Terry McNew - President, Chief Executive Officer Tim Oxley - Chief Financial Officer.

Eric Wold - B. Riley Craig Kennison - Robert W. Baird Joe Altobello - Raymond James Michael Swartz - SunTrust Rommel Dionisio - Aegis Laura Engel - Stonegate Capital.

Good day ladies and gentlemen, and welcome to Q1 Fiscal ’18 MCBC Holdings Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instruction]. As a reminder, this conference call is being recorded. I would now like to introduce your host Mr. Tim Oxley, Chief Financial Officer. Sir, you may begin. .

Thank you, operator and welcome everyone. Today’s call is being webcast live and will also be archived on our website for future listening. Joining me on today’s call is Terry McNew, MCBC Holdings, President and Chief Executive Officer. Our agenda includes a strategic overview by Terry, followed by my analysis of the financials.

Then Terry will discuss our strategies for growth and expectations for fiscal 2018 followed by the Q&A session. Before we begin, we’d like to remind participants that the information contained in this call is current only as of today, November 9, 2017. 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. Our fiscal 2018 first quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results.

Before turning the call over to Terry, I would like to remind listeners that there is a slide deck, summarizing our financial results in the investors section of our website. With that I will turn the call over to Terry..

developing new and innovative products; further penetrating the entry-level and mid-line segment of the performance sport boat category; capturing share from adjacent boating categories; strengthening our dealer network; and driving margin expansion through continuous operational excellence.

This combined commitment to operational excellence and innovation, teamed with our strong diverse product portfolio positioned the company well for fiscal 2018 and beyond. Now I would to turn the call back over to Tim to go over our financials. .

selling and marketing expense increased $0.7 million to $2.7 million for the first quarter, compared to the year-earlier quarter, primarily due to increased dealer training costs and increased promotion activities with the introduction of the redesigned 2018 MasterCraft XStar.

General and administrative expense totaled $4.3 million versus $4.1 million for the prior-year period. This increase stemmed mainly from a rise in advisory fees related to the NauticStar acquisition, partially offset by a decrease in litigation costs.

Turning to the bottom line, fiscal first quarter net income totaled $7 million, which was the same as the year earlier quarter. Adjusted net income was $7.5 million or $0.40 per share on a pro forma, fully diluted weighted average share count of 18.8 million shares.

This compares with adjusted net income of $7.6 million or $0.41 per share in the prior-year period. EBITDA was $11.8 million compared to $12.4 million in the prior-year period. Adjusted EBITDA margin declined 200 basis points to 19.9% from 21.9% in the prior-year period.

Adjusted EBITDA was $12.9 million, a 2.8% decrease from $13.3 million in the prior-year period. See the “Non-GAAP Measures” included in today’s press release for a reconciliation of adjusted EBITDA, adjusted EBITDA margin and adjusted net income to the most directly comparable financial measures presented in accordance with GAAP.

Keep in mind that Q1 last year was by far the most profitable quarter and therefore represents a difficult comp. Q1 this year exceeded our internal budget and the guidance for the year for MasterCraft remains unchanged. With that, I’ll turn it over to Terry for our outlook. .

Thanks Tim. We delivered solid fiscal 2018 first quarter performance and we are optimistic about the future. For the fiscal 2018 second quarter we expect net sales growth in the 45% range and Adjusted EBITDA margin to be above 15%. Both MasterCraft and NauticStar’s top lines are growing in the mid to high single digit range compared to the prior year.

For the fiscal 2018 full year, we anticipate net sales growth in the 35% range with NauticStar representing approximately 20% for the full year net sales based on three quarters of post acquisition results. Adjusted EBITDA margin will be in the mid to high 17% range after adjusting for the dilutive effect of NauticStar.

MasterCraft’s adjusted EBITDA margin is expected to grow to the low 19% range as previous guided. Adjusted EPS is expected to grow by over 25%. NauticStar will provide accretion of $0.15 to $0.20 per share during the nine months post-acquisition. Now I’d like to turn it over to the operator for questions. .

Thank you [Operator Instructions] Our first question comes from the line of Eric Wold from B. Riley. Your line is now open. .

Thank you. Good afternoon guys. .

Hey Eric. .

A couple of questions. I guess one on the gross margins in the first quarter, the unfavorable product mix. Any additional details around that and do you get a sense that’s kind of a mix that should continue for the core MasterCraft side for maybe this year.

Are you seeing anything special in the core that would cause that?.

You know Eric, we had a challenging model year change over this year and we brought a lot of new items to market. All of that is behind us and we are at fill run rate now and as Tim mentioned in our prepared comments, last year’s Q1 was by the most profitable quarter in our history of our company, so it’s a difficult comp.

We are ahead of our internal budget so we actually feel pretty good and we are still holding to the full year guidance. .

Perfect.

And then on the consent environment just maybe give a sense of what are you seeing out there both in the core MasterCraft side, as well as now Nautic in terms of any increase in promotional activity by competitors or is it staying relatively healthy?.

