Q4 2021 Mastercraft Boat Holdings Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and fiscal 2021 Master Craft Boat Holdings, Inc Earnings Conference call.
At this time all participant lines are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero now.
Now I'd like to hand, the conference over to Tim Oxley, Chief Financial Officer. Please go ahead.
Thank you operator and welcome everyone. Thank.
Thank you for joining us today, as we discuss massive crafts fourth quarter and full year fiscal 'twenty.
'twenty one performance.
As a reminder, today's call is being webcast live and also be archived on our website for future listening joining me on todays call are Fred Brightbill, Chief Executive Officer, and Chairman and torched arm Barker, our chief revenue Officer.
Greg will begin with an overview of the progress on our strategic priorities and will review our operational highlights from the quarter and full year I will then discuss our financial performance for the fourth quarter and full year fiscal 'twenty one.
And then I will turn the call back to Fred for some closing remarks before we open the call for Q&A.
Before we begin we'd like to remind the participants that the information contained in this call is current only as of today September <unk> 2021.
The company assumes no obligation to update any statements, including forward looking statements statements in our historical facts are forward looking statements is subject to the safe Harbor disclaimer in todays press release.
Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special items and not indicative of our ongoing operations breached.
For each non-GAAP measure we also provide the most directly comparable GAAP measure in our fiscal 2021 fourth quarter and full year fiscal earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results.
I'd also like to remind listeners that there's a slide deck summarizing our financial results in the investors section of our website with that I'll turn the call over to Fred.
Good morning, everyone. Thank you for joining us today, our business executed extremely well against our strategic priorities during fiscal 2021, and a very challenging and dynamic environment. In fact, we delivered record setting performances for each quarter of fiscal 2021, which culminated in record net sales and earning.
For the full year.
Despite the many challenges we faced we grew our net sales by more than 44% and our diluted adjusted earnings per share by nearly 148% year over year.
When compared to our previous record year fiscal 2019, net sales were higher by nearly 13% and diluted earnings per share were up by more than 17%.
All on an organic basis.
This exceptional performance was driven by year over year unit increases at each of our segments, including the most wholesale units ever sold by the company in the fourth quarter.
To accelerate throughput and produce record level units in arguably the most challenging supply chain environment, we've ever experienced and the boating industry is a clear demonstration of our disciplined execution operational excellence and the strength of our team.
We were able to deliver for our dealers and consumers in this robust demand environment.
The credit for this performance goes to our more than 500 employees, who continue to execute our key strategic priorities in the face of adversity and the strength of our marketing market leading brands.
Since refocusing ourselves on our value enhancing growth strategy last year, we have made impressive progress in the pursuit of our overarching objective of driving sustainable accelerated growth by becoming the most consumer focused boating company.
Through fiscal 2021, we continue to execute against each of the four pillars of our strategy.
Consumer experience digital marketing operational excellence and human capital development.
First with the surge of consumer demand, we continue to experience meeting our consumers' expectations during the year meant delivering as many boats as possible to our dealers while not sacrificing quality.
During 2021, we executed against an aggressive production ramp up plan, which allowed us to more than double our monthly shipment rate over the course of the year by aggressively hiring and training new labor.
Certainly managing the supply chain and executing the move of our <unk> brand from our Vanore, Tennessee plant to a dedicated facility in Merritt Island, Florida.
We believe our production ramp up has outperformed many of our competitors.
In an environment, where lack of inventory can lead to loss of market share our ability to increase production faster than our competitors is leading to market share gains.
<unk> released July and revised June market share data shows our master craft brand took market share on a rolling 12 month basis, while our top two competitors lost share.
As important as product availability was this year, maintaining the highest quality standards will always be paramount and is a key competitive advantage.
That is why we took great pains to ensure that despite the various supply chain and labor challenges. We faced this year our quality standards were upheld without compromise.
As evidence of our success Master craft crest amniotic start each received the 2020 marine industry customer satisfaction index or CSI Award for excellence in customer satisfaction in March 2021.
<unk> was not eligible for the award this past year with quality is even more paramount for this high end product and remains a core operational priority as we ramp up production in our new Florida facility.
Additionally, we intensified our focus on consumer centric innovation by nearly doubling the head count of our product development and engineering team during 2021. Please.
These investments are an important component of our market share and financial growth plan.
Our relentless dedication to learning more about our consumers growing needs and expectations has allowed us to further refine our product development process and accelerate innovation.
At our Master craft brand, we recently unveiled one of the most aggressive and well received model year changes in the brand's history.
Including three exciting new models, the <unk> 23, <unk> 24, and the start ups.
The all new XR S model builds upon the iconic XR model by adding the largest and most comfortable transom chase lounges in the industry.
Long with more balanced and improved search capabilities brought about by the launch of our new state of the art Surf Star system.
<unk> is the latest evolution of our award winning Gen. Two surf system and includes all new more robust actuators position sensing technology that allows the most precise wave adjustments in the industry and an all new more intuitive user interface that revolutionize how consumers can make adjustments to their waves.
All of this makes <unk>, the most customizable weight, making technology on the market today.
Rounding out the model year changes, where a myriad of other innovative and consumer centric performance styling and convenience features such as all new customizable tower designs patent pending hydro lock technology, making our towers, the easiest to raise and lower and the most intuitive and powerful stern thruster in the market to name a few.
Crest, we recently launched the all new Continental model and we will be launching another new model later this month.
And not extended we will be launching two new models at the upcoming Fort Lauderdale boat show.
