Change 2020 2019 Change 2020 2019 Change Germany 6,123 6,079 0.7 % 15,383 12,162 26.5 % 21,506 18,241 17.9 % U.K. 3,961 5,432 (27.1) % 2,448 3,812 (35.8) % 6,409 9,244 (30.7) % France 1,588 1,931 (17.8) % 4,516 5,564 (18.8) % 6,104 7,495 (18.6) % Spain 448 603 (25.7) % 1,410 1,478 (4.6) % 1,858 2,081 (10.7) % Netherlands 1,623 1,612 0.7 % 537 444 20.9 % 2,160 2,056 5.1 % Italy 99 166 (40.4) % 1,112 1,795 (38.1) % 1,211 1,961 (38.2) % Belgium 273 335 (18.5) % 1,171 1,436 (18.5) % 1,444 1,771 (18.5) % Switzerland 312 330 (5.5) % 1,538 1,285 19.7 % 1,850 1,615 14.6 % Sweden 516 389 32.6 % 385 450 (14.4) % 901 839 7.4 % All Others 1,830 1,824 0.3 % 1,841 1,904 (3.3) % 3,671 3,728 (1.5) % Total 16,773 18,701 (10.3) % 30,341 30,330 — % 47,114 49,031 (3.9) % European Industry Unit Registrations by Country (1) The Company monitors retail trends in the European RV market as reported by the European Caravan Federation, whose industry data is reported to the public quarterly, typically issued on a one-to-two month lag, continually updated and often impacted by delays in reporting by various countries Industry wholesale shipment data for the European RV market is not available First-Quarter Registrations Comparison of New Vehicle Registrations by Continent (Units 000's) (1) (2)
INVESTOR RELATIONS CONTACT: Mark Trinske Vice President of Investor Relations mtrinske@thorindustries.com (574) 970-7912
THIRD QUARTER 2020 INVESTOR QUESTIONS & ANSWERS
Published June 8, 2020
Forward-Looking Statements
Reference is made to the forward-looking statements disclosure provided at the end of this document.
Executive Overview
|
▪ |
Net sales for the third quarter were $1.68 billion. Third-quarter results include $1.04 billion in North American RV sales and $615.3 million in European RV net sales. |
|
▪ |
Gross profit margin for the third quarter was 12.2%. |
|
▪ |
Net income attributable to Thor for the third quarter was $24.1 million. |
|
▪ |
Net cash from operations for the year-to-date period was $237.3 million. |
|
▪ |
Diluted earnings per share were $0.43. |
|
▪ |
The Company continued to make progress paying down its acquisition-related debt during the quarter and, life-to-date, has paid $543 million on this debt. |
|
▪ |
Outlook improves for the Company's fiscal fourth quarter. Sales and backlog for May, the first month of the Company's fiscal fourth quarter, improved on a weekly basis as dealers began to reopen their dealerships and consumer demand increased. |
Today, the Company reported that it was profitable and generated positive net cash from operations in its third quarter, despite the negative impact to sales during the quarter as a result of the pandemic. Its financial position has remained strong as a result of numerous management-led actions that were executed quickly in conjunction with its temporary plant shut-downs which began in mid-March. The results illustrate the Company's ability to quickly align its production and cost structure to meet fast changing market conditions.
COVID-19 Impact
COVID-19 and the related governmental mandates implemented to slow its spread in North America and Europe had a significant negative impact on the Company's results of operations for the third quarter of fiscal 2020. Consolidated net sales, gross profit, North American and European wholesale shipments and retail sales were all negatively affected during the quarter.
For nearly half of the quarter, retail consumers were under strict shelter-in-place requirements in most North American and European locations, limiting their ability to buy the Company's products from our independent dealers. The operations of the Company's independent dealers were likewise disrupted as many of them were required to close their showrooms. Due to these dealer closures, sales and shipments of our products were disrupted in the second half of March and April, two of our normally strongest sales and shipment months. Sales and backlog for May, the first month of our fourth fiscal quarter, improved on a weekly basis as dealers began to reopen their dealerships and consumer demand increased.
