Mastercraft Boat Holdings Inc (MCFT) 2021 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Fiscal 2021 MasterCraft Boat Holdings, Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to Tim Oxley, Chief Financial Officer. Please go ahead.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft's fourth quarter and full year fiscal the '21 performance. 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 the progress on our strategic priorities and review our operational highlights from the quarter and full year.

I'll then discuss our financial performance for the fourth quarter and full year fiscal '21, 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 the participants that the information contained in this call is current only as of today, September 2, 2021. The company assumes no obligation to update any statements including forward-looking statements. Statements in our historical facts are 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 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 fourth quarter and full year fiscal earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results.

We would also like to remind listeners that there's a slide deck summarizing our financial results in the Investors section of our website.

With that, I'll turn the call over to Fred.

Good morning, everyone. Thank you for joining us today. Our business executed extremely well against our strategic priorities during fiscal 2021 in a very challenging and dynamic environment. In fact, we delivered record-setting performances for each quarter of fiscal 2021, which culminated in record net sales and earnings for the full year.

Despite the many challenges we faced, we grew our net sales by more than 44% and our diluted adjusted earnings per share by nearly 148% year-over-year. When compared to our previous record year, fiscal 2019, net sales were higher by nearly 13% and diluted earnings per share were up by more than 17%, all on an organic basis.

This exceptional performance was driven by year-over-year unit increases in each of our segments, including the most wholesale units ever sold by the company in the fourth quarter. To accelerate throughput and produce record-level units in arguably the most challenging supply chain environment we have ever experienced in the boating industry, is a clear demonstration of our disciplined execution, operational excellence and the strength of our team.

We were able to deliver for our dealers and consumers in this robust demand environment. The credit for this performance goes to our more than 1,500 employees who continue to execute our key strategic priorities in the face of adversity and the strength of our market-leading brands.

Since refocusing ourselves on our value-enhancing growth strategy last year, we have made impressive progress in the pursuit of our overarching objective of driving sustainable accelerated growth by becoming the most consumer-focused boating company. During fiscal 2021, we continue to execute against each of the 4 pillars of our strategy: consumer experience, digital marketing, operational excellence and human capital development.

First, with the surge of consumer demand, we continue to experience meeting our consumers' expectations during the year meant delivering as many boats as possible to our dealers while not sacrificing quality. During 2021, we executed against an aggressive production ramp-up plan, which allowed us to more than double our monthly shipment rate over the course of the year by aggressively hiring and training new labor, expertly managing the supply chain and executing the move of our Aviara brand from our Vonore, Tennessee, plant to a dedicated facility in Merritt Island, Florida.

We believe our production ramp-up has outperformed many of our competitors. In an environment where lack of inventory can lead to loss of market share, our ability to increase production faster than our competitors is leading to market share gains.

The recently released July and revised June market share data shows our MasterCraft brand took market share on a rolling 12-month basis, while our top 2 competitors lost share. As important as product availability was this year, maintaining the highest quality standards will always be paramount and is a key competitive advantage. That is why we took great pains to ensure that despite the various supply chain and labor challenges we faced this year, our quality standards were upheld without compromise.

As evidence of our success, MasterCraft, Crest and NauticStar each received the 2020 Marine Industry Customer Satisfaction Index or CSI Award for excellence in customer satisfaction in March 2021.

Aviara was not eligible for the award this past year, but quality is even more paramount for this high-end product and remains a core operational priority as we ramp up production in our new Florida facility.

Additionally, we intensified our focus on consumer-centric innovation by nearly doubling the headcount of our product development and engineering team during 2021. These investments are an important component of our market share and financial growth plan.

Our relentless dedication to learning more about our consumers' growing needs and expectations has allowed us to further refine our product development process and accelerate innovation. At our MasterCraft brand, we recently unveiled one of the most aggressive and well-received model year changes in the brand's history, including 3 exciting new models, the XT23, the XT24 and the XStarS. The all new XStarS model builds upon the iconic XStar model by adding the largest and most comfortable transom chaise loungers in the industry, along with more ballast and improve serve capabilities brought about by the launch of our new state-of-the-art SurfStar system.

SurfStar is the latest evolution of our award-winning Gen 2 surf system and includes all new, more robust actuators, position sensing technology that allows the most precise wave adjustments in the industry and an all new, more intuitive user interface that revolutionizes how consumers can make adjustments to their waves.