Our expanded.
Talented product development and engineering team will continue to accelerate new model development and innovation for all our brands, which will lead to additional market share growth.
Second we've made great progress on activating a consumer driven digital marketing strategy across our organization to increase consumer brand awareness create a community of interest expand our target market improve lead generation and ultimately drive sales and market share gains.
Earlier this year, we launched several immersive digital experiences for our consumers to learn about our brands and a 360 degree digital environment.
These unique digital showrooms allowed consumers to immerse themselves in each of our brands in a way they would typically do in traditional in person boat shows.
We are in the process of updating these virtual showrooms and anticipate relaunching them with new content and features ahead of the 2022 boat show season.
Given the lingering COVID-19, pandemic and an industry wide shortage of dealer inventory remaining at the forefront of offering consumers immersive differentiated and safe alternatives to learn about our products is critical to our growth and a key strategic priority.
We also continue our investment in digital marketing capabilities across all our brands and drove record year over year lead generation.
At a record low cost per lead we will continue to invest in digital solutions that bring awareness and new consumers through all our brands, including all new websites for not extern crest in fiscal 2022.
This investment will increasingly drive market share gains.
Third we sustained the acceleration of operational excellence programs across all our manufacturing facilities to drive throughput improvements and enhanced quality, we expertly manage the relocation of our <unk> brand during the year and navigated supply chain issues to minimize disruptions and to aggressively ramp up production.
Our outstanding supply chain team has done a tremendous job of minimizing the disruptions to our operations through our strong and longstanding relationships with leading suppliers.
During 2021 these relationships proved to be a competitive advantage for us and we will continue to align ourselves with superior partners as part of our continuous improvement initiatives.
Despite the inefficiencies inherent in our aggressive production ramp up.
The dynamic supply chain environment.
And increasing material and labor costs. The company delivered gross margins of 24, 7% for the full year.
Up nearly 400 basis points versus the prior year.
When compared to fiscal year 2019 full year gross margins were up nearly 50 basis points.
Even more impressive during 2021, we achieved record full year gross margins for master craft and crest brands and improved non <unk> gross margin by 260 basis points.
This performance is a testament to our talented and dedicated employees, our experienced and cycle tested leadership team and our aptitude for operational excellence.
And fourth we remain focused on strengthening our human capital framework to attract develop and retain a highly skilled and specialized workforce. We continued to successfully meet our skilled labor recruiting needs at all our facilities, having grown our workforce by nearly 600 hourly and more than 50 salaried personnel from the start of the fiscal year.
Approximately 50% of our salary growth has come in our product development function.
For the year, we incurred some labor rate inflation due to the tight labor market.
But as evidenced by our gross margin performance, we were able to mitigate most of this increase through overhead absorption as volumes increased.
As we as we review 2021, we are encouraged by the momentum we are seeing.
Around all four of our strategic growth priorities, and we will continue to proactively adapt our strategy to the business environment.
Let me now briefly review some of the latest developments across our brands at <unk>. We successfully completed the relocation of all our production to our Merritt Island, Florida facility that facility is now producing all three <unk> models. The <unk> 30 to <unk> 36 in the <unk> 40, we.
We are busy optimizing production and ramping up that facility can meet continued strong retail demand.
<unk> retail performance continues to exceed our lofty expectations as almost every other Europe produced so far has already been sold at retail.
Javier of dealer inventory as of the end of 2021 is virtually nonexistent as consumers continue to appreciate the brand's progressive style elevated control modern comfort and quality details, which are unmatched in the luxury day boat segment today.
While increase in overhead due to the new Merritt Island facility will have a dilutive near term impact on margins and profitability. The additional capacity will set the brand up for many years of future growth in sales and profit.
We are excited that this excess capacity will allow us to expand <unk> model lineup to capitalize on the brand's substantial addressable market and growth opportunities. We look forward to share additional details of <unk> planned model expansion in the future.
At crest, we experienced continued strength in retail performance during the fourth quarter underscoring the attractiveness of the crest brand the value. It delivers an attainable price point and the easy to use a new voter friendly nature of the pontoon segment.
Since we acquired crest in October of 2018, our focus has been on expanding throughput to meet the increasing demand for the brand and to drive margin expansion.
In the fourth quarter crest continues the exceptional execution of its operating and strategic priorities delivering an outstanding quarter crest.
Crest wholesale unit volume set another quarterly record by shipping the most units of any fourth quarter in the company's history.
Crest also set a fourth quarter record for gross margin, which increased nearly 590 basis points year over year.
This marks the third consecutive quarter in which crest achieve gross margin in excess of our 20% target.
And not start although we experienced robust retail demand had it not been for acute engine shortages during the fourth quarter, we would've experienced even greater growth subsequent.
Subsequent to the quarter engine supply continues to be an issue adversely affecting sales and we are working diligently to improve it.
Although temporarily hampered at the end of the year not extern improved throughput for the quarter and the full year with wholesale unit shipments for the quarter up over 120% year over year and 16% for the full year.
Gross margin for the quarter was up more than 920 basis points year over year and up 260 basis points for the full year.
Additionally, not start generated positive adjusted EBITDA for the full year. We expect continued expansion of both gross margin and adjusted EBITDA margin for fiscal 2022.
We believe our turnaround plan continues to progress with initiatives in place to further ramp up production and improve overall quality and enhance the product offering.
At our Master craft brand retail performance during the fourth quarter continued at an incredible pace that was always limited by historically low dealer inventories for.
