Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the First Quarter 2022 MasterCraft Boat Holdings, Inc. 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. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker host today, Mr. Tim Oxley, CFO. Please go ahead, sir..

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft’s first quarter performance for fiscal 2022. 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 a review of our operational highlights for the first 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’d like to remind participants that the information contained in this call is current only as of today, November 10, 2021. 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 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 2022 first quarter 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..

consumer experience, digital marketing, operational excellence and human capital development. Let me now briefly review some of the latest developments across our brands.

Our MasterCraft brand, which is now being reported without our Aviara brand, performed exceptionally well during the quarter and grew net sales to a first quarter record of $92 million.

This tremendous result is due to the extraordinary efforts of the MasterCraft team and the continued success of MasterCraft’s best-in-class operating model, which we leverage to mitigate supply chain disruption and increase year-over-year shipments by 22% or 143 units.

We believe this ability to out produce our largest competitors combined with our uncompromising quality standards is key to taking market share today and in the long run.

According to the official SSI market share data, as of the rolling 12-month period ended June 30, 2021, MasterCraft increased market share over each of its closest three competitive brands by between 130 and 220 basis points. This performance solidifies MasterCraft as the number one fastest-growing and highest-margin category in the boating industry.

And while the official rolling 12-month September data is not yet, preliminary data for the quarter ended September 30 reflects further market share gains versus our closest three competitive brands. For model year 2022, MasterCraft unveiled one of the most aggressive model year changes in its history.

The model year changeover included three new boats and a myriad of consumer folks’ performance, styling and convenience features. The new lineup has been incredibly well received by our dealers and consumers alike. We plan to follow-up on that success by launching another all-new MasterCraft model later this month.

Importantly, we will continue to emphasize quality and consumer experience to further differentiate MasterCraft from the competition. Dealer commitments continue to exceed our aggressive expectations, all model year 2022 production slots are sold out.

As you know, in September, we revised our first quarter guidance largely due to the potential to miss shipments at MasterCraft by a significant number of units because of a temporary engine component supply disruption near the end of the quarter. Our revised guidance assumed a shift of units out of the first quarter and into the second quarter.

So it was strictly a timing issue. Fortunately, our operations team and our engine supply partner worked diligently to mitigate the number of units missed in the first quarter.

This better-than-expected shipment timing at MasterCraft, combined with better-than-expected top line results from our other segments, resulted in outperformance of our revised first quarter guidance. However, the inefficiencies created because of this engine component supply disruption had a negative impact on our MasterCraft margins in the quarter.

As supply chain issues abate in the future, we believe our operating excellence will allow us to once again generate best-in-class margins at our MasterCraft brand. Now on to Crest, we’ve continued to execute its operating and strategic priorities by delivering another record-setting performance for the third consecutive quarter.

Crest shipped the most units of any first quarter in the company’s history. Crest also set a record quarter for net sales, which increased by an astounding 82% year-over-year, primarily driven by a 58% increase in units.

Crest’s ability to increase unit volume in this production environment and drive impressive top line growth demonstrates the value of its business and the strength of its operating team, although limited by product availability, Crest’s retail demand is proving durable as consumers continue to be impressed with Crest’s performance, comfort and value.

At Aviara, which is now being reported as a separate segment, we continue to optimize production and ramp up the Merritt Island facility to meet continued strong consumer demand. Aviara’s ramp up was heavily impacted in the first quarter by a surge of the COVID-19 delta variant in Florida, which lasted for most of July and August.

Despite the temporary growing pains associated with starting up a new facility and the impact of COVID-19, net sales were up by more than 55%, driven by a 48% increase in units.

While the increase in overhead due to the new Merritt Island facility will continue to have a dilutive near-term impact on Aviara’s margins and profitability, we believe the excess capacity at the facility will support at least a $100 million annual sales volume over time.