All of this makes SurfStar the most customizable way of making technology on the market today. Rounding out the model year changes were a myriad of other innovative and consumer-centric performance, styling and convenience features, such as all new customizable tower designs, patent-pending hydrolock technology, making our towers the easiest to raise and lower and most intuitive and powerful stern thruster in the market, to name a few.

At Crest, we recently launched the all-new Continental model, and we'll be launching another new model later this month. At NauticStar, we will be launching 2 new models at the upcoming Fort Lauderdale Boat Show.

Our expanded and talented product development and engineering team will continue to accelerate new model development and innovation for all our brands, which will lead to additional market share growth. Second, we've made great progress on activating a consumer-driven digital marketing strategy across our organization to increase consumer brand awareness, create a community of interest, expand our target market, improve lead generation and ultimately drive sales and market share gains.

Earlier this year, 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 a traditional in-person boat shows.

We're in the process of updating these virtual showrooms and anticipate relaunching them with new content and features ahead of the 2022 boat show season. Given the lingering COVID-19 pandemic and an industry-wide shortage of dealer inventory remaining at the forefront of offering consumers immersive, differentiated and safe alternatives to learn about our products is critical to our growth and a key strategic priority.

We also continue our investment in digital marketing capabilities across all our brands and drove record year-over-year lead generation and a record low cost per lead. We will continue to invest in digital solutions that bring awareness and new consumers to all our brands, including all new websites for NauticStar and Crest in fiscal 2022. This investment will increasingly drive market share gains.

Third, we sustained the acceleration of operational excellence programs across all our manufacturing facilities to drive throughput improvements and enhance quality. We expertly manage the relocation of our Aviara brand during the year, and navigated supply chain issues to minimize disruptions and to aggressively ramp up production.

Our outstanding supply chain team has done a tremendous job of minimizing the disruptions to our operations through our strong and long-standing relationships with leading suppliers. During 2021, these relationships prove to be a competitive advantage for us, and we will continue to align ourselves with superior partners as part of our continuous improvement initiatives.

Despite the inefficiencies inherent in our aggressive production ramp-up, the dynamic supply chain environment and increasing material and labor costs, the company delivered gross margins of 24.7% for the full year, up nearly 400 basis points versus the prior year.

When compared to fiscal year 2019, full year gross margins were up nearly 50 basis points. Even more impressive, during 2021, we achieved record full year gross margins for MasterCraft and Crest brands and improved NauticStar's gross margin by 260 basis points. This performance is a testament to our talented and dedicated employees, our experienced and cycle-tested leadership team and our aptitude for operational excellence.

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 nearly 600 hourly and more than 50 salary personnel from the start of the fiscal year.

Approximately 50% of our salary growth has come in our product development function. For the year, we incurred some labor rate inflation due to the tight labor market. But as evidenced by our gross margin performance, we were able to mitigate most of this increase through overhead absorption as volumes increased. As we review 2021, we are encouraged by the momentum we are seeing around all 4 of our strategic growth priorities, and we'll continue to proactively adapt our strategy to the business environment.

Let me now briefly review some of the latest developments across our brands. At Aviara, we successfully completed the relocation of all our production to our Merritt Island, Florida, facility. That facility is now producing all 3 Aviara models: The AV32, the AV36 and the AV40. We are busy optimizing production and ramping up that facility to meet continued strong retail demand. Aviara's retail performance continues to exceed our lofty expectations as almost every Aviara produced so far has already been sold at retail.

Aviara dealer inventory as of the end of 2021 is virtually nonexistent as consumers continue to appreciate the brand's progressive style, elevated control, modern comfort and quality details, which are unmatched in the luxury day boat segment today.

While increase in overhead due to the new Merritt Island facility will have 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. We are excited that this excess capacity will allow us to expand Aviara's model lineup to capitalize on the brand's substantial addressable market and growth opportunities. We look forward to sharing additional details of Aviara's planned model expansion in the future.

At Crest, we experienced continued strength in retail performance during the fourth 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 throughput to meet the increasing demand for the brand and to drive margin expansion. In the fourth quarter, Crest continued the exceptional execution of its operating and strategic priorities, delivering an outstanding quarter. Crest's wholesale unit volume set another quarterly record by shipping the most units of any fourth quarter in the company's history. Crest also set a fourth quarter record for gross margin, which increased nearly 590 basis points year-over-year. This marks the third consecutive quarter in which Crest achieved gross margin in excess of our 20% target.