For the fourth quarter, the mass scrap brand again, net sales and unit shipment record for any quarter in the brand's history.
Importantly, we will continue to emphasize quality to further differentiate master craft from the competition dealer.
Dealer commitments for model year, 2022 continue to exceed our aggressive expectations as robust retail demand continues to be a strong tailwind.
On a financial basis, excluding the impact of Avi Europe Master craft brands saw increased net sales on wholesale unit growth for the fourth quarter.
Additionally, master craft achieved a strong fourth quarter gross margin, which contributed to the brand's achieving the highest full year gross margin in the history of the company.
Driven by seemingly insatiable retail demand dealer inventories across all our brands are at historically low levels on a consolidated basis as of the end of June we believe that our dealer inventories are under inventoried by 'twenty 500 units with nearly half of the shortfall at Mastercard <unk> alone.
This shortfall is directly attributable to the strong retail demand we've experienced combined with a persistent supply chain disruption, which continues to be a headwind to production.
As a result, we believe it will be well into calendar 2023 before dealer inventories reach optimal levels.
Combined with the current supply and demand dynamic in our industry. This provides us with unprecedented wholesale growth visibility.
While our facilities currently have a capacity above and beyond what we're producing today.
Supply chain logistics and Covid related disruptions continue to be the primary gating factor for production across all of the brands.
In addition to support our aggressive growth plans, we have identified and are pursuing targeted capital projects at Mastercard, not start and crest to ramp up production past current production capacity levels.
Looking back on the year, our progress on our strategic priorities business fundamentals and the strength of our brands allowed us to deliver a record setting fiscal year 2021.
We will look to build upon that success in fiscal 'twenty two as we remain committed to making investments to further strengthen our competitive position grow our categories deliver shareholder value guided by our long term focus on strategic priorities.
Judging by how our talented employees and experienced leadership team responded to the challenges of 2021.
We're confident that we will continue to deliver superior performance and fiscal 2022.
I will now turn the call over to Tim who will provide more color on our financial results Tim. Thanks, Brad looking at the top line net sales for the full year were a record $533.0 million.
An increase of $169.0 million or <unk> 44, 8%.
Paired to $363 million for the prior year.
This increase was primarily a result of higher wholesale unit volume and lower dealer incentives as retail demand has remained robust.
This favorability was partially offset by the impact of segment mix.
For additional context regarding our except from performance this year.
When compared to fiscal 2019, which was our previous record net sales increased by $63.0 million or 12, 7%.
As Fred mentioned this was the most profitable year in the company's history gross profit for the full year increased $60.0 million to $130 million compared to $79.0 million for the prior year period, principally driven by higher sales volumes.
<unk> dealer incentives and higher prices. This favorability was partially offset by higher material costs costs associated with the transition of avera to our new Mayor island facility and higher compensation cost.
Our gross margin was 24, 7% for the full year, an increase of 390 basis points compared to the prior year period.
The increase was primarily attributable to lower dealer incentives favor.
Favorable overhead absorption driven by the higher sales volume and higher prices.
Partially offset by costs associated with the transition of <unk> to our new Merritt Island facility and higher labor cost.
Compared to fiscal 2019, our consolidated gross margin was up more than 40 basis points.
Operating expenses were $54 million for the full year, a decrease of $56.0 million or 47% compared to the prior year period.
The decrease was primarily driven by goodwill and other intangible asset impairment charges of $60.0 million relates to our <unk> star at crest segments recorded in fiscal 2020 and.
In addition, the company had lower selling and marketing cost in fiscal 2021.
Primarily due to the lack of in person boat shows and the strength of organic retail demand.
The decrease was partially offset by higher general and administrative expenses.
Solving from higher compensation costs, and additional investments related to product development and information technology.
Despite our continued investment in product development and other areas of SG&A for the full year SG&A SG&A as a percentage of net sales was the lowest on record since we became a public company.
Turning to the bottom line adjusted net income for the full year increased to a record $70.0 million or $34.0 per diluted share computed using the company's estimated annual effective tax rate of approximately 23%.
This compares to an adjusted net income books.
$26.0 million or $35.0 per diluted share in the prior year period, and $53 million or $84.0 per diluted share in fiscal 2019.
Adjusted EBITDA was a record $100.0 million for the full year compared to $47.0 million for the prior year period.
Adjusted EBITDA margin was 17, 6% up 540 basis points from 12, 2% in the prior year period.
Compared to fiscal 2019, adjusted EBITDA was up.
Nearly 17% and adjusted EBITDA margin was up more than 60 basis points.
As for the fourth quarter results net sales profitability and earnings all benefited from the robust retail demand environment and our delivery of the highest wholesale unit volume for any fourth quarter in the history of the company.
Net sales were a record $160.0 million, an increase of $51 million or 204%.
Compared to the Covid impacted the prior year period.
Primarily as a result of our record sales volume.
Gross profit for the quarter was a record $39.0 million and our gross margin was 23, 9% an increase of 940 basis points. This gross margin improvement was principally driven by favorable overhead absorption from higher sales volume.
Lower warranty costs, and lower dealer incentives and partially offset by higher material costs.
Costs associated with the new Merit iron facility and higher labor cost the higher material costs were primarily driven by inflation as well as supply chain and logistics disruptions.
Adjusted net income increased to $24.0 million for the quarter were 98 per diluted share computed using the company's estimated annual effective tax rate of approximately 23%.
This compares to adjusted net loss of $9.0 million or 10 cents per diluted share in the prior year period.
