Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Mastercraft owed Holdings incorporated Q2 2020 earnings conference call. At this time, all participants' lines are in listen only mode.
After the speakers presentation, there will be a question and answer sorry.
Lots of questions session, you'll need to press star one on your telephone please be advised that todays conference is being recorded.
Have you require any further systems. Please press star zero.
I'd now like to hand, the call every speaker today Mr., Tim Oxley Chief Financial Officer. Thank you. Please go ahead Sir.
Good morning, everyone. Thank you for joining us for Mastercraft boat Holdings second quarter fiscal 2020 earnings call.
Today's call is being webcast live and will also be archived on our website for future listening.
Joining me today are afraid bright don't match for a boat Holdings, Chief Executive Officer, and Board Chair as well as George Steinberger, Our Vice President strategy and business development.
Start todays call with a brief summary of second quarter financial and operational results as well as commentary on our outlook for the rest of year.
Following that review Fred we use the remainder of the call to discuss the rollout of a new strategic plan to drive long term sustainable growth at Mastercraft.
We'll then open up the called <unk>.
Before we begin we'd like to remind participants that the information could pay in this call. This current only as of today February 520 20.
The company assumes no obligation to update any state.
Including forward looking statements statements that are not historical facts are forward looking statements and subject to safe Harbor disclaimer today's press release I.
Additionally, on this conference call, we will discuss non-GAAP measures the include or exclude special items not indicative of our ongoing operations reach non-GAAP measure. We also provide the most directly comparable GAAP measure and our fiscal 2022nd quarter earnings release, which includes a reconciliation of these non-GAAP measures to work out.
Results.
I would also like to remind listeners that there's a slide deck summarizing our financial and operational results for the quarter as well as our new strategic objectives and Investor section of our website with that I'll turn the call over Fred.
Thank you, Tim and good morning, everyone.
What I introduced myself to you on last quarter's call was in the capacity of interim Chief Executive Officer.
As you know on December 3rd I was named permanent CEO I'd like to begin by saying it is a privileged to have the opportunity believed mastercraft accompany that I've had the pleasure working with the last 10 years first is the board of director since 2000, My and then as chairman since 2015.
Well im quite familiar with the specifics of Mastercraft business strategy and operations I also have brought industry experience from prior leadership positions that other companies, both within and outside the marine space.
When I began my tenure as CEO two months ago. When my first priority as was the listen to and to learn from our key constituents over the past several months I've had the pleasure speaking with several of our customers dealers employees business partners and investors to hear directly from them about their perspectives on mastercraft strength in future opportunity.
I'm encouraged by the valuable insights I received which confirmed that mastercraft is well positioned within the industry, specifically, we have focused on driving sustainable profitable growth.
Our commitment to innovation quality and the development of products that provide a truly unique customer experience and a relentless focus on operational excellence and possibly our greatest asset the know how and dedication of our talented employees.
At the same time. These conversations also revealed that while we have many course shrinks we have a significant opportunity ahead.
To strengthen our competitive position and deliver an even greater value proposition for our customers dealer partners and shareholders.
This feedback was combined with complete devaluation of the business, including operations marketing product development in innovation dealer network knowledge of the customer competitive positioning in human capital.
Based on this work we've developed a new four pillars strategic framework for Mastercraft that we believe will accelerate our growth unlocked significant value for the company and all our stakeholders.
In addition, we believe we can execute this plan with minimal incremental cost to the company.
Before getting into more detail on our plan and long term vision I want to touch briefly on our second quarter performance.
Our results for the quarter were slightly ahead of our expectations.
And we continued positive momentum on several fronts, including execution of operational excellence initiatives across our brand portfolio.
The management of our channel inventory and progress on our product development roadmap.
While the second quarters, the slowest retail quarter. The year, we were able to continue to rightsize inventory levels across our brands. We continue to reduce wholesale production growth starts segments and strategically offer rebates in areas where inventories remained elevated.
This naturally had a corresponding impact on our net sales for the quarter.
But this has been and will remain a key priority as we strive to optimize field inventory levels and position us for renewed growth in fiscal year 2021.
The retail demand environment remains encouraging.
As a momentum we experienced in Q1 continued into Q2, the continued momentum in retail demand, albeit at the slowest retail quarter of our fiscal year further validates that the weakness in the industry experienced last summer was weather driven and not a result of slowing consumer demand.
In the quarter GDP grew at modest rates and underlying fundamentals will be economy generally remained solid in our view.