At NauticStar, although we experienced robust retail demand, had it not been for acute engine shortages during the fourth quarter, we would have experienced even greater growth. Subsequent to the quarter, engine supply continues to be an issue adversely affecting sales, and we are working diligently to improve it.

Although temporarily hampered at the end of the year, NauticStar improved throughput for the quarter and the full year with wholesale unit shipments for the quarter up over 120% year-over-year and 16% for the full year. Gross margin for the quarter was up more than 920 basis points year-over-year and up 260 basis points for the full year.

Additionally, NauticStar generated positive adjusted EBITDA for the full year, and we expect continued expansion of both gross margin and adjusted EBITDA margin for fiscal 2022. We believe our turnaround plan continues to progress with initiatives in place to further ramp up production, improve overall quality and enhance the product offering. At our MasterCraft brand, retail performance during the fourth quarter continued at an incredible pace that was only limited by historically low dealer inventories. For the fourth quarter, the MasterCraft brand again set net sales and unit shipment record for any quarter in the brand's history.

Importantly, we will continue to emphasize quality to further differentiate MasterCraft from the competition. Dealer commitments for model year 2022 continue to exceed our aggressive expectations as robust retail demand continues to be a strong tailwind. On a financial basis, excluding the impact of Aviara, the MasterCraft brand saw increased net sales on wholesale unit growth for the fourth quarter. Additionally, MasterCraft achieved a strong fourth quarter gross margin, which contributed to the brand achieving the highest full year gross margin in the history of the company. Driven by seemingly insatiable retail demand, dealer inventories across all our brands are at historically low levels.

On a consolidated basis, as of the end of June, we believe that our dealer inventories are under inventory by 2,500 units, with nearly half of the shortfall at MasterCraft alone. This shortfall is directly attributable to the strong retail demand we've experienced, combined with a persistent supply chain disruption, which continues to be a headwind to production. As a result, we believe it will be well into calendar 2023 before dealer inventories reach optimal levels. Combined with the current supply and demand dynamic in our industry, this provides us with unprecedented wholesale growth visibility. While our facilities currently have a capacity above and beyond what we are producing today, supply chain logistics and COVID-related disruptions continue to be the primary gating factor for production across all the brands.

In addition, to support our aggressive growth plans, we have identified and are pursuing targeted capital projects at MasterCraft, NauticStar and Crest to ramp up production past current production capacity levels. Looking back on the year, our progress on our strategic priorities, business fundamentals and the strength of our brands allowed us to deliver a record-setting fiscal year 2021. We will look to build upon that success in fiscal '22 as we remain committed to making investments to further strengthen our competitive position, grow our categories, deliver shareholder value guided by our long-term focus and strategic priorities.

Judging by how our talented employees and experienced leadership team responded to the challenges of 2021, we are confident that we will continue to deliver superior performance in fiscal 2022.

I will now turn the call over to Tim, who will provide more color on our financial results. Tim?

Thanks, Fred. Looking at the top line, net sales for the full year were a record $525.8 million, an increase of $162.7 million or 44.8% compared to $363 million for the prior year. This increase was primarily a result of higher wholesale unit volume and lower dealer incentives as retail demand has remained robust.

This favorability was partially offset by the impact of segment mix. For additional context regarding our exceptional performance this year when compared to fiscal 2019, which was our previous record, net sales increased by $59.4 million or 12.7%.

As Fred mentioned, this was the most profitable year in the company's history. Gross profit for the full year increased $54.6 million to $130 million compared to $75.4 million for the prior year period, principally driven by higher sales volumes, lower dealer incentives and higher prices. This favorability was partially offset by higher material costs, costs associated with the transition of Aviara to our new Merritt Island facility and higher compensation costs.

Our gross margin was 24.7% for the full year, an increase of 390 basis points compared to the prior year period. The increase was primarily attributable to lower dealer incentives, favorable overhead absorption driven by the higher sales volume and higher prices, partially offset by costs associated with the transition of Aviara to our new Merritt Island facility and higher labor cost.

Compared to fiscal 2019, our consolidated gross margin was up more than 40 basis points. Operating expenses were $54 million for the full year, a decrease of $47.9 million or 47% compared to the prior year period. This decrease was primarily driven by goodwill and other intangible asset impairment charges of $56.4 million related to our NauticStar and Crest segments recorded in fiscal 2020.

