MasterCraft Boat Holdings, Inc.

Good day, and thank you for standing by. And welcome to the Q3 2021 Mastercraft Boat Holdings Incorporated Earnings Conference Call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I will now hand today's conference over to your speaker, Tim Oxley, CFO. Please go ahead.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss Mastercraft's third 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 Brightville, Chief Executive Officer and Chairman, and George Steinbarger, our Chief Revenue Officer. Fred will begin with an overview of our progress on our strategic priorities and review our operational highlights from the quarter. I will then discuss our financial performance for the third quarter and how we see 2021 finishing up. 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, May 12, 2021. The company assumes no obligation to update any statements, including forward-looking statements. statements that are not historical facts or forward-looking statements, and subject to a safe harbor disclaimer in today's 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 third quarter earnings release, which includes a 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 investor section of our website. With that, I'll turn the call over to Fred.

Thank you, Tim. Good morning, everyone, and thank you for joining us today. Building upon the record quarterly performances we delivered in our first and second quarters, the fiscal third quarter was the most profitable quarter in the company's history. This record-setting performance was driven by year-over-year and sequential unit increases in each of our segments, which resulted in the most wholesale units ever sold by the company in a quarter. To produce at these levels, given the challenging environment, is a clear demonstration of our disciplined execution and operational excellence. We've been able to scale and accelerate production while expertly managing our supply chain to deliver for our dealers and consumers in this robust demand environment. The credit goes to the more than 1,400 employees that continue to execute against our key strategic priorities and the strength of our brands. Our results are also a testament to the continued execution of our value-enhancing growth strategy. As a reminder, our strategy is centered on four key pillars designed to achieve one overarching objective, to drive sustainable, accelerated growth. During the quarter, we continued to execute against each of these four pillars. consumer experience, digital marketing, operational excellence, and human capital development. First, we continued our investments in expanding our product development and engineering team. These investments will be an important component of our market share and financial growth plan. Our relentless focus on learning more about our consumers' growing needs and expectations has allowed us to further refine our product development process and accelerate innovation. At Mastercraft Brand, we recently revealed to our dealers the upcoming model year changes for 2022, including new models and innovations, which were enthusiastically received. With this additional investment in our product development and engineering team, we are similarly well positioned to accelerate new model development and innovations for all our brands, which will begin this summer. Second, we continue to activate a consumer-driven digital 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. Last quarter, we launched several immersive digital experiences for our consumers to learn about our brands in a 360-degree digital environment. These unique digital showrooms allowed consumers to immerse themselves in each of our brands in a way they would typically do at traditional in-person boat shows. The results we have seen in consumer site traffic website engagement, and lead generation have been dramatic. This quarter, we also continued our investment in digital marketing by expanding many of the capabilities currently being deployed at Mastercraft and Aviara to Crest and NauticStar. By leveraging the infrastructure and process already in place at Mastercraft, we've been able to generate increased brand awareness, website traffic, and lead generation at Crest and NauticStar. We will continue to invest in digital solutions that bring awareness and new consumers to our brands. And this investment will increasingly drive market share gains. Third, we sustain the acceleration of operational excellence programs across all our manufacturing facilities to drive throughput improvements and enhance quality. Across all our brands, we expertly manage the relocation of our Aviera brand and the supply chain issues to aggressively ramp up production, resulting in the highest wholesale units sold in any quarter of the company's history. For example, we did not have to shut down any of our facilities as a result of the resin shortage that has impacted the boating industry. Our outstanding supply chain team have done a tremendous job of minimizing the disruptions to our operations. At each of our facilities, we are running at record production rates and will continue to increase production to meet the robust retail demand. Despite the inefficiencies realized during a production ramp-up, the dynamic supply chain environment At increased labor costs, the company delivered gross margins of 25.2% in the third quarter, up 450 basis points versus the prior year. The Nautic Start turnaround continues to gain momentum. Nautic Start continues to increase throughput to meet retail demand, with wholesale unit shipments for the quarter up 36.1% year-over-year and up 20% sequentially compared to the second quarter. Gross margins were up more than 1,200 basis points year over year and up more than 250 basis points sequentially compared to the second quarter. We remain confident in the long-term prospects of the NauticStar brand and will continue to dedicate the necessary resources and investments to bring NauticStar's operational excellence and financial results in line with our internal expectations. And fourth, we remain focused on strengthening our human capital framework to attract, develop and retain a highly skilled and specialized