1Q17 Overview and Q&A

Forward Looking Statements

This document, including the list of questions and answers, 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 Industries, Inc., 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 from our expectations. Factors which could cause materially different results include, among others, raw material and commodity price fluctuations, material or chassis supply restrictions, legislative and regulatory developments, the impact of rising interest rates on our operating results, the costs of compliance with increased governmental regulation, legal and compliance issues including those that may arise in conjunction with recent transactions, the potential impact of increased tax burdens on our dealers and retail consumers, lower consumer confidence and the level of discretionary consumer spending, interest rate fluctuations and the potential economic impact of rising interest rates, restrictive lending practices, management changes, the success of new product introductions, the pace of obtaining and producing at new production facilities, the pace of acquisitions, the potential loss of existing customers of acquisitions, the integration of new acquisitions, our ability to retain key management personnel of acquired companies, the loss or reduction of sales to key dealers, the availability of delivery personnel, asset impairment charges, cost structure changes, competition, the impact of potential losses under repurchase agreements, the potential impact of the strengthening U.S. dollar on international demand, general economic, market and political conditions and the other risks and uncertainties discussed more fully in ITEM 1A of our Annual Report on Form 10-K for the year ended July 31, 2016 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ending October 31, 2016. We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this listing of questions and answers or to reflect any change in our expectations after the date of this listing or any change in events, conditions or circumstances on which any statement is based, except as required by law.

Executive Overview:

  • The first quarter marked a continuation of the strong momentum for Thor and the RV industry following a record fiscal year in 2016.  In the quarter, we generated impressive revenue and earnings growth reflecting the enthusiastic reception of our product offerings by dealers and consumers as well as the addition of a full quarter of results from Jayco.  
  • We had a very successful Dealer Open House during the first quarter, with a variety of new products that were well received by dealers, contributing to a significant increase in orders and associated backlogs at the end of the first quarter.
  • Jayco contributed meaningfully to revenues and earnings in the quarter.  We expect that Jayco will continue to positively impact Thor’s top and bottom line in fiscal 2017, with opportunities to further enhance its operations over the next several years.
  • We see many positive signs for Thor, with opportunities for growth among a variety of consumer demographics that should result in an expansion of our overall market.  This growth was manifested in the first quarter with strong organic growth, particularly with affordably priced travel trailers and motorhomes, supplemented by the addition of Jayco.
  • Our priorities for the use of future cash generated from operations include continuing to support and grow our core businesses, both organically and through acquisition; maintaining or growing our regular dividends; reducing our indebtedness; and considering strategic share repurchases or special dividends.  In the first quarter:
    • The Board increased our quarterly dividend by 10% to $0.33 per share
    • We reduced our debt facility by $20 million 
    • We invested over $26 million in a number of capital expenditure projects

First Quarter Operating Results:

What was the impact on Thor’s results from the Jayco acquisition?

We posted strong growth in revenues, both organically and from acquisitions in the first quarter, with double-digit organic growth in both towables and motorized. Thor’s first-quarter impact from the Jayco acquisition is illustrated below:

$000s 1Q17 1Q16 Change
Towable Revenue ex. Jayco $886,573 $744,679 19.1%
Jayco Revenue $324,300 - N/A
Total Towable Revenue $1,210,873 $744,679 62.6%
Motorized Revenue ex. Jayco $318,611 $251,099 26.9%
Jayco Revenue $142,843 - N/A
Total Motorized Revenue $461,454 $251,099 83.8%
Total Revenue ex. Jayco $1,241,388 $1,030,351 20.5%
Jayco Revenue $467,143 - N/A
Total Revenue $1,708,531 $1,030,351 65.8%
Gross Profit ex. Jayco $192,049 $152,216 26.1%
Jayco Gross Profit $44,703 - N/A
Total Gross Profit $236,752 $152,216 55.5%
Gross Margin % ex. Jayco 15.5% 14.8% +0.7%
Jayco Gross Margin % 9.6% - N/A
Total Gross Margin % 13.9% 14.8% -0.9%

What was the impact of Jayco on Towable and Motorized unit volumes, Dealer Inventory and Backlog?

