Mastercraft Boat Holdings Inc (MCFT) 2025 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the MasterCraft Boat Holdings Inc. Fiscal First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Tim Oxley, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome everyone. Thank you for joining us today as we discussed MasterCraft fiscal first quarter performance for 2025. As a reminder, today's call is being webcast. Live will also be archived on our website for future listening With me this morning on this morning's call is Brad Nelson, Chief Executive Officer, who will begin with an overview of our operational performance for the first quarter. I'll then discuss our financial performance. Then Brad will provide some closing remarks before we open the call for questions . Before we begin, we'd like to remind participants, definitely information contained in this call is current only as of today, November 6th, 2024 for the Company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements subject to Safe Harbor disclaimer in today's press release edition. Finally, 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's also a slide deck summarizing our financial results in the Investors section of our website. As reminder, unless otherwise noted, the following commentary is made on continuing operations basis. With that, I'll turn the call over to Brad.

Thank you Tim, and good morning everyone. MasterCraft delivered strong physical first quarter results above expectations. Despite facing a backdrop of continued economic and industry headwinds, we've made significant progress on our key priorities this quarter. Notably, we reduced dealer inventory levels more than we anticipated due to encouraging retail well results. This promising start sets a strong foundation for the rest of our fiscal year. Due to incremental visibility and added confidence in our Wholesale Plans, we are raising the lower end of our full year guidance. Tim will provide more details later on. Before discussing our results, I wanted to address the recent weather events that have impacted the Southeast region. Our thoughts are with all of those who recently affected by Hurricanes Helene and Milton, and we sincerely hope there's quick recovery from these disasters. We are thankful that disruption to our business and our dealers has been minimal. Given the dynamic market. We continue to closely monitor economic conditions and the interest rate environment. As short-term rates trended lower, we and our dealers benefit for reduced floor plan interest costs. Consequently, this strengthens the health of our dealers. Amidst the ongoing market uncertainty, we are cautiously optimistic that more attractive financing rates could provide a psychological boost and motivate potential buyers to come off the sidelines. Internal retail results to date have exceeded our initial expectations and were positive compared to the prior year and significantly ahead of preliminary SSI. results. Keep in mind, our fiscal first quarter historically accounts for around 30% of retail units in our segments market. This is the second most important quarter for retail. This momentum, combined with our disciplined approach to wholesale has positioned us well if retail continues to perform due to our focused efforts towards reducing field inventories, we remove nearly 500 units at our MasterCraft and Crest brands during the quarter, well ahead of schedule. Over the last 12 months, we have reduced more than 1,000 units from dealer inventories at both brands, excluding the pandemic. This is by far the most units removed from the pipeline in any 12-month period since we have been a public company. As a result, dealer inventory turns are in the range of pre pandemic levels. Although we are pleased with our inventory rebalancing efforts, we expect dealer ordering patterns to remain somewhat cautious to the off peak retail season due to market uncertainties and elevated carrying costs. Our wholesale plan continues to include an increase in production levels. The second half of the fiscal year to capitalize on the upcoming boat show the summer selling seasons. We recently held dealer meetings across our brands, which were met with renewed energy and excitement for the future. This was an important opportunity to strengthen our dealer relationships and reinforced direction and strategic alignment. We are optimistic that the energy from the dealer meetings is indicative that we are at or near the bottom of the cycle. We look forward to partnering with our dealers to capitalize on market opportunities in our segments. Now let me briefly address the status of our IVR transaction. As we announced in October, the branding component of this deal successfully closed. As expected, we expect to sell our Merritt Island facility and related plant assets to close for $26.5 million towards the end of our fiscal second quarter. This will add to our financial flexibility and enhances focus across our business. We continue to take measures to align our cost structure with current production levels while maintaining upside flexibility and investment in our key long-term growth initiatives. Despite these low cycle volumes, we generated 3.8 million of adjusted EBITDA during the quarter. This combined with our robust balance sheet and strong cash flow generation reinforces our financial stability through the business cycle. We remain committed to growth through innovation, products and brand development and highly selective inorganic opportunities. Now turning to our brands for our MasterCraft segment. Our model year 25 products have been well received and the initial retail visibility has been encouraging. The team is gearing up for the launch of our completely redesigned flagship product, the EchoStar, which will further enhance our model year 25 lineup. This product is a testament to our renewed focus on differentiated innovation . Initial reactions have been highly positive and is driving high energy from our dealer network and consumer base . This strategic launch, reestablishes our position in the ultra premium skilling wakeboarding and will further expand our addressable market. We anticipate the first shipments of the XR will occur in the second half of the fiscal year. Innovation and differentiation are the lifeblood of the MasterCraft coming quarters . Turning to our pontoon segment for Crest, we began the year with positive retail signals. However, this interest rate sensitive consumer remains cautious, which has led to higher than optimal inventories . Throughout the pontoon market, we have prioritized rightsizing channel inventories even more impressed than our other brands. Further easing of interest rates could provide strong retail demand for payment buyers in the entry-level pontoon space. Our recent successful dealer meeting reinforce that our credit team and dealers are strong. The brand has deep equity, and we are positioned well for a return to growth in this segment. Our new premium pontoon brand, but lease continues to gain early traction in the market. Despite the challenging environment, police continues to receive incremental dealer interest and early consumer feedback has been positive. We are in early stages of continued to expand distribution in specific target markets. Keep in mind, pontoon retail sales are more seasonal than other categories, with roughly roughly half of retail sales yet to come in April through June . Although we are optimistic regarding recent retail and macro trends, we have prudently held our production plan as we prioritize dealer health and pipeline management. But all of our brands, our production schedule is aligned with current market and dealer sentiment, and we remain equipped with wholesale plans for a range of potential retail demand scenarios throughout the year. I'll now turn the call over to Tim, who will provide additional commentary on the quarter and a detailed discussion of our financial results. Tim?

