Q3 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the Mastercraft. Both development Holdings incorporated Q3, 2020 <unk> earnings Conference call. At this time, all participants are any listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the section you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now why do you have the conference over to your Speaker today, Tim Oxley CFO. Please go ahead Sir.
Thank you operator and welcome everyone.
Thank you for joining us today, as we discussed Mastercraft <unk> third quarter performance for fiscal 2020.
As a reminder, today's call is being webcast live well also be archived our website for future listening.
Joining me on todays call or Fred Brightbill, Chief Executive Officer in Chairman, George Steinberger, Our Chief revenue Officer.
As you can imagine we have a lot to cover on todays call.
Fred will begin with an overview of the industry landscape and the steps Mastercraft is taking to navigate the cobot dark team pandemic.
He will then touch our operational highlights from the quarter in or preparedness for restarting operations.
Will discuss our financial performance both prior to and following the onset of Cobot 19.
As well as provide some commentary on how we currently see the rest of fiscal 2020.
Recognizing that conditions may change.
Ill now turn the call back to Fred for some closing remarks before we open the call for human <unk>.
Before we begin we'd like to remind participants that the information contained this call is current only as of today may six 2020.
The company assumes no obligation to update any statements, including forward looking statements.
Segments that are not historical facts or forward looking statements are subject to the safe Harbor disclaimer in today's press release.
Additionally, on this conference call, we will discuss non-GAAP measures the include or exclude special items not indicative of our ongoing operations.
Each non-GAAP measure we also provide the most directly comparable GAAP measure afterschool 2023rd quarter earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results.
We're also like to remind listeners that there's a slide deck summarizing our financial results in the Investor section of our website.
With that I'll turn the call over to Fred.
Thank you, Tim and good morning, everyone.
I appreciate you joining us today, especially during this uncertain time.
World is a very different place than it was when we speak west.
Families or work our communities and our daily lives.
I extend my sincerest wishes that everyone with us today is remained safe and a healthy.
The near term impact to the pandemic and recreational boating industry has been significant specifically government mandated social distancing and stay at home restrictions impacted our production or supply chain or sales channel and curtailed customer spending after what had been a promising start to the year.
Well this health crisis has been unique and an unprecedented in many ways. This is not a first time that our team have managed through a downturn.
We leveraged our collective experience and the lessons learned to helpless navigate through this environment.
We have to discuss swiftly and decisively while maintaining a level of operational and financial flexibility to adjust as needed.
I want to take a moment to thank them ask script team for their hard work and commitment to our company.
No what it's been a challenging last few weeks and I'm extremely pleased with how our team is supported one another and continue to serve our customers even as production Holden.
As a quarter progressed, we monitor the situation made informed real time decisions with three key priorities in mind.
First support the health and safety of our employees dealers and the communities in which we operate.
Second take Swift discipline action to ensure liquidity and manage the downside risk to our supply chain and dealer inventories.
Third.
Evaluate alternative scenarios and position the company to accelerate growth as we emerged from a pandemic.
Now, let me take a moment to discuss each of these priorities in more detail starting with staying healthy.
Protecting the health and wellbeing of our people our partners in our communities has been our main priority.
And we put measures in place to ensure that we did just that.
This began with implementing social distancing protocols at our facilities stepping up cleaning and ultimately evolved along with state and federal guidelines to a suspension of production of work from home policy for office employees.
I'm extremely proud of the way our employees have stepped up to assist in communities and the fight against the virus across all three of our locations. Our employees have produced thousands of face mask that were donated to local health care providers first responders and others on the front lines fighting this pandemic.
Mastercraft also dominated personal protection equipment to local health care facilities in the communities in which we operate.
We will continue to provide assistance on this front and look for additional ways to help those in need.
In addition to the health and safety concerns government mandates and supply chain disruptions acai consideration as we evaluated the suspension of production was the need to limit dealer inventory buildup in the face of a significant reduction in consumer spending.
As market conditions continued to deteriorate in early March and the outlook became increasingly uncertain. We made the decision to pull back production in anticipation of a declining retail outlook.
In late March we made the decision to stop production at all our facilities given the supply chain and dealer concerns.
As we have learned from previous downturns, maintaining a healthy dealer inventory is critical and important to warm run success not only of our company, but also our dealers.