Turning to our balance sheet and liquidity in June we closed on a new $160 million.
Credit facility.
This credit facility, which replaced the Companys previous credit facility will provide us with additional liquidity and financial flexibility to continue to execute on our consumer centric growth strategy and capital allocation objectives.
Through the new facility, we increased our access to revolving credit from $35 million to $100 million. In addition to our strong operating performance and unprecedented wholesale demand.
Visibility enabled us to push our effective interest rates lower which we expect will yield interest savings over the term of the new facility.
Driven by strong operating cash flow, we ended the year with $42.0 million of cash.
<unk> funding substantial growth oriented projects during the year.
When we add this.
Add that cash to the $66 million of availability on our new revolving credit facility. We ended the year with over $105 million in total liquidity.
Net leverage was <unk> six times adjusted EBITDA at the end of the year.
We also announced that our board of directors has authorized a new share repurchase program under which we may repurchase up to $50 million worth of outstanding common stock.
<unk> authorization at this program reflects the confidence we have in our company our growth strategy, our comprehensive portfolio of brands and our ability to execute on what we believe to be a tremendous opportunity before us.
We maintain a disciplined and thoughtful approach to capital allocation through which we prioritize balance sheet resiliency and growth, while looking for prudent opportunities to return capital to shareholders.
We believe the company's recent share price represents a great value to investors and we look forward to being able to opportunistically utilize this program to create additional value for our shareholders.
Our first opportunity to be in a market under this program will be later this month.
For the full year fiscal 2022 consolidated net sales growth is expected to be up in the high teens percent range.
With adjusted EBITDA margins flat year over year, and adjusted earnings per share growth up in the high teens percent range year over year.
Driven by growth oriented projects, we expect capital expenditures to be between $25 million $30 million for the full year.
This guidance represents another record year is all organic.
For the first quarter of fiscal 2022 consolidated net sales growth is expected to be up in the mid 30% range with adjusted EBITDA margins in the low 14% range and adjusted earnings per share growth up in that low 20% range year over year.
Importantly, we face significant ongoing risks from supply chain disruptions and the impact of Covid, we remain laser focused on mitigating these headwinds.
Now I'll turn the call back over to Fred.
Thanks, Tim.
Summarize my earlier comments, we are pleased by the progress we made during fiscal 2021 to accelerate production efficiently manage our supply chain to meet increased consumer demand across our brands and to maintain our uncompromising quality standards.
This exceptional execution resulted in record organic growth in sales and earnings and based on the June 2021 data has led to market share gains. We continue to believe the increased retail momentum we have experienced for consumers seeking the boating lifestyle and our brands will endure.
<unk> continued growth for our company.
As we managed through an unprecedented and dynamic business environment near term, we remain committed to long term value creation for our shareholders and all stakeholders we.
We will continue to be a purpose driven business committed to our consumers dealer and vendor partners and people.
Operator, you May now open the line for questions.
Thank you.
As a reminder to ask a question.
You will need to press Star then one on your telephone.
Your question. Please press the pound key.
Standby, while we compile the Q&A roster.
Our first question comes from the line of Joe also Bello with Raymond James Your line is now open.
Thanks, Hey, guys good morning.
First question for you Fred you 2500 unit dealer inventory deficits.
<unk> does that assume dealer turns get back to pre COVID-19 levels or are you seeing turns remain elevated now that dealers have learned to operate.
Inventory levels.
That assumes that we improve our efficiency and operate with lower inventory levels at our dealers and higher turnover.
Absolutely assumes a step up in performance.
Got it and then just secondly in terms of the guidance you're expecting about a 200 basis point decline in EBITDA margins in Q1 year over year, I think sequentially, it's down about 300 basis points help us understand what's what's dragging down margins in Q1, and I guess, how much confidence you have in the balance of the year.
Kind of offset that Thats, what you get back to flat.
Sure the headwinds were experiencing margin wise starts with labor inefficiencies associated with the supply chain disruptions.
We're putting parts on the boats out of sequence.
We're working overtime because parts are coming in later than.
And then we expected so that is a big driver to the decrease in margin. We're talking about we also have a mix of profits coming from lower margin segments during the quarter.
We have the effect of the avera overhead.
But which is incremental to compared to the quarter a year ago.
We've got a bit higher inflation than we originally anticipated.
When we established our budget and keep in mind that those things are partially offset by overhead absorption.
And operating expense leverage.
Okay. Thank you guys appreciate it.
Thank you.
Our next question comes from the line of Craig Kennison with Baird. Your line is now open.
Hey, good morning, Thanks for taking my questions it sounds like.
You've done a better job of getting supply into the channel, but you're still well below where you want to be with respect to inventory. So is there a way to think through how much retail you might be missing out on based on the level of demand versus what you've actually seen turn at retail.
One of the thing.
Going to turn this over to George after I make a brief comment.
One of the things that's important now as we have consumers that are ordering.
And therefore, we have wholesale shipments that are immediately translating to retail sales as soon as they hit the dealer.
As a result, the inventory isn't there on the floor, but.
We're still able to support that retail sales so.
To some extent, we've seen a change in behavior.
Well beyond what was past practice in terms of.
<unk> ahead by consumers, Georgia.
Yes, Greg I guess, what I would add it's difficult to pinpoint, but what we're seeing and what we're hearing from our dealers is that retail continues to be robust consumers continue to be attracted to the boating lifestyle, obviously with.
The resurgence if you will of the Covid and the Delta variant.
