Austin Hankwitz (00:00):
Katie, when I heard that we were going to sit down with the CEO of Winnebago, I did not think we're going to hear Covid stories about him driving across the country and one of his rigs and sleeping in parking lots visiting one manufacturing plant to the next.
Katie Perry (00:13):
Yeah, Mike Happy was living that rockstar lifestyle for a bit. Super interesting to hear. Speaking of rock stars boats at Winnebago, this is not something that was on my radar. Was that on your radar Austin?
Austin Hankwitz (00:26):
No. And when he said that he made an electric boat, they've got this electric boat. I was like, dude, no way. This doesn't make any sense at all. It was pretty cool to hear though. I'm Austin Hankwitz.
Katie Perry (00:35):
I'm Katie Perry and this is after earnings the show brought to you by Morning Brew and Stakeholder Labs bring you up close and personal with the world's most interesting publicly traded companies. We got a great show today. We are sitting down with Mike happy, the CEO of Winnebago Industries.
Austin Hankwitz (00:49):
Alright, let's jump into the interview. Katie,
Katie Perry (00:51):
We're so eager to dive in because your company is synonymous with American Summers. You are the CEO of Winnebago. I think a lot of us grew up with memories of Winnebago, but a lot has changed over the past few years. So tell us about the business you're building at Winnebago.
Michael Happe (01:08):
Well listen, first of all, we're a proud American outdoor company with a long history and we are considered synonymous with one of the core categories. We compete in that being recreational vehicles, but our company is 66 years old. We go all the way back to 1958 with roots in Forest City, Iowa where a lot of great hardworking people back in the day began building first towable travel trailer RVs and then ultimately we became really well known for motorized motor home recreational vehicles. But Winnebago Industries is a proud company that's been under a great deal of transformation the last eight and a half years. I've had the privilege of being here. We're really focused now on being the trusted leader in premium outdoor recreation. And so while our core business is still recreational vehicles, we're not only trying to strengthen our position in that category, but we're also very interested in establishing a presence and other outdoor recreation categories that make sense for us. And one of those spaces has been the marine category. We've gotten into a couple great boat brands here in the last couple of years, and so we're in a state of transformation and change to build a stronger, more diversified company.
Austin Hankwitz (02:28):
I love that answer. Let's talk a little bit more about that sort of transformation, right? Because the portfolio has evolved to your point from just these RVs back in the fifties and sixties to now high-end luxury RVs, the marine boats. We were just talking about these awesome pontoons and Chris Craft and even batteries. So this has been a massive shift. What was the thought process of taking Winnebago through this entire sort of just evolution over the last eight years?
Michael Happe (02:56):
Well, let me go back to maybe the time when I had the opportunity to come to the company and try to efficiently tell you the story and the impetus for change. Again, Winnebago has a proud history and really a legendary iconic brand in our flagship Winnebago brand. But back in 2015 right before I had the opportunity to come to the company, our company was not as strong as our board of directors knew it could be. And for out of every 100 RVs that were sold in North America back in 2015, less than three came from our company. So we had probably the best and biggest brand in the industry, but our market share was actually much smaller than people would expect, especially when you're considered sort of the Kleenex or jello of the category like we still are. And so I had the opportunity to come in as the first outside CEO in company history and the board really was looking for a change catalyst.
(04:02)
Now change doesn't happen just simply because of one person. So it's taken a lot of us to create change over the last eight years, but we really began in early 2016 to really challenge what type of North Star we wanted to create for ourselves. This company was proud, we were making good products, but we did not have a strong roadmap or vision that said, Hey, here's how we can compete more effectively in the future and as a public company candidly provide a stronger return to our shareholders. And so we just began in 2016, the first half of 2016 as I arrived and started learning the business and learning our culture to build a stronger roadmap for where we wanted to go. And we knew we needed to do that both organically, but as we looked at our competitive landscape, we had to get bigger as well.
(04:54)
And the board gave me three very simple priorities at the beginning. Number one, establish a leadership in the motor home RV category, which was the category we were most well-known for. Number two, create a stronger presence in the towable RV category. These are the travel trailers and fifth wheels and toy haulers you tow behind something. We had less than 1% share and 85% of the units in 2016 were Towable RVs. And so the board said we have to be in that business. Then the third element was you have the permission to create profitable diversification and growth. The company back in 2008 through 2010 almost came close to probably not existing financially. The board after going through that near death experience was very open to some sort of diversification of revenue streams or portfolio so that we could try to create some more legs to our strategic table.
