Q4 2020 Mastercraft Boat Holdings Inc Earnings Call
Thank you for standing by welcome to Q4 in fiscal 2020.
Well.
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Chief Financial Officer. Please go ahead.
Thank you operator and welcome everyone. Thank you for joining us today, as we discussed Mastercraft fourth quarter and for your performance for fiscal 2020.
As a reminder, today's call is being webcast live well also be archived on our website for future listening.
Joining me on todays call were spread right Bill Chief Executive Officer, a German and Georgia, Steinberger, our chief revenue Officer.
To open the call Fred will provide commentary our businesses and I will discuss our fourth quarter in fiscal 2020 results.
Yeah, I'll turn the call back to Fred for closing remarks, before we open the call for Q and I.
Before we begin we'd like to remind participants that the information contained in this call is current only as of today September 920 20.
The company assumes no obligation to update any statements, including forward looking statements.
Stayed Mr. Rob historical facts report looking statements that are subject to safe Harbor disclaimer today's press release.
Additionally, on this conference call, we will discuss non-GAAP measures the include or exclude special where items not indicative of our ongoing operations breach non-GAAP measure. We also provide the most directly comparable GAAP measure our fiscal 2024th quarter in fiscal 2020, <unk> earnings release, which includes a reconciliation of the target.
Measures to our GAAP results.
But also walk around with terms that there's a slide deck summarizing our financial results and the Investor section of our website with that I'll turn the Colbert Fred.
Thank you, Tim and good morning, everyone.
As a world continues to grapple with your effects of Cobot 19 pandemic. It remains my sincerest wish that everyone with us today is remains safe and healthy.
As you saw from today's press release, Mastercraft boat Holdings deliberate financial results in the fourth quarter ahead of street expectations.
Closing out a challenging fiscal 2020 with strong momentum heading into fiscal 2021.
For the year net sales decreased 22% to $363.1 million adjusted EBITDA decreased 44% to $44.3 million and fully diluted adjusted net income per share declined nearly 52% to $1.34 per share.
Principally driven by the disruption to our manufacturing operations due to the cold 19 pandemic.
Despite the headwinds faced throughout the year our team embrace the challenge it continued to execute on our new customer centric strategy.
Including improving or quality systems, and working closely with our dealer partners to capitalize on the unprecedented consumer interest in boating.
In the fourth quarter after our various facilities were shut down from six to eight weeks, we delivered positive adjusted EBITDA on a net sales declined 58% a testament to our highly variable low fixed cost business model and operational execution.
Moreover, our strong cash management practices enabled us to pay back $25 million on a revolving line of credit at the end of the fourth quarter and an additional $5 million early in our fiscal 2021 first quarter.
The near and long term impact over the pandemic on recreational boating industry has been significant specifically our industry experienced a renaissance as consumers and their families found themselves with additional free time and fewer alternatives due to the cancellation of spring break in summer vacations travel sports kits.
Summer camps.
Even during the pandemic induce dealer closures consumers flock to our brand websites social channels and dealer websites to explore the boating lifestyle.
Resulting in unprecedented retail demand across all our brands both for new and used models.
Our internal data suggests that new to boating, and returning to boating customers accounted for a growing percentage of our retail sales since March of 2020.
This is served to increase our addressable market and bodes well for all our brands in the medium to long term as we typically experienced high consumer retention rates.
In addition.
As competing brands have also benefit from this increase boating participation the opportunity exist to convert these consumers to our leading brands overtime.
For example, RMS craft brands, which we believe is the most recognizable ski wake boat brand in the World has historically generated approximately 80% of its annual retail sales from current boat owners, including the existing mastercraft owners trading up to a new Mastercraft model.
Owners converting from a competing ski wake boat brands and owners converting from a different segment of boating.
[noise] driven by this unprecedented retail activity dealer inventories across all our brands declined historically low levels with dealer inventory turns at historically high levels.
Impressively, we've continued to see strong retail demand through the first two months of our fiscal 2021.
Resulting an even lower dealer inventories and a higher dealer inventory turns.
On a consolidated basis as of the end of August.
We believe that our dealers are under inventoried by more than 2100 units with nearly half of the shortfall at Mastercraft alone.