The impact on Towable and Motorized unit volumes, Dealer Inventory and Backlog is illustrated below:

$000s 1Q17 1Q16 Change  
Towable Unit Sales ex. Jayco 35,435 28,933 22.5%  
Jayco Unit Sales 15,739 - N/A  
Total Towable Unit Sales 51,174 28,933 76.9%  
Motorized Unit Sales ex. Jayco 4,082 3,069 33.0%
Jayco Unit Sales 1,337 - N/A
Total Motorized Unit Saless 5,419 3,069 76.6%
Dealer Inventory Units ex. Jayco 71,600 66,200 8.2%
Jayco Dealer Inventory Units 27,500 - N/A
Total Dealer Inventory Units 99,100 66,200 49.7%
Towable Backlog ex. Jayco $958,438 $710,013 35.0%
Jayco Towable Backlog $441,965 - N/A
Total Towable Backlog $1,400,403 $710,013 97.2%
Motorized Backlog ex. Jayco $570,861 $341,010 67.4%
Jayco Motorized Backlog $135,530 - N/A
Total Motorized Backlog $706,391 $341,010 107.1%
Total Backlog ex. Jayco $1,529,299 $1,051,023 45.6%
Jayco Backlog $577,495 - N/A
Total Backlog $2,106,794 $1,051,023 100.5%

What specific actions are you taking to improve Jayco’s gross margins?

All of our subsidiaries are focused on continuous improvements in their operations, and Jayco’s management team shares that focus and drive. Over the near term, we expect to generate cost synergies in certain back-office functions, such as legal, insurance and employee benefits that will reduce costs. Over the longer term, Thor will act as a business and strategy resource to Jayco’s management team and will provide assistance in its mission to attain continuous improvement in all aspects of its operations. As a consequence, we expect Jayco’s cost structure to steadily improve. Our subsidiaries operate with great autonomy. Jayco’s management team recently implemented a restructuring of the Company that is designed to create greater leverage of talent and generate increased efficiencies throughout the various aspects of its operations. We expect that this will have a positive impact on its gross margins as management implements their plan.

Thor continues to report very strong sales and earnings growth, what is driving this performance? How does Thor’s performance compare to industry growth over the same period?

Thor’s strong growth in the first quarter was driven by the addition of a full quarter of results from Jayco as well as strong acceptance of its towable and motorized products by consumers and dealers. With the recent release of industry data for October, our 22.5% organic growth in towable unit sales for the quarter was generally in line with industry growth while our 33.0% organic growth in motorized unit sales for the quarter materially surpassed industry growth.

Backlog is up significantly, even absent the increase from the Jayco products. What’s driving the increase and do you have the capacity to fulfill demand?

Backlogs have been driven up as a result of the positive reception by dealers and consumers to the products we have introduced over the past year, particularly the more affordably priced travel trailers and motorhomes, and industry growth.

In alignment with our strategic plan, management has constantly focused on matching our capacity with the growing demand in our industry in a prudent manner that appreciates the realities of our industry. This process has resulted in a number of initiatives, including organic process improvements, realignment of existing facilities and acquisitions, all designed to increase our capacity. As we look ahead, we see continued growth in the demand for our products. Accordingly, for fiscal 2017, we have a number of planned production expansion projects both in process and anticipated. The process of evaluating our future production needs based on demand for our products is an ongoing one, and management will stay true to our strategic plan as it endeavors to best position Thor to seize the opportunities presented by the demand for our products and our growing market.

What was the nature and amount of expenses recognized in the first quarter that were directly related to the Jayco acquisition?

In the first quarter of fiscal 2017, we incurred purchase accounting adjustments related to the Jayco acquisition that reduced gross profit by approximately $2.6 million, of which $2.2 million was related to the motorized segment and $0.4 million was related to the towable segment. In addition, amortization in the first quarter relating to the Jayco acquisition was $12.9 million, which included $8.3 million associated with the remaining acquired backlog, as well as $4.6 million in amortization of dealer network and tradenames.

Balance Sheet and Cash Flow

What payments did you make on the debt facility and what was the average interest rate for borrowings during the quarter? How much availability existed at October 31, 2016 under the line?

During the quarter we paid the debt facility down by $20 million, which resulted in a remaining debt balance of $340 million as of October 31, 2016. Interest on borrowings under the credit facility is variable. During the first quarter of fiscal 2017, the weighted-average interest rate on borrowings was 2.11%. As of October 31, 2016, available and unused credit under the revolver was $157.8 million.

What drove the decrease in cash flow from operating activities in the first quarter?

Cash flow from operating activities decreased in the first three months of fiscal 2017 compared to the prior-year period due to the increases in net income and non-cash expenses being largely offset by changes in working capital, including a larger than usual seasonal increase in accounts receivable and a modest increase in inventory as well as reductions in accounts payable and accrued liabilities. As a result, cash provided by operations decreased from $18.9 million in the first quarter of fiscal 2016 to $1.3 million in fiscal 2017.

What drove the significant increase in Accounts Receivable in the first quarter?

The $86.4 million increase in accounts receivable was driven by the significant increase in sales during the quarter as well as the timing of sales near the end of the quarter.

What are your priorities for future cash utilization?