(06:02)
And so that seems just set the table for the change that has come after that. I'll say the other thing is when we still have proud, proud roots in North Iowa. We have four communities in North Iowa that we make a lot of our Winnebago branded motor homes, but we did establish a presence in the Twin Cities of Minneapolis St. Paul, and we were able to start building a team here that could also support the vision of building a stronger company as well. So lots of different moving pieces that ultimately led to acquisitions and change operationally to build what we have today.
Austin Hankwitz (06:42):
That was a wonderful walkthrough, Mike. And something I do want to spend a little bit more time lingering on is the idea of this north star that you had mentioned when you were figuring out what this north star of the company was, I'm sure you had to think about who was our target customer. And over the last couple years since you've been making these sort of diversified investments of your portfolio, it seems like your target customer is now more of the luxury end. You talk about Chris Craft, talking about Barletta, all these other sort of brands inside of this kind of umbrella that are pretty cool and kind of expensive. So walk me through why that is now sort of a focus, which I would imagine back in 2008, 2010 when you guys were really struggling, right? I mean were you selling to those people back then too? So how has that sort of shift of your target customer happened over the last call it decade, decade and a half?
Michael Happe (07:39):
So a couple of thoughts there. Our flagship brand, Winnebago was always known as a respected brand, quality, safety, reliability. There were chapters of innovation where we brought new chassis or technology to the market. And so we started with a very foundational base of being a respected brand that people aspire to own. I fundamentally think you can take two simple paths in business. You can be a low cost high volume producer in a durable good space or you can be the premium differentiated player. And when we looked at the landscape, particularly in recreational vehicles, there were a couple other very large companies that had a cumulative 80 to 85% of the market by themselves. So the corner on high volume, low cost was already taken. And so if we were going to succeed, we were going to have to create a different North Star than probably what these two large competitors in the RV space had already created.
(08:52)
And so I'm a bit partial because of my career background to premium brands competing on innovation and differentiation and quality and really earning customers for life. And so in 2016 as we were really trying to create that strategic roadmap, we said, well, let's be the differentiator in our space. Let's just not be a me too commodity player. Let's build a collection of highly respected aspire or aspirational premium brands that people step up to. We may not be your first product that you buy when you're just getting into one of these outdoor categories, but we have brands that you go, that's ultimately what I want to own and when I get there, I'm hopefully going to stay in that brand for the rest of my life. And so that was the journey that we really sort of mentally said, Hey, that's the conviction we want to have.
(09:50)
That's what we want to build. I'm a big fan of reading some of the strategy books. Michael Porter, the Harvard Business School professor is fond of saying strategy is not only what you choose to do, it's what you choose not to do. And so we wanted to make sure our choice fit for us. I also believe there's a path to profitability in terms of yield of a business that comes through being a premium player. You can hopefully earn a higher gross profit by fairly pricing your advantages and then you reinvest that profit back into your business to keep that flywheel spinning on quality and innovation and aftermarket support and everything that should set us apart from those other larger players in the market. I
Austin Hankwitz (10:41):
Definitely aspire to own a Chris Craft boat. Yeah, that is a cool rig.
Katie Perry (10:46):
Same. It's so interesting to hear you all putting those building blocks into place 2016 and then something happens in 2020 where there's this newfound love of being outside. And I would love to hear about that. From your experience, did you experience personally new waves of customers discovering your products because of what was going on in the world and this push to be collectively more outdoorsy? And I'm curious if that has had an extended impact as we've moved past that stage.
Michael Happe (11:18):
Right. Well first of all, we fundamentally believe that the outdoors is good for people. We believe there's a physical and mental wellness aspect to being outdoors in that time in the outdoors with family and friends is very healthy for people. We make widgets, but really what we try to do is we try to create memories with our customers, with families and friends in the outdoors. And so even going into Covid, we knew that the outdoors was a great place to be. But as you all know, what happened in March and April and May especially of 2020 is people were very quickly assessing the safety of their environments, who they wanted to hang out with and they were being told by local or state or even federal authorities where they could or couldn't go. And we shut our factories down on I think March 27th to keep our employees safe and we didn't know when we would reopen them as the world was shutting down.
