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Good day, and thank you for standing by. Welcome to the Q3 2023 MasterCraft Boat Holdings, Incorporated. 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Chief Financial Officer, Tim Oxley. Please go ahead.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft's third quarter performance for fiscal 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 Brightbill, Chief Executive Officer and Chairman; George Steinbarger, our Chief Revenue Officer. Fred will begin with a review of our operational highlights from the third quarter. I will then discuss our financial performance for the quarter. 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 would like to remind participants that the information contained in this call is current only as of today, May 10, 2023. 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 third quarter earnings 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 a reminder, unless otherwise noted, the following commentary is made on continuing operations basis. With that, I'll turn the call over to Fred.

Thank you, Tim. And good morning, everyone. During the third quarter, we achieved better-than-expected net sales and earnings. Net sales were nearly $167 million and adjusted EBITDA was nearly $33 million. Adjusted diluted net income per share was $1.36, which tied our record from last year for the best fiscal third quarter in the company's history. Our exceptional operating results and diligent working capital management continued into the third quarter, resulting in record operating cash flow of $107 million fiscal year-to-date. During the quarter, we achieved our goal of refilling dealer inventories to optimal levels ahead of the summer selling season. As of the end of the third quarter, dealer inventories are approximately 60% higher than the third quarter of fiscal year 2022 and about 20% lower than the third quarter of fiscal year 2019. We believe that the business process and dealer network improvements we have implemented over the past few years will allow us to maintain lower levels of dealer inventory than was typical in the past. We also continue to see a return to a more historical seasonal demand pattern, including less urgency on the part of the consumer, compared to last year as product availability has improved. For context, approximately 45% of annual powerboat retail sales occur during our fiscal fourth quarter. Our expanded and refreshed model year 2023 product lineup with the success we have had an increasing dealer inventories has resulted in outstanding product availability. In addition, we have implemented targeted programs and discounts to support retail sales in response to pricing pressures from competitors. Given the premium positioning of our product portfolio, we will only use these pricing mechanisms, if needed, to support profitable and sustainable market share. Overall, our dealer partners are well positioned to capitalize on retail demand. Despite near-term economic headwinds, including continued inflation, higher interest rates and potential for tightening credit availability, retail activity has performed closer to the upper end of our range of expectations through our fiscal third quarter. On a blended basis, our retail sales during the quarter were more than 30% higher than during our pre-pandemic fiscal third quarter of 2019. As a reminder, we entered the fiscal year with a prudently conservative view of retail demand, which included the potential for an economic downturn to negatively impact the summer selling season. There now seems to be a general expectation that a potential economic downturn has been pushed into our fiscal 2024. So we now expect to achieve fiscal year 2023 wholesale shipments at the upper end of our range of scenarios. As a result, in fiscal 2024, we expect wholesale unit sales will exhibit a more balanced relationship with retail unit sales. Moving on to supply chain. The general environment, including cost inflation and delivery disruption is improving with lingering risk expected to continue for some time. Limited supplies and longer-than-normal lead times in certain components, including those with upstream exposure to Asia and some propulsion components continue to intermittently affect our operational efficiency and production schedules. However, we do not expect the supply chain disruption to be a constraint on our full-year production. Our strong operating performance has resulted in record year-to-date cash flow driven by strong earnings and diligent working capital management. Our fortress balance sheet provides us with abundant financial flexibility. We are well positioned to pursue our capital allocation priorities, first and foremost of which is investment in growth. We have a track record of growing through multiple approaches, including organically through existing brands, internal new brand development and acquisitions. We are laying the foundation for future growth by actively investing in targeted initiatives that will take advantage of the strong underlying secular industry trends. At MasterCraft Boat Holdings, we are committed to acting as good corporate citizens in the communities we serve. We are proud to announce our Surf to Save Lives initiative. Surf to Save Lives is a joint campaign launched by MasterCraft and St. Jude Children's Research Hospital, to make a meaningful difference in the lives of families across the country. By coming together, these two Tennessee-based organizations aim to raise funds and awareness in support of a life-saving mission of St. Jude. St. Jude has been at the forefront of childhood cancer research for over 60-years, leading the way in understanding, treating and defeating childhood cancer and other life-threatening diseases. We share St. Jude's commitment to enriching the lives of families and making memories possible. Let me now briefly review some of the latest developments across our brands. Our MasterCraft brand performed well during the quarter, with net sales of nearly $118 million, down 2% from the prior year period. This represents the second highest third quarter net sales in the company's history. For model year 2023, MasterCraft expanded and refreshed its entry and mid-level product lineups by adding the all-new NXT21, NXT23, and XT22 T and the completely redesigned XT20. Also new for model year 2023 was the ability for MasterCraft consumers to upgrade to the award-winning Ilmor supercharge 6.2-liter engine, the world's most powerful towboat engine and the cleanest marine engine with over 500 horsepower. Due to these introductions, MasterCraft has the broadest and strongest product lineup in its history before the coming -- upcoming summer selling season. The strength of MasterCraft's product offerings and its success in restocking dealer inventories has provided dealers and consumers with outstanding product availability. At Crest, net sales were more than $36 million, down about 7% from the prior year period. Continuing a trend of generating exceptional profitability, Crest achieved a gross margin of nearly 20%. Fiscal year-to-date, Crest has added 25 additional points of distribution to its dealer network as it continues to execute on this key element of its growth strategy. We are proud that Crest has received the 2022 Marine Industry Consumer Satisfaction Index Award for excellence in customer satisfaction. This is the fourth consecutive year in every year of our ownership that Crest has won the award. At Aviara, net sales were nearly $13 million, up approximately 23%, compared to the prior year period, driven by a 17% increase in units and higher prices. Looking ahead, Aviara will begin to launch innovative and exciting new models in the first quarter of fiscal 2024. These introductions will represent the next phase of Aviara's product evolution. In addition, Aviara will be expanding distribution to select international markets in fiscal 2024. Together, this will position the brand for continued revenue and earnings' growth. I will now turn the call over to Tim, who will provide additional more detailed analysis of our financial results. Tim?