Thanks Brad, Focusing on the top line, net sales for fiscal first quarter were $65 million, a decrease of 29 million or 31% from the prior year period. This decrease was primarily due to lower volumes and an unfavorable model mix. For the quarter, our gross margin was 18.1% compared to the prior year period of 23.8%. Lower margins were the result of lower cost absorption from the planned decrease in production and higher DRO incentives. Operating expenses were 10.8 million for the quarter compared to 11.9 million in the prior year period . Operating expenses decreased as we closely manage discretionary spend and due to lower share base compensation cost. Turn to the bottom line. Net income for the quarter was 1.9 million, or $0.12 per diluted share, compared to compares to adjusted net income of $10.3 million $0.6 per diluted share for the prior year period, calculated using a tax rate of 20% for both period s. Adjusted EBITDA was 3.8 million for the quarter compared to 14 million in the prior year period. Adjusted EBITDA margin was 5.9% compared to 14.9% in the first quarter of fiscal 2024. Balance sheet positions us well as we ended the quarter with nearly $83 million of cash and short-term investments. We have no debt and debt as our cash and short-term investments exceeded our debt by more than $33 million. As we recently announced, we entered into an amendment related to our credit agreement at the end of the first quarter. Concurrently, we paid the remaining $49.5 million on the term loan with our revolving credit facility . We maintain ample liquidity and financial strength to fund key growth initiatives and return capital to shareholders. During the quarter, we spent approximately 3.5 million to repurchase more than 180,000 shares of common stock as we believe our stock represents an outstanding value since initiating our share repurchase program. In June of 2021, we've allocated more than 68 million report, just nearly 2.8 million shares during our fiscal second and third quarters. We intend to repurchase shares at a slower pace due to the modified terms of the credit agreement. As we look ahead, we are raising the low end lower end of our full year guidance based on Q1 performance for fiscal 2025, consolidated net sales are now expected to be between 270million and 300million, with adjusted EBITDA of between 17million and 26 million and adjusted earnings per share between 55 and $0.95 . Incremental increase in adjusted earnings per share, reflective of lower interest expense and taxes would continue to expect capital expenditures to be approximately 12 million for the year. For the second quarter fiscal 2025 consolidated net sales are expected to be approximately $60 million of adjusted EBITDA of approximately $1 million and adjusted loss per share of approximately $0.01. Keep in mind, our lower wholesale shipments in the first half remain consistent with our initial production plans for the year as we prioritized pipeline reductions in the second half, we plan to ramp up production as we execute our new product initiatives and meet seasonal demand. I'll now turn the call back to Brad for his close in remarks .