(12:28)
But about two or three weeks after we shut our factories down in about mid-April, our dealers started to reach out to us and say, Hey, our customers are pounding on our back doors. Those dealers weren't open for business either at that exact time, but their flood sites or their websites were being flooded. Customers were finding a way to say, we want to go outside. We feel safer there. I'm not going to sit in my basement, I want to go to a campground or a cabin or get on a lake or what have you. And so demand really began to spike and we safely reopened our plants in early May of 2020 and retail demand exploded. People wanted to get outside. And so what was great about that was I think three things. One is we saw first time buyers of our products. We saw people who had never owned RVs and boats before that said, I want into that category.
(13:31)
Number two, they were younger, right? These aren't your baby boomers that sometimes the RV business is known for from less educated outsiders. These were people in their late twenties and early thirties that were ready to explore the outdoor lifestyle. And then the third thing was kids got exposed to the outdoors in accelerated fashion. And we're big believers that if you camp as a kid, you fish as a kid, as an adult, you're probably more likely to participate in those activities as well. And I talked about our premium business model, but we also sell some products at pretty accessible price points as well. And so we were able to capture a lot of that demand. But our industries, the RV industry, the marine industry exploded from really early summer of 2020 into probably the spring of 2022 where it was really difficult to keep up with demand at that time. And we believe there will be a lot of long lasting benefits to that even though demand has retreated quite a bit since then as we sit here today. But those were incredibly exciting times. And again, I think there'll be long-term benefits to what we went through there from an RV and marine lifestyle standpoint.
Katie Perry (14:57):
What an interesting place to be in as a business. Very few companies in your situation where you shut down and you have people calling you like, wait, we want to buy your stuff. And you could talk about memories. I have a lot of memories growing up of friends with RVs and camping, and one memory I always have is just worrying about the electricity or the power in the camper or the rv. And I know you all recently had a really interesting acquisition in this space, a lithium battery company, which I don't think anyone would see coming from you guys. Can you tell us about what that acquisition meant, how you guys are working that in the portfolio moving forward?
Michael Happe (15:37):
Well, really that acquisition is about a number of things, but particularly this theme of electrification that's happening in a lot of different industries, but ours as well. We have been working for some time on the concept and feasibility of electrification on our products. And that could mean, and I'll try to break this down into a couple pieces. We sell motorized products, meaning there's a propulsion element to our products. It's an engine in a motorized rv, it's engines on a boat. So propulsion power is one aspect. And then there's what we call house power. Sometimes we talk about, we build homes on wheels, so we don't make necessarily all of the frames or chassis on the RV side that are given or that we buy from companies like Ford and Daimler and other auto manufacturers, but we do build the homes on the wheels. There is living rooms and bedrooms and kitchens and bathrooms and entertainment areas in all of those spaces.
(16:53)
There's a trend towards electrification. And so we've been working with our engineers, our r and d leaders, our advanced technology group here to really try to be one of the early leaders, at least from a technical standpoint in seeing if all electric products are possible. And we've actually introduced a concept all electric RV van working with the Ford Transit platform. We call it ERV two. And we've had customers test this here over the last couple of years to understand mileage and other user experience attributes. We've also created a concept all electric boat under the CRI crap brand, which is crazy because you get on the water and you don't hear the sound of a motor or an engine, you hear the birds, that's crazy and the water. And so we've been working on electrification for several years and a long answer to your short question about the battery company, but we believe house power is where we can control our destiny more.
(17:58)
We won't have as big an impact on the adoption of all electric propulsion, but from a house power standpoint, we believe that you're going to see less gas or diesel generators on RVs and boats in the future, and we're going to be using lithium ion battery packs, solar panels and other sources of alternate energy. And so when we looked at lithium ion as a technology that was accelerating in our industries, we wanted to control our destiny. And Lithion is a fantastic high quality lithium ion battery pack manufacturer who also does their own battery management systems and is also starting to build out a broader electrical ecosystem that we can tap into. We were buying 40% of their battery packs when we made the acquisition, but they also sell to other companies in the RV space. They're preparing to sell to other companies in the marine space and they do business with tremendous companies like Walt Disney where they power some of the floats and boats at some of the amusement parks around the world. So really I guess it's sort of a skating to where we think the puck is going and we think lithium technology is going to be pervasive and we want to make sure that we're differentiated and control that innovation aspect, but also the supply aspect.