workforce. We continue to successfully meet our skilled labor recruiting needs at all our facilities, having grown our workforce by more than 500 hourly and 50 salaried personnel from the start of this fiscal year. Fifty percent of our salary growth has been devoted to product development. We have seen some labor inflation due to the increase in tight labor market conditions, but as evidenced by our growing gross margin performance, We have been able to mitigate most of this increase through overhead absorption as volumes increase and superior material cost management. Looking more closely at the quarter, we are encouraged by the momentum we are seeing all around all four of our strategic growth priorities and will continue to proactively adapt our strategy to the business environment. As of today, across our brands, our wholesale production plan remains fully committed. In addition, the percentage of our order book that is already retail sold is at record levels and growing. Dealer inventories remain at historically low levels, and consistent with our message last quarter, we believe it will be into calendar 2023 before dealer inventories reach optimal levels. Combined with the current supply and demand dynamic in our industry, this provides us with an unprecedented wholesale growth visibility. We continue to execute on our consumer-focused strategic plan and we are well positioned to outperform relative to our competition and generate tremendous value for our shareholders. Let me now briefly review some of the latest developments across our brands. At Aviara, we successfully completed the relocation of all our manufacturing activities to the Merritt Island, Florida facility. As of the third quarter, the new Aviara facility is fully self-supported from a production standpoint. We recently celebrated the shipment of the first Aviara AV32 model produced in the new facility from start to finish, which is just the first of many more to come. Aviara's retail performance continues to exceed expectations, and our order book is completely sold out for the remainder of the year. Marine Max and its customers continue to appreciate Aviara's progressive style, elevated control, modern comfort, and quality details, which are unmatched in the luxury dayboat segment. While the increase in overhead due to the Merritt Island facility has a dilutive near-term impact on margins and profitability, the additional capacity will set the brand up for many years of future growth in sales and profit. In addition, moving Aviara from the Mastercraft facility has freed up much-needed capacity for Mastercraft, which we are busy putting to good use. At Crest, we experienced continued strength in retail performance during the fiscal third quarter, underscoring 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. Since we acquired Crest in October of 2018, our focus has been on expanding production throughput to meet the increasing demand for the brand and to drive incremental margin expansion. In the third quarter, Crest continues the exceptional execution of its operating and strategic priorities, delivering another outstanding quarter financially. Crest wholesale unit volumes set a quarterly record and were up nearly 59% year over year. Importantly, wholesale volume was also up more than 27% sequentially compared to the second quarter. Gross margins increased more than 800 basis points year over year. This marks the second consecutive quarter in which Crest achieved gross margins in excess of our 20% target. putting us well on our way to achieving consistent gross margins in the low 20% range. Similarly, at NauticStar, we experienced continued retail momentum in our fiscal third quarter. As previously stated, NauticStar improved wholesale throughput sequentially in the quarter and improved its gross margins by more than 1,200 basis points year over year. Our turnaround plan is gaining momentum with initiatives in place to further ramp up production, improve overall quality, and enhance the product offerings. Our expectation remains that we'll take until next year to see the full benefits of these efforts, but we are confident that NauticStar is on track to deliver meaningful and sustainable profitability over time. At Mastercraft, retail performance in the fiscal quarter continued its torrid pace. For the fiscal third quarter, Mastercraft set a net sales and unit shipment record. Entering the current fiscal fourth quarter, we are running at record production rates at the Mastercraft facility as we aggressively ramp up to get dealers critical inventory ahead of the boating season. Importantly, we will continue to emphasize quality to further differentiate Mastercraft from the competition. Our wholesale order book has sold out through the remainder of the year, and dealer commitments for model year 2022 have already exceeded our aggressive expectations. Combined with the incremental dealership changes we highlighted last quarter, Mastercraft is primed to take a market share heading into the heavy summer selling season. On a financial basis, excluding the impact of Aviera, the Mastercraft brand saw increased net sales on wholesale unit and ASP growth. Additionally, the brand achieved exceptional fiscal third quarter gross margin levels driven by consumers continuing to add features and options to their orders. As we integrate the prior Aviera manufacturing footprint into Mastercraft production, we expect to continue to ramp up production throughout the year, allowing us to meet to better meet the wholesale demand from our dealers as they look to capitalize on the summer selling season and continue robust retail demand from consumers. Importantly, our progress and business fundamentals are setting us up for an outstanding fiscal year 2021. We remain committed to building on this progress through investments to further strengthen our competitive position, grow our categories, and deliver long-term shareholder value, guided by our strategic priorities. Looking at how far we have come over the past nine months gives us confidence that we will continue to deliver superior growth in sales and profit. I will now turn the call over to Tim, who will provide more color on our financial results. Tim?