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spk07: Good day and thank you for standing by. Welcome to the first quarter 2023 Mastercraft Boat Holdings, Inc. Earnings Conference Call. At this time, all 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Tim Oxley, Chief Financial Officer. Please go ahead.
spk00: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss Mastercraft's first quarter performance for fiscal 2023. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. With me on this morning's call are Fred Bradfill, Chief Executive Officer and Chairman, and George Steinbarger, our Chief Revenue Officer. Fred will begin with a review of our operational highlights for the first quarter. I'll then discuss our financial performance for the quarter. Then I'll currently 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 9th, 2022. 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 the 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 2023 first 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. In addition, beginning this quarter, the financial results of the NauticStar segment are reported as discontinued operations separate from the results of our continuing operations following the sale of the NauticStar business during the quarter. Unless otherwise noted, the following commentary is made on a continuing operations basis. With that, I'll turn the call over to Fred.
spk01: Thank you for joining us today. Before we begin, Our thoughts are with all of those, including our more than 200 employees in the path of the storm currently impacting Florida. Our sincere hope is that they all remain safe and secure. Our business performed extremely well during the first quarter in a very challenging and dynamic environment. Our results reflect the continuation of exceptional execution against our strategic and operational priorities as we delivered the best first quarter in the company's history. Furthermore, The first quarter represented an eighth consecutive period over period record-setting quarter. Net sales diluted adjusted earnings per share were all the highest for any first quarter in the company's history. This excellent performance also represents an eighth consecutive quarter of net sales growth of more than 20%, a testament to our growth-oriented strategy. Each of our businesses contributed to our revenue growth and profitability during the quarter. When compared to the first quarter of fiscal 2022, net sales were higher by nearly 30%, adjusted EBITDA grew by nearly 73%, adjusted EBITDA margin increased 530 basis points, and adjusted net income per share grew by more than 90% year over year. One of our four strategic priorities is the never-ending pursuit of greater operational excellence. This focus allowed us to mitigate the impact of a very challenging supply chain environment, Our superior supply chain management resulted in improved production efficiencies and throughput, which enabled each of our brands to make progress in replenishing dealer inventories during the quarter. This success is a result of strategically building a world-class supply chain team, choosing to focus our operations on core competencies, and aligning ourselves with the best supplier partners in the industry. Although improving, the supply chain continues to be a risk. in particular for certain second-tier supplier components sourced from China. Labor efficiency and availability also improved during the quarter. Our ability to successfully navigate the supply chain and labor challenges resulted in industry-leading gross margins for the quarter. These results would not have been possible without the dedicated efforts of our employees. Our emphasis on human capital and our status as a premier employer in the communities in which we operate is enabling us to attract and retain skilled labor. In addition, during the quarter, we continued our impressive track record of safety, achieving 3 million man hours worked without a lost time incident at our Mastercraft brand. This achievement is a testament to our commitment to safety, an essential element of Mastercraft's core values, and is attributable to every single individual in our workforce. I could not be prouder of what they have achieved. We believe our superior operating model is allowing us to make more progress in building much needed dealer inventories faster than our closest competitors. As of the end of the first quarter, dealer inventories are about 25% lower than the first quarter of fiscal 2019. Our success in replenishing dealer inventories and improving product availability will be a competitive advantage heading into the 2023 summer selling season. We continue to closely monitor economic conditions and evaluate the potential impact on our businesses. As we explained on our last earnings call, macroeconomic and other demand indicators have shown some weakening and are generally signaling a downturn within the next 12 months, which will negatively impact the upcoming summer selling season. Expecting the expected weakening economy has caused us to approach our wholesale production plan for fiscal 2023 with a prudent level of conservatism, and we have developed