Terry D. McNew - President, CEO & Director Timothy M. Oxley - VP, CFO, Treasurer & Secretary.

Eric Wold - B. Riley & Co., LLC Craig Kennison - Robert W. Baird & Co. Joseph Altobello - Raymond James & Associates, Inc. Michael Swartz - SunTrust Robinson Humphrey, Inc. Timothy Conder - Wells Fargo Securities, LLC Laura Engel - Stonegate Capital Markets, Inc. Rommel Dionisio - Aegis Capital Corporation Daniel Charrow - KeyBanc Capital Markets Inc..

Good day, ladies and gentlemen, and welcome to the Q2 Fiscal 2018 MCBC Holdings, Incorporated Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce your host for today’s conference, Chief Financial Officer, Mr. Tim Oxley. Mr. Oxley, you may begin..

Thank you, operator, and welcome, everyone. Today's call is being webcast live and will also be archived on our Web site 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 the second half of 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, February 8, 2018.

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 second quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results. Before turning the call over to Terry, I'd like to remind listeners that there is a slide deck summarizing our financial results in the Investors section of our Web site. With that, I'll turn the call over to Terry..

Thanks, Tim. I'd also like to thank everyone for joining us today. As you saw from today’s press release, top line sales grew significantly in the second quarter driven by double-digit gains on the MasterCraft side and the addition of NauticStar.

As we further integrate NauticStar, we expect to realize additional efficiencies, which will favorably impact margins. Since acquiring NauticStar, we’ve made significant progress leveraging our industry leading strength and operational excellence and financial management to further improve NauticStar's output, quality and margin.

With more than 15 years of boat manufacturing experience including a 200,000 square foot manufacturing facility, NauticStar has a reputation for liability, quality, and consistency with a loyal network of dealers and customers, including professional and sport fishermen and recreational and pleasure boating enthusiasts.

Throughout our business, we are continuing to see solid retail activity and are comfortable with current inventory levels as our dealer inventory turns are continuing to improve year-over-year. Moreover, we're diligently working with our strong dealer network to maximize their opportunities moving forward.

On the new product front, MasterCraft recently introduced the new XT25, our largest multipurpose crossover boat.

Completing the XT series lineup, as our fifth and largest addition, the XT25 welcomes a crew of up to 18 with a traditional bow and new interior layout, offering more rear facing seating than ever before, enhancing socialization and wake action spectating.

The XT25's two new rear facing seat designs include a standard flip up rear facing seat that can convert into a bench seat and an optional starboard pull up rear facing seat with a raising backrest that also converts into a bench seat. Additionally, our new XSTAR began production in the second quarter. Dealer response has been unbelievably strong.

Wholesale orders are up nearly 400% from the exit rate of the previous XSTAR. We've ordered an additional set of tooling to meet the overwhelmingly strong demand. Looking ahead to the second half of our fiscal year, we're optimistic about prospects with the sales and profit growth opportunities we have for both NauticStar and MasterCraft.

Our shared commitment to operational excellence and innovation team with our strong diverse product portfolio, position the company well for the remainder of fiscal 2018 and beyond. Now I'd like to turn the call back over to Tim to go over our financials..

Thanks, Terry. From a top line perspective, net sales for the second quarter rose $27.3 million or 53.4% to $78.4 million from $51.1 million for the prior year period.

The increase reflects the inclusion of NauticStar, which increased net sales by 39.5% or $20.2 million with remaining increase of 13.9% or $7.1 million was attributable to an increase in MasterCraft unit sales volume, favorable product mix, and price increases.

Gross profit for the second quarter increased $5.6 million or 39.5% to $19.9 million versus $14.3 million in the prior year period.

The inclusion of NauticStar contributed $3.5 million of gross profit, growth in MasterCraft unit sales volume, a favorable product mix and price increases offset by higher material and shipping costs accounted for the remaining increase. Gross margin decreased to 25.4% from 27.9% for the prior year period.

This anticipated decrease was primarily due to the inclusion of NauticStar's gross margin which is in the high teens versus MasterCraft's industry-leading high 20s margin.