Austin Hankwitz (19:28):
Sounds Mike, like you are doing some profitable diversification in the portfolio with this battery company. Something you mentioned just for a second there before was kind of the rise of the crazy demand that happened during the pandemic. And something I want to talk about is maybe the decline that came after, especially as the Fed began to raise interest rates. I would imagine a lot of your customers take on loans to purchase some of these larger goods. I personally just bought a jet ski for like $8,000. That was my big recent purchase. And I'm over here thinking like, man, this is so cool. I need to join some Facebook groups, learn more about these jet skis. And the Facebook groups are flooded with people selling their jet skis, their boats. They're trying to get out of these loans that they just can't afford anymore. And so I'm curious, how has the macro economic conditions that we've experienced since 2021 and now 2022 as the Fed raised interest rates impacted Winnebago?
Michael Happe (20:26):
Well, it's a great question because after the euphoria of what I described earlier with sort of the covid retail demand generation that happened, a number of things happened. We saw supply chains come under significant pressure because demand exceeded really the world's ability to keep up with that and supply chains broke in many cases and that affected our industries as well. You saw significant inflation creep in as demand and supply were dislocated from each other and the supply chains were challenged. And then as you mentioned here in the US, interest rates rose significantly. And so interest rates have had an impact in the business in a couple ways. First of all, from a retail standpoint, we think probably somewhere in the neighborhood of 65 to 70% of most RVs are retail finance. Somehow you may use a credit line you have through home equity line or you may borrow from a local bank or credit union or the dealer arranges retail financing for you.
(21:42)
The cost of those loans interest rate wise went up two to three times in a very short time period. And so that really sent a shock through consumers as to, Ooh, my monthly payments are higher on those loans than I was anticipating. It's really not unlike probably what we're experiencing a little bit on the single family home mortgage side as well. The other way interest rates have also impacted our business here in the last 18 months is it affects the caring costs of inventory for our dealers. Our dealers in many cases have a credit line from an inventory finance company and they finance their inventory on that line and their costs of carrying that inventory also doubled as interest rates went up as well. So both of those have had a meaningful impact on slowing both retail demand for our products in the last 18 to 24 months and wholesale demand as dealers become very careful and intentional about how much inventory they will carry. So we're very conscious of that topic and we're hopeful obviously, that if we can manage a slow landing here economically in the US that the Fed can begin to adjust some of their rates down, that will ultimately impact some of the retail and wholesale interest rates and our consumers and dealers will begin to get a little bit more confident coming back into the game here in the next six to 12 months. So you touched on a very important element of our current business
Katie Perry (23:29):
And the dealership angle seems so interesting because it's a lot of psychology, I would assume, and I'm curious how you sort of talk to and get feedback from the dealers about how they're feeling. It seems like there's sort of the connective tissue between Main Street and Wall Street, maybe they're at the grocery store, they're talking to people in their community, they're getting kind of that vibe from them, they're hearing from you guys. What's that line of communication look like with dealers and how do you kind of understand where their head's at beyond just seeing the numbers coming through monthly? Yeah,
Michael Happe (24:02):
We're very fortunate to have many great channel partners, and we use that term intentionally because we do view them that way that are really the ambassadors of our brands 24 7, 365 to our end customers, and we don't sell anything direct to consumer. Everything that's sold under our brands is sold through a dealer and we consider it a partnership to work with them to market, sell, and then service that customer ultimately. So it's very important that we create win-win relationships with our channel partners. It makes no sense for us to succeed and our dealer partners to struggle or vice versa. In order for us to sustain success and reinvest in the business going forward and serve the customer at a high level, it's got to be a win-win. We have an interesting business model here at Winnebago Industries. We have five OEM brands, three RV brands and two boat brands.
(25:04)
They are led by a president of that respective brand that president is in. He has the responsibility of driving that brand on a day-to-day basis, and they own the whole value chain of the business model from marketing and product development to engineering, to manufacturing to service, and even some of the functional elements, finance, hr, it, some of those elements. They are very empowered facing the market. We need our businesses to be agile, to be intimate with these dealers and to understand the local needs and wants of the dealers and our end consumers. And so they're supported though by centers of excellence here at our corporate headquarters in Minnesota that gives them the resources they need if they aren't able to solve a problem on their own or need something more quickly to go faster and more effectively. And so ultimately we give the business leaders great autonomy to stay very close to our dealers and they themselves, their marketing personnel, their sales personnel are in constant contact with the dealers about what's working and what's not, what tweaks we need to make in our product, what marketing programs we may need to consider, how we can service our customers better.