Consumers are recognizing that things arent going to go back to normal anytime soon and so.
We've got many consumers that even if they don't have inventory on the ground today are putting in orders for boats that there they're already pre buying boats today for next summer selling next summer's boating season. So.
I think we're not losing much its just delaying that when the consumers get the boats and we are hearing from dealers that a high percentage of the boat that they have already been allocated are pre sold.
And so that's encouraging to us and we think that momentum will continue.
Sure.
And George just following up on that with more pre sold units I assume there may be more customized does that mean, they're coming.
With higher higher level of features and therefore, it may be a higher margin higher ASP kind of boat in the preorder book.
Yes, that's absolutely right Craig that we experienced that obviously last year.
With the high percentage of retail sold boats and we expect that trend to continue.
In particular as we continue to come out with new innovations and features as Fred described on the call with our latest model year introductions.
We think that will continue to drive additional ASP.
And margin growth.
And then lastly, with respect to guidance.
It does just the revenue guidance.
Is the cap on that Europe production capacity.
Or is it some assumption about retail inventory.
Because it does seem like with such an urgent need for inventory and pretty strong demand that there's probably demand for more than what your revenue guidance implies.
First and foremost.
It's absolutely not retail and demand.
We believe we've got a two year runway ahead of us where we'll be scrambling to satisfy that demand having said that when we talk about capacity, it's capacity constrained by the supply chain and the Covid.
The pandemic that continues to linger and rear its head again in the Delta form so we.
We have.
Probably 25% 30%.
More capacity today.
And then we're able to operate it based on.
Cap due to the supply chain so supply chain is short answer.
Great Hey, thank you.
You're welcome.
Thank you as a reminder to ask a question you will need to press Star then one on your telephone.
One moment for questions.
There are no further questions ladies and gentlemen. This concludes today's conference call. We thank you for your participation you may now disconnect.
Okay.
[music].
Okay.
Okay.
Sure.
[music].
[music].
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and fiscal 2021 Master Craft Boat Holdings, Inc. Earnings Conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you will need it.
Star then one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.
Now I'd like to hand, the conference over to Tim Oxley, Chief Financial Officer. Please go ahead.
Thank you operator and welcome everyone. Thank.
Thank you for joining us today, as we discuss matched crafts fourth quarter and full year fiscal 'twenty.
'twenty one performance.
As a reminder, today's call is being webcast live and also be archived on our website for future listening joining me on todays call are Fred Brightbill, Chief Executive Officer, and Chairman and Georgetown and Barker, Our Chief revenue Officer, Greg.
Greg will begin with an overview of the progress on our strategic priorities and a review of our operational highlights from the quarter and full year I will then discuss our financial performance for the fourth quarter and full year fiscal 'twenty. One then.
And I will turn the call back to Fred for some closing remarks before we open the call for Q&A.
Before we begin we'd like to remind the participants that the information contained in this call is current only as of today September 2nd 2021.
The company assumes no obligation to update any statements, including forward looking statements statements and in our historical facts are forward looking statements are subject to the safe Harbor disclaimer in todays press release.
Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special items not indicative of our ongoing operations breached.
For each non-GAAP measure we also provide the most directly comparable GAAP measure in our fiscal 2021 fourth quarter and full year fiscal earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results.
I'd also like to remind listeners that there's a slide deck summarizing our financial results in the investors section of our website with that I'll turn the call over to Greg.
Good morning, everyone. Thank you for joining us today, our business executed extremely well against our strategic priorities during fiscal 2021 in a very challenging and dynamic environment. In fact, we delivered record setting performances for each quarter of fiscal 2021, which culminated in record net sales and earnings.
For the full year.
Despite the many challenges we faced we grew our net sales by more than 44% and our diluted adjusted earnings per share by nearly 148% year over year.
When compared to our previous record year fiscal 2019, net sales were higher by nearly 13% and diluted earnings per share were up by more than 17%.
All on an organic basis.
This exceptional performance was driven by year over year unit increases at each of our segments, including the most wholesale units ever sold by the company in the fourth quarter.
To accelerate throughput and produce record level units in arguably the most challenging supply chain environment, we have ever experienced and the boating industry is a clear demonstration of our disciplined execution operational excellence and the strength of our team.
We were able to deliver for our dealers and consumers and this robust demand environment.
The credit for this performance goes to our more than 500 employees, who continue to execute our key strategic priorities in the face of adversity and the strength of our marketing market leading brands.
Since refocusing ourselves on our value enhancing growth strategy last year, we have made impressive progress in the pursuit of our overarching objective of driving sustainable accelerated growth by becoming the most consumer focused boating company.
During fiscal 2021, we continue to execute against each of the four pillars of our strategy.
<unk> experience digital marketing operational excellence and human capital development.
First with a surge of consumer demand, we continue to experience meeting our consumers' expectations during the year meant delivering as many boats as possible to our dealers while not sacrificing quality.
During 2021, we executed against an aggressive production ramp up plan, which allowed us to more than double our monthly shipment rate over the course of the year by aggressively hiring and training new labor expertly managing the supply chain and executing the move of our <unk> brand from our Vanore, Tennessee plant to a dedicated facility in Merritt.
Island, Florida.
We believe our production ramp up has outperformed many of our competitors.
In an environment, where lack of inventory can lead to loss of market share our ability to increase production faster than our competitors is leading to market share gains.
The recently released July and revised June market share data shows our master craft brand took market share on a rolling 12 month basis, while our top two competitors lost share.