plans for a range of potential retail demand scenarios. Despite the negative near-term economic outlook, there are reasons to believe our core consumer is better positioned to withstand this recession. For example, as recently measured by the Federal Reserve, higher-income households have nearly $1.5 trillion of savings in excess of the level that they had prior to the pandemic. We are optimistic that strong household balance sheets will continue to support consumer spending and that our diversified portfolio of premium brands is unmatched in its ability to serve this affluent customer. Despite the continuing supply chain disruption and macroeconomic volatility, we are making progress toward our overarching objective of driving sustainable, accelerated growth by being the most consumer-focused recreational boat manufacturers. We remain determined to execute against each of our four strategic priorities, consumer experience, consumer acquisition, operational excellence, and human capital development. Guided by these priorities, we are intent on continuously improving our business to maximize shareholder value. We are confident that the divestiture of the NauticStar business resulted in a more agile and focused company and provided structural improvement to the growth potential and margin profile of our business. Let me now briefly review some of the latest developments across our brands. Our Mastercraft brand performed extremely well by growing net sales to a first quarter record of $113 million and expanding gross profit margin by 220 basis points year over year. This tremendous result is due to the extraordinary efforts of the Mastercraft team and the continued success of Mastercraft's best-in-class operating model. Mastercraft continued to take market share during the recently completed summer selling season and remains the number one brand in the fastest growing and highest margin category in the powerboat industry. For model year 2023, Mastercraft focused on its most affordable product lineup. As part of our product refresh and expansion, the recently announced all-new NXT 21 and NXT 23 set a higher standard for the entry-level towboat segment. with best-in-class wave performance, a spacious hybrid bow, added storage, and telematics. These new models are designed for exceptional convenience. The newly designed Bimini top with upgraded surf sleeves provide the most board storage in the industry. And the new swim step makes it easier than ever to enter and exit the water. The innovative hybrid bow increases seating capacity and allows for additional storage. With a class-leading ballast capacity of 3,000 pounds, combined with the Surfstar system, riders can experience Mastercraft's perfectly sculpted wakes and waves at an approachable price point. Mastercraft recently completed ISO recertification with flying colors for quality management systems, which is ISO 9001, safety and health management systems, which is ISO 18001, and environmental management systems, which is ISO 14001. Mastercraft is the only recreational boat manufacturer to meet these exacting standards. Mastercraft's world-class operating model and its continuous release of innovative products and consumer-centric features are just two of the reasons the iconic Mastercraft brand continues to outpace the competition. At Crest, net sales were up nearly 33% year over year. In addition to a track record of strong growth, Crest continued to generate exceptional profitability by achieving a record gross margin of nearly 23% for the quarter. Since its acquisition in fiscal 2019, Crest expanded its gross margin by 540 basis points and increased net sales by nearly 70%. Crest's ability to grow consistently while generating exceptional earnings demonstrates the success of the CREST acquisition and highlights our value-enhancing growth strategy. The key element of CREST's growth strategy is dealer expansion, and CREST has added more than 30 new points of distribution over the past several months. According to the most recent All States Reporting SSI market share data, as of the rolling 12-month period ended June 30, 2022, CREST increased market share by 20 basis points. At Aviera, net sales were up by more than 120% compared to the prior year period, driven by a 68% increase in units and a favorable model mix. During the quarter, Aviera reached profitability, and as production continues to increase, we expect margins to continue to increase and result in positive adjusted EBITDA for the full year. As widely reported from the recent boat shows, demand for premium product continues to be robust. Aviera achieved record results in units and revenue at the recent Fort Lauderdale International Boat Show. According to the most recent All-States Reporting SSI market share data, as of the rolling 12-month period ended June 30, 2022, Aviera increased its market share by 230 basis points in the 30 to 43-foot premium day boat segment. This was the largest increase amongst all competitors, further solidifying the brand's position as a preeminent luxury day boat. I will now turn the call over to Tim, who will provide more detailed analysis of our financial results. Tim?