Limiting the flow of products and allowing existing inventory to clear, we believe mastercraft will be much better position to capitalize on wholesale growth opportunities when the economy normalizes.
Our dealer partners along with our employees are mastercraft, most valued assets and we have spent significant time and resources to ensure that they get through these trying times.
Jim I actually was quick to reach out to our floor plan lenders to negotiate curtailment and interest payment relief on behalf of all our dealers providing them with immediate cash preservation.
We're also one of the first boat builders proactively educate dealers on the cares Act and the payroll protection program through our business development managers and senior sales leadership.
Given the mandated closures around the world. We were quick to realize the benefits of investments in digital marketing and continue to expand brand awareness and drive consumers to our dealers.
As consumers are just to world of increased isolation, finding safe family friendly recreation alternatives is becoming increasingly important.
Voting has been one of the most sought after alternatives available.
We've heard countless stories from dealers, telling us have increased interest in their markets with internet traffic and leads an all time highs for this time of the year.
Utilizing unique digital marketing strategies like virtual boat tours and touch free demos and both deliveries our dealers are capitalizing on this increased interest in boating.
Should the economy recover quicker than we anticipate we could find ourselves in a position were some dealers do not have enough product to meet demand.
Therefore production schedules will prioritize the production customer sold bodes make sure customers are on the water as soon as possible.
Lastly, we will continue to utilize retail rebates and a strategic disciplined manner to drive retail activity in the most impacted areas to assist dealers with pockets of heavy inventory.
Looking at our financial profile.
Particularly in this environment, we recognize that is critically important to have a strong balance sheet and financial flexibility.
Yes craft has a highly flexible low fixed cost business model, which is especially valuable in these market conditions were rigorous cost and capital management is critical to maintaining resilience.
We were able to reorganize many departments and our financial strength and commitment to our people allowed us to keep virtually all are salaried employees on the payroll without applying for any government loan programs.
Unfortunately, we didn't need to lay off hourly workers for approximately six weeks, but we covered their health insurance for four weeks.
We look forward to bringing them back as we ramp up production in May.
Tim will provide more detail in the specific cost capital allocation and balance sheet actions that we've taken during the quarter in his section.
As a team we believe we're well positioned to weather the storm.
As we evaluate new information and manage through the pandemic continuing to implement our strategy to position mastercraft for sustained value creation.
Well production has been shut down we've continued to develop and refine our strategy to improve the customer experience and still a customer focused culture and achieve operational excellence since first announcing our plans during our second quarter conference call in January we've made measurable progress laying the foundation for change across the organization.
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Mastercraft quality system has been reorganized.
Allow us to phase.
Customer experience to the next level.
While it's still early we're recognize.
Recognizing that his management team our immediate focus it's been a navigating through the downturn.
We are increasingly seeing signs that are strategy is working.
Specifically during the quarter, we made significant progress in consolidating product development and engineering resources to better utilize the talented team of engineers and designers we have across all our brands.
To lead this new group, we promoted dating back on to the role of Chief product Officer, and his mandate is to deliver to our customers. The latest and innovation features styling comfort and performance.
I'm excited about the early results from this new structure and I know this initiative will dramatically improve the overall experience our customers have on the water with our products.
During the quarter. We also continued to drive sales and marketing strategic initiatives aimed at improving the customer experience at Mastercraft. We remain on plan the launch a new website and build a boat platform in July.
Which will deliver the best in class experience for new and existing customers across all our brands. We continue to make investments in digital marketing initiatives that will drive market share gains in revenue growth.
To ensure that these important investments are aligned with our overall strategy and lead to meaningful growth opportunities, we promoted giant George steinberger to the role of Chief revenue Officer.
In his new role George will retain sponsor ability for strategy. In addition, you were all overseas sales and marketing functions across the entire mass craft portfolio.
Developing sales and marketing processes and goals that align with our broader market strategies aimed to gain market share.
So despite the near term headwinds, we remain confident in our strategic focus and the company's growth potential over the long term.
Now, let me share some highlights from the quarter Mastercraft started the third quarter off on a strong note.
With very healthy performance and strong momentum in January February in early March prior to the spread of covert 19.
And our amassed craft brands, we continued to see positive year over year results in retail performance for the pre cold months of January and February or.
While March retail was down due to the pandemic, we were encouraged with resilience and retail performance for the month versus our internal expectations, which continued through April.