Thanks, Fred. We delivered an outstanding quarter of financial performance. Focusing on the top line, net sales for the quarter were $166.8 million, a decrease of $2.6 million or 1.5%. The net sales decrease was driven by model mix and lower option sales, lower unit sales volume and higher dealer incentives, partially offset by higher prices. Most of the increase in dealer incentives was due to greater floor plan financing costs caused by rising interest rates and recovering dealer inventory levels. Rebates and discounts were also higher as we are experiencing a return to a more competitive retail environment. For the quarter, our gross margin was 25.5%, a decrease of 50 basis points when compared to the prior year period. Lower margins were primarily a result of higher costs from inflationary pressures, changes in mix and higher dealer incentives, partially offset by higher prices. Operating expenses were $13.6 million for the quarter, or about 80 basis points higher as a percentage of net sales compared to the prior year, primarily due to increased boat show related costs and investments in digital marketing initiatives. Turning to the bottom line. Adjusted net income for the quarter decreased 4% to $24.1 million or $1.36 per diluted share, computed using the company's estimated annual effective tax rate of 23%. This compares to an adjusted net income of $25.1 million or $1.36 per diluted share in the prior year period. Adjusted net income per share was flat when compared to our fiscal 2022 third quarter has reduced share count and short-term investment income offset the impact of lower adjusted net income. Adjusted EBITDA decreased nearly 6% to $33 million for the quarter, compared to $35 million in the prior year period. Adjusted EBITDA margin was 19.8%, down 90 basis points from 20.7% in the prior year period. Our balance sheet remains incredibly strong as we ended the quarter with more than $200 million of total liquidity, including more than $101 million of cash and short-term investments and $100 million of availability under our revolving credit facility. We also ended the quarter with zero net debt. Strong year-to-date earnings and working capital management has translated a record cash flow from operations. Cash flow from continuing operations was a record $107 million year-to-date or more than double the prior year period. Our balance sheet positions us exceptionally well and provides us with ample financial flexibility to ensure sound operations to the business cycle and the ability to fund strategic growth initiatives. Given our recent stock 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 $7 million to repurchase more than 210,000 shares of our common stock. To-date, we have spent more than 80% of our $50 million program authorized in June of 2021. Cumulative activity under our share repurchase program provided a 9% benefit to our Q3 adjusted income per share. We expect to continue to opportunistically return excess cash to shareholders through the program while 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 and incremental retail sales visibility. Based on our retail sales results through Q3 and the general expectation that the onset of a potential downturn has been pushed into fiscal 2024, we now expect retail demand to reform closer to the high-end of our range of retail expectations. We believe these conditions will allow us to achieve full-year wholesale unit sales at the upper end of our range of scenarios. For full-year fiscal 2023, consolidated net sales is now expected to be approximately $656 million with adjusted EBITDA of approximately $125 million and adjusted earnings per share of approximately $5.05. We continue to expect capital expenditures to be approximately $30 million for the full-year. Despite the dynamic business environment and macroeconomic uncertainty, we are now guiding to achieve the third consecutive year of record-setting net sales and adjusted diluted earnings per share. I'll now turn the call back to Fred for his closing remarks.