Thank You Tim, Our team executed well against our strategic priorities during the fiscal first quarter, and we appreciate their efforts. Our disciplined approach to balancing production volumes combined with promising Q1 retail has improved the outlook for dealer health as we exit the selling season. Further strengthening the retail environment could open the door for some wholesale plan adjustments later in the year. Our fiscal first quarter results provide a solid foundation for the remainder of fiscal 2025 and into 2026. And our strong balance sheet and cash flow generation provides us with the financial flexibility to pursue our key growth initiatives moving forward, our focus remains on positioning the business to capitalize as the market recovers and over the long term. We appreciate the ongoing support of our dealers, team members and shareholders as we work together to achieve our goals for fiscal 2025. Operator, you may now open the line lines for questions.

Thank you very much. At this time we will conduct a question and answer session. As a reminder to ask a question, you will need to press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Joseph Altobello of Raymond James. Joseph your line is open.

Thanks, guys. Good morning Tim, wanted to start with retail. Sounds like, as you mentioned several times already but it was a little bit better than you anticipated. Was that really share gains? Or are you seeing any improvement in underlying demand across our categories?

You know, it's difficult to predict the share gain because we did have Tommy's boats of starting to enter into the retail results. I'm pleased that it's held up and we're in positive territory. But I don't know. I can attribute to share gain yet of a wait and see how the numbers shake out.

Okay. And you mentioned Tommy, so I'll go there next. Any impact in the quarter from that limit from the liquidation there now complete? Or do you still expect some impact? And in Q2,

Yeah, based on the SSR results in September, they're starting to show up in retail results. I've been pleasantly surprised that it has not been more disruptive if some of the loyalty of our of our dealers and consumers and really the strength of our brands, the fact that people haven't been tempted by fire-sale prices from Tommy. So that was one of our pleasant surprises during this quarter. But all of it, although Tommy's boats haven't shown up in retail yet, I expect that the good news, I expect those to get it into the hands retail consumers before the upcoming both services.

Okay, got it. Thank you.

Thank you very much. one moment for our next question, sir. Our next question comes from the line of Craig Kennison from Baird. Craig, your line is open.

Hey, good morning. Thanks for taking my questions as well. I wanted to follow up on retail and to what extent did elevated promotional activity contribute to the trend?

Certainly, that was a contributing factor. We focus really on helping the dealers clear out there, aged inventory and made good progress there. So it was a contributing factor is always difficult to isolate one one variable versus others, but certainly that was a contributor.

I would add is Brad. Our model year 25 product has been pretty well received out there to. We've been encouraged at some spiking happening there at the retail level banks.

And Brad, I think you mentioned that inventory was down 500 units. Is that sequentially? Yes, that sequentially

our plan remains and I think we've stated this prior of taking out in a range between 600,000 units across our brands. That skews a little bit more towards Crest than MasterCraft. And typically Q1 looking backwards is relatively flat from a pipeline perspective. So we're moving around 500 units in the fiscal first quarter is pretty significant.

And is there a channel fill opportunity of any significance related to your premium pontoon category?

