MasterCraft Boat Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Mastercraft Boat Holdings Inc. Fiscal Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to your speaker today, Scott Kent, Vice President of Finance and incoming Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss Mastercraft's fiscal third quarter performance for 2025. 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 is Brad Nelson, Chief Executive Officer, and Tim Oxley, Chief Financial Officer. We will begin with an overview of our operational performance from the third quarter. After that, Tim will discuss our financial performance. Brad will then provide some closing remarks before we open the call for questions. Before we begin, we would like to remind participants that the information contained in this call is current only as of today, May 7th, 2025. 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 items not indicative of our ongoing operations. For each non-GAAP measure, we also provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. There is also a slide deck summarizing our financial results in the investor section of our website. As a reminder, unless otherwise noted, The following commentary is made on a continuing operations basis. With that, I will turn the call over to Brad.

Thank you, Scott, and good morning, everyone. I want to start by acknowledging that this will be Tim Oxley's final earnings call. As we announced last month, Tim will be retiring as CFO at the end of June and will remain in an advisory role through December. Scott Kent, who you just heard from, will assume the CFO role on July 1st. Tim Oxley has had a tremendously successful career with nearly 35 years in the powerboat industry, including 18 years here at Mastercraft. He has played a key role in the evolution of our company. Tim's leadership and guidance have been invaluable, and I'm incredibly grateful for our partnership. He leaves Mastercraft in outstanding financial shape and with a strong finance team. On behalf of everyone at Mastercraft, I thank him for his service to the company and wish him all the best as he transitions towards retirement. Looking to the future, I'm pleased to have Scott succeed Tim as Chief Financial Officer. He has over 25 years of Powerboat experience, including more than six years of proven leadership here at Mastercraft. His appointment reflects our depth of talent and careful succession planning. I look forward to working closely with Scott and the rest of the team to deliver long-term growth for our stakeholders. Now, turning to our third quarter results, we delivered results that exceeded expectations despite the dynamic industry and macroeconomic backdrop. Sequentially, profitability improved due to higher volumes, operating efficiencies, and a favorable mix over fiscal Q2, driven largely by the rampant production of our premium X-Star model. We continue to focus on what's in our control, including discipline, cost, cash, and pipeline management. Our renewed focus on product development and prudent destocking over the past two-plus years has positioned our dealers well for this selling season. Our flexible operating model and ability to generate cash flow, even at these low volumes, combined with our Fortress balance sheet, affords us the ability to navigate near-term uncertainty while positioning the business for sustainable long-term growth. During the quarter, spring boat show results were up from last year and generated strong energy heading into the critical summer selling season. That said, persistent macroeconomic headwinds and tariff uncertainty continue to put pressure on the marine sector. We continue to monitor and take proactive action to mitigate the impact from these external factors. To reflect the evolving macro conditions and the challenging demand environment, We are revising our full year guidance, which we'll detail later in the call. We continue to make meaningful progress in managing dealer health and reducing inventory levels. Over the last year, dealer inventories across our brands have decreased by 30%. Compared to the same pre-pandemic period in fiscal 2019, dealer inventories are lower by more than 45%. This highlights the effect of our careful production planning, dealer support programs, and strength of our products and brands. Despite broader economic turbulence, we remain confident in achieving our fiscal year inventory reduction target of 600 to 1,000 units, assuming retail expectations hold through the summer selling seasons. Turning to the evolving trade and tariff environment, while we anticipate a modest impact from tariffs on fiscal 2025 costs, We continue to work diligently with key suppliers to mitigate risk. We're also closely monitoring broader demand implications. Regardless of market dynamics, our intent is to keep our dealers healthy and ensure inventories are closely aligned with retail demand. Our capital allocation priorities remain disciplined and consistent despite the external pressures. We have a solid balance sheet with no debt, we are generating cash, and our strategic growth initiatives are fully funded. We continue to prioritize our share repurchase program to return capital to shareholders. Given the suppressed marine environment, we remain opportunistic and highly selective with respect to inorganic growth. Shifting to recent developments across our brands. The X-Star, Mastercraft's flagship model, was awarded the prestigious National Marine Manufacturers Association Innovation Award in the towboat category at the Miami International Boat Show. Additionally, the NMMA recognized both Mastercraft and Crest with Marine Industry Customer Satisfaction Index Awards for 2024. This recognition underscores our continued focus on quality and innovation. Mastercraft has a long-standing track record of winning CSI awards, and Crest has now received the honor for six consecutive years, every year under our ownership. Within our Mastercraft segment, our team supported dealers at key boat shows where we showcased our X-Star product. Its halo effect has been particularly positive for the Mastercraft brand globally. Consumer interest remains strong, and we ramped up X-Star production in the third quarter to meet demand. We continue to identify growth opportunities within our distribution network. Recently, Mastercraft strengthened its dealer presence in Dallas, the largest ski weight market in the United States. We've also announced dealer expansion in southern Utah and Lake of the Ozarks in Missouri. As such, we're experiencing early momentum in these key markets. We'll continue to explore additional opportunities to enhance our dealer network. Turning to our pontoon segment, which includes Crest and Belize brands. Dealer inventories across the broader pontoon market remain challenged, which has created a more promotional and competitive environment. Overall, we continue to proactively adjust production levels to right-size filled inventories as evidenced by a 40% year-over-year unit reduction in this segment. As announced in February, Michael Connell has been appointed president of the pontoon business, and he's hit the ground running, joining the team in Owasso. The team's priorities are centered on product enhancements, dealer and pipeline management, and operational improvement through this dynamic timing. With that, I'll now turn the call over to Tim to provide additional commentary on the quarter and walk through our financials.