spk00: Thanks, Fred. As a reminder, beginning this quarter, the financial results of the NauticStar business are reported as discontinued operations, separate from the results of our continuing operations. Unless otherwise noted, the following commentary and outlook reflects our continuing operations only. We delivered another excellent quarter. Focusing on the top line, net sales for the quarter were $169.5 million, an increase of $38.9 million, or 29.7%. The net sales increase reflects increased volume and mix, along with price increases partially offset by increased dealer floor plan financing costs and other incentives as dealer inventories began to return to normal following historically low levels due to the COVID-19 pandemic. For the quarter, our gross margin was 27.1%, an increase of 370 basis points when compared to the prior year. Our margins were primarily the result of higher net sales and improved production efficiencies, partially offset by higher costs from inflationary pressures and higher dealer incentives. Operating expenses were $13.8 million for the quarter, or 280 basis points lower as a percentage of net sales compared to the prior year. Turning to the bottom line, adjusted net income for the year increased more than 81% to $25.7 million, or $1.43 per diluted share, computed using the company's estimated annual effective tax rate of 23%. This compares to an adjusted net income of $14.2 million or $0.75 per diluted share in the prior year period. Adjusted EBITDA increased nearly 73% to $35.9 million for the quarter, compared to $20.8 million for the prior year period. Adjusted EBITDA margin was 21.2%, up 530 basis points from 15.9% in the prior year period as we continue to prudently manage SG&A costs. Our balance sheet remains incredibly strong as we enter the quarter with more than $140 million of total liquidity, including nearly $41 million of cash and $100 million of availability under our revolving credit facility. We ended the quarter with net leverage of 0.2 times adjusted EBITDA on a trailing 12-month basis. Our balance sheet positions us exceptionally well and provides us with ample financial flexibility to ensure sound operations through the business cycle and the ability to grow aggressively in alignment with retail demand. Given our recent operating performance, strong balance sheet, and positive long-term outlook, we believe our stock represents an outstanding value at recent prices. During the quarter, we spent approximately $4.2 million to repurchase more than 190,000 shares of common stock. To date, we spent nearly 60% of our $50 million program authorized in June of 2021. We expect to continue to opportunistically return cash to shareholders through the program by prioritizing financial flexibility and high return investments in the business that generate growth and long-term shareholder value. Looking forward, we are raising our guidance for the full year based on our strong performance. We will continue to monitor the strength of retail demand and adjust our production plans as appropriate to maintain healthy dealer inventories. Our guidance range reflects the potential for a range of retail demand scenarios. For full year fiscal 2023, Consolidated net sales is now expected to be between 590 million and 625 million, with adjusted EBITDA between 108 million and 118 million, and adjusted earnings per share of between $4.20 and $4.60. We continue to expect capital expenditures to be approximately 30 million for the full year. For the second quarter of fiscal 2023, consolidated net sales is expected to be approximately 150 million, with adjusted EBITDA of approximately $26 million and adjusted earnings per share of approximately $1 per share. Despite the dynamic business environment, we are confident in delivering strong financial results for our shareholders. I'll now turn the call back to Fred for his closing remarks.
spk01: Thanks, Tim. We are very proud of our outstanding start to fiscal 2023. Despite macroeconomic volatility and the dynamic business environment, we achieved the best first quarter in the company's history. Our ability to mitigate supply chain disruption is enabling more efficient production and throughput. And as a result, we made progress in replenishing dealer inventories and enhancing product availability. Each of our segments contributed to our growth and profitability improvement during the quarter. And we realized structural improvements to the growth potential and margin profile of our business with the sale of NauticStar. We are on track to achieve the second best year of financial performance in the company's history. We look forward to continuing our mission of generating long-term value for our shareholders as a purpose-driven business committed to our consumers, dealer and vendor partners, and people. Operator, you may now open the line for questions.
spk07: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster.
spk05: Our first question comes from Joe Altabella with Raymond James. Please go ahead.
spk03: Thanks. Hey, guys. Good morning. I want to start on dealer inventories. I think, Fred, you mentioned that you're 25% below where you were in 2019. I guess two questions there. One, how does that vary between Mastercraft and Crest? And two, where does that eventually normalize? Because it probably doesn't normalize in line with 2019, I would think.
spk04: Hey, Joe, it's George. Good morning. So the 22 obviously is an average across the brands, but Mastercraft has a higher or I guess lower versus 19. And then Crest is closer to 19 levels. And then in terms of normalization, I think your comment is correct. As we think about what we're seeing now, 2019 levels feel like a good benchmark for where we end up normalized.