Consumer confidence continues to improve as de escalation in trade war likely Boyd optimism.
Just as important dealer sentiment increased sequentially in the quarter positive territory. Both on current conditions and there are three to five your outlook.
With interest rates forecast remains stable for the foreseeable future. We believe the macroeconomic backdrop remains constructive to consumers continuing to buy new boats heading into the heavy summer selling season.
Let me now briefly review some of the latest developments across our brands.
And our mass craft brands. Despite a pullback in wholesale production. We saw continued strong acceptance of our new model introductions, including the newly redesigned X 26, and NXT models. The NXT 20 NXT 22.
Combined with consumer's appetite for the latest features and innovations driving option take rates higher improved product mix led to increased wholesale ask piece for the quarter, excluding the benefit of Bobby our brand.
We will continue to prioritize product development and innovation.
We also have several initiatives to leverage our industry, leading product development and engineering resources, not only get mastercraft, but across our portfolio brands.
Progressed, we saw continued progress on our integration with meaningful improvements in inventory management and networking capital efficiencies. We are laser focused on bringing down dealer inventory levels and expect to see our biggest reductions materialize over the next two quarters as boat shows in the heavy selling season account for the majority of pontoon retail.
Sales.
And Nordic started we continue to focus on operating improvement initiatives.
Leveraging the support of our experience Mastercraft operating team. We were also able to implement organizational and cultural changes. It Nordic start that we expect will further enhance our performance down the line.
Well the salt water fishing segment has experienced some near term headwinds we firmly believe in the long term growth potential other segment as well as the Nordic Star brand.
And lastly, we continue to be very pleased with performance of Bobby our which has been part of the mastercraft portfolio for two quarters.
As you know, we launched the AB 32, and the AB 36 over the last 12 months and both have been extremely well received by both consumers and marine Max alike.
We look forward to debuting the flagship model. The AB 40 next week at the Miami boat show and having the full abhi or a line up available to consumers later this year.
The integration of the I'll be our product line into our Mastercraft facility continues to progress as anticipated and we remain on track to achieve full production run rates across all three models in fiscal 2021.
Boat shows of course are important in helping us gauge the demand environment as we move into the main retail buying season.
Over the past few weeks, we participated in several shows and while it's still early in the season, we've been pleased with the solid order traffic, we're seeing across our brands. We expect this favorable trend to continue into the heavy selling season I look forward to providing a more complete overview of our observations on our third quarter call.
I will now turn the call back over to Tim who will provide more color on our financial results. Following Jim's review I will come back to discuss our strategy views on future growth opportunities Tim. Thanks, Fred looking at the top line net sales for the quarter were 99.6 million compared to 121.5 million for the year.
Go second quarter, but in line with their expectations heading into the quarter equally important we remain on track to meet our previously issued guidance for fiscal 2020.
And our Mascus segment net sales were 67.8 million compared to 76.4 million in the prior year period.
Primarily due to lower unit sales volume as we work to right size, our dealer inventory level after the weather impact itself summer selling season.
This decline was partially offset by sellers ever I'll be or brand, which began in Q1 of this fiscal year.
As well as favorable model mix that are Mastercraft brand as mentioned in breads previous remarks.
It's important to note that our Mastercraft segment was impacted less than expected from the GM strike as you may recall in our last earnings call. We shared that we anticipated having to shift several production days out other second quarter and into the second half of fiscal 2020.
During the course of the quarter. Our supplier you will more marine was able to bring production back online faster than anticipated and as a result, we were able to pull that production days. We had originally anticipated was that from the second quarter into future quarters.
It's purely a timing impact between the second quarter and the second half of the year for the rest of the year. We expect our production to continue in normal course without any shifts related to the strike.
And are not Xcar segment net sales were 15.6 million compared to 19.2 million in the prior year period, primarily due to lower unit sales volumes, we continue to carefully manage our dealer pipeline as result of the weather impacted selling season and softness in the overall salt water category.
This decline in net sales was partially offset by greater mix that larger product with wholesale a piece and not start up more than 15% year over year.
In the credit segment net sales were 16.3 million compared to 25.9 million in the prior year period, primarily due to lower unit sales volume as we work to improve our dealer inventory after the weather impacted summer selling season.
On a consolidated basis gross profit decreased 6 million to 21.1 million.
Fair to 27.1 million for the prior year period. The decrease was primarily driven by the reduction wholesale unit volume across all our brands.