The shortfall is directly attributable to the strong retail performance, we've experienced combined with production shutdowns in the fourth quarter.
We believe the current retail trends will persist beyond next summer's busy selling season as consumers prefer to state local and seek safe alternatives for fun family enjoyment.
As a result, all of our brands are poised for strong growth in fiscal 2021 and beyond.
Operationally, we continue to ramp up production across all our facilities working with our suppliers to ensure that we receive high quality parts on time.
As our suppliers experience increased demand from other boating Oems, we believe our scale and efficient supply chain management mitigate the risks of disruption to our production plans and position us to appropriately stock dealer inventories throughout the seasonally low fiscal second and third quarters and allow us to fully participate.
In the retail momentum we anticipate in the next summer selling season.
We will continue to ramp up production in a controlled measured manner, ensuring that dealers get the inventory they need to meet retail demand. While also continuing to drive quality improvements across all our brands, which we believe is a competitive differentiator and a critical element of our strategy to deliver the best consumer experience on the water.
Notably our order books across all our brands are completely filled through the second fiscal quarter and well into the third fiscal quarter as dealers order earlier than usual to lock in production slots.
At our of Europe brand, we continue to see an overwhelmingly positive reception by both our dealer partner marine mix in consumers alike.
Retail performance at our Europe exceeded our expectations in its first fiscal year production.
Combined with the retail momentum we are seeing in the industry, we decided to accelerate phase two of the growth strategy. We developed when building the business case for this brand.
On August 17th 2020, we announced that we had entered into a purchase agreement to buy a boat manufacturing facility in Merritt Island, Florida, which will serve as the future dedicated facility for out of Europe.
The New Merit Island facility will provide more than 140000 square feet of dedicated manufacturing space.
Situated on 38 acres of land, including water access the new facility provides ample room to grow the RV or a brand and will provide the opportunity for additional vertical integration.
Having a dedicated of your facility of this scale with access to an experienced both building workforce provides the quickest most efficient way for of euro to add incremental capacity, while providing a very efficient use of capital.
Simultaneously moving out of your out of the Mastercraft facility will provide for additional capacity for Mastercraft.
Setting us up for many years of future growth.
We expect to close on the facility purchase in October of 2020 with of Europe production up and running in the third quarter fiscal 2021.
Turning to Nordic Star on August Threerd, 2020, we announced the appointment Scott Womack as a new president for the brand.
Scott is a seasoned operating executive having held leadership roles and various automotive suppliers over the past 27 years.
Scott brings a wealth of knowledge experience and processes that will help not exceed our improve its operational and financial performance and unlock the value. We believe can be generated by the brand.
Scott its track record of driving continuous improvement through lean principles, while generating strong financial results will serve him well in this role.
We are confident we have the right leader in place to drive sustainable long term growth and profitability for one of the leading brands in the fiberglass outboard segment.
We'll now turn the call back over to Tim will provide more color on our financial results in the expectations for the rest of the year Tim. Thank you as Greg noted these are difficult times for the boating industry and the broader economy.
Well, we started the quarter off on a strong note the spread of cobot 19 across the globe and the corresponding economic and production shutdown has had a significant impacts our operations and as a result, our financial performance.
Sales for the fourth quarter were 51.1 million, a decrease of 71.7 million or 58.4%.
Compared to 122.8 million for the prior year period.
The decrease was primarily due to the lost production as result of the co would not being shut downs and supplier and workforce ramp up.
Gross profit decreased 24.1 million or 76.5% to 7.4 million.
Compared to 31.5 million for the prior year period, principally driven by the lower sales volumes for our reportable segment.
Our gross margins decreased to 14.5% for the fourth quarter.
Compared to 25.6% for the prior year period on lower overhead absorption across each reportable segment.
Operating expenses decreased 33.2 million for the fourth quarter compared to 43 million through the prior year period due to the 31 million of goodwill and intangible asset impairment charges recognized in the prior year period.
Excluding these impairment charges are operating expenses declined 2.2 million.
Resulting from cost manager and management initiatives during the quarter in response to the covert 19 pandemic.
Current and bottom line adjusted net loss for the fourth quarter was 1.8 million or loss of 10 cents per share.
