But that’s how we approach things and that’s what you should assume in the modeling.
Joe Altobello: And maybe on Motorhomes, you called out some operational issues in the press release. Is this the same issue or issues that you saw last quarter or are they new issues?
Bryan Hughes: I’ll start, Mike, and then you can add. A lot of similar things. We did have, in Q1 though, we had some rework that was associated with some recall activity that was necessary. We did see some lower productivity on some of the newer products that we have going down the line right now. So that was occurring. There was some flexed workforce or some additional workforce in certain verticals that might have had a bit of an impact as well. And I’m speaking really to the Motorhome margins specifically here, okay? And then just generally some higher warranty costs associated with some specific recall activity. So those are probably the call-outs. Altogether, an EBITDA margin impact of 1 to 1.5 points in that range. So certainly not as big as a deleveraging impact in the allowances and discounts that we’ve called out as the primary drivers, but it was still, I thought, worth calling out as an EBITDA margin impact in the quarter.
Operator: And our next question comes from the line of Scott Stember with ROTH MKM.
Scott Stember: Mike, can you maybe just talk bigger picture? I know it’s hard to tell right now what’s going to happen, but obviously, a lot has changed in the dynamics for the dealers, the cost of carrying product. Are you hearing through any discussions that maybe the order patterns will change materially going forward, meaning more of a just in time batch kind of scenario versus the prior big chunks of orders that you would see? And if so, do you have to adjust your cost structure at all to handle that?
Michael Happe: So a couple of elements there. I mean, dealer ordering patterns have certainly changed in recent months. And I think your observation that dealers have a higher sense of confidence that they can get new product more quickly that they don’t have on their lots at the present time or if they have a retail customer who orders something that’s not on their lots that they can secure that, I think that’s generally correct in terms of dealer anticipation that the lead time for new product from OEMs is going to be shorter. I think we all have to be careful in the industry about how aggressive we get to that end because on certain products, particularly Motorized but even a few of the Towables and certainly some of the boats as well, there are elements of the supply chain which are still just have longer lead times as well.
So I think there’ll be some natural friction that will put that pendulum in a good place going forward. Obviously, our comments today around Q2 should certainly be viewed as a confirmation that the order base that we see for that particular period of shipment months we believe will be more moderate and more constrained in the very short term. I think dealer ordering pattern change in the future will really depend on any spike of positivity at retail and the dealers potentially gaining confidence at the same time and beginning to compete again for that OEM production capacity. Certainly, the second part of your question around looking at the cost structure, we’ve been doing that all along. And as we’ve talked about the variable cost nature that is part of the dial that we use.
Unfortunately, that has obviously resulted in less manufacturing employees being needed within our businesses. We had a peak of 7,700 employees at one point, and we’re running roughly at about 6,100 employees at the end of the first quarter. But we are also looking at cost structure from an infrastructure standpoint and a more systemic standpoint as well, should we have a sort of permanently low growth environment develop here over the next several years. So we have to be prepared for any of those scenarios. And we’ll certainly update our investors appropriately with any news if we decide to change the cost structure of the business in a very material and meaningful way above and beyond the variable playbook that we’ve used through the years.
Scott Stember: And then last question just on cash flow. I know you guys don’t guide, but how should we look at ’24 from a free cash flow perspective, higher or lower than the last couple of years? And again, the deployment of capital, how should we look at that as far as profits?
Bryan Hughes: Yes, I’ll take a first stab at that, Scott, and Mike can add on. Historically speaking, Q1, Q2, they’ve not been cash generating quarters for us, and the same is likely to be the case this year, particularly with the dealer ordering patterns that we’re just talking about for Q2. One of the things that we have continuously been challenged by is the management of working capital in this difficult environment. You have production plants, long lead times, as Mike mentioned earlier, that certainly impacts that in a negative way when you just don’t see the top line getting the traction and you have to curtail your production as a result. So that’s what we’re fighting right now. And we expect that as Q3, Q4, as we start to get into the season as those volumes start to tick up that we’ll be in a position of managing working capital a little bit more aggressively.
So it’s working capital that we’re really focusing on, Scott. I think your question might be getting a little bit into capital deployment more broadly speaking. And we had some pretty aggressive share repurchase here in Q1, which we thought was the right thing to do, all things considered, and we’ll continue to use that as a mechanism of returning cash to shareholders as well. So those are the comments that I would add.
Operator: And our next question is going to come from the line of Fred Wightman with Wolfe Research.
Fred Wightman: Just one quick one. If we think about the back half improvement that you guys are talking about for calendar ’24, are you assuming rate cuts? And then how quickly do you think, if we do see cuts that could impact retail and potentially wholesale?