Dealer inventories are down versus the same time last year and we're already hearing from some dealers that they are concerned they may be shorter boats this selling season.
Additionally, I'm pleased to share the announcement from this past Monday that our newly redesigned X 26 was the recipient of the prestigious boating industries top product award.
This recognition of our continued commitment to innovation and delivering the best on the water experience to our customers.
Introduced in September the New X 26 elevated the boats luxurious appeal, while setting a new precedent for weight conserve capabilities in the large towboat category.
In our out of Europe brand, we continued to see positive acceptance with remix and consumers.
Our retail sell through rate for Q3 is ahead of our internal expectations.
We launched the flagship model in the Aviano line. The Avi 40 at the Miami boat show in February, which complements the AB 32, and AB 36 models previously introduced.
Similar to the Mastercraft X 26, we're thrilled that Avi 40 was recognized by boating industry as a top product award winner, reflecting our commitment to creating new class of luxury day, both the progressive styling elevated control modern comfort quality details.
Can't wait for this summer selling season to further showcase the other Europe brand to customers.
And truly elevate their experience on the water.
And are not exceed our brand we saw sharp increase in retail activity on a year over year basis pretty cold it.
Similar to our mass craft brands the retail resilience in March and April we have experienced at not exceed our has been encouraging.
Our dealer inventories at not exceed our down year over year positioning the brand returned to wholesale growth quicker once markets reopened.
Lastly, and our crest brand.
We have seen the most improved retail performance of all our brands in Q3 throughout the quarter and into April crest retail sales are up on a year over year basis. Despite the pandemic.
Chris dealer inventories are now lower than this time last year setting us up for a strong revenue growth in the future.
While we're pleased with retail performance across all our brands. During this turbulent time, we will continue to track retail activity closely and we'll be prepared to adjust our production up or down as results dictate.
With most to most critical months in the retail selling season may and June upcoming.
We'll have more visibility into retail demand to share with you during our Q4 earnings call.
Now I'll turn call back over to Tim will provide more color on our financial results and expectations for the remainder of the year Tim. Thank you as Fred noted these are difficult times for the boating industry in the broader economy.
When we started the quarter off on a strong note the spread of cobot 19 across the globe and the corresponding economic and production shut down has had a significant impact our operations and as a result on our financial performance.
Sales for the third quarter 102.6 million, a decrease of 25.8 million or 20.1%.
Appeared to 128.4 million for the prior year period.
The decrease was primarily due to a proactive decrease and unit production given supply chain disruptions and in anticipation of a potential impact to retail demand.
Both related to covert dieting pandemic.
Our net sales in the quarter also impacted by the previously planned reduction in unit sales to rightsize dealer inventory levels caused by last summer's weather impacted selling season, partially offset by the addition of our new Altior brand.
Gross profit decreased 10.1 million or 32.2% to 21.3 million principal principally driven by the lower unit sales volumes for each reportable segment.
1.5 billion of compensation and employee benefit cost related to our temporary shutdown in response to the Cobra document pandemic and higher sales discounts.
The decrease in consolidate gross margin percentage is primarily attributable to a decrease in overhead absorption due to lower unit sales volumes across each reportable segment that transitory 1.5 million of covert docking shut down costs and higher sales discounts.
Operating expenses increased 55.6 million for the third quarter.
Compared to 12.9 million for the prior year period, due to 56.4 million of impairment charges, partially offset by lower incentive compensation cost.
Excluding these impairment charges, our operating expenses declined versus the prior year.
Given an anticipated lower retail demand for our products in the near term we have taken certain actions to reduce our operating expenses.
These actions include eliminated discretionary spending.
Delaying merit increases for salaried employees and pausing all non essential hiring.
While decisions that involve personnel are never easy we believe these actions better align our spending levels with a lower revenue environment.
Additionally, this quarter, we recorded a non cash goodwill and intangible impairment charge, a 56.4 million related and audit star and crest.
In light of a number of factors, including the impact to the pandemic driven this downturn, we now expect the financial performance of both divisions to materially differ from the projections derived at the time of both acquisitions.
We have concluded that to fair value of both businesses was less than a respective carrying value, resulting in a noncash goodwill and intangible impairment charges.
Nevertheless, we believe in the long term potential for both businesses to return to growth as we continue to take actions to navigate the cobot 19 pandemic implement our new strategic plan and as markets eventually recover.