Operating expenses were 10.8 million down 1.5 million or 12.5%.
Compared to 11.4 million from the prior year period.
Operating expenses as a percentage of sales increased slightly by 60 basis points, 8.9% for the second quarter.
Compared to 8.3% for the prior year period. This decrease in operating expenses is largely due to reduction in transaction expenses attributable to the crest acquisition in fiscal 2019, and a reduction of compensation expenses.
Turning to the bottom line adjusted net income for the second quarter was 9.1 million for 48 cents per share down six cents per share or 11.1% for in the prior year period.
Using a fully diluted weighted average share count of 19 million shares computed using the company's estimated annual effective tax rate of approximately 23%.
From 22.5% in the prior year period.
Adjusted EBITDA was 13.6 million for the second quarter compared to 18.6 million in the prior year period.
Adjusted EBITDA margin was 13.6% down from 15.3% in the prior year period.
This decrease is primarily due to lower operating leverage on lower unit sales volumes.
As we look forward the rest of 2020, we continue to maintain a conservative outlook.
They were encouraged by the improved industry retail trends and the progress we are seeing across our brands visibility will remain limited until we are further into the selling season longer term, we're confident in the strength for brands and believed that the new strategy. We are implementing will unlock opportunities to drive profitable growth and increased value creating.
Sure.
Hi, there as a result, we're maintaining our previously issued guidance for fiscal 2020, we continue to expect mix sales down in a low single digit percent range.
Adjusted EBITDA margin down in that 5200 basis point range.
Adjusted earnings per share down into high single digit percent range.
We remain focused on what we can't control and we'll continue to work, we're delivering our financial targets I will now turn the call back to spread who will speak about his new strategic priorities for Mastercraft and touch on the longer term outlook for the company Fred back to you.
Thanks, Tim as I noted at the beginning of the call I'm encouraged by the positive sentiment that we've achieved an underlying strengths of the business.
The goal of our recent business review was to make sure. We're aware of all the challenges and opportunities ahead of the company and to ensure that we are well positioned to maximize master kras long term value potential.
Given our portfolio of leading brands and network of strong customer and dealer relationships. It's clear that the company has a strong foundation to build upon.
Coming out of our review process, we have developed a new value enhancing strategy centered on four key pillars that ultimately are designed for one overarching objective to drive sustainable accelerated growth.
First we are focusing on providing our customers with the best end to end experience. This means getting closer to our customers to better understand what they expect from our brands and how we can work with dealers to meet those expectations and improve upon the customers lifelong journey.
It is also it also means that we're using what we've learned from customers earlier in our product development process to deliver on their needs.
Second we're activating a customer driven marketing strategy across our organization to increase customer awareness create a community of interest expand our target market improve lead generation and ultimately drive sales and market share gains.
Third we are accelerating our operational excellence program across all our manufacturing facilities to drive improvements in efficiency and enhanced quality in the spirit of continuous improvement.
And fourth we are adopting a high performance organization framework.
Strong leadership strategically align purpose information sharing open dialogue and collaboration or the hallmarks of our approach, which will also enhance our ability to attract develop and retain a highly skilled and specialized workforce.
Over the long term, we believe these areas of focus will enable mastercraft to drive long term sustainable growth and increase our share of the boating market.
And as I noted earlier, we plan to do all this with minimal incremental cost of the company.
With that I would like to walk you through more specifics on our plant and why we believe executing on these strategic objectives will enhance our long term growth potential.
First is the reorientation of our business to a customer in perspective Mastercraft is not just a boat manufacturer, we're helping families friends and loved ones share experiences together, we're committed to improving how they interact with quality and performance of our products.
This starts with emphasizing our understanding of the customer and our product innovation and development process.
As part of getting closer to the customer. We've also taken steps to strengthen our relationships with our dealers to improve their understanding of the competitive advantages of our product and to communicate these differences to customers.
We view our dealers is true partners, we want to empower them to take on a more consultative approach, which we believe will ultimately drive sales.
We recently hosted a series of training workshops for over 200 dealer sales associates to enhance this level of comparative detail and give them the skills to improve their ability to demonstrate our products.
We believe this commitment to improving the whole customer lifecycle will be an industry differentiator for mastercraft.
Second we're activating a customer driven marketing strategy across our organization that leverages. The latest digital techniques and technologies. We believe there's an opportunity to engage with with potential customers on a more intimate level as well as our dealers to better market mastercraft portfolio of high quality and diverse brands across the entire.