In addition, the company had lower selling and marketing costs in fiscal 2021, primarily due to the lack of in-person boat shows and the strength of organic retail demand. The decrease was partially offset by higher general and administrative expenses resulting from higher compensation costs and additional investments related to product development and information technology. Despite our continued investment in product development and other areas of SG&A for the full year, SG&A as a percentage of net sales was the lowest on record since we became a public company.

Turning to the bottom line. Adjusted net income for the full year increased to a record $62.8 million or $3.31 per diluted share computed to using the company's estimated annual effective tax rate of approximately 23%. This compares to an adjusted net income of $25.1 million or $1.34 per diluted share in the prior year period and $53 million or $2.82 per diluted share in fiscal 2019.

Adjusted EBITDA was a record $92.8 million for the full year compared to $44.3 million for the prior year period. Adjusted EBITDA margin was 17.6%, up 540 basis points from 12.2% in the prior year period. Compared to fiscal 2019, adjusted EBITDA was up nearly 17% and adjusted EBITDA margin was up more than 60 basis points.

As for the fourth quarter results, net sales, profitability and earnings all benefited from the robust retail demand environment and our delivery of the highest wholesale unit volume for any fourth quarter in the history of the company. Net sales were a record $155.5 million, an increase of $51 million or 204% compared to the COVID-impacted prior year period, primarily as a result of record sales volume.

Gross profit for the quarter was a record $37.2 million, and our gross margin was 23.9%, an increase of 940 basis points. This gross margin improvement was principally driven by favorable overhead absorption from higher sales volume, lower warranty costs and lower dealer incentives and partially offset by higher material costs, costs associated with the new Merritt Island facility and higher labor cost.

The higher material costs were primarily driven by inflation as well as supply chain and logistics disruptions. Adjusted net income increased to $18.6 million for the quarter or $0.98 per diluted share computed using the company's estimated annual effective tax rate of approximately 23%.

This compares to an adjusted net loss of $1.8 million or $0.10 per diluted share in the prior year period. Turning to our balance sheet and liquidity. In June, we closed on a new $160 million credit facility. This credit facility, which replaced the company's previous credit facility, will provide us with additional liquidity and financial flexibility to continue to execute on our consumer-centric growth strategy and capital allocation objectives.

Through the new facility, we increased our access to revolving credit from $35 million to $100 million. In addition, our strong operating performance and unprecedented wholesale demand visibility enabled us to push our effective interest rates lower, which we expect will yield interest savings over the term of the new facility.

Driven by strong operating cash flow, we ended the year with $39.3 million of cash despite funding substantial growth-oriented projects during the year. When we add this -- when we add that cash to the $66 million of availability on our new revolving credit facility, we ended the year with over $105 million in total liquidity.

Our net leverage was 0.6x adjusted EBITDA at the end of the year. We also announced that our Board of Directors has authorized a new share repurchase program under which we may repurchase up to $50 million worth of outstanding common stock. The Board's authorization of this program reflects the confidence we have in our company, our growth strategy, our comprehensive portfolio of brands and our ability to execute on what we believe to be a tremendous opportunity before us.

We maintain a disciplined and thoughtful approach to capital allocation through which we prioritize balance sheet resiliency and growth while looking for prudent opportunities to return capital to shareholders. We believe the company's recent share price represents a great value to investors, and we look forward to being able to opportunistically utilize this program to create additional value for our shareholders.

Our first opportunity to be in the market under this program will be later this month. For the full year fiscal 2022, consolidated net sales growth is expected to be up in the high-teens-percent range, with adjusted EBITDA margins flat year-over-year and adjusted earnings per share growth up in the high-teens-percent range year-over-year.

Driven by growth-oriented projects, we expect capital expenditures to be between $25 million and $30 million for the full year. This guidance represents another record year and is all organic. For the first quarter of fiscal 2022, consolidated net sales growth is expected to be up in the mid-30% range, with adjusted EBITDA margins in the low 14% range and adjusted earnings per share growth up in the low 20% range year-over-year.

Importantly, we faced significant ongoing risk from supply chain disruptions and the impact of COVID. We remain laser focused on mitigating these headwinds.

I will now turn the call back over to Fred.

Thanks, Tim. To summarize my earlier comments, we are pleased by the progress we made during fiscal 2021 to accelerate production, efficiently manage our supply chain to meet increased consumer demand across our brands and to maintain our uncompromising quality standards.

