MasterCraft Boat Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Q1 2021 Mastercraft Holdings Incorporated earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I'd now like to hand the conference over to your speaker today, Mr. Tim Austin, Chief Financial Officer. Thank you. Please go ahead.

Thank you, Operator, and welcome, everyone. Thank you for joining us today as we discuss Mastercraft's first quarter performance for fiscal 2021. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. Joining me on today's call are Fred Brightbill, Chief Executive Officer and Chairman, and George Steinbarger, our Chief Revenue Officer. Fred will begin with an overview of our progress on our strategic plan and review our operational highlights from the quarter. I will then discuss our financial performance for the first quarter and how we see 2021 shaping up, recognizing that conditions may change. Then I'll turn the call back to Fred for some closing remarks before we open the call for Q&A. Before we begin, we'd like to remind participants that the information contained in this call is current only as of today, November 11, 2020. The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to a safe harbor disclaimer and stays press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special or items not indicative of our ongoing operations. For each non-GAAP measure, we also provide the most directly comparable GAAP measure in our fiscal 2021 first quarter earnings release, which includes the reconciliation of these non-GAAP measures to our GAAP results. We would also like to remind listeners that there is a slide deck summarizing our financial results in the Investors section of our website. With that, I'll turn the call over to Fred.

Thank you, Tim, and good morning, everyone. I appreciate you joining us today. This continues to be a dynamic and challenging time, and we sincerely hope that you and your families remain healthy and safe. Also, on this Veterans Day, we'd like to take a moment to recognize all the brave men and women who have served this country. Your service and sacrifice have kept our country safe and free, and we thank you. Mastercraft Boat Holdings delivered record first quarter financial results, exceeding the guidance we provided last quarter. Our performance this quarter, the most profitable quarter in Mastercraft's history, demonstrates continued momentum on implementing and executing against our strategic plan. and the continued robust retail demand across all our brands. I'm very proud of the hard work and disciplined execution of our team members who continue to prove their resilience as we've shifted from addressing the COVID-19 related shutdowns to restarting operations and aggressively ramping up production to meet demand while even further differentiating our product quality. We've talked about it before, but it bears repeating. Our culture and employees are key drivers of our strong performance in this dynamic environment. While our results are a testament to the strong retail demand for recreational boating, they are also a function of our continued execution on our value-enhancing strategy. As a reminder, our strategy is centered on four key pillars designed to achieve one overarching objective to drive sustainable, accelerated growth. First, we shifted our focus to providing consumers with the best end-to-end experience in the industry. This means getting closer to our consumers to better understand what they expect from our brands, and how we can work with our dealers to meet those expectations and improve their lifelong journey. It also means that we are using what we learned from consumers earlier in our development process to meet their needs. The insights we have gained through this have informed our recent investments in expanding our product development and engineering team. In the last three months, we have aggressively recruited and hired leading engineering talent that can be leveraged across all our brands as we look to accelerate our product development and innovation lifecycle. in particular at Mastercraft and NauticStar. These investments will be an important component of our market share and financial growth plan. For example, our two most recent model introductions at Mastercraft, the NXT24 and the iconic ProStar, have been extremely well received, and both are sold out for the year. Second, we activated a consumer-driven marketing strategy across our organization to increase brand awareness, create a community of interest, expand our target market, improve lead generation, and ultimately drive sales and market share gains. We have repurposed a portion of our sales and marketing expenses, investing in the talent and infrastructure required to elevate our digital marketing capabilities while working closely with our dealer partners in their local markets to help them drive consumer traffic to their websites and showrooms, leading to greater consumer acquisition and shortening consumer repurchase cycles. This investment will lead to increased market share across all our brands. Third, we accelerated our operational excellence program across all our manufacturing facilities to drive efficiency improvements and enhance quality. Across all our brands, we expertly managed the supply chain related issues during the COVID-19 pandemic, executing an aggressive production ramp up. At each of our facilities, we are now running at production rates above pre-COVID levels, and plan to continue to increase production throughout the year to meet the robust retail demand. Despite the inefficiencies realized during a production ramp-up, the dynamic supply chain environment, and increasing labor costs, the company delivered gross margins of 25.3% in the first quarter, up 200 basis points versus the prior year. The Nautic Start turnaround is proceeding according to plan. and we were encouraged by the early results Scott Womack and his team delivered. While there is still work to do, we are confident in the long-term prospects of the Nautic Star brand and our ability to generate gross margin levels approaching 20 percent over the next few years through a combination of operational excellence and new product development initiatives. And fourth, we strengthened our high-performance organizational framework to attract, develop, and retain a highly skilled and specialized workforce. Like many other recreational product manufacturers, we are aggressively recruiting skilled labor to increase production at all our facilities. While the market for talent remains tight, we're encouraged by the pace and quality of our recent hiring, which gives us confidence that we are heading in the right direction. We have seen some labor rate inflation due to the tight labor market, but as evidenced by our gross margin performance, We've been able to mitigate most of this increase through our superior material cost