Fully diluted weighted average share count of 18.7 million shares.
Computed using the company's estimated annual effective tax rate of approximately 23%.
This compared to adjusted net income of 16.1 million or 85 cents per fully diluted share in prior year period.
Adjusted EBITDA was 0.9 mailing for the fourth quarter compared to 23.8 million in the prior year period, adjusted EBITDA margin was 1.8% down from 19.4% in the prior prior period, principally due to lower sales volumes caused by the Koby 19 shutdowns.
Turning to our liquidity and balance sheet, we took steps during the quarter to maintain financial flexibility and conserve cash as of June 30, we had more than 60 million of cash on our balance sheet as Fred mentioned in his remarks, we paid down 25 million on our revolver during the fourth quarter.
Combined with our cash on hand, we ended the year with more than 41 million of liquidity.
Since that time, we proceed to make additional 5 million dollar payment on our revolver early in our fiscal 2021 first quarter, given our current liquidity position and near term outlook, we do not anticipate any liquidity issues.
We remain bullish on the long term prospects of both markets, we serve and the brands we are.
Especially with backdrop of historically low.
Inventory that was combined with unprecedented retail demand.
We were you'll recall that we withdrew financial guidance in March given the onset of the co with 19 pandemic and the expected negative impact on retail demand.
Our visibility has improved since that time well uncertainties in the marketplace remain we are initiating guidance for both the full year in the first quarter of fiscal 2021.
Our guidance assumes that we were able to operate over a facility throughout the fiscal year without any cobot 19 related shutdowns.
For full year fiscal 2021 consolidated net sales is expected to grow in the mid 20% range year over year.
With adjusted EBITDA margins in the 13% to 14% range and adjusted earnings per share growth low to mid 40% range year over year.
This guidance assumes revenue and profitability growth across all our segments with exception of five year as we facilitate the shifting of RV or production from our facility in Tennessee to our mirrored Island, Florida facility, we anticipate the mid year integration disruption production ramp up with an all new workforce in the adding.
Have incremental overhead to support obvious future growth to result in moderate adjusted EBITDA loss for the year.
We are confident that the I'll be your brand will be profitable fiscal 20 to 2022, its first full year producing product in the new facility.
With new capacity in a dedicated manufacturing team driving the brand we expect our year to generate more than 50 million in net sales within the next three years.
For the fiscal first quarter consolidated net sales expected to be down in the low to mid teens percent range year over year.
Adjusted EBITDA margins and 11% to 12% range adjusted earnings per share down in the mid to high 30% range.
As Fred mentioned in his remarks, we will continue to ramp up production throughout the year in a controlled measured manner heading into the seasonally low selling season, the seasonally low retail selling season, our production cadence will ensure that dealers get inventory they need to meet retail demand heading into the summer selling season, which historically accounts.
Were 70, 75% of annual retail.
Ill now turn the call back to spread for closing remarks, great. Thanks, Tim.
Well covered 19 presented many challenges for Mastercraft in the fourth quarter in fiscal 2020, we implemented a plan to manage through the near term headwinds and position the company for success over the long term.
Our number one priority is the health and safety of our employees as we continue to ramp up production across dollar facilities.
We're committed to maintaining rigorous health and safety standards.
We are following the best practices, including health screening certification temperature scans use of masks physical distancing enhance personal hygiene heightened cleaning protocols and contact creasing at all or locations. We will continue to monitor the sites closely and consider local and federal government guidelines throughout this trends.
Mission period.
Our outlook is much improved from a quarter ago depleted dealer inventories and strengthen retail demand provide an attractive backdrop for the boating industry and in particular, our leading brands.
Im confident in our strong foundation committed employees and dealers resilient business model and long term plan to grow our market share and drive shareholder value.
That will go ahead and open the line for questions operator.
As a reminder, Josh.
Okay.
Your question please press the pound.
Sorry.
Our first question comes from Eric.
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Thank you good morning, guys.
Two questions I guess one.
The 40% to 50%.
The inventory being 40, if you could just below on average at year end June obviously lower since in August.