Turning to the bottom line adjusted net income for the third quarter was 8.6 million or 46 cents per share on a fully diluted weighted average share count of 18.9 million shares computer using the company's estimated annual effective tax rate of approximately 23%.
This compares to adjusted net income of 14.6 million or 78 cents per for fully diluted share in the prior year period.
Adjusted EBITDA was 14 million for the third quarter compared to 21.9 million in the prior year period.
Adjusted EBITDA margin was 13.6% down from 17% in the prior year period, principally due to decreased operating leverage on lower sales volumes.
Turning to our liquidity and balance sheet, we took steps during the quarter to maintain financial flexibility and conserve cash.
As of the end of March we had more than 40 million of cash in our balance sheet, including a 35 milling, we drew down on a revolving credit agreement as a precautionary measure.
In addition, we suspended or delayed lower priority capital projects cut back on discretionary spending to conserve cash.
And our flexible cost structure and best in class working capital management, we can further conserve cash should circumstances warrant such action.
Additionally, we expect to finalize an amendment to our credit agreement. This week that will include the temporary removal and replacement as agreements financial covenants to provide additional financial flexibility.
The credit Amendment includes the addition of a 50 basis point floor on LIBOR and modifications to the range of applicable LIBOR and prime interest rate margins. The covenant replacement will include the temporary removal of the total net leverage ratio covenant and fixed charge coverage ratio to be replaced with three separate covenants.
And the interest and interest coverage ratio, a minimum liquidity threshold and a maximum unfinanced capital expenditures limitation.
Covenant replacements will remain in place until the three months ended June 30, 2021 at which time the old covenants will be reinstated.
In addition, the total net leverage ratio calculation will be revised to include our unrestricted cash balances without limitation.
There is significant uncertainty around the extent of the impact of Kobin 19 will have on our business to that end and as previously announced on March 25th we have withdrawn or fiscal 2020 guidance that was originally provided our second quarter earnings press release and conference call on February 5th 2020.
Why why we do not believe we can reliably forecast financial targets at this time, we want to provide you some high level thoughts for the fourth quarter.
It's important to highlight that we that when we ramp up production. Starting next week, we will have been shut down for more than six we start fiscal Q4 and will be coming back at a production run rate below prior levels.
While we.
Our current order backlog supports production rates greater than this we believe it is prudent to get more visibility our retail performance and the status of the economy reopening before accretion or production levels. So it is unlikely we will have positive earnings in the quarter.
Given our current liquidity position.
A couple financial model and cost cutting measures implemented to date, we're confident in our ability to manage through this and drive back to profitability in short order.
As of today, approximately 75% of or dealer network is fully open and has the capability to take orders and sell boats as.
As well as provide service to our to their customer base.
We believe it will take some time remarks to reopen and they will open at different rates across the country based on this we currently expect retail to be down significantly and calendar Q2.
And moderating in the second half of the calendar year. This forecast will vary by brand and region or wholesale modeling is based on these assumptions.
Retail than this will provide sick and significantly more wholesale demand.
In either case, we have modeled a wide range of scenarios and with the steps. We've taken we believe the mastercraft as a financial strength flexibility and liquidity to navigate changing demand trends and effectively and efficiently manage the business.
I'll now turn the call back to freight for closing remarks, Brett. Thanks.
Thanks, Tim.
Well code 19 presented many challenges for Mastercraft in the third quarter. We believe that we have implemented plan to manage through the near term headwinds and position the company for success as the economy begins to recover.
As we prepare to resume production incentive employees back to our facilities, we're focused on maintaining rigorous health and safety standards, we will be following best practices, including health screening certification temperature scans use of masks physical distancing enhanced personal hygiene and heightened cleaning protocols, we will Mont.
After the sites closely and we'll continue to consider local and federal government guidelines throughout this transition.
In closing we have a strong foundation of committed employees and dealers are resilient business model and a long term plan to grow market share and drive shareholder value.
I'm confident that Mastercraft will convert this adversity into a competitive advantage and emerge from this situation stronger than ever.
With that we'll go ahead and open the line for questions operator.
As a reminder to ask a question you will need to press star one on your telephone and withdraw your question press the pound key please standby, while we compile the Q1 day roster.
Your first question comes from the line of Eric Wold deep.
Riley.