Tim. Thanks, Brad. To start, I want to sincerely thank all of you for your support and interest in the company over the years. Our team will closely work together over the coming months to ensure a smooth transition. I'll certainly miss Mastercraft and working alongside this strong team, but I'm looking forward to retirement and spending more time with my family. Now turning to our Q3 financial results. Focusing on the top line, net sales for the quarter were $76 million, a decrease of $8 million, or 10% from the prior year period. This was primarily due to lower unit sales volume, partially offset by favorable mix. For the quarter, our gross margin was 20.8% compared to 23.3% in the prior year period. Lower margins were the result of lower cost absorption from the production decrease, partially offset by favorable mix. Operating expenses were $11.7 million for the quarter, a decrease of $1.2 million compared to the prior year period, primarily due to lower general administrative expenses. As a reminder, the prior year period included CEO transition costs. On the bottom line, adjusted net income for the quarter was $5 million or $0.30 per diluted share, calculated using a tax rate of 18%. This compares to adjusted net income of $8.5 million or $0.50 per diluted share for the prior year period, calculated using a tax rate of 20%. Adjusted EBITDA was $7.5 million for the quarter compared to $11.7 million in the prior year period. Adjusted EBITDA margin was 9.9% compared to 13.9% in the third quarter of fiscal 2024. Our balance sheet remains incredibly strong. We entered the quarter with nearly $167 million of total liquidity, including nearly $67 million of cash and short-term investments, and $100 million of availability under our evolving credit facility. We ended the quarter with no debt. Year-to-date, we generated nearly $19 million of operating cash flow. Our balance sheet positions us exceptionally well, provides us with ample liquidity and financial strength to perform through the business cycle, months strategic growth initiatives, and return capital to shareholders. During the quarter, we spent nearly $750,000 to repurchase more than 41,000 shares of our common stock. We expect to repurchase shares at an accelerated pace in our fiscal fourth quarter, particularly given our recent valuation. In fact, fourth quarter to date, we've already spent more than $1.8 million to repurchase over 115,000 shares. Despite ongoing macroeconomic and trade uncertainty, we remain within the range of our previously stated guidance. That said, for fiscal 2025, consolidated net sales is now expected to be approximately $275 million with adjusted EBITDA of approximately $20 million and adjusted earnings per share of $0.71. We also now expect capital expenditures to be approximately $9 million for the full year as we closely manage cash flow. I'll now turn the call back to Brad for his closing remarks.

Thanks, Tim. Our business performed well during the third quarter against the backdrop of economic and demand uncertainty. With our strong financial foundation, we are well positioned to mitigate near-term risks and pursue our strategic growth initiatives. We continue to utilize a disciplined approach to capital allocation, including returning approximately $70 million of excess cash to our shareholders through our share repurchase program since 2021. Looking ahead, Given the fluid trade environment and limited demand visibility, we remain focused on what's in our control, managing production levels, driving innovation, and delivering operating efficiencies, all while maximizing cash flow and aggressively managing costs. Our flexible operating model allows us to adjust production to both mitigate near-term risk and capitalize on potential upside. We have taken a proactive approach to production planning and dealer incentives to capitalize on retail demand during the upcoming selling season. In this dynamic environment, we are focused on continuing to provide value for our stakeholders while positioning Mastercraft to capitalize on the next market recovery.

Operator, please open the line for questions.