This exceptional execution resulted in record organic growth in sales and earnings and based on the June 2021 data, has led to market share gains. We continue to believe the increased retail momentum we have experienced from consumers seeking the boating lifestyle and our brands leading to continued growth for our company. As we manage through an unprecedented and dynamic business environment near term, we remain committed to long-term value creation for our shareholders and all stakeholders. We will continue to be a purpose-driven business, committed to our consumers, dealer and vendor partners and people.

Operator, you may now open the line for questions.

(Operator Instructions) Our first question comes from the line of Joe Altobello with Raymond James.

First question for you, Fred, the 2,500 unit dealer inventory deficit like you cited, does that assume dealer turns get back to pre-COVID levels or are you assuming turns remain elevated now that dealers have learned to operate at lower inventory levels?

That assumes that we improve our efficiency and operate with lower inventory levels at our dealers and higher turnover. Absolutely assumes a step-up in performance.

Got it. And then just secondly, in terms of the guidance, you're expecting about a 200 basis points decline in EBITDA margins in Q1 year-over-year. And I think sequentially, it's down about 300 basis points. Help us understand what's dragging down margins in Q1? And I guess how much confidence you have in the balance of the year to kind of offset that deficit to get back to flat?

Sure. The headwinds we're experiencing margin-wise, it starts with labor inefficiencies associated with the supply chain disruptions. We're putting parts on the boats out of sequence. We're working overtime because parts are coming in later than they expected. So that is a big driver to the decrease in margin we're talking about.

We also have a mix of profits coming from lower margin segments during the quarter. We have the effect of the Aviara overhead, which is incremental to -- compared to the quarter a year ago. We've got a bit higher inflation than we originally anticipated when we established our budget. And keep in mind that those things are partially offset by overhead absorption and operating expense leverage.

Our next question comes from the line of Craig Kennison with Baird.

It sounds like you've done a better job of getting supply into the channel, but you're still well below where you want to be with respect to inventory. So is there a way to think through how much retail you might be missing out on based on the level of demand versus what you've actually seen turn at retail?

One of the things -- I'm going to turn this over to George after I make a brief comment. One of the things that's important now is, we have consumers that are ordering, and therefore, we have wholesale shipments that are immediately translating to retail sales as soon as they hit the dealer. As a result, the inventory isn't there on the floor, but we're still able to support that retail sales. So to some extent, we've seen a change in behavior well beyond what was past practice in terms of ordering ahead by consumers. George?

Yes, Craig, I guess what I would add, it's difficult to pinpoint. But what we're seeing and what we're hearing from our dealers is that retail continues to be robust. Consumers continue to be attracted to the boating lifestyle, obviously, with the resurgence, if you will, of the COVID and the Delta variant. Consumers are recognizing that things aren't going to go back to normal anytime soon.

And so we've got many consumers that even if they don't have inventory on the ground today are putting in orders for boats that they -- they're already prebuying boats today for next summer selling -- next summer's boating season. So I think we're not losing much. It's just delaying when the consumers get the boats. And we're hearing from dealers that a high percentage of the boats that they've already been allocated are presold. And so that's encouraging to us, and we think that momentum will continue.

And George, just following up on that, with more presold units, I assume they maybe more customized. Does that mean they're coming with a higher level of features and therefore, maybe a higher margin, higher ASP kind of boat in the preorder book?

Yes, that's absolutely right, Craig. We experienced that obviously, last year with the high percentage of retail sold boats, and we expect that trend to continue, in particular, as we continue to come out with new innovations and features, as Fred described on the call, with our latest model year introductions, we think that will continue to drive additional ASP and margin growth.

And then lastly, with respect to guidance, does the revenue guidance -- is the cap on that your production capacity or is it some assumption about retail and inventory? Because it does seem like with such an urgent need for inventory and pretty strong demand that there's probably demand for more than what your revenue guidance implies.

First and foremost, it's absolutely not retail and demand. We believe we've got a 2-year runway ahead of us where we'll be scrambling to satisfy that demand. Having said that, when you talk about capacity, it's capacity constrained by the supply chain in the COVID pandemic that continues to linger and rear its head again in the Delta form.

So we have probably 25%, 30% more capacity today than we're able to operate at based on the cap due to the supply chain. So supply chain is a short answer.

(Operator Instructions) There are no further questions. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.