Our priorities haven’t changed. We strive to maintain adequate cash balances to ensure we have sufficient resources to respond to opportunities and changing business conditions within the RV industry. We will use current and future available cash generated from operations to support and grow our core businesses, both organically and through acquisitions, maintain and grow our regular dividends over time, and reduce indebtedness. Strategic share repurchases or special dividends as determined by the Board of Directors will also continue to be considered.

In addition to the reduction in indebtedness of $20 million during the quarter, we also increased our quarterly dividend from $0.30 per share to $0.33 per share and invested over $26 million in capital projects in support of our core businesses.

Market Conditions

Are you seeing any signs of slowing in the market?

No, at this point we are seeing continued strong demand in the market as new consumers continue to pursue the RV lifestyle. This is confirmed by the strong growth we’ve seen in our backlogs as well as the continued growth in retail sales through the first nine months of the year.

Describe the current competitive environment, is there much discounting going on?

The RV industry is always competitive, as our subsidiaries and our outside competitors continue to drive the industry forward with new and better products for dealers and consumers. However, given the industry-wide capacity limitations on certain products, most notably towable RVs, we have seen less traditional discounting pressure overall in the market than we did several years ago.

What is the nature of the current Dealer and Consumer credit environment?

The wholesale lending environment remains healthy, with normal credit line utilization and continued discipline among lenders concerning curtailments. Consumer credit is available and lending standards also appear healthy.

What is the health and status of the dealer body?

We maintain close relationships with our dealers, and the current health of the dealer base is generally very strong. Overall, dealers have reacted favorably to our new products, our efforts to increase capacity as well as our recent acquisition of Jayco, supporting the strong, cooperative connections we have with our dealers.

What is the long-term outlook for industry growth?

Currently the RVIA is forecasting 8.3% unit growth for the industry in calendar 2016, with an additional 1.4% growth in industry unit volumes in calendar 2017. Given current industry shipment trends through September, which indicate industry growth of 13.8% through the first nine months of 2016, RVIA will likely be updating their forecasts.

What has been the impact of younger consumers coming into the RV market? Are there any studies or statistics that you can point to that show the potential impact of Millennials on the RV industry?

According to RVIA, the 35-54 age demographic has been the fastest growing age group in the industry for the past 10 years. In addition, we have heard ample anecdotal evidence of younger consumers entering the industry from our extensive dealer base. Over the past two years, we have received consistent feedback from dealers that younger families have been coming into the industry and buying more affordably priced travel trailers and motorhomes.

What is the current state of the Canadian RV market?

The Canadian market remains challenging as the weakness in the value of the Canadian dollar relative to the U.S. dollar continues. Since we sell our products to Canadian dealers priced in U.S. dollars, this creates an upward pressure on prices in the local currency which has an adverse impact on demand. For calendar year 2015, total Canadian retail registrations as reported by Statistical Surveys, Inc. fell 12.9% from calendar 2014. Through September 2016, total Canadian retail registrations as reported by Statistical Surveys, Inc., continued to fall, with towables decreasing 13.8% and motorized registrations decreasing 8.5% - resulting in a total decrease of 13.5%.

How does consolidation within the dealer base impact Thor?

Consolidation within the dealer base, as well as expansion of dealers with new locations, can be a positive for Thor as dealers value partnering with strong manufacturers like Thor on their long-term growth initiatives. Consolidation may also present some challenges to us as larger dealers generally account for higher sales volume and thus may exercise more pricing power within the overall marketplace. This pricing power is balanced to a certain extent by our ability to provide the larger unit volumes on a timely basis. Our industry is defined by competition for dealers and, with or without dealer consolidation, that competition will continue.

What is the current status of the labor market in Northern Indiana?

Labor markets remain tight and competitive in Northern Indiana, but labor costs have generally been stable over the past year.

How do used RVs impact the demand and pricing for new products?

Robust demand for used RV inventory enhances trade-in values, which is necessary to support the new RV market where many consumers choose to purchase new units every 3-5 years. In recent years, availability of used RV inventory has been limited while new products at the entry level have been priced competitively, leading consumers to buy new products. We do recognize that as an alternative to new RVs, low prices on used products may prompt consumers to buy used instead of new. Overall, we view a healthy used RV market as a positive impact on the overall RV industry.


What is your outlook for the remainder of fiscal year 2017?

Currently, we see continued growth in our industry as consumers remain fairly optimistic about future economic conditions and we continue to see new consumers entering the RV market. With the addition of Jayco for the full year, we expect a strong contribution to sales and earnings from Jayco’s operations. As a result, we continue to expect double-digit growth in revenues and improvements in earnings throughout fiscal 2017.

With record sales for the quarter and a positive future outlook, are you operating at full capacity? What actions are you taking to increase capacity and minimize capacity constraints?