We expect Aviara’s production to steadily increase and margins to improve over the course of the year. Furthermore, the introduction of new models beginning in fiscal 2023 will position the brand for accelerated revenue growth.

Aviara showcased its new flagship model the AV40, at the just completed Fort Lauderdale International Boat Show, and we were very pleased with the sales results. We have begun shipping the first AV40s, which will allow dealers to complete delivery of these remarkable boats to eager consumers.

Aviara’s retail performance continues to exceed our expectations with almost all the units produced since the brand’s inception, having already been sold at retail.

As such, dealer inventory as of the end of the first quarter is very low as Aviara’s unmatched styling and uncompromising quality, continue to impress consumers in the prestigious luxury day boat category.

At NauticStar, supply chain disruption, most notably engine shortages and labor constraints heavily impacted the first quarter production ramp up plans and limited shipments. Although production has been temporarily impeded, we continue to leverage our investment in product development and to introduce new and innovative products for the brand.

NauticStar launched two all new models at the Fort Lauderdale International Boat Show, the 24 legacy and the 24 XS. These two new models combine innovation, reliability and comfort to provide consumers with an exceptional offshore experience at an incredible value.

We believe our turnaround plan continues to progress with initiatives in place to further increase production, continue to improve overall quality and enhance the product offering. We look forward to achieving these results as the business and supply chain environment continue to normalize.

Overall, despite the many challenges, we had a strong start to fiscal 2022. We achieved industry-leading organic growth, and we look to continue to build upon that success during the remainder of the year.

Guided by our consumer centric strategy and facilitated by our best-in-class operating model, recent third-party industry data confirms we have outperformed our top competitors to take meaningful market share.

We remain committed to making investments to further strengthen our competitive position, grow our brands and deliver shareholder value, guided by our long-term focus and strategic priorities. I will now turn the call over to Tim, who will provide more color on our financial results..

Thanks, Fred. Looking at the top line, net sales for the first quarter were a record $144 million, an increase of $40.3 million or 38.8% compared to $103.7 million for the prior year period. This increase was a result of higher wholesale unit volume price increases and favorable model mix.

As Fred mentioned, this was the most profitable first quarter in the company’s history. Gross profit for the quarter increased $3.9 million to $30.1 million compared to $26.2 million for the prior year period, principally driven by higher sales volume, price increases and favorable model mix.

This favorability was partially offset by higher material and labor costs driven by inflationary pressures and production inefficiencies from supply chain disruption. Our gross margin was 20.9% for the quarter, a decrease of 440 basis points compared to the prior year period.

The decrease was primarily attributable to higher material and labor costs and incremental overhead cost from the new Aviara plant. Price increases for model year changeover partially offset these higher costs for the quarter.

As Fred indicated, we expect the combined effect of our model year and mid-cycle price increases to cover the expected cost inflation for the remainder of the year. Although, we see some benefit from the mid-cycle increases during the second quarter, we will begin to realize their full impact at the start of the third quarter.

Operating expenses were $16.1 million for the quarter, an increase of $3.3 million or 25.4% compared to the prior year period. Selling and marketing expense increased due to the timing of prior year expenses being impacted by the COVID-19 pandemic, resulting in lower cost for the first quarter of fiscal 2021.

General and administrative expense increased as we continue to make investments in research and development and information technology areas. However, SG&A as a percentage of net sales was the lowest for a first quarter since becoming a public company as we continue to prudently manage costs. Turning to the bottom line.

Adjusted net income for the first quarter increased to a record $12.8 million or $0.67 per diluted share, computed using the company’s estimated annual effective tax rate of approximately 23%. This compares to an adjusted net income of $10.9 million or $0.58 per diluted share in the prior year period.

Adjusted EBITDA was a record $19.4 million for the first quarter compared to $17 million for the prior year period. Adjusted EBITDA margin was 13.5%, down 290 basis points from 16.3% in the prior year period as leverage on higher sales and SG&A cost management partially offset the gross margin decline. Turning to our balance sheet.