(26:31)
So our brands own that relationship with those dealers and ultimately with our end customers, it's not somebody in an ivory tower telling them where to price the product, where to sell it and what to do. We want empowered businesses and brands staying very close to the market to react appropriately to any trends we see and obviously try to compete against our competition effectively.
Austin Hankwitz (27:01):
Good for you guys. That is a wonderful model to build and execute upon, especially back to your point of having those one-on-one relationships with those dealers. I mean, I think at the end of the day, we've all learned this since the pandemic, right? People follow people not necessarily brands, and so you can humanize a brand, right? Humanize some of these specific barletta for example, or Chris Craft or any of your towable or motorized RV sort of sub-brands there. It feels like from the dealer's perspective, they're actually talking to people and not just a 1-800-HOTLINE number. Right? Let's jump into the nitty gritty Mike. Your company's going to do about 3 billion in revenue this year, broken down 50% of that coming from Towable RVs, 40% from motorized RVs and 10% from your marine products. Wall Street is specifically optimistic about this diversified portfolio you're building, stating that it'll help boost your growths profit margin from the current 13% range to about 20% over the coming years.
(28:03)
Your balance sheet is also very healthy. You bought back over 310 million worth of company stock since 2022, and I think you have another 240 million left in your current authorization. So let's get into some earnings call sort of perspective here. On your recent call, you guys talked about the resilience despite these macro factors that we had just discussed. So what specific metrics would you point investors to as evidence of that resiliency over the last 12, 18, 24 months? Right? So for the retail investor listening right now, what's that thing that's like, yeah, go look at that. That shows just how resilient our business can be.
Michael Happe (28:42):
I would say probably one of the more important KPIs around resiliency has to do with our gross profitability. We are working very hard to maintain above industry average gross profitability across our business, and we have to do that very carefully in an environment where demand is challenged and first of all, we have to make really good products that our dealers do ultimately want, but then our end customers ultimately want, but we have to be very disciplined around the financial or promotional support that it takes to ultimately retail those through the chain. The other thing is from a manufacturing and supply chain standpoint, we have to be very disciplined in a highly cyclical industry to maintain cost flexibility in the model. One of the things that's very unique about most companies in cyclical industries is they have what we call high variable costs and some other industries, some other companies have high fixed costs, lots of manufacturing technology, significant physical assets that are difficult to shed or shut down when demand hits a turbulent period.
(30:08)
We actually have a business model where probably 85 to 90% of our total costs are truly variable at the end of the day. Now that can still come with some pain, especially on the people side if we have to ramp down the number of teammates we have here, but we can react to some pretty severe market conditions and try to maintain a relative sense of acceptable profitability. The other avenue that I would look at is free cash flow from a KPI standpoint. Even in some of these tougher times in the last 18 months, as demand has been challenged, we have been able to generate positive free cash flow in the business so that we can continue to keep a healthy balance sheet and have cash on hand to allocate to some of the capital allocation areas such as share buybacks as you mentioned, and other priorities that we have from a capital allocation standpoint. So those are probably the two areas, gross profitability and free cash flow that when times are tough, we try to be very focused on to maintain a relative sense of health there.
Austin Hankwitz (31:27):
I love that breakdown and everyone knows I love myself some free cash flow. Mike, I nerd out on that statistic quite often, so I appreciate you mentioning that. Something else I want to nerd out on here for a little bit though is being, I think to your point, one of the most recognized best in the game brands. I mean, Winnebago is the most recognized RV brand. Grand design is the fastest growing Tobel brand. Newmar is a leader in luxury. Chris Craft is now the most widely recognized luxury boat brand, and Barletta is the fastest growing pontoon brand. This is not my words, this is fact in reality in the marketplace. So how do you drive this messaging not only to the consumers in the marketplace, but now also to Wall Street? How do they make the switch of this is absolutely something that we now need to be thinking about when we make our models and projections going forward for this company?
Michael Happe (32:20):
Yeah, I mean, you mentioned two really different aspects of it. Obviously we work very hard every day to nurture and strengthen those brands with our end customers, and we've got great marketing teams across the organization. We've got a chief marketing officer at the company with leaders in different areas, an enterprise marketing and communication standpoint. But the investor base, that's a little bit different story. They're looking for proof points, right? I mean, I loved how you described all of our brands, thank you for doing that. But the investors say, that's great, but we need to see proof that those brands are creating ultimately shareholder value. And so that's going to appear obviously in such metrics as market share. It is going to appear in some of our brand health or vitality studies that we do that we sometimes share with the sell side and the buy side, but at the end of the day, they will be rewarded if we have sustainable, healthy brands that have a profitable growth narrative to them.