Thanks, Tim. Our business has performed extremely well through the third quarter of fiscal 2023, delivering financial results, which have exceeded expectations. A robust portfolio of innovative products and healthy dealer inventory levels position us to capitalize on the upcoming summer selling season. Despite significant macroeconomic uncertainty, we are now guiding to achieve the third consecutive year of record-setting net sales and adjusted diluted earnings per share. We look forward to delivering strong results while maintaining a commitment to the pursuit of long-term growth opportunities and thereby generating exceptional shareholder returns. Operator, you may now open the line for questions.

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Joe Altobello from Raymond James. Your line is now open.

Thanks. Hey, guys. Good morning. First question on the MasterCraft ASP. It looks like they were down about 1.5%. Was that mix? Was that discounting? Was that lower option sales or really all of the above?

Joe, it's a little bit all of the above, but the two big factors are: one, we're seeing a reversion back to higher level of orders that are stock boats versus retail sold certainly compared to the last couple of years where we had a very -- a big shortage of inventory and therefore, a lot more custom-ordered boats retail customers tend to put more options and features. So when you revert back to more stock orders, you're seeing a little bit of that. And then with some of the new model year introductions that we've done that Fred highlighted on the call, those have tended to skew more in that midline and entry-level segment for MasterCraft. And so as we've been getting that new product out into the marketplace that's driving a little bit of mix, which is having an impact on the ASPs. But we view that as a positive, as Fred said, we're very confident in the portfolio. It's the strongest product portfolio we've had in the history of the company, and we think that positions us well heading into the retail season.

Got it. And maybe on inventory, it sounds like the pipeline sale opportunity, it's pretty much complete here. It sounds like also that you're comfortable with inventories broadly. Is that the case for all of your brands? Are you concerned here we stand on May 10? Are there pockets where we might be a little bit heavy as the new model year approaches?

I think overall, we feel very good about where our portfolio is in terms of inventory. We're starting to see with the weather starting to warm up. We're starting to see retail deliveries occur in particular in the pontoon segment with Crest. We've had some really strong recent weeks of retail performance, so that's encouraging. And then with MasterCraft again, similarly. So I think, obviously, we'll -- the next couple of months are the biggest months in retail for the industry, and that's no different for us. So we'll certainly -- we're encouraged and feel like we're well positioned, but don't have any major concerns. There's always a market here or there, a dealer here or there that you think about. But when we take a step back, we feel very good about the overall makeup of our inventory.

Great. Thank you, guys.

Thank you. Please standby for your next question. Our next question comes from the line of Craig Kenn of Baird. Your line is open.

Yes. Hi, Craig Kennison. Thank you. Just to follow-up on your pontoon comments, George. It sounds like you've got more momentum than we've heard about with respect to that category. Would you say your dealers are themselves outperforming? Or is that driven by the expansion in your distribution?

I certainly think we've got a very strong dealer network. We continue to look for opportunities to strengthen that through expansion. So I think, obviously, the fact that we've added, I think we said about over 25 dealers or locations this fiscal year. I think that's certainly helping our retail. Obviously, those are stores that didn't have product last year. And then we are seeing, again, some good early momentum in the month of May. We'll see how that plays out, but I feel very good. Also, I would say, we've dedicated a lot of resources to really refreshing that product portfolio. So we have completely revamped all three lines of the Crest product in our ownership, and we certainly think that, that has positioned the brand very favorably in the marketplace for consumers. And so we think the brand offers a great value proposition. We think the price is right and the product is right. So between the dealer, the product and the pricing, I think we feel very confident with what the Crest brand could achieve in this retail season.