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 for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Our first question comes from Joe Altabello of Raymond James.

Your line is now open.

Good morning. This is Martin on for Joe. You mentioned the tariff impacts may have modest impact. Can we get a little bit of quantification around that and an idea about what a potential price increase might be for model year 26?

You know, it seems like it changes almost on a daily basis, so we have not yet determined the effect on pricing. We do expect it to have some inflationary impact on our prices. And we have our modest impact in fiscal Q4 embedded in our guidance already.

Got it.

And then just kind of quickly thinking about retail, I believe you said down 5% to 10% prior. Is that changing anyway?

I expect it to be closer to 10 than 5 right now. But because Q4 is our easiest comp, you know, we'll know better at the end of June and not really before then.

Got it. Thank you very much, and congratulations on your retirement.

Thank you.

Thank you. Our next question comes from Craig Kennison of Baird.

Your line is now open.

Hey, good morning. Thanks for taking my question, Tim. Congratulations. It's really been a pleasure. working with you, you probably did it a quarter too late because I have a tariff question for you. Um, but I wonder if you could just, uh, just help us understand, you know, the kind of direct exposure you think you have. I mean, it's primarily a us based production footprint. And then if you've done any work to understand what indirect exposure you might have through some of your suppliers that have, you know, tariff exposure, I know it's a tough question, but, uh,

Curious if you have any. Yeah, we've had discussions with all of our significant suppliers, so we do think we have a good handle on what, I'm going to call them the parts of parts. So oftentimes, even our engines, I think for one variety of engine, the block comes from Canada. So I think we have a good spreadsheet that we use to determine those costs. And as the changes occur, we drop them into the spreadsheet. What we don't know is exactly how much is in the pipeline, how much is in the warehouses in the U.S. And so there will be a modest impact on Q4, but that's continuing to evolve as it relates to fiscal 26.

Okay, thanks. And then, Brad, you mentioned some dealer network expansion wins. Just talk about what's working in the sense of your ability to add dealerships in some of these key markets. It feels like you've made pretty significant progress there.

Yeah, we feel good about progress, and that's always going to be a work in motion there. Things are constantly changing. We look at it really in two ways. There's geography coverage, and there's still white space out there that's not being covered or only getting modest coverage from a dealer perspective. And then within territories, we have tremendous dealers, mature, highly sophisticated. But in some pockets, we've got territories where our density and our store and our rooftop coverage has opportunity for expansion. So we're really pleased with progress in some of our larger markets, in particular, pointing to Texas and Utah. Those two markets alone are needle movers from a national perspective. So as we drive, at least get up to national market share in those markets, it's really helpful for us. And our dealers, just a shout out to our dealers and their focus going through a turbulent period of time. We're proud of our partnership there, both dealers long established as well as new ones.

Yeah, I guess that's my last question, if it's okay. I mean, Tim, you've done an amazing job with your own balance sheet, and you're very well positioned to fund a buyback, as you've said. But how would you frame the balance sheet of your dealer network overall, and do you see any pockets of stress that you're concerned about?

You know, Craig, it's one of the areas that really – I'm particularly pleased in the fact that we've been able to navigate this difficult environment without having any significant dealer failures. So we, you know, we have a number of tools in our toolkit, if you will. And, you know, knock on wood, we feel good about the health of our dealers, and we continue to monitor it closely, in particular with our floor plan suppliers.

Great. Thanks, Tim. Congratulations. Thank you.

Thank you.

Our next question comes from Michael Schwartz of Truist Securities. Your line is now open.

Yeah. Hey, guys. Good morning. This is Adam on from Mike. First, just wondering how the early response has been to Belize and if you guys still think that could add $10 million in revenue for the fiscal year.

Yeah, hey Adam, the Belize product, we're in conscious low rate production as we ramp up that brand and doing it amidst the challenging market. I think we all know dealer credit lines are under pressure right now in some areas, but we are anticipating net sales in the neighborhood of what we previously stated in that $10 million ballpark for fiscal 25. We've signed dealers in the top 10 uh, BTA top 10 markets. Uh, we now have 20 plus dealers, uh, net new dealers and some really top notch dealers for Belize. So far interest in the product is high, uh, very favorable and positive response rate to the product fit and function, uh, as well as quality of the product. It just, we knew it would, it would take some time launching a product in the down part of the market. And that's, that's proving out as per plan. Got it.

The other thing, because we have such a concentration in the upper Midwest of dealers, we think as those boats are seen out on the waterways, that's going to spur some additional demand. So we remain optimistic about police. Okay.