As important as product availability was this year, maintaining the highest quality standards will always be paramount and is a key competitive advantage.
That is why we took great pains to ensure that despite the various supply chain and labor challenges. We faced this year our quality standards were upheld without compromise.
As evidence of our success Master craft crest amniotic start each received the 2020 marine industry customer satisfaction Index, Our CSI Award for excellence in customer satisfaction in March 2021.
<unk> was not eligible for the award this past year with quality is even more paramount for this high end product and remains a core operational priority as we ramp up production in our new Florida facility.
Additionally, we intensified our focus on consumer centric innovation by nearly doubling the head count of our product development and engineering team during 2021.
These investments are an important component of our market share and financial growth plan.
Our relentless dedication to learning more about our consumers growing needs and expectations has allowed us to further refine our product development process and accelerate innovation.
At our Master craft brand, we recently unveiled one of the most aggressive and well received model year changes in the brand's history, including three exciting new models. The <unk> 23, <unk> 24, and the start ups.
The all new XR S model builds upon the iconic XR model by adding the largest and most comfortable transom chase lounges, and the industry along with more balanced and improved search capabilities brought about by the launch of our new state of the art Surf Star system.
<unk> is the latest evolution of our award winning Gen. Two surf system and includes all new more robust actuators.
<unk> sensing technology that allows the most precise wave adjustments in the industry and an all new more intuitive user interface that revolutionize how consumers can make adjustments to their waves.
All of this makes <unk>, the most customizable way, making technology on the market today.
Rounding out the model year changes, where a myriad of other innovative and consumer centric performance styling and convenience features such as all new customizable power designs patent pending hydro lock technology, making our towers, the easiest to raise or lower the most intuitive and powerful stern thruster in the market to name a few.
Crest, we recently launched the all new Continental model and will be launching another new model later this month.
And not expire we will be launching two new models at the upcoming Fort Lauderdale boat show.
Our expanded and talented product development and engineering team will continue to accelerate new model development and innovation for all our brands, which will lead to additional market share growth.
Second we've made great progress on activating a consumer driven digital marketing strategy across our organization to increase consumer brand awareness create a community of interest expand our target market improve lead generation and ultimately drive sales and market share gains earlier. This year, we launched several immersive digital.
And experiences for our consumers to learn about our brands and a 360 degree digital environment.
These unique digital showrooms allowed consumers to immerse themselves in each of our brands in a way they would typically do in traditional in person boat shows.
We are in the process of updating these virtual showrooms and anticipate relaunching them with new content and features ahead of the 2022 boat show season.
Given the lingering COVID-19, pandemic and an industry wide shortage of dealer inventory remaining at the forefront of offering consumers immersive differentiated and safe alternatives to learn about our products is critical to our growth and a key strategic priority.
We also continue our investment in digital marketing capabilities across all our brands and drove record year over year lead generation.
At a record low cost per lead we will continue to invest in digital solutions that bring awareness and new consumers through all our brands, including all new websites for not extorting crest in fiscal 2022.
This investment will increasingly drive market share gains.
Third we sustained the acceleration of operational excellence programs across all our manufacturing facilities to drive throughput improvements and enhanced quality, we expertly manage the relocation of our <unk> brand during the year and navigated supply chain issues to minimize disruptions and to aggressively ramp up production.
Our outstanding supply chain team has done a tremendous job of minimizing the disruptions to our operations through our strong and long standing relationships with leading suppliers.
During 2021 these relationships proved to be a competitive advantage for us and we will continue to align ourselves with superior partners as part of our continuous improvement initiatives.
Despite the inefficiencies inherent in our aggressive production ramp up.
The dynamic supply chain environment.
And increasing material and labor costs. The company delivered gross margins of 24, 7% for the full year.
Up nearly 400 basis points versus the prior year.
When compared to fiscal year 2019 full year gross margins were up nearly 50 basis points.
Even more impressive during 2021, we achieved record full year gross margins for Mastercraftsman crest brands and improved non <unk> gross margin by 260 basis points.
This performance is a testament to our talented and dedicated employees, our experienced and cycle tested leadership team and our aptitude for operational excellence.
And fourth we remain focused on strengthening our human capital framework to attract develop and retain a highly skilled and specialized workforce. We continue to successfully meet our skilled labor recruiting needs at all our facilities, having grown our workforce by nearly 600 hourly and more than 50 salaried personnel from the start of the fiscal year.
Approximately 50% of our salary growth has come in our product development function.
For the year, we incurred some labor rate inflation due to the tight labor market.
But as evidenced by our gross margin performance, we were able to mitigate most of this increase through overhead absorption as volumes increased.
As we as we review 2021, we're encouraged by the momentum we are seeing.
Around all four of our strategic growth priorities and we'll continue to proactively adapt our strategy to the business environment.
Let me now briefly review some of the latest developments across our brands at <unk>. We successfully completed the relocation of all our production to our Merritt Island, Florida facility that facility is now producing all three <unk> models. The <unk> 30 to <unk> 36 in the AAV 40, we.
We are busy optimizing production and ramping up that facility can meet continued strong retail demand.
Javier as retail performance continues to exceed our lofty expectations as almost every other Europe produced so far has already been sold at retail.
Javier of dealer inventory as of the end of 2021 is virtually nonexistent as consumers continue to appreciate the brand's progressive style elevated control modern comfort and quality details, which are unmatched in the luxury day boat segment today.