On the expense front, selling and marketing expense rose $1.3 million to $3.7 million for the second quarter compared to the year earlier quarter, primarily due to the inclusion of NauticStar which increased selling and marketing expense by $0.6 million, a rise in dealer meeting costs and an increase in promotional activities related to the introduction of the redesigned 2018 MasterCraft XSTAR.

General, administrative expense totaled $5 million versus $4.8 million for the prior year period. This increase stem mainly from a rise in advisory fees related to the NauticStar acquisition and the inclusion of NauticStar partially offset by a decrease in litigation costs.

Turning to the bottom line, fiscal second quarter net income totaled $8 million versus $4 million in the year earlier quarter, driven by the inclusion of NauticStar and reduce tax rates from the enactment of tax reform.

Adjusted net income was $7.8 million or $0.42 per share a pro forma fully diluted weighted average share count of $18.8 million shares. This compares with adjusted net income of $4.9 million or $0.26 per share in the prior year period. Adjusted net income for the second quarter was computed using a blended annual tax rate of 29% through tax form.

Our annual effective tax rate is expect be lowered to about 24% for fiscal 2019. EBITDA was $12.3 million compared to $7.9 million in the prior year period. Adjusted EBITDA margin was 17.4%, from 17.6% in the prior year period. Adjusted EBITDA was $13.6 million, a 51.5% increase from $9 million in the prior year period.

See the non-GAAP measure section 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. In the interest of time, I won't discuss the details for six month results to date.

But I will echo, Terry's comments and reiterate that we’re very pleased with our performance and look forward to the second half of fiscal 2018. Now we’re happy to answer any year-to-date questions during the Q&A. With that, I’d like to turn it back over to Terry for our outlook..

Thanks, Tim. Given our strong second quarter performance, we’re very optimistic about prospects going forward, and we remain committed to our five prong growth strategy, developing new and innovative products, further penetrating the entry level and midline segment of the performance for both category.

Capturing share from adjacent building categories, strengthening our dealer network and driving margin expansion through continuous operational excellence. For full fiscal year 2018 guidance, we continue to expect net sales growth to be in the high 30% range, including nine-months of NauticStar's projected net sales.

Both MasterCraft and NauticStar's top lines are growing in a high to low double-digit range compared to the prior year. We expect to see adjusted EBITDA margins per MasterCraft, excluding NauticStar to grow to mid 19% range from 19% in 2017.

After taking a dilutive effect of the NauticStar acquisition, consolidated EBITDA margins are expected to be in the high '17 range. Adjusted EPS is expected to grow in the low to mid 40% range. NauticStar is expected to provide accretion of between $0.15 to $0.20 per share during the nine-months post acquisition.

For the fiscal 2018 third quarter, we expect net sales growth in the low 50% range and adjusted EBITDA margin to be above 17%,.Adjusted EPS is expected to grow in the low to mid 60% range. Now, I’d like to turn it over to the operator for questions..

Thank you. [Operator Instructions] And our first question comes from Eric Wold with B. Riley FBR. Your line is now open..

Thank you and good afternoon. A couple of questions, if I may. I guess, first of all can you give us a sense of just a general trend you’re seeing from consumer at the various boat shows that have taken place so far.

I guess, especially in terms of the volume that’s to kind of move up in ASP?.

Yes. So actually, Eric, sales were strong at every boat show today. We measure boat shows every year with two week follow-up per leads and our boat show results with shows that have completed with two weeks of follow-up or up 20% over last year and last year's boat show results were record for us.

And additionally, dealers were reporting more forward traffic and strong quality buyers. In one report that we saw just this week are many customers were beginning the trade in cycle. An example, we’re seeing a lot of buyers with 5 to 10 year old product that are now shopping again. So we’re very optimistic.

Our portfolio which is strong as it's ever been. Our transaction costs or promotional activities in Q2 were pretty light actually. And Tim can get into that a little bit. So we’re very, very positive to see a lot of higher quality buyers at the boat shows.

Keep in mind that tax reform not only is very favorable for MasterCraft, but also for many of our consumers. So I think that’s one of the things drive into demand that we are seeing in boat shows..

Okay. So to make sure I understood that.

On the tax rate, so the 24% tax rate, that’s for fiscal '19 as well as for the remaining two quarters of this year?.