Thank you good morning, guys.
Good morning, what to make sure understood.
A few comments.
Sounds like.
Retail demand at least what you've been seeing.
In March and April was.
At least an expected net gene with regard to Chris moving up.
In April with inventory levels, coming stepping down, but you're going to be we facing initial production levels, assuming retail is down meaningfully in the june quarter than ramping from there that.
No concern around kind of what you're seeing in retail that may not be going into.
Steadier, that's taking a conservative view and to kind of continuing to manage inventory levels up in the general.
Once again.
Retail was quite good coming pretty Cove, it recovered put a damper.
That in conjunction with the fact that we were being extremely careful as you know about managing inventories this year to.
Deal levels.
Model year end.
Just created this huge uncertainty about where retailers really going to be through this busy selling season. So initially we're seeing very encouraging signs and feel very positive about that having said that we still have a long way to go as you well no in the in the heaviest months, our may and June so.
Dealers are still opening dealers that have access are experiencing.
You know success, but it's very much a mixed bag out there and there's so much uncertainty that's what's caused us to just wanted to be very careful to make sure that we achieve optimal inventory levels at the year end.
Yes, we have frame.
The decline that inventory levels year over year the dealer channel.
Now, let's say by brand overall, so I understand.
Worthy our year over year, whereas the yeah.
Good.
Right now.
How are you could ramp production that we'd be it the demand is they're heading into the major grid.
Well.
Couple of things one.
Okay.
We feel very good about where the overall absolute levels are the question is whats demand going to be through the remainder of the year. That's that's the big issue and so we just have to keep our year to the track closely and be prepared to respond. So as we ramp up here and as you will know.
Most important thing is to ensure that we produce a high quality product. So we're going to be very careful about our ramp up having said that.
We have flexibility within the quarter to some extent, but thats essentially a month and a half six weeks in the quarter production.
And we have significantly more flexibility in Q1 fiscal 2001.
I would agree I think the if retail continues to be better than we'd expect I think primarily it's going to be a driver for fiscal 2001 by the time you recognize it.
The quarters over from a manufacturing point of view June still represents approximately 20% of the year.
Subdued and comes in better than expected than that gives you the tailwind that carries over into July and forwarded fiscal 2001.
And last from me just.
How we'd be managing the the ramp up production is that you kind of relative to normal.
40, 10 hour work week during normal period outlook initially as those plants open.
Yes, you're spot on.
For tens is what we normally run that's what we plan on running and so you know if implicit in your point, if we needed to run another Friday, we could do that we really want to try and avoid that in the ramp up in store and to the extent possible stick to look for towns.
Having said that you know will incremental up the count the boat counts as we go through.
You know not only the months, but also the quarters.
Perfect. Thanks, guys.
Thank you.
Your next question comes from the line of Joe Altobello with Raymond James.
Hey, guys. Good morning, hopefully well all you're doing well.
What you just delve into retail into more detail and the obviously March and April rough rough months, but what's really major difference.
Geography, meaning.
Did you see better numbers from rural dealers versus urban dealers.
Suburban Dylan I don't know about.
Rural versus urban so much even though you certainly think about the pandemic affecting those geographies differently. It was more based on what the regulations were.
Within the state in terms of the ability to open in function right in the boat I mean, most extreme case being Michigan, where.
Power boating was prohibited for a period and dealers were not able to operate at all that was the most extreme situation. If you will to other states where you know.
Boat dealers were treated along with automotive is essential services and open all along the way. So it's run the whole gamut in every different.
You know geography has been slightly different but primarily related to what those government regulations were in terms of allowing operation.
Got it Okay and then just secondly, you guys obviously.
I think some protocols here.
And your plants.
Much of this insane mask et cetera.
Those protocols will they have an impact longer term you think on your manufacturing costs or are your capacity.
Or or really not much in the box office boxes.
But my personal opinion is I don't believe that they will and I do believe that this is going to be away a life for some period of time so.
You know we've embraced it in terms of this is just going to be part of safe to operating and if we get through coated. The reality is something else will probably pop up down the road, we want to be prepared for and will we may need this again, but.
My view is the biggest impact is going to be if theres, a disruption related to it either in the overall economy or in terms of some widespread.
Containment necessary in our facility, but following these procedures I believe is going to allow us to minimize that risk.
Got it okay. Thank you guys staples.
