Scott Stember: Got it. Thanks so much.
Operator: Thank you. And it comes from Michael Swartz with Truist. Please go ahead.
Michael Swartz: Hey, guys. Good morning. Just wanted to talk about Towable margins, and I think you’ve said a number of times that kind of €“ you’re seeing a return to normal seasonality. So I guess I’m trying to understand in the quarter, just maybe the year-over-year change in margins. I think you benefited last year from price cost. But maybe talk about the moving pieces and kind of bridging that gap. I think there was a 600 basis point, 700 basis point contraction year-over-year? And then maybe how to think about that over the next couple of quarters, whether that’s sequentially or year-over-year?
Bryan Hughes: Yes. Good morning, Mike. This is Bryan. I’ll address that one upfront and Mike can add on. I’d go back first to our comments last year for Q1, really strong EBITDA margins we had in towables in excess of 17% was certainly an outlier relative to the more typical lower seasonal Q1 that we would report on. And at the time, we had referenced pricing that was probably a little ahead of anticipated inflation. So that was certainly something that elevated the prior year. On top of that, if you take just the deleverage equation when you’re based with the topline reductions that we were faced with in Q1 and using that 85% to 90% variable cost structure. That explains the bulk of the difference. So we probably had a little inflationary impact year-over-year relative to pricing because of the timing that we’ve talked about.
And then largely, the rest was that deleverage that we would experience. So those are the two primary drivers. But the end result in EBITDA margin for towables is a more typical Q1 EBITDA margin if you look back into our history and pretty similar to Q4 and also sequentially more in line with each other as well.
Michael Swartz: Okay. And maybe just to clarify, I mean, going forward, the way to think about maybe the margin progression would look similar to what we saw pre-COVID is that just I mean maybe not in terms of magnitude, but just quarter-to-quarter flow. Is that the way to think about it?
Bryan Hughes: That’s our current expectation, Mike. As Mike was alluding to earlier, we’re obviously going to be keeping a very close eye on how retail performs and how dealer inventory is performing as well, including aging. And so our current expectation, though, is that will follow a similar seasonality or quarter-by-quarter low at EBITDA margin. That’s our expectation currently.
Michael Swartz: Okay. That’s great. Thank you. Another question on margins, just in the quarter, I’m trying to understand, SG&A as a percentage of sales did come in a little above what I had modeled, and I think what most people in the Street had modeled. Was that a factor of just segment mix, i.e., Marine and Motorized outperforming Towable? Or was there something maybe investment related or just cost related in the quarter that elevated SG&A expense?
Bryan Hughes: Yes, absolutely both. I think it’s fair to say that our Motorhome businesses have in general a greater SG&A fixed component than does the towables. And so you do have a mix dynamic going on there. But then we would certainly also call out, as Mike did in his comments, we continue to make strategic investments that we know to be the right thing to do for the business long-term. And doing our best to hold on those that are most important, while obviously, managing SG&A as aggressively as possible on those things that are less strategic in nature. So I think you hit the two main points that I would have provided in my answer within your question.
Michael Swartz: Okay. Great. Thanks a lot.
Operator: Thank you. It comes from Fred Wightman with Wolfe Research. Please proceed.
Frederick Wightman: Hey guys. Thanks for the question. I just wanted to follow-up on some of the ASP conversations. And I guess that you guys have been pricing to offset rising inputs, but is some of those bigger material costs potentially move favorable. Would the plan be to pass that through to the consumer to the dealer? Or sort of, I guess, conceptually, how would you look to treat that?
Michael Happe: Fred, this is Mike. I’ll respond to that. Again, we generally don’t share forward-looking pricing strategies or intentions. And we respect that at times, maybe some of our competitors choose to do so. But we’ve always maintained through the years that we are not a cost-plus pricing business that we are a market-based pricing business and that market-based pricing is ultimately set on a number of elements. Hopefully, long-term, based on the differentiation and innovation we bring to market that consumers are willing to pay for. So certainly, if we were to see significant deflationary elements within our build materials and our COGS, we would consider what that means, not just in the context of those of those costs, but also what our competitors might be contemplating as well and retail conditions.
So we won’t share specifically this morning any pricing intentions, but you can be assured that our businesses are certainly talking about a variety of scenarios depending on how inflation or lack of affects our business in the future. So our ambition is to always balance market share and sustainable profitability. We’re neither overly focused, I would argue, on one to the negative dilution of the other. We try to find that sweet spot where we can drive market share that we think is right for who we are. But we also want to be candidly one of the most profitable OEMs in the industries we compete in as well, so that we can reinvest in our future and continue to create strength.