Got it. And any way to think about fiscal year 26?

Not ready to talk about fiscal 26 at this point in time.

Okay. Got it. If I could, just one more, any trends that you guys have been seeing at retail in April and May so far, just given everything going on in the macro and tariff environment? Thank you.

Yeah, I think, you know, we're, as I mentioned on my prepared remarks, Q4 is our easiest comps. And we're looking at it on a, you know, daily, weekly basis. And, you know, our easiest comp in Q4 is June. So we still have a line of sight to being down in that, you know, 10% range. But we really won't know until it all concludes. But our dealers remain optimistic. You know, the sun's coming out, and we're going to make hay while the sun shines.

I would add, we're doing well with premium buyers. The market is skewing to the premium right now. And, you know, that's nice with the launch of our new premium X-Star product. in Mastercraft. It will help us even more with Belize as the summer selling season unfolds here, as Tim mentioned. But there's retail momentum there with X-Star that we've seen coming out of boat shows. And with Crest and pontoons, of course, that's more of a compressed selling season in the summer. It's even more seasonal than in the tow weight market. But we haven't seen sustained vibrant retail momentum yet. But as Tim mentioned, we are seeing some signs of life in green shoots from many of our dealers.

You know, as evidence of the strong Mastercraft brand internationally, we sold eight of the X-Stars in Europe at the Doozle Vote Show. So, you know, Mastercraft has a strong brand, not only in the U.S., but in Canada and the rest of the world as well.

Awesome. Thanks, guys.

Thank you.

One moment for our next question.

Our next question comes from Eric Wold of Texas Capital Securities.

Your line is now open.

Thanks. Good morning, and thanks for taking my questions. And I'll also echo congrats, Tim, on the retirement, the great working with you over the years. Thank you. I guess, think about the guidance. You took the high end of the guidance range, 275 to 295 on the last call down to 275 now. Was that 295 upper end previously, was that more of an assumption that things improved to get there, or would you characterize it as more that things have degraded since that last guidance was given?

I think that, you know, if retail were trending to being down 5%, I think that the high end of the range would have been more appropriate. As it is now, you know, there's a lot more caution out there, not only from a retail perspective, but from a dealer stocking perspective. And so that's the reason you see us moving the range down a little bit. Got it. Okay.

And then, so on that last part on dealer stocking, you mentioned, You've got, you know, almost two months left in the quarter, and you still feel comfortable with, you know, the 600 to 1,000 inventory units coming out of the channel. You know, assuming things don't materially change from here, I know June's a big question mark. You know, I guess what takes you to the higher end of that range versus the lower end of the range? Is it really kind of dependent on June or just something else that plays one way or the other?

You know, because we've been judicious with our production, you know, I expect us to be in the upper end of that range as far as, you know, taken out of, you know, I'd be more likely to be 1,000 than 600 now.

Got it. Very helpful. Thanks, guys. Appreciate it. Thanks, Eric.

Our next question comes from Anna Gleskin of B. Reilly Securities.

Your line is now open.

Good morning. Thanks for taking my question. I'd love to expand a little bit on your approach to taking price in the face of tariffs. I'm not trying to get specific numbers, but would you be looking to react with a consistent price increase or give credence to maybe some variable elasticity across the pricing architecture? Just any thoughts there?

Yeah, the morning, Anna. Balancing three things is our aim every day. Volume, price, and cost. With the variability with tariffs and the trade environment, we remain proactive on balancing the three of those. You know, it's likely what we'll see going forward is a traditional balance market-based price adjustment, and then we may be moving into more of a variable pricing model looking forward. We've not made any judgments nor have we communicated that. We're proactively modeling those things. And our goal ultimately always is to cover our input costs. The challenge with tariffs, which I think everyone can understand and appreciate, is sometimes there's a latency and there's a lot of change happening there every day. And with that, when we finally snap and make decisions on this stuff, there could be lag time in there that's difficult to balance. But we're modeling all those activities proactively while also working with suppliers to mitigate cost impact as opposed to just accepting and passing along cost impact.

Got it. I guess, have you already spoken to dealers about the potential for more variable pricing?

We've not unfolded our full model year and fiscal year pricing yet for 26.

But we have discussed with them, you know, the variable nature of these costs, and we certainly hope that the tariffs are temporary, and so that leads us more toward a variable pricing model going forward.

Thanks, guys.

Thank you. This now concludes the question and answer session.

I would now like to thank you for participating in today's conference. This does conclude the program. You may now disconnect.