You mean that Kevin average across the three brands any any major variations from that range between three brands are all kind of within that within that area that that actually isn't the average that's the range across the brands. So there are there were all between 40 and 50% and as you alluded it's much much lower than that now.
Okay, and then going to follow up on that.
Yes, good question, Don off a little bit slower start.
Following the acquisition one of the reason being.
The level of inventory out there with.
Competitors and the pontoon segments.
Maybe give will Ricci recently give us an update on how you frame that environment.
For crashed and the opportunity potentially picture.
Chris has been doing very well there year over year retail has been among the highest we've seen amongst our brands. So.
That segment bounce back and they bounced back very strongly there read their inventories in great shape again, it's a fraction of what it was.
Previously and they positioned themselves for great year in there in the process.
Of putting their pedal to the floor and accelerating their production ramp up.
I would add that the upon to segment.
It's also benefiting from the first time voters because the ease of use and you know.
The relative value at the pontoon.
Boats. So we're very happy to be participating in that segment. So more first time boaters I've taken a pontoon segment and some of the other brands.
Thanks, Tim.
Lastly on.
On all the our I know you'd be commentary Tim.
Yes, because you were $50 million plus and sales next three years any chance you get some idea kind of where you ended up last year and how that can change this year and then on the new facility.
We are.
So you acquired.
One what we'll need to be spent there.
Ahead and production start to.
What do you ultimately think.
Full production.
Yes, you could be themselves over the next years.
Well, we certainly think it's going to be north of 50 million.
As far as capacity goes that's been a successful both plant in the past.
Our ramp up costs will will will certainly impact us and starting in Q2.
But we're going to get back up to profitability in fiscal 2000 2022.
Yes, and Eric for from a revenue standpoint for Ravi our this past year, you'll recall, we guided to 10 to 15 million at the start of the year.
Due to the co bid we were impacted in that but still hit the low end of that range. So call around $10 million of revenue for all the are this year.
Okay, and just referred to.
I know the ramp up costs, just thinking capex costs at new facility not not operating costs.
Going.
Yes.
We're.
We the purchase of the property is $14 million than we estimate another $4 million to $6 million to get that facility.
Back up and running to where we need it to run high production levels like like we intend there.
And that would be on top of our kind of normal capex across mastercraft not starcraft. So for the for the full year, we're probably looking somewhere in the low to mid $20 million Capex range all in.
Perfect. Thanks, guys.
Thank you and our next question comes from.
Securities.
Hey, guys. Good morning, Good morning, maybe just starting with the fiscal 21 guidance, thanks for providing that.
I think it would imply that revenue gets back to fiscal year 19 levels, but if I if I do the math. It says that EBITDA would be it started between $15 million to $20 million below fiscal year, 19, I and I know, there's obviously the startup costs in some of the inefficiencies are can you maybe walk us through why profitability.
Would be lower than what we saw a 19.
Well, let me first start with the topline you commented on if you remember.
19 came in very heavy with regard you know inventory was very heavy at the end of the year. So there is a big carryover.
That's not a normal situation or one that you know is a good benchmarks. So unfortunately, that's the comp that you're looking at from the revenue standpoint.
With regard to cost.
They are all included in our margin, but I would say also full year worth of crest in our numbers is one of the diluting factors on the overall margin, yes, because we're comparing than nine months worth of grass.
Hi, dilutive margins in fiscal 19, so as you mentioned, we have the startup costs at the new facility. In addition, since we're ramping up really on a measured pace throughout the year Mastercraft, you've got cost associated with.
In the new employees up to speed and train and so forth.
Okay. That's helpful. Thanks for that and.
Turning to make sure I think the normal I think you saw all negative it's Frank but that you believe you around 2000 units on the inventory right now.
What is that.
Based on and what would that assume or what's your when you wouldn't state that number what is your kind of outlook for retail demand.
Forward I would you say two two things the considering that I think thats, a conservative estimate because we use much higher inventory turns than historically have been the average.
In our segment or for us. So we increased our expectation with regard to how fast we're going to be able to turn dealer inventory and in addition used very conservative retail assumptions.
Okay. Thank you.
Thank you our next question.
And.
[music].
Hi, good morning.