We ended the quarter with nearly $86 million of total liquidity, including $11.6 million of cash and $74 million of availability under our revolving credit facility. Working capital increased nearly $3 million during the quarter.

This was primarily driven by higher inventories due to increased production and increased safety stock to mitigate supply chain disruption. We have also built a backlog of nearly completed boats, which are waiting to last few components necessary to ship the units.

During the quarter, we reduced our outstanding debt by nearly $9 million and ended the quarter with a net leverage of 0.8 times adjusted EBITDA. As we announced in late June, the Board authorized a new $50 million share repurchase program.

Giving the timing of our authorization, our first opportunity to be in the market under the new share repurchase program was September 7, 2021. So we had a limited number of trading days available to us during the quarter. We spent approximately $1.5 million during the quarter to purchase over 58,000 shares of our common stock.

Given our recent performance and unprecedented wholesale visibility we currently have, we believe our stock continues to represent a great value at recent prices.

We continue – we expect to continue to opportunistically return cash to shareholders through the program while continuing to prioritize high-return investments in the business that create meaningful shareholder value. Looking forward, we are raising our guidance for the full year on the strength of our operating performance and wholesale visibility.

Our confidence in the team to execute against our strategic and operating priorities positions us to deliver another record year in net sales and profitability for our shareholders.

For full year fiscal 2022, consolidated net sales growth is expected to be up in the 20% range with adjusted EBITDA margins in the 18% range and adjusted earnings per share growth up in the 25% range year-over-year. This guidance represents another record year and reflects all organic growth.

Driven by growth-oriented projects, we now expect capital expenditures to be in the $25 million range for the full year. For the second quarter of fiscal 2022, consolidated net sales growth is expected to be up in the 30% range, with adjusted EBITDA margins in the 14.5% range and adjusted earnings per share growth up in the 5% range year-over-year.

While our guidance for the year assumes that we see some moderate improvement in the supply chain environment, we do not expect to fully realize the benefit of our unconstrained capacity during fiscal 2022.

We remain laser-focused on mitigating the supply chain headwinds and delivering to shareholders another record year of organic sales growth and margin expansion. I’ll now turn the call back to Fred..

Thanks, Tim. We are pleased bear a record-setting start to fiscal 2022. Despite the incredible levels of disruption faced by the industry, we definitely manage the supply chain to increase production year-over-year at each of our brands. This exceptional execution resulted in industry-leading organic growth and market share gains.

We continue to believe demand from consumers seeking the boating lifestyle will endure and will lead to continued strong 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..

Thank you. And our first question coming from the line of Craig Kennison with Baird. Your line is open..

Hey, good morning. Thanks for taking my questions. I wanted to ask about preorders.

Is there a way for you to frame retail presold units and how that has changed?.

Hey, Craig. Good morning. It’s George. We haven’t disclosed that, but I would tell you that the vast majority of the orders that we have scheduled in our system, which take us through the end of this fiscal year are already have a retail name on it, and we’ve seen that percentage increase since this last quarter.

So we continue to see all of our dealers preselling the units that have been allocated to them. And that’s what gives us that visibility and confidence that the pipeline will remain at historical lows and give us that channel fill opportunity well into what we now believe in the fiscal 2024..

That’s helpful. Thanks, George.

And I guess a related question would be, how are you managing the allocation process to dealers given the tremendous demand and need to ration I guess, allocation?.

Yes, it’s a little bit more art than science for sure, Craig. But obviously, we’re looking at each dealer how much inventory they have what percentage of their orders are retail sold.

Our focus is always going to be on the consumer and making sure that the consumers that are ordering boats ahead of time that they’re going to – we’re trying to do everything we can to make sure that they get their boats in time for the summer season.

So we’re communicating frequently with our dealers, getting that visibility on the retail sold, and we are prioritizing consumer or retail sold boats in the production lineup.