You too.
Your next question comes from the line of Brett Andress with Keybanc capital.
Hey, good morning.
You mentioned increased interest.
I think your dealer here recently, but can you just give us any more specifics.
On April retail trends.
But the rate was.
Yes, more importantly, what the cadence of April was the month.
Progressed.
Hey, Brett it's George So we took a pretty draconian view on what we thought might happen with retail in the month of April and it significantly outperformed our internal expectations.
Across the three brands I would say was roughly down in that 20% to 30% range year over year versus are much higher down expectations.
And we have continued to see some strong momentum here early in May.
You may as Fred said May and June are the two most critical months of this.
Summing selling season, so while we've certainly been very pleased with the resilience we've seen at retail.
We are going to take a very prudent approach to tent watching retail over the next couple of months as we determine our ultimate wholesale production run rate.
Got it. Thank you and then and then looking at.
The fourth quarter looks like it's coming in below it.
Most of us as expected, but given all the actions you've taken here on the cost front can you just give us some.
Insight on what you think the six.
This is variable cost mix could look like.
In the quarter.
You know the we reported in the past that that we see approximately 90% of our.
Cost of sales act and variable what makes this a little bit unusual and why it's going to be a bit less in quarter four as we've continued to bring people when to build mask.
We've also continued with some of the.
The improvement.
Processes that we put in place so we've invested in the fourth quarter.
So that it's not going to be as as variable as it could be.
And as we could make it in the future if necessary.
So it'd be in this in the in the seventies I think on the variable side.
Thank you.
And.
Question comes from the line of Mike Swartz with Suntrust.
Hey, guys good morning.
Just just what's your with your comments on crest in some of the resilience you're seeing there year to date I think you said retail is actually up for that brand through April maybe just give us a sense a sense of why that is in did you have easier year over year comps. It just is a striking.
Striking trend given everything that's going on.
Hey, Mike It's George.
As.
As you know the pontoon industry has been probably a little more.
More greatly impacted coming out of the the weather downturn that down retail that we had last year, what we have seen in our in the pontoon spaces that that segment is much more.
Reliant on boat shows and so we had a fantastic boat show season with crest retail and orders were up significantly year over year and I think what we're seeing is as customers have.
Interest in boating has accelerated I think the pontoon segment.
Coupled with the performance during the boat shows I think has been a great segment to look into for voters that have families want to get out on the lake maybe that'll have a big Lake the price point as much more approachable for a lot more consumers and this environment. So I think a couple of things have set up well for for the pontoon.
Segment overall, but specifically crest has just continued to take market share and had a really really strong boat show season, and I think that's starting to come through in our internal warranty registrations as as most of the dealers had been able to deliver those boats as dealer as customers have asked for them.
Great and then just with FBR I know a lot has changed since February so I.
I guess one.
How much should contribute to the quarter and then how should we think about both the revenue from that business. This year is still in the $10 million to $15 million range and then just a ramp to profitability I think you had expected to be profitable.
Around this time, so it's more of a 2021 or maybe even 2022 event now.
I think you're spot on.
You know this is pushed back that profitability a bit and you know it's still in a ramp up mode, where we're still you know as we as we said introducing the 40 and so you know the 32 is been running through the plant very well of 36, you know it was the next product and that's.
Ramping up so once again feel very very good about next year in its level of profitability as well as overall sales growth retail has held up very well for it and.
We've actually continued to produce some and ship some so.
We continue down that path, but yes, probably delayed a quarter from where we added originally anticipated the profitability.
Okay, great. Thank you.
Your next question comes from the line of Tim Conder with Wells Fargo Securities.
Thank you good morning, gentlemen.
Wanted to circle back on the channel inventories so it sounds like all your inventory in the channels down sequentially.
Correct me if thats wrong.
But then also if you could give us some color on the aging.
And then related that aging color just a little confused if you're if you're in cash conservation mode.
It would seem to potentially that maybe instead of offering rebates and if some customers are waiting on boats.
Would it be easier to try to say, hey, I know you're waiting on maybe a brand new boat, but here's a brand new win that we already got an inventory it might not be the current model, but did it wouldn't be cheaper just to move that bode among different regions rather than than to do the rebates across the board. So I'm just trying to get again understanding on the aging color maybe that's the answer.
Versus instead of doing the rebates just trying to move those boats around we're hearing some of that in other areas in the broader boating industry.