So thank you for all the color on the guidance. If you could just help us a little more but the one Q sales expectations I mean, how should we think about that low to mid teens declined by brand and I guess are there any specific factors holding you back from growing shipments and one Q.
Well as we mentioned we're in the in ramp up mode throughout the first quarter.
And so that's holding us back a bit the cadence is going to be a little more backend loaded for the year. Since we are like I say in ramp up mode.
As far as holding us back we're going to maintain our quality standards.
And suppliers have to come up speed at the same time. So those are kind of the gating items for for Q1.
Got it and then it sounds like inventory.
Got lighter since ended the quarter. So just any color on that the level of retail demand for your brands here in August and September.
Yeah. Brett This is Brent this is George so far for July and August.
We continued to see strong retail momentum across all the brands.
What we tell you is that.
Range the range was anywhere from up 25% to up 75% across the three brands.
From a July August retail so that the momentum certainly continued.
And we were very pleased by that and so.
Certainly well positioned for the rest of the year two to restock dealers and get get position to take.
Additional retail market share and next summer selling season, which as you now accounts for about 70, 75% of retail that April through September period next summer and keep in mind in particular for Mastercraft, we have challenging comps last year in the first fiscal quarter. So.
That's even more remarkable that were up from those comps.
Helpful.
Appreciate that and then I guess I can do the math on my last question, but if we exclude.
In the startup cost in the headwinds there as you ramp that facility I guess what would your.
EBITDA margin expectation be for 2021, excluding obviously.
I don't know that we have the math right here in front of Brett but.
I would just to give you a little more guidance I would kind of pencil in a negative two to negative $3 million EBITDA loss that obviously for the year. When we set a moderate loss that's kind of the range of what we were looking at that makes and all of those costs. So.
I think with that information you can do the math, but I don't have in front of me.
Thank you.
Yep.
Thank you. Our next question comes from Craig Kennison Baird. Your line is open.
Great Thanks, and good morning.
Hi question on your your revenue guidance in the comment you made on.
And 2100 units of inventory.
Just can't fully reconcile that if you shipped 5300, both roughly in fiscal 2020 and you replenished.
2100 units of inventory in a flattish retail environment you'd be shipping almost 70.
400 boats, that's 40% growth so no SP impact much better than I guess that 25% ish revenue growth, you're calling for so what am I missing there is that a function of less.
Restocking or more pessimistic retail can't quite reconcile that.
No Craig I.
I think we certainly believe that that 2100 shortfall in inventory is going to take longer than just fiscal 21 to to fill the channel.
So we're obviously, we're comfortable putting out guidance with the visibility we see.
And so we're confident in our number but we're not going to just up stuff. The channel we're going to guide to hide where we're going to manage this business with higher turns than we have historically keep dealers healthy.
We'll continue to watch the retail environment and make sure that and that stays on track.
So we certainly view the 2100 as a significant opportunity for growth and sets us up for long term growth beyond 2021, and we'll make sure that work we're filling the pipeline.
In a very measured controlled way.
And so thats really kind of what I would answer there sure I think if you think of normalizing the pipeline sometime in fiscal 2220 22, and we also intend to operate the company at higher dealer inventory turns and we've historically seen we think thats.
A good for the dealers and good for good for us as well.
Thanks for that and just maybe looking at it from a capacity standpoint.
Do you even have sufficient capacity to fully.
Catch up to that or is there a limit to what you could produce in fiscal 2021.
Well other than the ramp up.
We do not have a constraint with regard to terminal capacity because once again moving RV are a freeze up mastercraft capacity, a substantial additional amount of mastercraft capacity and we don't foresee consuming that for many years.
[music].
Thank you and then looking at ASP in the fourth quarter very strong results across the board relative to our expectations.
What's the the ASP growth expectation embedded in your and your revenue guidance.
We're expecting you know low growth they Sps in fiscal 2021.
And keep in mind, what drove it in our fiscal fourth quarter was a disproportionate number of retail sole boats that we were producing and they traditionally have a larger load of options selected.
And finally, I think Fred you mentioned.
First time buyers or people, who are new to boating could you share those metrics again I may have missed.
The actual percentage there.
Well, we just say you know, we said 80% our borders.