During the quarter, the Company initiated numerous actions to actively manage both our costs and liquidity in response to the initial extreme uncertainty created by the pandemic. In mid-March, the Company temporarily suspended production at all of its North American RV production facilities and temporarily suspended a substantial portion of its European RV production. Beginning in March and throughout the remainder of the third quarter, the Company furloughed or laid off a number of valuable team members, primarily in our U.S.-based operations, and many employees across the Company saw a reduction in their cash compensation, including our CEO who volunteered to move his base compensation to zero until the market returned. In addition, the Company also significantly reduced its discretionary spend and curtailed spending on most capital projects. Due to the high degree of uncertainty that existed initially related to the impact or duration of the various governmental shut-downs, and out of an abundance of caution, the Company drew $250 million against its asset-based line of credit in late March to enhance its liquidity position. In late May, the Company repaid this borrowing.
Long-Term Outlook Assumptions
Absent a significant long-term economic impact to the United States or Europe as a direct or indirect result of the coronavirus or other event, our long-term outlook for the RV industry is one of optimism based on:
|
▪ |
Positive long-term RV industry fundamentals in both North America and Europe. This assumption is supported by favorable demographics, consumer confidence rates and adequate availability of dealer and consumer credit. |
A positive long-term outlook for both the North American and European RV industry is also supported by the exceptional benefits RVs provide. As supported by surveys conducted by Thor, RVIA and others, a large percentage of families, couples and individuals enjoy spending time outdoors and the enrichment that comes with living an active lifestyle. Based on the increasing value consumers are placing on these factors, we expect to see long-term growth in the RV industry.
|
▪ |
Long-term optimism from independent dealers in both North America and Europe. Independent dealer optimism remains high for the long term, as demand is expected to be driven by favorable demographic and lifestyle growth trends. Many dealers, particularly larger dealers in North America, continue to invest heavily in their businesses with new or expanded locations, added service facilities and other amenities to serve RV consumers. |
|
▪ |
Market conditions in North America. We believe that the independent dealer inventory is now currently at a reasonable, if not low level. Given the impact of COVID-19 and the fluidity of the market, it is hard to project retail sales for the remainder of our fiscal year. However, our outlook for future growth in North American retail sales remains optimistic. We believe consumers are likely to alter their future vacation and travel plans, opting for fewer vacations via air travel, cruise ships and hotels, and preferring vacations that RVs are uniquely positioned to provide, where they can continue practicing social distancing while also allowing them to explore or unwind, often close to home. Minimal-contact vacation options like road trips and camping are ideal for people who want to keep their risk factors low. |
|
▪ |
Market conditions in Europe. Currently, independent dealer inventory levels of EHG products in Europe vary based on the location of the dealership, the length and depth of the pandemic and the governmental restrictions that are, or were, in place in those locations, the pace of returning to normal economic conditions, and the impact of the pandemic on consumer behavior. Generally, the current level of EHG inventory on hand at our independent dealer body is fresh and appropriate, or slightly high, for current demand trends. |
|
▪ |
Supply chain is a near-term risk. Our optimism is tempered in the near term by actual or potential supply constraints within our supplier base. We are working closely with key suppliers in both the US and Europe to minimize any potential disruptions; however, chassis supply constraints within our European supplier base in particular are expected to cause intermittent temporary line shut-downs and reduced output in the near-term. |
.
2
Summary of Key Quarterly Segment Data – North American Towable RVs
NET SALES: |
Three Months Ended |
|
Three Months Ended |
|
% Change |
|||||
North American Towables |
|
|
|
|
|
|||||
Travel Trailers and Other |
$ |
455,434 |
|
|
$ |
734,028 |
|
|
(38.0) |
% |
Fifth Wheels |
317,957 |
|
|
503,227 |
|
|
(36.8) |
% |
||
Total North American Towables |
$ |
773,391 |
|
|
$ |
1,237,255 |
|
|
(37.5) |
% |
|
|
|
|
|
|
|||||
# OF UNITS: |
Three Months Ended |
|
Three Months Ended |
|
% Change |
|||||
North American Towables |
|
|
|
|
|
|||||
Travel Trailers and Other |
21,518 |
|
|
35,226 |
|
|
(38.9) |
% |
||
Fifth Wheels |
6,715 |
|
|
10,619 |
|
|
(36.8) |
% |
||
Total North American Towables |
28,233 |
|
|
45,845 |
|
|
(38.4) |
% |
||
|
|
|
|
|
|
|||||
ORDER BACKLOG |
As of |
|
As of |
|
% Change |
|||||
North American Towables |
$ |
857,866 |
|
|
$ |
896,024 |
|
|
(4.3) |
% |
|
|
|
|
|
|
|||||
TOWABLE RV MARKET SHARE SUMMARY (1) |
Calendar Quarter Ended March 31, |
|
|
|||||||
|
2020 |
|
2019 |
|
|
|||||
U.S. Market |
40.8 |
% |
|
45.4 |
% |
|
|
|||
Canadian Market |
48.7 |
% |
|
51.0 |
% |
|
|
|||
Combined North American Market |
41.2 |
% |
|
45.6 |
% |
|
|
(1) Source: Statistical Surveys, Inc. YTD March 31, 2020 vs. YTD March 31, 2019
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment and is continuously updated, and is often impacted by delays in reporting by various states or provinces.