Life cycle of the customer journey.
We will look to leverage data and other resources across the portfolio to maximize our customer intelligence enhancing the lines of communication across our product development departments.
We're also in the process of revamping our customer facing web site at our master craft brands, including the development of new online tools to help guide customers through the purchasing process.
A new and improved design a boat interface will simplify the way that customers can review and package various options to help them build the both that's right for them.
We expect the launched a new website later this year.
Third we are emphasizing our core operational excellence across all our brands to drive efficiency improvements and still a culture of continuous improvement.
We believe investing in our operational capabilities and leveraging resources expertise and know how across our brands will provide an even greater competitive advantage for the entire company drive improvements and efficiencies at crest and Nordic Star in particular.
As I alluded to earlier as part of this effort, we've begun centralizing portions of our product development and engineering function, which will allow us to leverage product development expertise across our entire portfolio brands.
We believe this will help accelerate our product innovation cycles, and ensure we are consistently producing high quality products faster, but importantly, doing so while maintaining the integrity and unique aspects of each brand.
The benefits will begin to be realized over the next model year as we finalize the internal reorganization process and deploy our industry, leading product development processes more broadly throughout the organization.
Additionally, we have recently completed a program to replace older tooling and audit star in particular for high volume models.
The program is expected to have a material impact on the quality productivity and efficiency of the manufacturing process. While we are beginning to see the benefits and this investment in our operations. We believe we will see an even greater impact.
During the next year.
We also completed a full review of our quality system and our master craft brands, while quality has always been a key tenant of Mastercraft. We believe that there are opportunities to enhance our production process and further instill a culture of continuous improvement.
Overtime, we believe these enhancements in our quality system will improve our customers time on the water, while reducing our warranty expense.
Lastly, we are adopting a high performance work organization framework.
We know that the secret to winning in this industry comes down the people.
That mastercraft, we're fortunate to have a team of more than 1100 incredibly talented employees throughout the organization.
That said, we see the opportunity to develop a culture that leads to improved sustainable performance by being flexible customer focused unable to work highly effectively and teams.
We think there's much more to be gained from breaking down internal barriers and becoming a more inclusive collaborative work culture, where everyone feels empowered to do their best work and maintain a true sense of ownership.
With our new strategic initiatives in place, we believe mastercraft will be more competitive with significant opportunities to drive growth and capture share.
In the recreational boating market.
However, as you can appreciate strategy like this takes time to implement.
While we are seeing some early indicators of success, we ultimately do not expect them to impact our fiscal 2020 performance. We do however expect that these initiatives will begin to have a more meaningful impact as we entered fiscal 2021, we're confident in our strategic direction and growth potential over the long term and look for.
Our to keeping you updated on our progress with that I would like to hand, the call back to the operator to begin the kuni.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound Ji. Please standby, while we've compiled the Q and a roster.
Our first question comes from Brett Andrus with Keybanc capital markets. Your line is now open.
Hey, good morning.
Good morning.
Fred if you could elaborate on the strategic growth plan really to improve customer experience and brand awareness, maybe just frame up I guess, what were you not doing before and why that now seems like an opportunity is it really is simple is.
Holding dealer workshops, and new website I'm just anything you can give more detail on there would be helpful.
Well, that's an example of one of the tools one of the arrows. If you will in our quiver, but the real essence of it is is to understand and intimate detail everything there is to know about the customer and the potential customer and then to utilize that throughout all our processes in the past, we probably spent less time.
Focusing on that detail probably were generalized what the customer look like and what the attributes work and as we understand that and very infinite detail.
It's going to lead to significant differentiation in our target both of customer attributes as well as our marketing.
Got it and then if you could just talk about the industry trends that you're seeing in salt water, however that larger units being received.
The larger not exceed our units being received at the boat shows in the retail and then have there been any changes on the smaller units side of that industry.
Let me comment our.
32 is been very well received the demand has been excellent. So we're seeing healthy demand on the large side.
And we also are upgrading the portfolio throughout so we're not a banding in any way shape or form the smaller boats.
We think not it started needs to continue to have the breadth of portfolio that it has covered the size ranges that it does.
With regard to demand.
Probably a little bit stronger on the larger side overall is my sense.
But once again I think the headwinds that we're seeing there are near term.
Theres nothing demographically are structurally that we see that causes us to believed that the saltwater fish market is not going to be healthy people are still migrating to the coastal areas in the south and we expect that to continue so I think the overall long term trends still looked very good great I'd like to also add did I think that consumer typically is a payment buyer.