management and overhead absorption as volume increases. Our people are our most valuable asset, as we have prioritized their health and safety throughout this time. This Safety First culture is critical to our success. I am so proud of the more than 1,200 men and women that drive the success of this business every day through their professionalism and dedication to delivering the best products on the water. Looking more closely at the quarter, we are encouraged by the momentum we are seeing all around our four growth priorities, and we'll continue to proactively adjust our strategy to the business environment. Delivering on our core dealer and consumer propositions is at the center of this growth strategy. Our results reflect progress on our work to accelerate production and efficiently manage our supply chain to meet increased demand. As of today, Crosstar Brands our wholesale production plan is fully committed. In addition, the percentage of our order book that is already retail sold is at record levels. Dealer inventories remain at historically low levels, and consistent with our message last quarter, we believe it will be fiscal 2022 before dealer inventories reach optimal levels. Combined with the current supply and demand dynamic in our industry, this provides us with wholesale growth visibility greater than at any time in the recent past. As we've continued to execute our consumer-focused strategic plan, we are well-positioned to outperform relative to competition and generate tremendous value for shareholders. Against this backdrop, promotional activity has remained relatively benign, although we do expect to see greater promotional activity heading into the boat show season as competitors adapt to the likely scenario where most in-person boat shows are either severely limited or canceled. We are actively working on non-traditional boat show alternatives and believe the premium nature and leading market share positions of our brands, our relative mature and sophisticated dealer network, and our digital marketing capabilities provide us a competitive advantage over our competition. Let me now briefly review some of the latest developments across our brands. At Aviara, we continue to be pleased with the retail performance of the brand. To date, nearly 70% of the Aviaras we have shipped at wholesale have been delivered to a retail consumer. This extraordinary performance, combined with the unprecedented retail demand in boating, has led us to the point where we've accelerated our growth plan for Aviara. As previously announced, on August 17, 2020, we entered into a contract to purchase a boat manufacturing facility in Merritt Island, Florida. On October 26, 2020, we closed on the purchase, and we've begun to prepare the facility to start production of aviaras in early fiscal Q3. As many of you are aware, Marine Max, our only aviara dealer, recently acquired a large dealer in the Midwest, adding 20 additional locations. This provides aviara with a great incremental opportunity to grow in a large boating market. While the near-term increase and overhead due to the acquisition of the Merritt Island facility and subsequent transfer of Aviara production will have a dilutive near-term impact on margins and profitability. We believe the additional capacity will set up the brand for many years of future growth in sales and profit. It is important to note that moving Aviara from the Mastercraft facility frees up much-needed capacity for Mastercraft in addition to the increase in Aviara capacity. At Crest, we experienced record retail performance during the fiscal first quarter. This underscores the attractiveness of the Crest brand, the value it delivers at an attainable price point, and the easy-to-use and new boater-friendly nature of the pontoon segment. Most recently, Crest enhanced its leading position in the ultra-luxury category with the release of the redesigned Savannah. Additional model refreshes and launches are in development for model year 2022. As we fully expected, Crest delivered a strong quarter financially with higher gross margins and profitability on lower sales. As we continue to ramp up production at Crest, we are realizing the benefits of our operational improvement initiatives. As we have stated, our long-term goal is to achieve gross margins in the low 20 percent range, and we are well on our way. Similarly, at NauticStar, we experienced record retail results in fiscal Q1. as the brand's model lineup and attainable price point attracted new to boating consumers in strong boating markets. While we're pleased with the increased demand, we strongly believe there is room for continued growth. Scott Womack, who joined us in August as president of Nautic Start, is executing a number of initiatives to ramp up production, improve overall quality, refresh the product offering. While we expect it will take until next year to see the full benefits of these efforts, We are confident that we have the right leader in place and that the brand is on track to deliver meaningful and sustainable profitability improvement. At Mastercraft, the retail performance during the fiscal quarter was phenomenal and even more impressive given the tough comparison to last year's late summer selling season. Our new model introductions and model refreshes for model year 2021 have been well received, and demand for our product is at an all-time high. We continue to grow distribution in markets where demand for ski wake boats is strong, as demonstrated by adding new dealers in Southern California, Northern California, Long Island, Charlotte, and Western Canada. These incremental distribution points provide a significant runway for Mastercraft to take market share this year and beyond. On a financial basis, excluding the impact of Aviara, the Mastercraft brand saw increased net sales on lower units. and achieved record fiscal first quarter gross margin levels driven by consumers continuing to add features and options to their orders. As previously stated, we expect to continue to ramp up production throughout the year, which will drive some labor inefficiencies in the short term, but allow us to better meet wholesale demand from our dealers as they look to stock up heading into the summer selling season. Importantly, our progress and business fundamentals are setting us up for an outstanding fiscal year 2021. and I feel confident in our ability to continue driving long-term momentum. We remain committed to building on this progress through investments to further strengthen our competitive position, grow our categories, deliver long-term shareholder value guided by our strategic priorities. Looking at how far we have come over the past several months gives us confidence that we can continue to deliver superior growth in sales and profits. I will now turn the call over to Tim who will provide more color on our financial results. Tim.