3
Summary of Key Quarterly Segment Data – North American Motorized RVs
NET SALES: |
Three Months Ended |
|
Three Months Ended |
|
% Change |
|||||
North American Motorized |
|
|
|
|
|
|||||
Class A |
$ |
96,849 |
|
|
$ |
201,927 |
|
|
(52.0) |
% |
Class C |
144,826 |
|
|
242,912 |
|
|
(40.4) |
% |
||
Class B |
22,362 |
|
|
14,399 |
|
|
55.3 |
% |
||
Total North American Motorized |
$ |
264,037 |
|
|
$ |
459,238 |
|
|
(42.5) |
% |
|
|
|
|
|
|
|||||
# OF UNITS: |
Three Months Ended |
|
Three Months Ended |
|
% Change |
|||||
North American Motorized |
|
|
|
|
|
|||||
Class A |
795 |
|
|
1,657 |
|
|
(52.0) |
% |
||
Class C |
1,910 |
|
|
3,522 |
|
|
(45.8) |
% |
||
Class B |
180 |
|
|
98 |
|
|
83.7 |
% |
||
Total North American Motorized |
2,885 |
|
|
5,277 |
|
|
(45.3) |
% |
||
|
|
|
|
|
|
|||||
ORDER BACKLOG |
As of |
|
As of |
|
% Change |
|||||
North American Motorized |
$ |
547,952 |
|
|
$ |
513,703 |
|
|
6.7 |
% |
|
|
|
|
|
|
|||||
MOTORIZED RV MARKET SHARE SUMMARY (1) |
Calendar Quarter Ended March 31, |
|
|
|||||||
|
2020 |
|
2019 |
|
|
|||||
U.S. Market |
38.0 |
% |
|
35.8 |
% |
|
|
|||
Canadian Market |
46.0 |
% |
|
41.8 |
% |
|
|
|||
Combined North American Market |
38.2 |
% |
|
36.0 |
% |
|
|
(1) Source: Statistical Surveys, Inc. YTD March 31, 2020 vs. YTD March 31, 2019
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment and is continuously updated, and is often impacted by delays in reporting by various states or provinces.
4
Summary of Key Quarterly Segment Data – European RVs
NET SALES: |
Three Months Ended |
|
Three Months Ended |
|
% Change |
|||||
European |
|
|
|
|
|
|||||
Motorcaravan |
$ |
380,023 |
|
|
$ |
506,964 |
|
|
(25.0) |
% |
Campervan |
104,486 |
|
|
94,226 |
|
|
10.9 |
% |
||
Caravan |
65,790 |
|
|
100,741 |
|
|
(34.7) |
% |
||
Other |
65,044 |
|
|
65,578 |
|
|
(0.8) |
% |
||
Total European |
$ |
615,343 |
|
|
$ |
767,509 |
|
|
(19.8) |
% |
|
|
|
|
|
|
|||||
# OF UNITS: |
Three Months Ended |
|
Three Months Ended |
|
% Change |
|||||
European |
|
|
|
|
|
|||||
Motorcaravan |
6,905 |
|
|
9,029 |
|
|
(23.5) |
% |
||
Campervan |
3,320 |
|
|
3,218 |
|
|
3.2 |
% |
||
Caravan |
3,443 |
|
|
5,202 |
|
|
(33.8) |
% |
||
Total European |
13,668 |
|
|
17,449 |
|
|
(21.7) |
% |
||
|
|
|
|
|
|
|||||
ORDER BACKLOG |
As of |
|
As of |
|
% Change |
|||||
European |
$ |
803,522 |
|
|
$ |
687,418 |
|
|
16.9 |
% |
|
|
|
|
|
|
|||||
EUROPEAN RV MARKET SHARE SUMMARY (1) |
Calendar Quarter Ended March 31, |
|
|
|||||||
|
2020 |
|
2019 |
|
|
|||||
Motorcaravan and Campervan (2) |
23.5 |
% |
|
22.0 |
% |
|
|
|||
Caravan |
19.5 |
% |
|
22.0 |
% |
|
|
(1) Source: European Caravan Federation ("ECF"), YTD March 31, 2020 vs. YTD March 31, 2019. Data from the ECF is subject to adjustment, continuously updated and is often impacted by delays in reporting by various countries (some countries, including the United Kingdom, do not report OEM-specific data and are thus excluded from the market share calculation).