Well, the stocking levels in I certainly will be in a new brand. And now we're just a reminder, we're in low rate production mode consciously right now as we ramp production, get the product right sign on new incremental dealers and our targeted markets, and that's going well in the early phase of the ramp. But this is still startup. Yes, new dealers will need to take a stocking per day. A stock will position on belief that this is a higher touch point premium to vote. So, it does consume it does consume floor plan and it's the volumes on this boat could be relatively modest just because of the price points. But there will be a stocking loaded as loss. We expect some incremental demand for boat show season.

And finally, just to clarify on your retail comments, are you saying that retails for all of your boat brands was up in the quarter?

Correct.

Year-over-year.

Yes.

Is there any way to quantify like?

I mean, I think at the magnitude of sorry, I don't I want to quantify the magnitude, but I will say that they continue to be up on a year-to-date basis. Obviously, we monitor that weekly. So it wasn't just a flash in the pain in the first quarter.

Fair enough. Thank you.

Thank you very much. one moment for our next question. Our next question comes from the line of Eric Wold of B. Riley Securities. Eric, your line is open.

Thanks, and good morning guys. A couple of questions. I guess can you talk about the strong is fees sequentially Orbitz and reflects a price taker? And then how much reflection of a mix of buyers maybe towards the new cash buyers right now with industry generic elevated as we move through the year and maybe your production ramps and payment buyers are to return, where would you expect a excuse the two brands to move throughout the year?

You know, the DSPs and Q2 will be down a bit due to mix. And then we continue we'll see pretty significant increases, in particular with the ASPs MasterCraft brand in the second half as we ramp up at Star production, which is an ultra-premium product of ours, very little price driving this MasterCraft's, the net price was flat to down a little. And Crest price increase for this model year was certainly low single digits. So, we're not seeing price being the drivers of the AS the growth.

Got it. And then last question, as you move into Berkshire's, even obviously, you mentioned you're well ahead on your plan on removing inventory from your corporate channels. I guess would you expect that, but obviously there's still some competition and some other ones in the market still are not doing as well as use. So what would you expect to see the boat shows in terms of discounting and promotion from both your dealers and competitive brands? And then how much would you lead into support to continue to move inventory?

Yes, it is a highly promotional environment that we're living in now and we expect that to continue and boat show season. We tried to be judicious about our retail rebates and help dealers and certainly the viewers participate in that on their side. So, yes it will continue probably for the balance of this year. I think for the cause of promotional environment to kind of back to normal is when non-current inventory kind of gets back to normal whatever, normal levels, dealers are no longer kind of dealing with that.

Brad, I would add, although we remain in a highly competitive environment and we're anticipating that's going to continue somewhat into the boat show season, specifically probably more pronounced and will prompt pontoon space. That promotional activity for us remains relatively balanced and appropriate for the level of the competitive environment that we're seeing now. And just as a reminder, we per share in those discounting levels with our dealers.

Understood. Thank you.

Thank you very much. one moment for our next question. Our next question comes from the line of Drew Crum from Stifel. Drew, your line is open.

Okay. Thanks. Hey guys. Good morning. Obviously a lot of moving pieces parts on the gross margin line. How do you guys see that progressing as you move over the balance of fiscal 25? And then I have a follow-up.

Yes, I think you have because the mix is going to be down a bit in Q2. So I think the margins will be down a bit as well and will remain kind of at a lower level due to the lower levels of production. So we're not getting the overhead absorption that we will be getting in the second half. Likewise, you release and X dollars both have our margin profiles than our other products. And so we'll see some margin improvement in the SEC and have both through overhead absorption and as a result of mix.

Got it. And then on capital allocation, you know, aside from the planned slowdown in share repurchases, you mentioned in your preamble with the expected proceeds from the RBL facility sale and any other changes around redeployment of cash flow. Thanks.