No, we are going to have a 29% rate, that’s our blended rate for fiscal '18. So we’re going to reflect that in each quarter. And then, fiscal '19, the full effect to the tax change which occurred midyear for us, will be in effect. So that’s going to have a blended rate of 24%, which includes state, correct..

Okay.

And then final question, on the NauticStar acquisition that kind of planned production boost, where are you right now in terms of your goal of driving increased production at their facility? What’s the ultimate goal? How would you like to exit fiscal '18 and any hurdles either operationally or CapEx wise to reach those?.

So, we are about a month ahead of our internal plan, Eric. Keep in mind, we’ve own them. We purchased them and completed the transaction on October 2, so we’ve own them for about four months, but there are plethora of operational improvements underway. We reconfigured the plant much more organized and profitable flow.

We're containing that to the CapEx budget for fiscal '18. We’ve made improvements in environmental health and safety which we're very -- we put a very strong focus on. We will complete the facility reorganization by Q1 or within Q1 of model year '19. By the end of this fiscal year we will have about 75% of it completed.

We've added additional resources in finance and HR functions as well which is expected during the due diligence process and we communicated that to you when we had our call on October 2. I think it's also important to note that we've not experienced any distraction at MasterCraft with the addition of NauticStar.

We've had several people helping out with them, but both companies are operating extremely well. Their permissions, they’ve title plan [ph] permitting at about 249 tons per year. We are consuming a little over about 52% to 55% of that currently. So given the same mix of product, we have quite a ways of additional capacity.

We broke the first constraint about a month ahead of plan in early December and we increased count by one unit a day. We were targeting early January. We actually were able to do that in early December. Demand for the products continues to be strong as we communicated. It's one of the reasons we bought them is the demand was higher than their supply.

So we’ve -- we increased count in December and we have plans to do that again in Q4 of this fiscal year..

Perfect. Thank you, guys..

You bet..

Thank you. And our next question comes from Craig Kennison with Baird. Your line is now open..

Great. Hey, thanks for taking my question as well and congratulations on a strong quarter. I wanted to follow-up on the NauticStar conversation. I realize your focus today is on throughput and kind of operational excellence which is the strong suit for you.

Wondering to what extent you had a chance to look at the product roadmap? I know you've got through that as it relates to MasterCraft, but are there opportunities for you to rethink where the product can go over the next five years now that you’ve got control of the asset?.

Yes, absolutely, Craig. So Tim Schiek and many of us here at the corporate have been working on adding additional dealers as well. The company when we purchased them had approximately 70 dealers, mostly east of the Mississippi, add in Texas as well. We've already added a dealer in Canada, Australia.

In Western United States, we've already identified up to 59 additional opportunities for dealer expansion in the Western United States.

Our team here in sales and marketing at MasterCraft is assisting NauticStar and we have a goal to increase the number of dealer locations within the next 12 months by about 20 additional locations over the 70-ish that were there when we purchased them. As far as the cycle plan, we have completed a five-year cycle plan.

The same as what we operate to here for product development at MasterCraft. And we’ve the first two years identified and locked in and as I say to you often and others we don't announce the products that are coming out, but we have a couple of more products that will be introduced later in this calendar year..

And then as a follow-up to a point you made earlier, Terry, it sounds like the organization hasn't been taxed by the addition of NauticStar. In other words, you’re able to continue your focus at MasterCraft.

But I'm wondering if given all you have on your plate, is it fair to say that M&A is kind off the table and tell you NauticStar fully integrated?.

We mentioned this before. In a perfect world, we would love to be able to do -- have a year in between acquisitions, but we by no means been quiet. We, Tim and I, as we’ve said before continue to evaluate several acquisition opportunities and we are currently in the midst of doing that as well.

And those take -- even if you are able to become the final better, it takes 3 to 4 months to complete due diligence. So we're doing well with NauticStar. We are four months into it, but we are currently evaluating other opportunities..

And then, finally, Tim, following up on the tax issue, to what extent do you think you need to have an opportunity to reinvest in the business given the tax windfall that materializes here?.

I mean, I think that's -- the way we answer that question is similarly the way we answer any of our excess cash that superior working capital management generates. And now we have an addition of that, excess cash generated by the tax rate decrease.