(2) The ECF reports motorcaravans and campervans together.
Note: Industry wholesale shipment data for the European RV market is not available.
5
Third Quarter Operating Results
|
1. |
How was Thor able to generate positive net income despite a reduction in sales versus the prior year? |
|
a. |
We have created a highly variable cost structure and a flexible operating model that allow us to quickly respond to fast-changing market conditions and which enabled us to generate positive third quarter net income of $24.1 million and positive operating cash flow despite sales being down 33% year over year due to the COVID-19 pandemic. Our highly variable cost structure provided us the ability to flex our operations down quickly, despite the short notice, and take numerous other cost reduction measures in response to the pandemic. In addition, prior to the temporary production shut-downs, we continued to make strides in implementing operational process improvements, which resulted in material and labor costs as a percentage of sales decreasing on a year-over-year basis. |
|
2. |
What was Thor's adjusted EBITDA for the third quarter? |
|
a. |
Although we do not generally disclose non-GAAP numbers, we recognize that many of the users of our financial statements find a measure of EBITDA adjusted for non-cash or non-routine items to be useful. Below are some items within our financial statements that might be helpful in considering this question: |
|
Three Months Ended |
|
Nine Months Ended |
||||
|
(000's) |
|
(000's) |
||||
Income Before Income Taxes (1) |
$ |
21,229 |
|
|
$ |
124,726 |
|
Depreciation & Amortization (2) |
45,459 |
|
|
144,611 |
|
||
Impairment Charges (1) |
— |
|
|
10,057 |
|
||
Net Interest Expense (1) |
26,021 |
|
|
79,331 |
|
||
Stock-Based Compensation Expense (3) |
4,350 |
|
|
14,425 |
|
||
|
$ |
97,059 |
|
|
$ |
373,150 |
|
|
|
|
|
||||
As a % of Consolidated Net Sales |
5.8 |
% |
|
6.4 |
% |
(1) From the Income Statement |
|
(2) From the Business Segments footnote |
|
(3) From the Statement of Cash Flows |
During the quarter, the Company also incurred certain COVID-19 related expenses. Direct costs of approximately $8.5 million were incurred related to compensation and benefit-related items, personal protective equipment, specialized cleaning services, professional fees, and other costs. Also impacting the results for the quarter were expenses of approximately $14 million related to a reduction in volume supplier rebate receivables, incremental sales discounts, and other reserve adjustments as a result of the impact of COVID-19 on our operations.
6
|
3. |
Can you comment on your restart of production? What level of capacity are you currently running? |
|
a. |
The restart of production is going very well. Mindful of the challenge of operating in midst of a pandemic, we carefully reintroduced our team members to our restart process. By late May, we had returned nearly 100% of our workforce which was an important step to enable us to meet the strong demand from our dealers and retail customers. |
In terms of capacity, our production varies by plant and product. While some plants have recently started to resume production at below capacity, other plants are running at full pre-COVID-19 run rates. Our facilities are flexible and easily adept at producing units at a faster or slower pace as dictated by demand in the market. We will continue to manage our production schedules to be in line with dealer demand and avoid over-producing.
|
4. |
Can you provide color on demand/production at a product segment level? |
|
a. |
In North America, current production and demand is generally focused on entry-level products within each product class across our Towable and Motorized segments. We are also seeing improving demand for our Class B and C products, and higher price-point products as well. |
In Europe, demand varies by geography as well as product segment. Currently, Germany and France are performing across product segments better than Italy, Spain and the UK. Post quarter-end, we are seeing an increase in sales, current dealer sentiment remains positive, the industry has seen an inflow of, new, first-time buyers and there has been favorable media coverage of the RV industry as an alternative to other leisure activities.