(33:30)
And so I'm super and uber excited about the brand portfolio that we built, and we're not done building that portfolio. We think in future years we're going to be able to add a couple more exciting brands probably to this portfolio. But the investor, especially the long investors, that to be long, they want to have confidence that over the next several years that you're going to be able to do what you say you will do and produce results. And so that's where we have to not just build a collection of premium brands, but we have to build a collection of premium brands that work, that produce results and listen most days that is the case. And then there are times where we don't perform as well as we'd like to and we have to roll up the sleeves and figure out how to get better. But I think our investor base understands the unique story that is Winnebago Industries and why we're different than some of our larger peers, but ultimately we have to do what we say we will do and that should bring value to our shareholders over time.
Austin Hankwitz (34:46):
How do you see the portfolio of company mix from a revenue perspective shifting over time, right? I mean, right now it's 50% towable RVs, 40% motorized and 10% marine products. Is that sort of the profile you want to keep going forward? Do you think Marines going to get larger? How are you thinking about the shift and how it's going to maybe mix around and move over the coming years?
Michael Happe (35:13):
Yeah, earlier this fiscal year, we did put out what we call mid-cycle targets, both financially and even some non-financial targets. And what mid-cycle means is what do we think this business will look like when we get out of this current cyclical trough we're in and we begin to progress to the next peak of the, and mid cycle is somewhere in between, hopefully a healthy spot in between. And so we gave our investors a number of targets from a sales standpoint, from a profitability standpoint, from a cashflow standpoint, where we said, listen, if the market is about this size, this is how healthy we think we can be. And that we were really trying to give them some guidance as to what we think we can grow back to when market conditions are healthier. And so one of those aspects was a non financial metric about non RV revenue as a percent of sales.
(36:17)
And we really said we want at least 15%, I'd really like probably 20% or more of our portfolio to be non rv. That's not to say we don't want to grow our RV sales, but in the spirit of outdoor recreation diversification, we think it's healthy if we create revenue streams from some of the other healthy parts of the outdoor recreation economy. And so Barletta and Chris Craft in the marine space, liths in the battery space, and we're even exploring opportunities around experiences around services, around other elements someday that we could create or acquire a business that adds hopefully even higher profit revenue to the model. But so I see RVs growing, but I'd like to see the non RV portion get a little bit bigger than what it is today as a percent of the whole portfolio. I think we've got to grow our towable RV business more than what we are today because it's a bigger part of the market and we'll optimize what we can do on the motorized side. That's a much smaller part of the market. We're a much more important player in that particular space. So we'll optimize that, grow towables and then try to figure out what smart, profitable diversification can mean for us. Our investors don't need us to diversify for them. They can buy any number of companies in their basket of investments. We pursue smart, profitable diversification because we think it's right for us. We think it makes us a stronger company and more attractive in the future for customers and employees and other stakeholders to be connected with.
Austin Hankwitz (38:10):
What a great breakdown, Mike. I appreciate that.
Katie Perry (38:12):
Yeah, what a fun time to be on your corp dev team. I mean, big brief. We want to own the outdoors. Go nuts, go crazy. It sounds like an envy, enviable role to have right now,
Michael Happe (38:25):
Right? We've got some great people in the business development corporate development arena, but we want to be disciplined too. Listen, I mean, some companies can get very probably focused or over-focused on acquisitions. Our last OEM acquisition was actually three years ago. It was barletta in 2021. Lithion was in 2023, but that was more of a strategic technology, vertical investment. So we want to be very careful because again, this is our shareholders' capital. We want to try to find the best return on that capital, but we also can't stop competing against how our markets are evolving, how our competition is evolving. And listen, in a cyclical industry, you have to watch the balance sheet. We really want to keep our leverage ratio net debt to EBITDA in a very healthy place because in a cyclical industry, if you look back over the last 40 to 50 years, there have been some catastrophic business cases of companies not making it because they overextended themselves on the balance sheet. They got too greedy, they picked the wrong time to make maybe too big of an acquisition. And so we're, even though we're ambitious and excited about what we can put in our portfolio, we have to be disciplined as well. And that's a message we tell our investors all the time is hopefully you can count on the current management team to be good stewards of the company's capital and use it very, very wisely. You
Austin Hankwitz (40:05):
Guys are, I think around 1.6 I think on that net debt too, but a very healthy, very healthy balance sheet. That's right.