While increase in overhead due to the new Merritt Island facility will have a dilutive near term impact on margins and profitability. The additional capacity will set the brand up for many years of future growth in sales and profit.
We are excited that this excess capacity will allow us to expand <unk> model lineup to capitalize on the brand's substantial addressable market and growth opportunities. We look forward to share additional details of IV or is planned model expansion in the future.
At crest, we experienced continued strength in retail performance during the fourth quarter underscoring the attractiveness of the crest brand the value. It delivers an attainable price point and the easy to use a new voter friendly nature of the pontoon segment.
Since we acquired crest in October of 2018, our focus has been on expanding throughput to meet the increasing demand for the brand and to drive margin expansion.
In the fourth quarter crest continued the exceptional execution of its operating and strategic priorities delivering an outstanding quarter crest.
Crest wholesale unit volume set another quarterly record by shipping the most units of any fourth quarter in the company's history.
Crest also set a fourth quarter record for gross margin, which increased nearly 590 basis points year over year. This marks the third consecutive quarter in which crest achieve gross margins in excess of our 20% target.
And not XR, although we experienced robust retail demand had it not been for acute engine shortages during the fourth quarter, we would've experienced even greater growth.
Subsequent to the quarter engine supply continues to be an issue adversely affecting sales and we are working diligently to improve it.
Although temporarily hampered at the end of the year not extern improved throughput for the quarter and the full year with wholesale unit shipments for the quarter up over 120% year over year and 60% for the full year.
Gross margin for the quarter was up more than 920 basis points year over year and up 260 basis points for the full year.
Additionally, not start generated positive adjusted EBITDA for the full year. We expect continued expansion of both gross margin and adjusted EBITDA margin for fiscal 2022.
We believe our turnaround plan continues to progress with initiatives in place to further ramp up production improve overall quality and enhanced product offerings.
At our master craft brands retail performance during the fourth quarter continued at an incredible pace that was always limited by historically low dealer inventories for.
For the fourth quarter, the mass scrap brand again, net sales and unit shipment record for any quarter in the brand's history.
Importantly, we will continue to emphasize quality to further differentiate master craft from the competition dealer.
Dealer commitments for model year, 2022 continue to exceed our aggressive expectations as robust retail demand continues to be a strong tailwind.
On a financial basis, excluding the impact of Avi Europe. The master craft brands saw increased net sales on wholesale unit growth for the fourth quarter.
Additionally, master craft achieved a strong fourth quarter gross margin, which contributed to the brand achieving the highest full year gross margin in the history of the company.
Driven by seemingly insatiable retail demand dealer inventories across all our brands are at historically low levels on.
On a consolidated basis as of the end of June we believe that our dealer inventories are under inventoried by 'twenty 500 units with nearly half of the shortfall at <unk> alone.
This shortfall is directly attributable to the strong retail demand we've experienced combined with a persistent supply chain disruption, which continues to be a headwind to production.
As a result, we believe it will be well into calendar 2023 before dealer inventories reach optimal levels.
Combined with the current supply and demand dynamic in our industry. This provides us with unprecedented wholesale growth visibility.
While our facilities currently have a capacity above and beyond what we're producing today <unk>.
Supply chain logistics and Covid related disruptions continue to be the primary gating factor for production across all of the brands.
In addition to support our aggressive growth plans, we have identified and are pursuing targeted capital projects at Mastercard, <unk> and crest to ramp up production past current production capacity levels.
Looking back on the year, our progress on our strategic priorities business fundamentals and the strength of our brands allowed us to deliver a record setting fiscal year 2021.
We will look to build upon that success in fiscal 'twenty two as we remain committed to making investments to further strengthen our competitive position grow our categories deliver shareholder value guided by our long term focus on strategic priorities.
Judging by how our talented employees and experienced leadership team responded to the challenges of 2021.
We are confident that we will continue to deliver superior performance and fiscal 2022.
I will now turn the call over to Tim who will provide more color on our financial results Tim. Thanks, Brad looking at the top line net sales for the full year were a record $533.0 million and.
An increase of $169.0 million or <unk>, 44, 8% compared to $363 million for the prior year.
This increase was primarily a result of higher wholesale unit volume and lower dealer incentives as retail demand has remained robust.
This favorability was partially offset by the impact of segment mix.
For additional context regarding our accept from performance this year.
When compared to fiscal 2019, which was our previous record net sales increased by $63.0 million or 12, 7%.
As Fred mentioned this was the most profitable year in the company's history gross profit for the full year increased $60.0 million to $130 million compared to $79.0 million for the prior year period, principally driven by higher sales volumes.
<unk> and higher prices. This favorability was partially offset by higher material costs costs associated with the transition of Avera are Numero island facility and higher compensation cost.
Our gross margin was 24, 7% for the full year, an increase of 390 basis points compared to the prior year period.
The increase was primarily attributable to lower dealer incentives favor.
Favorable overhead absorption driven by the higher sales volume and higher prices.
Partially offset by costs associated with the transaction that Bobby era to our new Merritt Island facility and higher labor cost.
Compared to fiscal 2019, our consolidated gross margin was up more than 40 basis points.
Operating expenses were $54 million for the full year, a decrease of $56.0 million or <unk>, 47% compared to the prior year period.
The decrease was primarily driven by goodwill and other intangible asset impairment charges of $60.0 million relates to our Nordic Star and craft segments recorded in fiscal 2020 and.
In addition, the company had lower selling and marketing cost in fiscal 2021, primarily due to the lack of in person boat shows and the strength of organic retail demand.