|
5. |
Can you give an update on Hymer USA? |
|
a. |
In January, we announced the formation of Hymer USA, a new subsidiary which will produce RVs in Bristol, Indiana, utilizing European manufacturing practices, automation and control standards. As we were impacted by COVID-19 which prohibited international travel, key employees deemed necessary for that startup were no longer able to enter the United States. As such, our plans were suspended. As we continue to rethink our business and how we can most effectively operate during and after the pandemic, we remain very focused on introducing a product line based on European manufacturing processes. We continue to believe that such a product line offers a differentiated product that would perform well in our market. However, we are taking the opportunity of this break to think through the best strategy for such an endeavor and are currently evaluating exactly how we would structure that initiative. In the meantime, we will continue to leverage the strengths of both our North American and European subsidiaries, along with maximizing the synergies which are now uniquely available to us. We also remain committed to bringing the product and manufacturing processes that have made the Erwin Hymer Group the leader in design and innovation in Europe to North America when it is possible to do so. |
7
|
6. |
Thor has been losing market share in the North American market. What are you doing to address this issue? |
|
a. |
We are maintaining our historical approach of balancing margin and profitability with market share to make sure that we are not pursuing sales with irrational pricing. At the same time, one of our strategic initiatives is specifically focused on increasing our market share in key markets. Our initiative includes ensuring we have the right products, at the right price points, with the quality our dealers and end consumers expect, and that are positioned at the right dealers to maintain and grow our share. |
|
7. |
Can you speak to the health of the dealer base given the current disruption? |
|
a. |
Dealers, in general, were in good financial condition going into the pandemic as their inventory aging was healthy and inventory levels were generally in-line, if not low for this time of season. The major floorplan lenders have been working with dealers to defer certain curtailment and other payments. In addition, we monitor inventory levels and aging closely on a regular basis. Both metrics generally remain healthy and within normal ranges as many dealers were able to continue selling units during March and April, albeit at lower volume levels, while most shipments from Thor and other OEMs were delayed until late April or May when consumers began to return to the marketplace. |
|
8. |
What changes to the RV industry do you envision coming out of this pandemic, especially with social distancing guidelines? |
|
a. |
Looking ahead, it’s undeniable that the RV lifestyle is a great way to social distance, create unforgettable family experiences, and to just get away and recharge. It is an affordable lifestyle as well. As consumers continue to practice good social distancing, more campgrounds open up, and more people feel safe to get out of the house, we have seen more people exploring the RV lifestyle. At least in the near term, we believe it will be difficult to hold traditional RV shows. In response, we and many of our dealers are enhancing our outreach to consumers through digital means. For example, we are utilizing a variety of digital strategies to target consumers who have traditionally invested in summer air and cruise travel, amusement parks and festivals and provide a sequence of RV content which creates interest in the RV lifestyle. Dealers are increasing investment in digital marketing, creating engaging product-specific video content and offering home delivery services, resulting in effective on-line purchase experiences. |
Additionally, we are seeing a strong influx of buyers that are new to the RV lifestyle. Trade-ins are below historical levels, indicating there is strong interest among first time buyers. RV rental bookings also saw a big spike in April. Historically, RV rentals have been a great avenue to get more consumers fully appreciating and embracing the RV lifestyle and often leads to a future RV purchase — a "try-it-before-you-buy-it" plan for customers that are new to RVing.
8
|
9. |
What are your cash priorities? Have they changed as a result of COVID-19? |
|
a. |
Our long-term capital allocation strategy remains unchanged. We will continue to prioritize funding our existing businesses, paying dividends, and reducing our acquisition-related debt while also considering opportunistic share repurchases. |
During the early part of the third quarter, we continued to make progress paying down our acquisition-related debt and, through June 5, 2020, have paid $543 million on our acquisition-related debt.
At the outset of the pandemic, out of an abundance of caution and given the lack of clarity on the duration or the severity of the pandemic on Thor or our industry, we strategically borrowed $250 million from our Asset Based Loan facility. In late May, we repaid that $250 million draw based on increased confidence in our outlook. Our cash on-hand remains strong with ample availability on our credit facility.