And the increases in consumer interest rates I think we're a headwind and now that interest rates are stabilizing. We're we're hopeful that that consumers could be could be back on the market.
We're not only to smaller and audit stars, but I think that impact impacts the smaller up pontoon sales as well.
That's helpful. Thank you.
In the last one if you could just help me with the trajectory of the average selling prices really throughout the brand is it fair to assume that the recent run rate and Mastercraft and obviously and also not exceed our sustainable for the next few quarters, but some of the mix benefits that you have.
Yeah, when you say run rates, you mean, Sps the consistent at the levels.
Correct, yes.
My short answer is yes, and the other gentlemen may choose to embellish my comment but.
We're going to continue to mix up on of Euro.
And then we're going to continue also to work across the whole whole portfolio. So I see increased sales at both ends of the spectrum don't expect any significant changes in the Sps, which again.
Had been you know the movement is larger than due to apcom contenting by customers yet traditionally in the second half for fiscal year, there are more custom order boats.
Next I assume are typically orders more of the options on the boats and so seasonally weak we typically see a bit more.
A bit more growth in the option take rates in the second half for fiscal year. So, yes, I agree that the trends you're seeing should be sustainable.
Okay. Thank you.
Thank you. Our next question comes from Michael source with Suntrust Robinson Humphrey Your line is now.
Hi, guys good morning.
I know you don't want to get into breaking out the yard.
The benefit from that quarter to quarter and it sounds like even without obviously mastercraft asps would've been up but is there any color you can provide as or just give us a sense of how I guess impactful that business has been the last few quarters, and maybe where you see that going over the next 12 18 months.
Well.
Let me, let me start by saying once again.
We expect up year to deliver between 10 and $15 million worth revenue. This year. We're on that track we continue to ramp up we feel that obviously next year at full run rates, we're going to see a dramatic increase in the overall sales for the year, but we're right on our plan this year and.
Matt Marine Max is able to sell all boats, we were able to produce.
Yeah, Mike just okay.
I would just add we we were basically if you think about the first half of the year, we were really just selling the 32.
And so we just started shipping that 36, a late in the in our in our second quarter, so you're going to see more than half of the volume.
For for what we expect for the full year. It obviously hit in the second half of the year just to give you some direction.
And that'll that'll ramp up obviously in Q3, and then it'll ramp up even more in Q4 as we start shipping the 40, which we'll be launching at Miami next week.
Okay. That's very helpful. Thanks, George.
The the other question I had is just on the implied guidance. So if you look at the back half the year I think you're implying kind of low single digit revenue declined, but a flattish EBITDA dollars I think thats generally the the way it works out to JV help us understand you know with with the declining topline in the back.
After the year, how you maintain margin is it is it some of the operational initiatives and benefits coming through from that or is it year over year comparisons I'm trying to to better understand that.
Mike This is Tim as we just alluded to the ramp up and they are the era.
We will significantly impact the second half.
More so in Q4 than in Q3 so.
We have a backend loaded plan, if you will driven by that as well as our.
Initiatives to drive the dealers' inventory lower so we continue to adjust production so that that dealers' inventory is healthy.
And we're making good progress in that area.
Great and then its final one for me is just on in Canada.
The Theres a lot of talk and I guess I'm consternation around this luxury tax that might be going.
Into effect on on product above $100000, a just any any color any sense of how your dealers are thinking about that and maybe how they've adjusted their order patterns.
Going into that.
Right and I were in front of boat show and.
The the dealers were.
Concerned, but in some cases are used in as the closing tool.
Don't don't wait to buy your boat.
Because luxury tax might be coming.
And I don't think it's a done deal that luxury tax will be implemented but certainly it's an area of concern in the short run I think it are probably.
Boost sales as opposed to enter sales but.
From what we experienced in US, we certainly don't would rather not see luxury tax implemented in Canada.
I think there was a general sentiment that.
They'll come to their senses and there'll be some significant modification before implementation.
Okay. Thanks, a lot.
Thank you. Our next question comes from Joe Altobello with Raymond James Your line is now open.
Great. Thanks, guys good morning.
Turning to I guess first question on dealer inventory levels.
You got to set in the past pretty consistently that it probably takes the entire fiscal year to reset channel inventories, although it sounds like you've made a fan out of progress.
Full year to date, so is that still the expectation or could we see wholesale and retail up more in line by this spring, let's say.