During this quarter the December ending quarter, we had $17 million of additional principal payments we made on our term loan, because the cash wasn't doing us any good sitting in the bank earn a 0% interest. So we’re going to continue to look at that as an opportunity pay down debt.

Obviously, we would be beneficial as we look at potential acquisitions and we're just going to continue to evaluate those opportunities..

I might add, Craig, the third leg of that stool is we are continuing to invest in our portfolio..

Great. Thank you..

You’re welcome..

Thank you. And our next question comes from Joe Altobello with Raymond James. Your line is now open..

Thanks. Hey, guys. Good afternoon. Just wanted to go back to the growth rate you guys mentioned earlier for both MasterCraft and NauticStar. It sounds like that accelerated a little bit this quarter from what you were doing.

Is that being driven by any particular geography or any particular models? Or is that pretty broad based? You guys did mention the boat shows have been good to you so far and dealer traffic is up as well. Just curious if that was a broad based acceleration or any particular geographies or models? Thanks..

It's very broad based. I’d suggest that our portfolio is as strong as it's ever been. Our XT's are selling extremely well. Our new XSTAR as I mentioned, production rates are up 400% over the exit rate of the older XSTAR. Our XT22, it's been on market less than a year is our strongest XT to date.

The new XT25 is the highest visited portion of our Web site. So the NXT, so last year in January we started a winner sales campaign with nationally advertised pricing. That has really accelerated those. They’re selling extremely well, especially the NXT22.

So our portfolio is extremely strong and when you look at the every major region of the world is seeing positive growth now and we're growing along with it. Our year-over-year retail is outpacing the segment. So I think that's a function of all the work that the team is doing in terms of innovation.

We won about half of the NMMA's innovation awards for our segment in the last four years. It's just continuing to execute on what we do well. We spent a lot of time at product development and innovation and making sure that our stepladder pricing is correct.

And we’ve -- as we've mentioned before, the last two years we've really spent a great deal of time working with our dealers on retail performance and that is -- we could spend hours on that, but that is a very disciplined approach.

We spent a good deal of time on at our dealer meeting in Orlando at -- in December and we're clearly seeing stronger leads, more leads and diversity of leads from this process at our boat shows. We saw it last year and we're seeing it again with new dealer. So we started two years ago with a pilot group of nine dealers.

We've expanded it each year over the last two years. And we have about 65 dealers that participated in an active way. So good macroeconomic growth and extremely strong portfolio and better sell-through at the dealer level..

That’s very helpful, Terry. Thanks. And then, I guess, on NauticStar, if you would exclude the manufacturing constraints right now, that business is growing high singles, low doubles.

What would that growth rate be if you could keep up with demand?.

We mentioned in our prepared remarks that they’re seeing high single-digit to low double-digit growth along with MasterCraft. We are intentionally -- we've raised count. We plan on doing it again, but for the rest of this fiscal year it's important that we continue to execute the changes which are large changes to the production flow.

They’re done, follow-up on it weekly with Tim Schiek. We are making good progress to that and we're staying within our capital constraints. So model year '19 with the addition of additional dealers and the bulk of the facility layout will be done by the end of June, the remainder of it we've done by the end of the first quarter of next year.

I really think those are going to start to increase the velocity of their throughput with additional dealers and the configuration done. And I would say that's nearly a permanent reconfiguration of the facility. I don't anticipate that being changed really ever.

We've made it out in a way that we anticipate larger product, so we can contain that as well as higher throughput. The constraint will most likely be omissions, which again, given the current mix just as an example we could grow volume by an additional 40%..

Okay, great. That’s helpful. Thanks, guys..

You’re welcome..

Thank you. And our next question comes from Michael Swartz with SunTrust. Your line is now open..

Hey, guys. Just, Terry, some clarification and maybe around the production rates. I think you were talking about the XT25 and you said there are about what 400% larger than the product before I guess during the ….

Michael, that was the XSTAR, the new XSTAR..

That was the XSTAR, okay. Could -- just a little more context on that.

How old was the XSTAR, I mean, granularity from a volume basis maybe?.

So, the previous XSTAR was completing its 5th year, so it's about a strong 4.5 years. Our typical product lifecycle is 4 years, and its volume had been around 60 to 75 units annually on its exit rate. So we’re going to be up 400% from that..