And then the next step would be looking at the market and available inventory and making sure that we’re getting the boats into the right markets that we believe have the highest probability of sell-through..

Thanks. And then is there a way – I think you’d mentioned it won’t be until 2024 until you see inventory normalize. But is there a way to preserve any of this preorder dynamic where I’m sure you capture the best margin and consumers get exactly the right boat in that future state, when inventory is back to normal.

Just curious if there’s any thought around preserving some of this dynamic..

Yes, absolutely. I mean we certainly think that the demand will stay there for at least the next season and beyond. So I think consumers today with some of the model year changes we’ve introduced the new features and innovations. That’s obviously drawing consumers to want to put more features and options on their boats.

We’re seeing that option uptake drive be a positive for our margins. And we think with innovation, we’ll continue to drive that. And the dealers will always stock boats that tend to be a little more balanced from an option uptake.

And so we – with our drive to maintain dealer inventories at a leaner level, we think that will necessitate a higher percentage of custom orders, which we believe is a healthier balance, both for us and the dealer and should help preserve some of that margin benefit that we’re seeing..

Craig, this is….

Also how, Craig, that there’s some muscle memory from what consumers are experiencing today which is, of course, a shift from the way they behaved historically. So they may be more comfortable ordering ahead for the next season..

Hey Craig, this is Tim. I would add that we’ve invested in digital marketing to facilitate that activity from the consumers. So we want to make it as easy as we can for them to see the assets on websites and so forth.

And to Fred’s point, continue that muscle memory and be comfortable in ordering their boats, because we’re answering all their questions on the website..

Good stuff. Well, thanks so much..

Thank you..

And our next question coming from the line of Joe Altobello with Raymond James. Your line is open..

Hey guys, this is Adam on for Joe. Congrats on the strong quarter. I wanted to follow-up, you guys gave some good color on the price increases on the new model year and then also the planned mid-years. Is there any way you can quantify some of that further just in terms of some more detail on it, that would be really helpful..

Hey Adam, it’s George. So we don’t typically disclose our price increases. But what I would tell you is that we have price increases. We do our traditional price increase in July with the start of our model year across all the brands.

What we saw was inflation came in higher than our expectations, which necessitated a mid-year price increase, which for most of our brands went into effect at some point in this fiscal second quarter.

We are, however, price protecting certain retail customer boats, because we don’t want to change the game on some of the consumers that ordered well ahead of time. So to I think in Tim’s remarks, he commented that we expect to see the full benefit of those mid-year price increases really starting in the third quarter.

We’ll see some of that benefit in the second quarter. But because we are shipping such a high percentage of retail sold boats. Some of the – a high percentage of those are going to be price protected. So that’s really what we’re open to sharing right now, Adam..

I would just add, Adam, to give you a context, the mid-year price increases are substantially greater than the model year price increases..

Got you. That’s very helpful. And if I could ask 1 more. You guys basically reiterated the 2,500 boat kind of shortage there in terms of the dealer levels and kind of discuss the fiscal 2024, as you guys have discussed.

Is there any expectation of when we can start chipping away at that? I know it’s a very difficult and dynamic question, but just curious how you guys were thinking about it in the near-term at the very least..

Well, we’re trying to build inventory during the, if you will, off season, right, going into the next summer selling season. So to the extent, we can build – our ability to build inventory is going to be highly contingent upon how the supply chain behaves. We’ve built inventory.

We’ve got substantial flexibility in terms of pushing through units that are partially finished, and we have a business plan at this point constrained by the supply chain. If there’s a little upside there, that’s going to allow us to accelerate that.

But next summer, I think we’ll put our dealers in decent shape, but we won’t – by the end of the summer, I expect we’re going to have sold through most of what we replenished..

Great. Thanks, Fred..

You’re welcome..

And I’m showing no further questions at this time. Ladies and gentlemen, that does conclude the conference for today. We thank you for your participation. You may now disconnect. Everyone, have a great day..