During the quarter, we also deferred certain non-critical capital expenditures as we focused on liquidity. We anticipate our fourth quarter capital expenditures will total between $20 and $25 million, which, when combined with our year-to-date spend through the third quarter of $77 million, will put our full-year capital expenditures at approximately $100 million as compared to the $135 million we had estimated at the beginning of fiscal 2020. As we have noted previously, our capital expenditures generally are very flexible and can be modified with short notice depending on market conditions. Despite the reduction in overall capital expenditures anticipated for fiscal 2020, we continued to invest in projects that support our long-term future — such as innovation, R&D, and various product and capacity-related items.
|
10. |
You made good progress on the SG&A costs this quarter. Will this trend continue? |
|
a. |
We did make significant strides in the quarter to reduce SG&A costs in light of the impact of COVID-19 on the quarter. Due primarily to management-led initiatives to reduce employee-related costs, as well as other discretionary spending items, we were able to cut SG&A expenses by $48.9 million in the quarter and deliver just a slightly elevated SG&A percentage to net sales of 7.6% as compared to 7.1% last year in spite of the significant reduction in year-over-year sales in the quarter. |
The primary drivers of the cost savings were salary and benefit savings, a reduction in incentive pay and reduced sales-related travel, advertising and promotional costs. We also benefited this quarter from a year-over-year $8.7 million reduction in our deferred compensation costs, which correlates with the decline in the market value of our deferred compensation plan assets and the reduction in the corresponding deferred compensation liability. This benefit in SG&A can alternate on a quarter-by-quarter basis depending on how the stock markets fluctuate and is offset entirely by the same amount impacting Other expense on the Income Statement which reflects the change in the value of the plan assets.
9
|
a. |
The third quarter effective income tax of (7.3)% reflects the impact of the revised full-year effective income tax rate on year-to-date taxable income. |
The forecasted, full-year effective tax rate of 14% to 17%, before consideration of any unknown discrete tax items, is lower primarily as a result of the current, lower, full-year forecasted taxable income from operations as a result of the COVID-19 pandemic. The forecasted full-year rate is also impacted by the taxable jurisdictions and tax rates applicable to the forecasted full-year taxable income, including certain interest income that is not subject to income tax.
|
12. |
What is the Company's outlook for the fourth quarter? |
|
a. |
Since the end of our third fiscal quarter, our outlook for the balance of our fiscal year and the calendar year has markedly improved. We are seeing an influx of first-time buyers, which bodes well for the long-term health of the RV industry. When the COVID-19 pandemic started, we saw many people start to work at home. One new trend we are seeing is an evolution from 'work at home' to 'work from anywhere' as RV buyers use their new RVs as their office wherever they are, or wherever they want to be. Our channel checks tell us that many of our independent RV dealers are seeing a significant resurgence in their sales, and their inventory levels, which were already down 20% year-over-year, are further declining. Demand for our products is very strong. Our flexible business model gives us the ability to quickly ramp production in a focused way, and we will ramp production with three primary objectives: the safety of our team members, the quality of our products, and the speed of our production, in that order. We remain steadfast in our confidence in the long-term outlook for not only our business, but the entire RV industry, and we continue look forward to a bright future. |
10
This document includes certain statements that are “forward-looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made based on management’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward-looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others, the extent and impact of the coronavirus pandemic and various governmental mandates imposed due to the pandemic on retail customer demand, our independent dealers, our supply chain, our production and the resulting impact on our consolidated results of operations, financial position, cash flows and liquidity; the effect of raw material and commodity price fluctuations; raw material, commodity or chassis supply restrictions; the impact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred; legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with governmental regulation; legal and compliance issues including those that may arise in conjunction with recently completed transactions; lower consumer confidence and the level of discretionary consumer spending, especially in the wake of the coronavirus pandemic; interest rate fluctuations; the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers; restrictive lending practices; management changes; the success of new and existing products, services and production facilities; consumer preferences; the ability to efficiently utilize existing production facilities; the pace of acquisitions and the successful closing, integration and financial impact thereof; the potential loss of existing customers of acquisitions; our ability to retain key management personnel of acquired companies; a shortage of necessary personnel for production; the loss or reduction of sales to key dealers; disruption of the delivery of units to dealers; increasing costs for freight and transportation; asset impairment charges; cost structure changes; competition; the impact of potential losses under repurchase or financed receivable agreements; the potential impact of the strength of the U.S. dollar on international demand for products priced in U.S. dollars; general economic, market and political conditions in the various countries in which our products are produced and/or sold; the impact of changing emissions and other regulatory standards in the various jurisdictions in which our products are produced and/or sold; and changes to our investment and capital allocation strategies or other facets of our strategic plan. Additional risks and uncertainties surrounding the acquisition of Erwin Hymer Group SE ("EHG") include risks regarding the potential benefits of the acquisition and the anticipated operating synergies, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business. These and other risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2019 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ended April 30, 2020.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this document or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
11
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