Okay, great. Thank you. And then just the next question would be on -- I think you made the commentary around something was up 20% coming out of the boat shows you’ve seen to date.

Was that -- orders was that indications?.

These were retail sales that we track every single year. So we have a list of the top, want to say, 50-ish boat shows around the world and we track those every year. We're looking at retail sales, so we track the number of retail sales through the end of the show plus 2 weeks follow-up.

So they are following up on leads that they may have gathered at the show. And that's why we’ve consistently measured it in and so for the shows that if completed, the show plus 2 weeks of follow-up. We are up 20% in retail sales for those shows compared to the same level last year..

And Mike that can include a dealer selling their boat, that’s going to be produced in the future. We love seeing a boat going down the line as not only a dealers name which always has a dealers name, but a retail customer's name as well, because those boats fly right through the pipeline and it's very healthy when we see that.

So a combination of what the dealer has on hand plus deposits for orders. And I don't know if I mentioned it, but retail names are growing rapidly.

In fact, we contacted all of our dealers twice in the last two weeks and just reiterated when they put their orders in, sure their retail names are on there, because we’re going to pull those up and prioritize those in the production plan. We are sold out through the end of this model year on a wholesale basis..

Okay, great. And then, just final one for me, just heard some chatter, I guess, early this year and late last year that you’re dropping some, I guess, new dealers in some of your trade areas where you’ve existing dealers.

Could you talk about this -- maybe the strategy there and maybe how you contain some of the risks of doing that?.

Yes, so as we’ve said on many of these quarterly earnings calls, really for the last five years, each year, we sit down our sales and marketing staff, Tim and I, if needed. As we visit dealers and we work on their business plans, we show them where every retail sale is not only for us, but for every competitor in their region.

So our strategy is to try to give our dealers as larger territory as possible where they can still effectively service and sell. Data clearly shows over the last several years where there are the dealers generally were doing really well in their -- around their store location, but their territory was far larger.

So we’ve encouraged dealers to add locations and they’ve been very effective. We mentioned this one many times in the past. Our Dallas/Fort Worth area took advantage of this about three years ago, added a satellite location in the Dallas area. Their primary stores in Fort Worth, long story short. They doubled their business within 18 months.

So there are areas though where some dealers just didn't have the desire or the fortitude, whatever it was, but we gave them plenty of time and a couple years and said at some point we're missing sales and we're well below market share and we need to add an additional location in that territory. And so we have done that over the last 18 months.

We're now up to 240 dealer locations throughout the world. You have some concern, there's kind of the myriad of some people get it, they understand it, some don't. There have been some turnover, but it's been fairly -- I mean, it's been well contained, the turnover has been very de minimis and progressing really well..

All right. Thanks. That’s it for me..

Yes..

Thank you. And our next question comes from Tim Conder with Wells Fargo Securities. Your line is now open..

Thank you and congrats also gentlemen. Terry, maybe a little bit more color regionally.

You said that things were pretty strong everywhere, seeing kind of synchronized global growth, but Canada, it would seem like that that has an opportunity to really accelerate the selling season for the industry? So maybe a little more color there? And then, on the shipping, any -- anything that you guys are trying to do to mitigate those costs or I mean, we’re hearing shortages on shipping, tight supply across many industries, any additional color there? And then, the other piece would be on the consumer through the shows.

I think Tim, you mentioned that the tax cut should also help the consumer.

Any hard evidence of that consumer feedback saying, yes, I’m going to have some more money here, that’s why I’m going to go ahead and pull the trigger on buying the boat here?.

Let me take your first question and I will -- throw over item two and three to Tim. But Texas as you know is the largest NTA for ski, wake. It’s about 2x larger than California and Michigan which are close number two and number three. We continue to increase in share in Texas and do really well.

As I mentioned Dallas/Fort Worth is double business in the last 24 months. California we've added dealers, that is going extremely well. Our Northern California long time dealer Norcal, continues to do well. And we’ve mentioned this before, both states we were underpenetrated, under our national average for market share. So we are improving well there.

Michigan, we have the highest market share of any fiberglass boat, so we continue to -- Action Watersports continues to do extremely well. The Northeast is doing good. Southeast is doing good. And one thing that we're very excited about is Action Watersports is now our dealer in the Orlando area.