So just kind of wondering.
Your approach there. Thank you.
Just a couple of summary comments and I will turn it over to George for more detail, but.
Yes to your question in terms are we using those other tools are we moving boats, yes to all of those as well. So it's a combination of using all the tools that we have surgically and.
We feel very good about the way that's working.
Our retail programs have been successful and yes, we are moving boat amongst dealers also and just to clarify on the comments you made earlier.
Inventories are down not just sequentially, but year over year too so with that I'll turn it over to George Yes, Tim the thing I would add as well, while certainly retail rebates play a part of our overall strategy as we've always discussed we don't peanut butter spread retail rebates across the country, we use them disciplined and strip.
Typically in markets, where we think we need them, where maybe we have a pocket of heavy inventory or have the age product. So it's just one tool and the tool belt and attempts that or I'm, sorry, as Fred said, we are absolutely taking advantage of being able to move inventory across our network where possible to get custom.
Immersed in the boats today.
Our order backlog so as we said we're prioritizing the building of custom ordered boats. When we do come back online to make show there and make sure those customers get the both that they want and our back on the water as quickly as possible, but any new customers walking in.
We are we're helping our dealers make sure that they can get the product they need in their hands to convert that sale.
In terms of aged inventory.
The percentages down.
Sequentially, it's a little higher on a percentage basis than this time last year, but that's more of a function of the reduced wholesale shipments for model year 20 product this year versus.
Where are you wholesale units are going to be down and 20 versus 19, so as a percentage aged is higher.
But from an absolute number perspective, we feel very good about the health of our aged inventory and the fact that our wholesale will be down so significantly for model year 20 product that sets that sets us up for future years to have a very clean and very healthy aged inventory heading into 21.
I would give I'd just add that.
The retail environment to is competitive and so some of the programs are necessary response to competitors.
Okay, Okay helpful gentlemen, and.
Any login I know seasonality or just.
Good to hear is just the prime season. So anything you can say up through let's just say April from a color by region on a year over year basis are you seeing certain regions stronger than others are you seeing any and in particular I guess the real question would be any impact from.
Areas exposed to the oil and gas markets.
Yes actually interestingly.
Texas has been a particularly strong market for us it's been very resilient, it's done very well. So in spite of what's going on in West Texas.
The overall state it's been very healthy.
Very different story in Western Canada in Alberta.
It is very very tough going up there so with regard to oil and gas that would be the major color I could provide in terms of by region. Once again.
Tended to do pretty well overall in the south the weather has been a little bit better and more favorable.
We are in that period between boat shows and between the weather turning in the north and so in a way to the extent that this virus can pass when we can open business and catch.
You know the season as the weather warms up.
We're hoping that we can minimize the impact in terms of consumers propensity to purchase so that's where we think we are right now in terms of those key states in the north opening up as you well no.
And so.
We're still yet.
Well, we're still looking at a half full but still watching that very close and once again, we came at this from.
Really trying to protect ourselves from the worst case and as you. All know there was tremendous diversity of opinion about how bad this was going to be in how long and.
So were.
Virtually as everyday goes by we feel more optimistic about it.
Okay gentlemen, thank you.
Your next question comes from the line of Brett Andress with Keybanc capital.
Hi, Thanks for the follow up just to be more clear on the covenant relief here I guess is that more.
Other precaution or do your current internal models have you breaching knows because I guess, if I pencil in negative EBITDA for Fourq you.
You get close, but if you could just walk me through.
The thought process there and then the second question I have is what should we be modeling for interest expense with some of the debt cost changes.
Sure.
First of all we have a number of of different scenarios, we've run for fiscal 21.
And certainly.
It was prudent for us to get these this covenant relief.
To give us the greatest financial flexibility that if thats possible.
Let me just add we didnt have a gun at our head you know it was in a situation that.
We expected in near term issue. So it was something as we looked out into the future. We wanted to make sure we have the appropriate flexibility.
What we've modeled from a from an interest perspective is probably another 400000 give or take a year and our annual interest cost obviously, depending on a number of factors, including the production level, but I think give or take thats kind of what we estimated it would cost us.
Plus that doesn't include the upfront costs, which are probably another 300 ish.
So that that's our perspective on that.
I appreciate the color. Thank you okay.
Yes, no questions at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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