And the other 20% roughly or what we've seen in terms of either returning to boating or newness voting and I would just say those are kind of the historical ranges.
Currently we have seen essentially a doubling in the the new to pull in people. So.
We are getting those entrance and its you know, it's our focus on making sure that we deliver the experience theyre looking for and continue to keep them loyal to our brand. So it's a wonderful opportunity to expand the market and.
We think it's not a onetime phenomenon. We think is the situation that is going to last for years.
Great. Thank you.
Welcome.
Thank you.
Our next question comes from the line.
Hello, Raymond James Your line is open.
Thanks, guys good morning.
Go back to your comment regarding it is piece.
And the attack from retail sold both the curious what you're seeing from first sign those buyers are they bringing up the average as well.
With a lot of Delta.
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I think in my opinion, it's a range. We've seen first time, because you think of our different brands first time buyers at crest at those price points are totally different than what we've seen and across the mastercraft range.
We've seen first time buyers all the way from the entry level all the way up to the high end. So it's in my opinion, it's been spreads.
Got it Okay and then the retail you mentioned it was still very strong in late August.
Curious what you saw into labor day.
This is typically the time of year win.
Retail does start to normalize I'm just curious if you did.
Did see trends start to slow.
Quote unquote normalized as as we approach the holiday.
I think that's a correct characterization that it's starting to quote normalize.
But remember also in the previous year, there was a hair heavy carryover of inventory and so there was a lot of promotion that took place at around labor day holiday to.
Move some of those boats and certainly throughout that first quarter. It was very active promotional time.
For ourselves and our competitors so you know.
Basis.
You know your.
Normal is not necessarily what last year's results.
Yes, I met normalizing in terms of year over year growth versus yet.
The last couple of.
Well, we're coming off the selling season, you know, it's finally winding down.
And this is one last when it goes back to I guess with your questions that Greg asked about the 2100.
So.
Channel how much it or do you think you could.
Address this year and how much of those are more of a 20 points.
I think we're going to be in very good shape, but we probably are still going to be lean on inventory exiting this year and we just feel that that really provides us a cushion should there be any negative impacts in the environment and thats why we felt comfortable being able to give guidance.
Great. Thank you guys appreciate it.
Thank you.
Next question.
Hi, Thank you so much.
For taking my question.
So I had a couple.
One is the the Merit Island addition, just kind of square footage basis, how much does that increase your capacity.
That facility is a 140000 square feet that will be dedicated to two obviously.
That is more than quadruple the amount of square footage that we've got allocated to our VR here today. So as we've stated that there is.
Ample opera capacity, there to grow that Brad.
Hopefully at or above $50 million within three years.
Equally important allows us to expand our capacity for the mass craft brand. So so both those are very positive.
That's going to be my second question is what percent.
Capacity increase will Mastercraft get.
Sorry every hour of Vacates that facility I think on the order a 35% to 40%.
Okay, Great and then.
Next question I had an answer to an earlier question.
You talked to think about.
Four to 6 million.
Cost in addition to the plant cost to get everything moves in up and running and and I missed if that was the capital cost or expensed items as well. So could you just give us a little help around what's what's capital and what's expense in terms of going through that change process.
The number that was referenced on the call with the capital number.
And we have not itemized, we won't be shared but as we guided to will we expect a $2 million to $3 million EBITDA loss, which includes all of the startup costs and ramp up of getting that facility up are all in addition to the the Capex summer.
Okay and then my final question is.
Yes.
So so again, you're you're doing this transition in the first half of your fiscal year when when we look to the second half of the year.
Should we expect the quarterly results to be.
More in line with sort of fiscal 18 fiscal 19.
The areas, where you were kind of doing a two to three dollar share run rate.
Is there any reason you wouldn't get back to that that kind of level in the second half of the fiscal year.
[music].
Yes, I don't have the we're not going to give second half guidance.
I think you can look at the implied kind of second half with what we've given on Q1 and for full year and kind of compare that to historical years.
But thats as comfortable as we feel at this point.
Thank you and I'm not showing any further questions at this time I'd now like to turn the call back to your speaker.
Want to thank everybody for joining us today. We appreciate your interest in your support of Mastercraft and hope you all stay safe.
Thank you. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].