You know we don’t have great visibility into what our competitors are doing; however, for us our promotional activities are very consistent with the prior year and we do not hear anything coming from the dealers. So I would say that promotional environment is fairly benign right now. .

And then last question, kind of thinking about, the net sales guidance for ’18 and with NauticStar about 20% of that. Your kind of high level, what are assuming in there in term of your ability to go in there and boost their output from what they are doing prior to the acquisition.

How much of that gain or how much of that benefit we see in this year’s numbers and how far long are you on that processes?.

We are at or slightly ahead of what we anticipated Eric. We have three main areas that we are really focusing on with NauticStar. One, breaking their production constrains, improving housekeeping and safety of course and then adding dealers especially internationally. We had our call October 2, the morning of the transaction.

We are holding tight to that and I would say that we are slightly ahead of schedule in terms of breaking the production constraints. .

And does the guy assume some improvement from what they were doing before? What kind of view?.

Yes..

Okay, perfect. Thank you guys. .

Our next question comes from the line of Craig Kennison from Robert W. Baird. Your line is now open. .

Hey, good afternoon everybody. .

Hi Craig. .

Hi Craig. .

Question, I’m sorry if I missed this, but where you able to quantify the change in retail or inventory in the quarter. I know in quarters passed you have been able to break that retail metric out. .

You know the only time we really talked about retail for the quarter was in Q3 last year, because it was such an aberration from kind of the norm.

We are very comfortable with our dealers inventory level and returns are up slightly and at the same time since we’ve added some points of distribution, turns are always calculated on a trailing 12 basis and so that gives us additional confidence, you know out of the inventories the dealers are holding. .

And Tim, how do you plan to present NauticStar in the financials.

Is this going to be a separate entity with different – of different breakdown of units in ASP?.

Yes, there will be segment reporting for NauticStar. .

Thanks and then finally with respect to regional trends.

What are you seeing regionally and any impact for example the hurricane or anything like that?.

You know there really hasn’t been, you know knock on wood, any interruptions with either of the hurricanes. We are very positive both at NauticStar and at MasterCraft. Virtually no impact from either hurricane. Texas remains the largest state for us at performance sports boats at MasterCraft.

We’ve added a dealer in Southern California and we’ve added a couple of dealers throughout Europe and North American as well. So we are very happy. Geographically we are just seeing very good consistent contributions throughout the world. .

Great. Thank you. .

You bet thank you. .

Our next question comes from the line of Joe Altobello from Raymond James. Your line is now open. .

Thanks. Hey guys, good afternoon..

Hey Joe..

Hey Joe..

So first question in guess big picture, the guide this afternoon, what does that bake in terms of the overall market growth you guys are expecting over the next few quarters? Is it similar to the growth rate we have seen over the last few quarters here?.

Yes, I would say as far as market growth for performance sport boats, its growing kind of mid-single digit. And then for the NauticStar segment they’ve got kind of three sub segments and so I’m not as familiar with how that segment is growing. I looked at some reports just today and it is certainly growing.

I would say it would be mid to high single digit. .

Okay that’s helpful, and then in terms of the NauticStar accretion, I think you mentioned it’s going to be $0.15 to $0.20 for this year for nine months. Are there cost synergies baked into that, number one? And number is the NauticStar ASPs, I think you mentioned on the last call when you announced the deal that ASP is around $36,000.

Is that still case?.

That is still the case. You know the types of synergies we have with NauticStar includes helping them break their capacity constrain.

When we acquired their company their plan was to spend $1 million of bricks and motor to break the capacity constraint with our process improvements that we are planning, we expect to able to do that with nominal capital. And we do have operational synergies, reductions of labor variances and other things.

But because of the kind of top line growth and adding distribution and particularly internationally, it’s a little bit harder to discuss synergies. I think the key things is focusing on the $0.15 to $0.20 per share accretion for the nine month period and I think that’s what’s most important..

Okay, thank you. And then just one last one if I could, I thought your tax rate was going to go down given the changes to the Tennessee State tax code, but it looks like you guys are pleasing 36%..

Yeah, the reason we used 36% is we think it’s better to evaluate the company at a consistent tax rate, so our actual tax rate is less than 36%.

We’ve had previous periods where it was higher than 36% and we want to really take out the noise of changing the tax rate you know for the investor and so when we calculate our adjusted earnings per share, we’re using a consistent 36% rate, but we did get the same favorable benefit of you know Tennessee change in their methodology..

Okay great. Thank you guys..

Thanks Joe..

Our next question comes from the line of Michael Swartz from SunTrust. Your line is now open..

Hey, good evening guys. .

Hey Mike..

Hey, just wanted of follow on the commentary about I guess maybe some of the complexities that you saw with the model year ‘18 changeover. Just give a little more color on those and I think you did say that that’s now behind you, but just a little more color would be helpful..