They purchased the former USA Water Ski Hall of Fame right off by four just west of Disney. They're doing a soft opening. Well they did last month and they will be -- in the next six months they’re doing some construction. But they’re an incredibly efficient and effective retailer, so we are looking forward to capturing market share in Florida.

So, when you talk about Canada, I will remind you two years ago, Tim and I, when the Canadian dollar devalued pretty rapidly, not quite but almost 2 years ago, and at the same time oil prices dropped dramatically, so Western Canada as you know is very commodity driven, very oil-based.

We didn't throw money at it, we took the commitments in our dealers and Canada down 30% to 50% in model year '16. They were very appreciative of it, saved us dollars. But traditionally, Canada had been about 15% of our wholesale volume, U.S had been about 70%, rest of the world about 15%. So during that time in '16, our U.S volume became about low 80%.

Canada dropped down to about 11%, the rest the world was about the 8%. In '17 we started seeing Canada return. And now in model year '18, they are back to their traditional about 15% of our wholesale business. So we're very comfortable with that and we continue to see opportunities for growth, to your point, in Canada.

And that that was a -- we think absolutely the right thing to do. And we've been very, very profitable and seeing our sales not only in wholesale, but at retail improved dramatically in Australia. We are up significantly there. And now we're starting to see Europe finally come back.

So as I mentioned in the prepared remarks, every area of the world is performing really well..

I think on the weakening dollar, certainly it provides a tailwind. But in most cases the dealers kind of have to work through the inventory that was purchased when the dealer was strong -- when the dollar was stronger.

So I think that we’re going to see continued momentum in international markets, not only in Canada, but in Europe and Australia as well. In regards to your comment on shipping, we're not seeing any problems. We have a -- kind of a local supplier that has been able to keep up with our demands and we will just keep a close eye on that.

But we don't have anything right now that we're concerned about affecting shipping.

As to the consumer, I think the data that points to consumers being bullish and driving the retail demand, we're seeing more and more of the slots having consumers names, which means that they’re custom ordering their boat, tends to have a bit more of the bells and whistles on the boat and an indication that consumer sentiment is more bullish.

And so rather than take the boat on the showroom floor, they’re going to go ahead and order -- a custom order one with all the bells and whistles so, because we’re seeing that increasing. I think that's an indication that we're seeing the retail being driven by some of the tax change..

Okay. And then, gentlemen, just to revisit the, I think your prior question was asked on the tax benefit allocation of that bucket. You guys paid down some debt here and -- you’re looking at other M&A opportunities.

Can you kind of maybe just percentage wise bucket that out? I know M&A may or may not happen, so let's say it doesn’t happen, would you let that flow the bottom line, initiate a dividend, would you accelerate debt repayment, further internal acceleration of projects, just look a little bit more expansion on your prior comments?.

I may start on that. Tim, you can finish. But I can tell you we're not contemplating a dividend. We just don't think that's right. We're a growth company, that might happen later on in our life, but we are certainly investing in our product portfolio. We’ve grown the lower end of it. We think there's room for growth beyond what we have today.

I would say that that's, to put in percentages, maybe an additional 25% to 30%. Certainly M&A activity is an opportunity, but we don't know if and when those happen. So I think the largest bucket is certainly debt repayment. And as Tim mentioned, we pay down about $17 million in [indiscernible]. We have additional plans to do that beyond..

Right. And so if we use the disposable cash to pay down debt, all that does is give us additional debt capacity over and above of where it is today. Our leverage at the end of December was about, I think it was a little bit less than 1.5x adjusted EBITDA. So it's a very -- we're very likely levered.

We will continue to delever rapidly as we generate cash and we are going to do that as long as there's not a better opportunity that comes along..

Okay. Thank you, gentlemen..

Thank you, Tim..

Thank you. And our next question comes from Laura Engel with Stonegate Capital. Your line is now open..

Good afternoon.

I wonder if you could give us any feel for the maybe looking longer term, quantify how much improvement you might be able to see with the NauticStar operations and everything you’ve invested and all the changes you’re making? Longer term, what cost was that? When might you see that out of the teens and into the 20s?.

bay boats, center consoles and deck boats. The demand for center console and deck boats is extremely strong, but I don't want to underplay the bay boats. That is about nearly 30% of their volume and they have very strong market share. I think they’re in the 18 to 28 foot category.