Katie Perry (40:12):
It seems like from a leadership standpoint, it is that balance of innovation and diligence. And speaking of leadership, we're going to embarrass you a little bit. We heard you were recently named one of EYs Entrepreneurs of the year. Congratulations, big honor. You're actually the second guest we've had in a few weeks, so got to ask how Monaco was, and if you prefer Monaco or Minnesota out of the two.
Michael Happe (40:35):
Well, first of all, let me say this and I appreciate the acknowledgement of that honor. I have to say though, it's a team honor. I was really uncomfortable with the word entrepreneur for a couple reasons. One, it's a singular word, it doesn't describe sort of team in that word. And second, I'm not the founder of Winnebago Industries. I've been more of a professional manager my whole life. So as we were convinced that this was something that we could be nominated for, I got more comfortable that this was an exciting opportunity within the EY program to tell our story and to lift up our team here because they're the ones that I work with every day to help us build this story one brick at a time. So EY runs a great, as you know, recognition program around entrepreneurship globally. I wasn't all that familiar with the program. When we were nominated, we were fortunate to win the regional award. And then when we won the US Award, I was just blown away because there are so many stories here in the US of unbelievable entrepreneurs and business leaders starting and transforming and building companies. And for their judges to consider us at the top of that was just so humbling. And so the opportunity to go to Monaco and represent the us, first of all, I never thought I'd represent the US in anything on a global
Austin Hankwitz (42:09):
Stage,
Michael Happe (42:10):
But to be able to carry that flag, and I actually met the guest that you're referencing. Oh,
Katie Perry (42:16):
Swimming.
Michael Happe (42:17):
He's swimming. He's awesome. He was at one of my forum tables on one of the first days, and I watched the interview that you guys did with him. He's a phenomenal business leader and just a fascinating person. I'm hoping he could get me Yankees tickets at some point when the twins go home.
Austin Hankwitz (42:34):
You could us too,
Michael Happe (42:38):
But no. Anyway, it was great. Monaco's beautiful. The EY team was great. What was the best part of that whole experience besides getting the opportunity to take my wife to Monaco and let her share in? That was the best part of the experience was networking with the other 40 plus country winners, some inspirational, amazing stories around the world with leaders from all dimensions of life, building great stories. And the ultimate winner from India has just built a huge but just phenomenal company. So I learned so much from the trip and the entire experience and have gained so much respect for so many other business leaders that candidly, like I said, I think are doing much harder work than I'm even doing here with our team at Winnebago. But thank you for the acknowledgement and really my thanks to the EY team. What a great program to lift up entrepreneurs around the world.
Katie Perry (43:39):
And congrats the whole team at Winnebago too. It's awesome award.
Michael Happe (43:43):
Yes.
Austin Hankwitz (43:44):
Well, after being able to sit down with you here, Mike, and learn more about what you've done now since, call it 2008, 2010, over the last eight years, I mean, it's so well deserved, right? You, your team, you guys are crushing it. It's so inspiring and it's just very, very cool to see a little bit of behind the scenes. No wonder you guys won this overall award. It's very well deserved. So now to wrap things up, Winnebago, you're spending a lot of time outside. What are some of your outside activities, Mike, that you enjoy when you're not in the office winning awards?
Michael Happe (44:22):
Well, I will say this, I had the good fortune of having exposure to the outdoors at a young age through my family. My dad took me hunting, taught me how to golf and fish. Our family would take RV trips in a pop-up trailer. My grandparents on my mom's side were avid RV years, and their retirement years would travel to many places in either large class a motor homes or big fifth wheels. And so I was exposed to the outdoors throughout my childhood, which as I referenced earlier in our discussion, I think is so important as an adult to feel that comfort to being outside and to engage. And so most of what I've described have carried with me as an adult. One of the blessings we have here in Minnesota is there's just so many beautiful lakes and campgrounds and outdoor spaces, and my family is fortunate to be able to have a cabin in northern Minnesota that we escaped to on many weekends.