spk00: You need to keep in mind with our expanded distribution, in particular at Crest, you know, approaching 19 levels is not a bad thing.
spk03: Okay. Got it. Maybe a second question in terms of capital allocation. You know, you guys obviously bought back some stock. You talked about doing more acquisitions. But given your valuation, you know, is buyback the priority today versus M&A?
spk01: I wouldn't say it's priority. Our priority is, first and foremost, financial flexibility. And very close to that, if not concurrent with that, is growth. So how we generate that growth is through a variety of different alternative options, some of which are organic and some of which may be inorganic or M&A oriented. So Joe, I'd say once again, we're going to be very prudent and careful and we have many alternatives for each one of those strategies. Stay tuned for us to be able to unfold some of those plans as we roll forward. Okay. Thank you.
spk05: Thank you. One moment for our next question. Our next question comes from Alice Wicklent with Baird. Please go ahead.
spk06: Yeah. Good morning, gentlemen. I'm in for Craig Kennison this morning. I just want to touch on guidance. I mean, I think you mentioned that it reflects the potential for a range of retail scenarios. How should we think about the kind of the core or the base case retail outlook that's embedded in that range?
spk04: Alice, I would say it's consistent with kind of the guidance that we provided last quarter, kind of in that our view is that with the all-important summer selling season and where we think the macro headwinds align with that, we're seeing something in that mid-teens to high-teens, low 20% range is kind of consistent with where we were last quarter. I don't think we've seen anything in the retail environment today that would suggest that, you know, as we look forward, that anything has changed. If anything, the macro indicators have somewhat worsened. And so that continues to be our view.
spk01: Once again, mid-to-high teen decline.
spk06: Yeah, thank you. And then just, you know, you noted in your release, and I think in your comments, you've seen some increased floor plan costs and other incentives. Maybe flesh that out a bit more. Where does promotional activity stand today, and what are you expecting over the next 6 to 12 months as inventory normalizes?
spk00: One thing to keep in mind as we talk about promotional activity, we're comparing to a year that had virtually no promotional activity. So we have an increase, but it's not back to – it's in no way high. It's kind of back to more approaching normal levels. But when we look at the whole year, I think between the increased floor plan costs and the increased promotional activities, probably going to be in the neighborhood of 250 basis points year-over-year headwind that is embedded in our guidance.
spk06: Great. That's helpful. That's all for me. Thanks.
spk05: Thank you. One moment for our next question. Our next question comes from Michael Swartz with Druze Securities. Please go ahead.
spk02: Hey, guys, good morning. Just a couple quick questions. One, you know, some others have talked about the impact of Hurricane Ian at the end of the September quarter. I just wanted to get some sense of was that impactful to you at all from a production or a delivery standpoint? Is there any shift between your fiscal first quarter and second quarter due to that?
spk01: No, not really for us. I would say we're very fortunate in that our – our key dealer locations survive comparatively very well. And while there'll be some disruption in their business near term and their employees, the long-term outlook is very good for them. So I actually think with regard to our distribution, and again, when we talk about the West Coast of Florida, we're talking primarily now about Aviera, And Marine Max, they're in very good shape in terms of recovery and business going forward. But no, not a significant impact on us from a wholesale standpoint.
spk02: Okay, perfect. And then just a point of clarification on the applied guidance for second quarter would, I think, suggest around like a 300-ish basis point or 400-ish basis point deceleration and margins just potentially. Is that just seasonality, or is there something else driving that quarter-over-quarter decline?
spk01: Seasonality primarily.
spk00: Q2 is the quarter with the largest number of holidays, and so it's mostly a reflection of reduced production in comparison to Q1. So you've got less leverage on your SG&A, less leverage on your overheads. uh and you know we continue to see uh increasing floor plan costs so that is part of the picture as well okay perfect thanks guys thank you i'm showing no further questions at this time thank you for your participation in today's conference this concludes the program you may now disconnect
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