Yeah, we have made good progress Joe and.
Because the.
Primarily primary retail selling season is in Q4, it'll probably take Q4 before all of its flushed through but we're making good progress and we are applying a retail rebates and judicious Maynard looking for pockets of heavy inventory.
Certainly applying those to noncurrent inventory. So we feel good about the progress we've made but I think it'll probably take the entire fiscal year before that's completely.
Flush through.
Yeah, Joe and as we've always said I mean, our goal here is to be in a position for renewed growth in 21. So we're comfortable with that approach and feel comfortable with the guidance that we've given and and really as we did sets us up really well for us for renewed growth starting next fiscal year.
Got it thanks, George and that just secondly on the promo environment.
Gross margins were down obviously, but it sounds like that was all volume related given the ASV improvement you got to talk about this morning doesn't seem like we're seeing a lot of heavy promotional dollars out there maybe give us an update on.
Where that stands are you seeing an easing of promotional environment does it get into the boat show season.
I don't see an easing I see the continual competitive environment that exists in the industry. You know, we're not the only ones with selective in incentives.
Our competitors are doing.
Similar programs. So you know I view it as business as usual you know this is part and parcel of a way the industry operates nothing out of the ordinary nothing netseer rational.
But once again.
Everyone competing select doing what they need to do to make sure there they're moving the product they need to move.
Yes.
Just to add you know because of the way the accounting works, we accrue for any incentives we expect to spend on.
Product thats in that field inventory, so our spending is up year over year, we properly accrued for that at June thirtyth. So.
We are.
Fairly aggressive and moving that inventory.
You don't see that much movement.
Until the retail quarters.
The quarters, where retail is more predominant.
Got it okay. Thank you guys.
Thank you and our next question comes from Eric Wold with B. Riley Your line is no.
Thank you good morning.
All in cash than in previous topics I guess, one on the on the inventory levels.
In channel I guess.
Maybe just frame just how much of any considerations.
During the three brands out there you where you made the most progress where you made the lease progress I mean, you're going to look too.
Okay push through the model 19, while still kind of emphasizing model 20, how do you kind of.
Okay level set that and kind of maybe not.
When he got to go by the wayside he's going to push that.
Balance that demands.
Well I would just say that.
We're in the best shape at Mastercraft Antarctic Star and probably the biggest challenges.
Existed crest, but once again.
You know given their ramp up in the selling season. It's on we still feel good about our ability to have inventory, where we wanted the end of the year.
My model 2020 wholesale sales were obviously restricted as a result, what we're doing a bounce up inventory.
Okay, and then I'll be our.
And you're going to give any guidance and junior sales beyond the tenant in million.
Provided for this year, so maybe can I am looking.
Sales guide.
There is into the magnitude of production ramp you can see over the next 12 to 18 months, what's the current.
Unit production capacity.
What did that get too.
This year and is that just becoming more efficient with its action process is that based on incoming order flow as you've won 36 to 40, you're going what drives that ramp.
To to be increase you can see index on each month.
Yeah, I'm, probably not going to give you every.
Detail that you're looking for but let me characterize it again.
As 10 to 15 million for this year as George indicated earlier.
Heavily weighted towards the end of the year as we continue to ramp think of the rollout of those models again beginning of the year, primarily selling 30 twos and then we have the 36 and then at the end of the year, we have 40 so.
As we roll into next year and will provide a better insight into what we expect those volumes to be as we give guidance for next year.
It's going to be a very significant increase as all of those are fully running.
At full rates.
I'd like to add you know mask.
I mean, Max is the perfect partner for this brand and they're excited about the sales we've generated so far theyve indicated they can sell all we can produce and we love to hear that and we're going to continue to to work on meeting that demand, but we're not going to ramp up and sacrifice quality in any way. So we.
We will produce less this year really then I think threemacs would like.
Long run we're very bullish on on this brand in what once again.
Just to can't overemphasize, how important the quality of that product is to us and how careful we're being and making sure. We're delivering that so if it takes a little extra time and the ramp up us so be it we were not going to push units out the door in any way sacrifice quality.
Okay, just to follow it sounds like it sounds like even though you're consolidating.
You Mastercraft when you gave guidance next year, you still won't call out I'll be ours seemed to be bad bank correct.
Yes.
Eric This is George will likely give you guys. Some direction of of the of the magnitude or the impact that obviously will have on the Mastercraft segment were still working through exactly how we'll do that but we recognize.
Some directional.