They’re a leader -- they’re 1, 3, and 5, in terms of market share in that size range for bay boats, deck boats and center consoles, respectively. So we see a very strong top line continuing for the next couple of years..

Okay, great. Well, my other questions have been answered. Congrats on the quarter and I will get back in the queue. Thank you..

Thank you..

Thank you..

Thank you. And our next question comes from Rommel Dionisio from Aegis. Your line is now open..

Yes, thanks very much.

Terry, I think you touched on to -- regards to Tim's question, but maybe just ask for a little more detail on Europe, that market picking up economically, just curious if either of you guys went to the Düsseldorf show this year a few weeks ago? Any feedback you’re hearing from that? And also can you just remind us where are you from a dealer distribution perspective? In terms of how can you take -- how quickly can you take advantage of that market if and when it comes back? It sounds like it's already picking up.

And if additional investments are required there to sort of booster marketing infrastructure in that market. Thanks..

Well, we’ve signed additional dealers over the last couple of years everywhere in the world, including Europe and Middle East. So we’ve very strong dealers there and we’re continuing to look for opportunities in several places around the Mediterranean. But we feel very comfortable, we feel very well represented in there.

We are just going to continue to add to that growth. The GDP, I think right now for Europe is forecasted in the low to mid 2% range. So that’s certainly positive relative to the last two years.

And our dealers -- I know, Tim, you were over Düsseldorf, maybe you can comment on that?.

Yes, one of the things impressed me about the Düsseldorf show is we had -- consumers from all over Europe and therefore we have dealers from all over Europe represented there on our corporate booth. And there wasn't any particular region that stood out. It was that that overall demand across the continent that was really impressive to me.

And so keep in mind that because we do work for 10-hour shifts a week, that gives us ability to flex up if the demand kind of spikes unexpectedly and of we -- we can drive additional output that way without having to wait to hire the people and get them trained.

And so we’ve got a pretty flexible manufacturing process and that should give us an opportunity to take an advantage of any unexpected short-term demand..

Great. Thanks very much and congrats on the quarter, guys..

Thanks, Rommel..

Thank you..

Thank you. And our next question comes from Dan Charrow with KeyBanc. Your line is now open..

Hey, guys. Thanks for taking my question. Dan Charrow here on for Brett Andress. So it seems like MasterCraft's growth trends kind of outperformed NauticStar, at least in the first half.

Do you guys expect that to continue looking into the back half of your fiscal?.

MasterCraft obviously is a larger company with a far greater dealer network. We have about 150 dealers worldwide with 240 locations and we’re in approximately 40 countries around the world. So we're in the midst of growing NauticStar is just an Eastern U.S company, so that takes a little bit of time. We are well on our path.

But we believe that both companies in unit growth, second half as I mentioned, on a full-year basis still be up about high single to low double digits. And we're not pushing that. I must say that -- I just want to reemphasize that our dealer turns are improving all the time.

I mean, they’ve been good for a while and they just continue to get better and better. We are very much a pull system not a push, and I think Tim you can -- I think you did in your prepared comments say that the promotional activity in Q2 is pretty benign..

Right. I do think that since MasterCraft is a little more mature operationally we are going to be able to take advantage of the demand and probably respond more efficiently than NauticStar. So that may hold them back a little bit. But keep in mind, that both companies are healthy and growing pretty well..

NauticStar is in their evolution where MasterCraft was five years ago. So they're doing facility layout and changes, they’re focusing on EHS, they’re focusing on dealer development. So they’ve got a lot of things going on and they’re well on track to do it.

They’re just a little less mature than MasterCraft, but I -- we’re forecasting very strong second half..

Great. Thanks, guys..

You bet. Thanks, Dan..

Thank you. And I’m not showing any further questions at this time. I’d now like to turn the call back over to President and Chief Executive Officer, Terry McNew for any further remarks..

Thank you, operator. Once again thanks to everyone for joining us this evening. Across the organization, we’re well-positioned for fiscal 2018 and beyond. And we look forward to updating you on our progress in third quarter results in May. Thank you..

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