Well, I'll hit that initially here, Drew. Our priorities remain unchanged on capital allocation, number one, fortress balance sheet, of course, number two, funding our fully funding our organic growth of strategic initiatives and balance CapEx. Number three, returning capital to shareholders through our share repurchase program, although slightly adjusted through the next couple of quarters. And then fourth, a very selective and opportunistic inorganic activity as it presents itself. If it aligns with our with our strategy in terms of the recapture of the sale of the Merritt Island facility, that basically further adds to that flexibility within those priorities.

Okay, got it. Thanks, guys.

Thank you very much. As a reminder, to ask a question, please press star one on your phone. one moment for our next question. Our next question comes from the line of Michael Swartz of Truist Securities. Michael, your line is open.

Hey guys, good morning. And just maybe a couple of points of clarification. one is the outlook for lease still from revenue perspective this year still about $10 million or a little over 10 million? I think that's what you said before.

That remains unchanged.

Okay. And then you you'd mentioned in the preamble that inventory turns at the dealer level, I think currently are back to where they were pre-pandemic. Any on any color on where your absolute inventory levels are weeks on hand right now?

We have not guided or provided that detail in the past, but it's something that we're watching on Dan's literally on a weekly basis. So pleased with progress we made in Q1 and you know, the dealers due to carrying costs probably would like to add less inventory than they traditionally have had, and we're preparing for that.

Okay.

Any inventory levels, Michael inventory levels to we're pleased with the progress there, and in general at MasterCraft are relatively in line with historical levels. Pre-pandemic, slightly more elevated in the pontoon space just because of the nature of that business, that consumer, although pontoons or minority of our business that consumers are being very sensitive to interest rates, more of a financial buyer typically has added to that pressure in the pontoon space, but had Mastercraft healthy spot, we think, relative compared to the rest of the industry and remains a key focus.

Okay. That's helpful. And then Brad, maybe maybe just a final question for you now six, seven months into the role, any additional insight or opportunities that you've identified with the business as you can speak to whether that's innovation, product development distribution, just anything you can per share of the Thanks.

Yes, you bet. We have an opportunity to further simplify our business is the strong operating company, as everyone knows, with iconic brands are more iconic than what I expected coming in with it. With the industry outlook, market rebound low. I mean we're positioned well as we simplify our product offerings. Reduce-it reservation had a whole new level for the product and brand development, and there'll be more to come on that in future periods of time. We felt very good about that baseline. But those are the areas of focus right now qualifying differentiated innovation products, brand development and then continuing to just advance and default and a strong operating company, which we already have a high baseline.

Okay, great. Thank you.

Thank you very much. one moment for our next question, please. Our next question comes from the line of Noah Zatzkin from KeyBanc Capital Markets. Noah Your line is open.

Thanks for taking my question. A lot of questions have been kind of asked and answered, but maybe just one kind of higher level of industry question. Tim, if you could provide an update on how you're feeling about kind of how for the broader dealer base. And then from an industry an industry perspective, there's kind of how our dealers feeling about their inventory levels in general Thanks.

I think as dealers move through their non-current inventory, which has more of a carrying cost burden for them, our view they become more optimistic. So, at the same level of inventory, the more current they have, the more the better they fill and the healthier they are. So, we've bike by selling a number of the noncurrent for work for our brands. I think you're incrementally healthier than they were at the end of June. And so pleased with that progress and optimistic about the future. We look forward to the boat show season, the kind of see how this all shakes out.

I would just add a strong consumer, obviously is what makes all this work. And we certainly feel better about that picture of inventory as to our dealers than than three months ago, as Tim stated. And then on the strong and strengthening of consumer with some modest downtick in interest rates, that's certain helping saw more psychologically. But overall, the retail picture, as you know, we stated expectation prior have a pretty broad range of retail being down between 5% and 15% for the year. Our updated retail view is now down mid to high single digits across our brands, really driven by positive Q1 start that being the second most important quarter for retail being the most recent Q1.

Very helpful. Thanks.

Thank you very much. At this time, I'm showing no further questions. This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.