Guidance on that is appropriate and what we will look to provide that yes.
Okay. Thanks, Thanks, guys.
Thank you as a reminder, ladies and gentlemen that Star then one to ask a question.
Our next question comes from Craig Kennison Baird. Your line is now open.
Hey, good morning, Thank you for taking my questions.
A question on the design he boat initiative that you had mentioned.
I imagine there's a lot that goes in on the front end to make sure consumers can interact in the right way, but I imagine it's even more complex on the back end. So what has to happen from a supply chain or operations perspective for you to support kind of these design a vote initiatives.
We've had to design a boat out there for several years, we're enhancing that interface with the consumer.
That's one reason we have at the appropriate lead time for all of our boats.
And that way, we that allows us to to make both manage our inventory in the factory as well as maintain quality. So we expect nothing different there and the consumers love to coal or their own boat design pick out through our own options and once that orders placed from the D. Oar again, we have the proper lead time.
And to make sure we have the inventory.
Just to clarify.
Greg the interface with the operating side of the business exist today and will exist tomorrow. So those orders flow right into our our ERP in manufacturing systems.
So maybe just add a little color whats the timeline between when a consumer makes those choices and a boat would be delivered with the window of time required it's going to depend on the model and when the deal or is able to fill that slot.
There may be models, where we're we're virtually sold out for the year, but most of the dealers will have some slots that they haven't.
Picked out the specs on the boat so that they'll sell the consumer that slot and so it's going to depend on the model depend on when the next slot as available so.
It's one reason that we encourage consumers to order their boats early as to make sure. They have it for the all important to start of the boating season.
Is this just a mastercraft initiative or do you have this capability for all of your brands.
We've actually rolled out a new website and not fixed are and so.
Some of the internals or going to be shared across the businesses. So.
Actually mass craft is.
As the second step and.
Ultimately will have across all our brands, yes, but cracked to be clear all three of our brand today. If you go to the web site there as they design about feature and.
Kras and not have stars had been recently updated and Mastercraft as the is the next on the less.
Thank you and then.
Just on your dealer base at George I guess as Youve kind of introduce yourself to many of your key dealers, where do you think there are opportunities to enhance kind of dealer satisfaction with with your brands in really grow those relationships.
Well I think as Fred alluded to in his prepared remarks, I think theres, a tremendous opportunity across all the brands with our dealers to improve the.
The communication that we have with our dealers and helping them understand the unique value propositions of each of our brands and who the right consumer is and how to effectively market to those consumers. So we're looking to provide those tools to our dealers.
And they've been very receptive and pleased with some of the things that we've started to bring to the table around those items.
Certainly we value the relationships that we have with with our dealers then I think it's incumbent upon us to add to continue to improve those relationships and help the dealers that require it we've got a lot of really strong dealers, but there is always dealers that we can we can provide more help to to help that market and sell the votes that we that we sell them. So that's our folks.
Yes is it not only focusing on the customer internally, but helping our dealer take that approach as well and the more we can do from the OEM side to provide then the tools to do that that's that's that's effectively what we're looking to do with this new strategy and and internal perspective that we're taking.
And I would say another big element is the lead generation I mean make no mistake that in addition to all the blocking and tackling you know the sales process you know the delivery process. The service process, you know for which dealers are such an important partner.
We're going to accelerate the rate at which we provide them quality leads.
That's great. Thank you for that and then finally Fred maybe.
Tim either either of you just comment on capital allocation strategy and.
New leadership has there been any change in the philosophy around.
Where you put your capital to use.
There's no change in our philosophy.
We are using.
Any excess cash flow to pay down debt through the remainder of this fiscal year. We continue to discuss capital allocation every board meeting and we'll do so at the upcoming one no exception.
I expect as we pay down debt will continue to evaluate all the alternatives available.
But at this point in time through the remainder of year.
We're sticking with our strategy of paying down debt once again from the standpoint of trying to build the strongest balance sheet.
That we can and maintain the maximum financial flexibility for all the alternatives it may exist strategically.
So the debt reduction makes sense to me as well I'm curious when you think you'll hit that point, where your dad is at a point.
Such that you could support a a buyback of some kind with your sachwerte that today.
Well.
At the end of the year, you know we will pay it down.
Into a range.
That that we think certainly so could support that once again, we will evaluate all the alternatives at that point.
You know we could do it today, if we needed to.
We have the flexibility we just think the most prudent course is to pay down that debt and have as much flexibility as possible.