Thank you. And with respect to the credit markets, are you seeing any impact from tighter credit conditions with your consumer?

Not yet. It's a risk, and we're watching it closely. But to-date, have not seen any adverse impact, but it is an area that we watch very closely and, frankly, we have concern about because of the wide variability and possible outcomes there.

Thanks. And maybe one more on inventory. Is there any way to frame how many units of inventory you think you will have added at the end of fiscal 2023? I'm assuming 2023 will have been a restocking year, I'm just trying to quantify the amount of that restock given it won't recur in fiscal 2024?

We think about it roughly in these terms, we probably, in terms of pipeline refill, had about 700 units at MasterCraft and about 700 at Crest that have been pipeline refill.

That’s great. Awesome. Well, thank you so much.

Welcome.

Thank you. [Operator Instructions] Our next question comes from the line of Gerrick Johnson from BMO Capital Markets. Your line is now open.

Hey, thank you. Good morning. A couple of nuggets in the gross margin aspect. Can you talk about the impact of allowances and floor plan support on gross to net sales? And then also, you called out warranty costs. So where are you seeing an increase there?

Sure, let's talk about the dealer incentives. It's about 140 basis points with 60% or so of that being related to the floor plan costs and 40% or so related to other incentives designed to drive retail sales.

Okay, that’s helpful. Thank you.

On the warranty side, we still have some warranty associated with model year ‘22. Some of the components that we're -- have installed during the COVID period had some failures. And so we have to approve for those.

Okay, and…

And certainly, Gerrick, just want to mention that we're certainly seeing improvements now that we're in model year ‘23.

Okay. That makes sense. And the Aviara numbers look nice there. So is that all like-for-like? Or is there expansion of distribution that helped Aviara year-over-year? And then how are you going to go into the international markets with that brand? Are you going to ship units overseas? Or do you have manufacturing or contract manufacturing in those markets?

Hey Gerrick, in terms of our performance this quarter, no changes in our distribution there, continue to work with MarineMax and getting inventory into more of their stores than we've been able to do in the last couple of years. So we do that again as a positive as we look to drive more awareness of the brand and get consumers to be able to touch and feel it. We think that's a brand that when a consumer season sits in it, it really helps sell itself. So very pleased with that performance. And MarineMax, I think, continues to be very pleased with the product. In terms of international, there's no intention to build offshore contract manufacturer. We will continue to utilize our existing facility out of Barit Island, and we will shift the boats overseas, no different than we do today with MasterCraft or Crest.

Okay, great. Thank you, George.

Thank you. [Operator Instructions] Our next question comes from the line of Noah

Hi, thanks for taking my questions. I guess, first, with retail down versus ‘19 levels, hoping you could speak to inventory from a weeks-on-hand perspective. And then second, I think selling and marketing came in a bit lighter than we had modeled for the third quarter. So just wondering how we should think about that moving through the rest of the year? Thank you.

Just to clarify, I'm not sure if I misheard you, but our retail was actually up in the third quarter versus fiscal ’19.

Inventory was down versus fiscal ‘19, I think that might cause the confusion.

Inventory was down. So from a weeks-on-hand perspective, as we've been saying this whole year, we certainly plan on operating this business on a lower level of absolute inventory than we have had historically. At our current weeks on hand, we feel very comfortable with where we are for this seasonal time of year. We feel like we've got the appropriate amount of inventory. But we have less inventory today than we had back in ‘19. I hope that answers your question there. And then can you repeat the second part of the question, Noah? I'm sorry.

Yes, yes. I think selling and marketing came in a little bit lighter than we had modeled through the third quarter. So just wondering if there's anything to kind of call out there and how we should think about that for the fourth quarter?

Yes. I don't have the details of your model, but sales and marketing was up in the quarter year-over-year, driven by a return of boat shows and support that we did there. But maybe we continue to be very thoughtful and judicious with how we spend our dollars and trying to be more efficient with our sales and marketing dollars. So I think that's just prudent management and being thoughtful and making sure we're driving efficiency and high return on the sales and marketing investments that we're making.

Thank you.