(45:31)
And I've had the opportunity to RV even with some of our customers at some of our rallies. Oh wow. When Covid shut us down in 2020 or immediately after we reopened our plants, I jumped in one of our Class B vans, I think the Solace was the name of it, and drove to many of our manufacturing facilities when jumping on an airplane or stayed in a hotel was considered dicey at that time. I needed to get into our plants to make sure that we were taking care of our employees and actually spent nights in some of our parking lots outside our manufacturing buildings in the rv. So anyway, you could use our products for so many different reasons, but just if I have one overarching message to you guys, but also to all of our customers and listeners, just get outside, our tagline is Be great outdoors. As I said earlier, less stress, physical health, mental wellness, time with family and friends, control of your environment, freedom, learning. There's memories. There's just so much benefit to being outside when you have the opportunity. And we're the type of company that wants to enable that and give you that ability to go outside and just do great things with those that you trust. So that's one of my lasting messages.
Austin Hankwitz (47:03):
Love it. What an incredible conversation. My goodness, I'm so inspired. I need to go outside after this. Now I'm going to go find myself a Chris Craft boat and I'm going to floor it and just go do one of these. Enjoy it so much. Thank you so much, Mike, for taking the time. And again, congratulations again, Mike, on being the overall winner for the US and the EY Entrepreneur of the Year Award. And hopefully we'll have you back here pretty soon and maybe we do it inside of an actual barletta boat maybe. Maybe.
Michael Happe (47:34):
That'd be awesome. Yeah, I appreciate your guys' time today and interest in our company and our story, and I just love telling our story and get outside, have fun this weekend outside somewhere.
Austin Hankwitz (47:48):
Thanks, Mike. Thanks, Mike.
Katie Perry (47:49):
Alright, Austin, Mike, happy CEO of Winnebago Industries. What's your take?
Austin Hankwitz (47:54):
What a guy. I mean, I think the biggest takeaway that I've got from this entire interview is this was a masterclass of managerial, operational, sort of just planning. I mean, this guy came in as an outsider, right? I think he mentioned not the inside guy who's worked at Winnebago his whole life. He came in as an outsider, observed and saw, okay, 85% of people that are purchasing these types of R RVs are towable, and we're not even touching towable right now. We're only in this motorized space. Let's start doubling down on towable. So now they're sort of building their own brand within that. And he was like, I have permission to diversify our portfolio profitably into these other business segments. And so that's when the batteries came to life. That's when the marine products came to life. I mean, and another cool thing is he talked about how he wanted to grow the portfolio from, I think he said a percent of revenue that is non RV related up to call it 15, 20, maybe 25% over the coming years. Something again, wall Street's really excited about as that gross profit margin really begins to expand. He talked about free cashflow, how important that is. I mean, this guy is, I'm his number one fan. I can't lie, Mike, what a rockstar.
Katie Perry (49:08):
I think you just want the boat, Austin. But I would work that
Austin Hankwitz (49:11):
Angles. I do want boat, Mike. I do want the boat.
Katie Perry (49:14):
Yeah, I mean it was fascinating just hearing him talk about Winnebago that is synonymous with RVs and him talking about when he came in in 2016, the company almost being bankrupt. They had led so much market share and yeah, everyone's going around calling everything out there Winnebago. So that in and of itself was fascinating. I also loved gave a couple speeches on the importance of touching Grass, which, hey, if you're watching this on the internet, I think I felt like he was speaking to me directly, but really liked the philosophy of the company, empowering people to get outside, be one with nature, spend time with family touch grass. I thought it was great. So all in all, I thought really, really interesting. Look at Winnebago and probably will surprise you some of the things you'll learn by listening.
Austin Hankwitz (49:58):
And I think a really powerful message that he had after winning the US overall EY Entrepreneur of the Year award, right, is he said, it's all in the team, right? It's a team effort. We're all here working together toward helping people touch grass. And I just think that that mentality builds in and sort of fosters a really good culture in the company.
Katie Perry (50:18):
Yeah, I mean, teamwork makes the dream work. You heard it here first. So thank you everybody for tuning in. We will catch you next time on After Earnings brought to you Morning Brew and Stakeholder Labs.
Austin Hankwitz (50:28):
Be sure to subscribe and share this episode with a friend who does have a Winnebago and or a Chris Craft or Barletta boat. And then tell that friend to invite me on the boat. I want to check it out for myself. See you guys next time.