We don't see a downturn on the horizon.
But if there was one.
There's no substitute for for cash and a strong balance sheet.
Great. Thank you.
Okay.
Thank you and our next question comes from Tim Conder with Wells Fargo. Your line is now.
Hey, good morning. This is actually more currency aren't there tend just a few questions.
Any sense on how your inventory is relative to competition in each of your segments and any promotional implications there and then any other color on inventory position and I guess retail outlook in your key international markets.
Well, let me, let me start with just to comment on the inventory versus the comp.
I think is generally the same condition around the industry. There is targeted incentive programs I know from the boat shows an older models from our main competitors. So have you know they're doing a no matter whats articulated we see the same kind of action in the marketplace.
That we're taking so nothing unusual but once again, an emphasis on trying to make sure that older inventory is moved.
Regarding.
And I'm sorry.
Yes, I just like to add when when you it's obvious from our financial so we've reduced wholesale significantly so.
That means the percentage of non current it's going to be higher because there are fewer currents out there and Thats reason, we're spending our retail rebate dollars to help dealers.
Get rid of that Noncurrent inventory, so thats, a big emphasis as it has been throughout this fiscal year.
Okay, and then any commentary on the inventory position, England outlook for international.
On the international side, obviously, Australia has been impacted.
By the natural disaster, that's occurred over there from not only to the fires, but the drought that preceded the fires, but that's not that a significant part of our business.
Canada is holding its own right now on the raw a little bit nervous about the possible luxury tax I look at Europe.
It is flattish and we're very pleased with that since the retaliatory tariffs on the European product remains so.
The international business is important to us we're going to continue supporter international dealers.
You know with you know judicious rebates and other things to help them stay healthy.
Okay, and then friend or last week. Thank you for isn't just some color on your outlook.
The company I Wonder if you get a sense at your.
M&A going forward and would you consider any strategic shifts in the current portfolio.
No we're committed to these brands, having said that.
We think that the addition of Ivy era is the last major category of fast growing segments that we wanted to participate in so our focus is going to be very much on maximizing the performance of the businesses. We have in the segments were participating in.
For the foreseeable future.
There may be a point in time down the road, we feel differently, but at this point in time, that's our focus and we see tremendous opportunity within that.
Okay. Thank you.
Welcome.
Thank you and our next question comes from Brett Andrus with Keybanc capital markets. Your line is now.
Hey, thanks for the follow up.
I know, it's still early but is there any way to put a finer point on what you're seeing at the boat shows so far just anyway to quantify maybe the sales increases or the traffic increases that you're saying.
You know traffic is more mixed I mean.
The end of May reports that are out there show some slide and traffic, but our results in terms of sales are very solid and.
That leads us to you know feel cautiously optimistic but again.
You know we track for a couple of weeks after a show.
So we only have a small portion of shows actually having completed that period to get a full reporting and year to year comparison, but what we see so far looks good.
There is it as you will know every show is different theres individual challenges you know Houston had a playoff game. The first weekend that cancel the Saturday the show and another playoff game the second weekend that wasn't at home, but nonetheless.
Affected traffic so.
You know whether in hit Toronto, when we were up there a blizzard hit the first Saturday the show Detroit also so yes.
All of those things take place, but when we boil it down the essence of what we're seeing leads us to feel good that the consumers back that's consumer is still going to be active.
And we're seeing very close to it.
Thank you.
Thank you.
Our next question comes from Michael Swartz with Suntrust Robinson Humphrey Your line is Nelson.
Hey, guys just okay. Thanks for getting back in but the question I have just one quick housekeeping on I think you said it during the quarter G and H.
Benefited ginnie expense benefited from lower executive compensation or compensation expense African that was awarded what was the year over year change in that bucket.
If you have yet another we have that exact data point in front of US. We can certainly follow up with you, but I think the biggest driver of that was obviously that transition with the CEO with Terry departure, there was some forfeiture of of stock related comp and some other compensation benefits that.
I would have with part of that and then obviously with a with a with with our forecast for the year being down year over year, you would expect to see some comp down versus prior year, but we can we can follow up with you and gets you more specifics on that I, just don't have that data point in front of me.
Okay, great. Thank you.
Thank you I'm not showing any further questions at this time I would now like turn the call back over to Fred Brightbill, Chairman Chief Executive Officer for any closing remarks.
Thank you for joining us today to reiterate we're an exciting point master Kras evolution and I look forward to sharing our progress during next quarter's call. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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