For certain product categories, we are very near our capacity, which is why we have been adding capacity over the past few years. Our approach to adding capacity is dynamic, as we seek to address production needs in a variety of ways, from enhancing production processes to increase the capacity of existing production facilities, to adding additional production lines or realigning existing production facilities, to building new production facilities. In each case, we strive to balance the need to meet the demand in the market for our products with the need to invest our capital wisely. During the quarter, we added facilities or production lines at Dutchmen, Heartland, Highland Ridge, Jayco, and Thor Motor Coach, and we are evaluating additional projects to increase capacity over the remainder of fiscal 2017.

What is the current status of your efforts to meet the demand for RVs in the West Coast markets?

Demand for product on the West Coast remains strong, and we see additional opportunities for growth in the West Coast markets, particularly in California and the Pacific Northwest. Currently, we have production facilities in Pendleton, Oregon, Nampa, Idaho and Twin Falls, Idaho and have announced plans to increase capacity at Heartland’s Nampa, Idaho facility, with the second production line expected to begin operation during the second quarter of fiscal 2017. We will continue to evaluate demand and capacity availability at our West Coast production facilities to determine the best long-term solutions for our dealers and consumers on the West Coast.

When looking to add capacity, what metrics do you look at to determine if it’s a wise investment?

Unlike other, more capital intensive industries, RV production facilities are typically smaller, between 70,000 and 90,000 square feet, with an average cost in the range of $3 million to $6 million. With this modest investment, we review a number of return metrics, with a focus on achieving a rapid payback on the investment which enhances return on invested capital. In addition, we typically build plants with a degree of flexibility so we can shift production to a variety of products depending on demand fundamentals. This flexibility further enhances the investment profile of new production facilities.

With all your current capacity additions, do you expect the startup of production to have an adverse impact on margins?

Although we usually experience costs associated with the startup of production in new or expanded facilities, it is important to understand that the impact of such costs depends on the relative size of the expansion and the complexity of the production involved. Generally, the startup of new or expanded towable facilities happens more quickly than the startup of motorized facilities, with lower initial costs. Over the past year, we have expanded a number of plants and started up new plants and their impact on our margins was not material.

Thor has continued to grow revenues since the recession. Has Thor reached its peak?

We do not believe either Thor or the RV Industry has reached a peak. RVIA continues to forecast strong growth in industry wholesale shipments for calendar 2016 of more than 8%, with even higher totals forecast for calendar 2017. We see many positive indicators to continued growth for both the RV industry as a whole and Thor specifically. Among the factors driving our optimism for continued growth:

  • Demographic trends, including:
    • younger consumers entering the market sooner than prior generations
    • an increase in the number of people entering the age brackets that historically have accounting for the bulk of retail sales
    • increasing diversity among campers
  • Changes in how consumers desire to spend their free time - with a much stronger desire to spend time with their friends and families enjoying the wide-array of destinations available throughout North America, tailgating, or attending other activity based events
  • Forecasted economic stability – relatively low inflation,  interest rates and fuel prices along with continued job and wage growth and strong, steady consumer confidence rates are expected to continue to fuel demand for RVs
  • Thor’s financial strength – we have a strong balance sheet to fund organic growth, a history of solid cash flow, availability under our credit facility and a track record of being successful, opportunistic acquirers.  We believe Thor will continue to capitalize on opportunities to grow in a strategically sound way.

Given this is the longest expansion in the RV industry in history, what gives you confidence that it will continue?

Unlike many of the expansions we’ve experienced over the past two decades, the current expansion has been driven largely by newer consumers entering the RV lifestyle with a trend toward more affordably priced segments of the market, including travel trailers, Gas Class A and Class C motorhomes. We view such a shift in the market to be more sustainable over the long term.

What are your views on RV industry consolidation?

Consolidation in our industry does not threaten the competitive environment as years of consolidation have evidenced. In fact, it tends to benefit the industry by heightening the competitive landscape and broadens the customer base by driving innovation and attracting more individuals to the RV lifestyle, all to the benefit of the retail customers. Therefore, even with more consolidation, we are confident that the competitive environment that drives innovation and improved product offerings throughout our industry will continue. In addition, we have seen a number of new or returning entrants to the RV manufacturer base since the recession as well.

What is your strategic plan for future acquisitions? Given that there are fewer RV manufacturers as potential targets, are you targeting other adjacent industries? Suppliers?

We will continue to evaluate acquisitions as we have done in the past. We will continue to be an opportunistic acquirer, and as potential acquisitions arise, we will evaluate them based on their strategic fit within Thor.

Contact Us

Thor Industries, Inc.

601 East Beardsley Avenue,
Elkhart, Indiana 46514-3305

Tel: +1 574 970 7460

Email Alerts


Enter the code shown above.