Yeah Mike, this is Terry. We brought on several new features to our product line this year. Model year ’18 specifically the new dashes, ZDT2 towers are based now for our product. There were several other components as well that we brought onboard and they sound system….

Was that [inaudible]..

Absolutely. So we got that behind us. In Q1 we’re at full rate for the entire month of October and we’re really in pretty good shape.

Every year we look at whatever we’re going to take on and we recognize this was kind of the most challenging part for manufacturing that we’ve had in several years and so we didn’t execute it flawlessly, but the good news is that’s behind us..

Okay, that’s helpful. On then just on the sales and marketing costs, I think you said you had some additional costs related to the launch of the new XStar.

I guess why were there additional costs related to that and anyway we can quantify how much that was?.

Sure. Yes, the additional cost you know as you probably know the XStar was one of our two kinds of halo products, the other one being the ProStar and it’s a big deal when we launched that new XStar and so we beat the drum which cost a bit more money.

We’re comparing that to the launch of the X-T20 or 21 last year in September and that product required nearly as much in promotional activities. I don’t recall exactly how much that was, but you know certainly that and the additional dealer training is where that drove the sales and marketing expenses up..

Okay, great. And then the other question I had, just in terms of how we’re thinking about the quarters with Nautic Star.

Did they have a similar seasonality as the core MasterCraft business?.

You know they are similar to the MasterCraft business. They probably see a little bit higher Q3 than we do and performance work boats, but generally you can look at it from a retail sales perspective is very close..

Okay. And then just finally maybe for Tim, how are we thinking about interest expense this year with the additional debt..

Yeah. You know we were very pleased to negotiate favorable terms, about a 100 basis point reduction at the same – at a comparable leverage ratio, so that we were very pleased with. It’s going to run 3.5 to 3.8 or 9 this year including the amortization of differed financing cost. So all in its around you know 3.7, 3.8 somewhere in there..

Okay, great. That’s all from me, thanks guys..

You bet. Thank you..

Our next question comes from the line of Rommel Dionisio from Aegis. Your line is open..

Thanks very much. Good afternoon gentlemen. .

Hey Rommel..

So a cushion on the Nautic Star integration. You know if you guys hit the targets that you’ve laid out in terms of accretion. Obviously your supply chain at MasterCraft has been pretty stellar for quite some time and I realize you’re going to bring loads of synergies and operational practices there.

Would you say that you know by the end of this fiscal year, assuming you hit the targets that you’ve laid out today. Where would you be at that point in term of that integration process and bringing them to your supply chain excellence that you guys have.

Would you be at that point at the end of the fiscal year you know at the second inning or the fifth inning or the eighth inning? Could you maybe give us some flavor as to you know how quickly without asking for fiscal ’19 guidance you know how much more runway you might have for improving on the supply chain there? Thanks..

I think the majority of our integration costs in particular are going to occur in the first quarter post acquisition, which is the December inning quarter and even then those costs are fairly moderate with you know legal and professional and the other things are kind of at the start of that company and their acquisition.

I would say by the end of the year many of the things that we want to accomplish will have been done, but keep in mind that just like MasterCrafts in our spirit of continuous improvement, you know NauticStar is never going to get across the finish line in that regard either.

So you know we’re focusing on at Nautic Start quality, safety delivery or the same things we focus on here at MasterCraft..

Okay, and maybe one question as we look at the fall in marketing expense. Are you may be holding back a little.

Is there a thought to maybe hold back a little bit on the NauticStar market export, just given that your capacity constraint at the moment and perhaps either ramp up as time goes on or are you still sort of maintaining a pretty healthy, some marketing part of this?.

Yeah, we have brands positioned very differently at the NauticStar versus MasterCraft and so those guys are going to continue to operate very autonomously and so we’ll give them advice on marketing, but they are going to be making the calls and their marketing spend traditionally has been less than MasterCrafts as you would expect from sort of mid-line brand and I would expect that to continue..

Okay, perfect. Thanks so much guys..

You’re welcome..

Our next question comes from the line of Laura Engel from Stonegate Capital. Your line is now open..

Good evening. Thank you for taking my questions. Actually a lot of them have been answered, so I wanted to see just related to the announcement on the ADA membership, I am just curious, other than being a collaborative group, it takes about purchasing power gained through the group.

Can you give us a little bit of detail on that, what that opportunity is?.

Sure. We’ve been a member of that group for such a short period of time. We do anticipate some cost savings, but it’s too soon for me to quantify that for you, but we do expect some cost savings from that participation..

Okay. Well again, thanks for taking my question. I’ll get back in the queue..

Sure..

And I am showing no further questions and I would now like to turn the call back to Terry McNew, Chief Executive Officer for any closing remarks..

Thank you, operator. Once again, thanks to everyone for joining us this afternoon. Across the organization we are well positioned for fiscal 2018 and beyond. We look forward to updating you on our progress and second quarter results in February..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today’s program and you may all disconnect. Everyone have a great day..