Decrease was partially offset by higher general and administrative expenses, resulting from higher compensation costs and additional investments related to product development and information technology.
Despite our continued investment in product development and other areas of SG&A for the full year SG&A SG&A as a percentage of net sales was the lowest on record since we became a public company.
Turning to the bottom line adjusted net income for the full year increased to a record $70.0 million or $34.0 per diluted share computed using the company's estimated annual effective tax rate of approximately 23%.
This compares to an adjusted net income rose $26.0 million or $35.0 per diluted share in the prior year period, and $53 million or $84.0 per diluted share in fiscal 2019.
Adjusted EBITDA was a record $100.0 million for the full year compared to $47.0 million for the prior year period.
<unk> EBITDA margin was 17, 6% up 540 basis points from 12, 2% in the prior year period.
Compared to fiscal 2019, adjusted EBITDA was up.
Nearly 17% and adjusted EBITDA margin was up more than 60 basis points.
As for the fourth quarter results net sales profitability and earnings all benefited from the robust retail demand environment and our delivery of the highest wholesale unit volume for any fourth quarter in the history of the company.
Net sales were a record $160.0 million, an increase of $51 million or 204%.
Compared to the Covid impacted the prior year period.
Primarily as a result of a record sales volume.
Gross profit for the quarter was a record $39.0 million and our gross margin was 23, 9% an increase of 940 basis points. This gross margin improvement was principally driven by favorable overhead absorption from higher sales volume.
Lower warranty costs, and lower dealer incentives and partially offset by higher material costs.
Costs associated with the numerical iron facility and higher labor cost to higher material costs were primarily driven by inflation as well as supply chain and logistics disruptions.
Adjusted net income increased to $24.0 million for the quarter were 98 per diluted share computed using the company's estimated annual effective tax rate of approximately 23%.
This compares to adjusted net loss of $9.0 million or <unk> 10 per diluted share in the prior year period.
Turning to our balance sheet and liquidity in June we closed on a new $160 million credit facility.
This credit facility, which replaced the Companys previous credit facility will provide us with additional liquidity and financial flexibility to continue to execute on our consumer centric growth strategy and capital allocation objectives.
Through the new facility, we increased our access to revolving credit from $35 million to $100 million. In addition to our strong operating performance and unprecedented wholesale demand.
This ability enabled us to push our effective interest rates lower which we expect will yield interest savings over the term of the new facility.
Driven by strong operating cash flow, we ended the year with $42.0 million of cash despite funding substantial growth oriented projects during the year when.
When we add this.
Add that cash to the $66 million of availability on our new revolving credit facility. We ended the year with over $105 million of total liquidity.
Our net leverage was <unk> six times adjusted EBITDA at the end of the year.
We also announced that our board of directors has authorized a new share repurchase program under which we may repurchase up to $50 million worth of outstanding common stock.
<unk> authorization at this program reflects the confidence we have in our company our growth strategy, our comprehensive portfolio of brands and our ability to execute on what we believe to be a tremendous opportunity before us.
We maintain a disciplined and thoughtful approach to capital allocation through which we prioritize balance sheet resiliency and growth, while looking for prudent opportunities to return capital to shareholders.
We believe the company's recent share price represents a great value to investors and we look forward to being able to opportunistically utilize this program to create additional value for our shareholders.
Our first opportunity to be in the market under this program will be later this month.
For the full year fiscal 2022 consolidated net sales growth is expected to be up in the high teens percent range.
With adjusted EBITDA margins flat year over year, and adjusted earnings per share growth up in the high teens percent range year over year.
Driven by growth oriented projects, we expect capital expenditures to be between $25 million $30 million for the full year.
This guidance represents another record year is all organic.
For the first quarter of fiscal 2022 consolidated net sales growth is expected to be up in the mid 30% range with adjusted EBITDA margins in the low 14% range and adjusted earnings per share growth up in that low 20% range year over year.
Importantly, we face significant ongoing risk from supply chain disruptions and the impact of Covid, we remain laser focused on mitigating these headwinds.
Now I'll turn the call back over to Fred.
Thanks, Tim.
To summarize my earlier comments, we are pleased by the progress we made during fiscal 2021 to accelerate production efficiently manage our supply chain to meet increased consumer demand across our brands and to maintain our uncompromising quality standards.
This exceptional execution resulted in record organic growth in sales and earnings and based on the June 2021 data has led to market share gains.
We continue to believe the increased retail momentum we have experienced for consumers seeking the boating lifestyle and our brands will endure.
Leading continued growth for our company.
As we manage through an unprecedented and dynamic business environment near term, we remain committed to long term value creation for our shareholders and all stakeholders.
We will continue to be a purpose driven business committed to our consumers dealers and vendor partners and people.
Operator, you May now open the line for questions.
Thank you.
As a reminder to ask a question.
I need to press Star then one on your telephone.
Your question. Please press the pound key please standby, while we compile the Q&A roster.
Sure.
Okay.
Our first question comes from the line of Joe also Bello with Raymond James Your line is now open.
Thanks, Hey, guys good morning.
First question for you Fred 2500 units.
Towards deficit.
Decided does that assume dealer turns get back to pre COVID-19 levels or are you seeing turns remain elevated now that dealers have learned to operate at lower inventory levels.
That assumes that we improve our efficiency and operate with lower inventory levels at our dealers and higher turnover.
Absolutely assumes a step up in performance.
Got it and then just secondly in terms of the guidance you're expecting about a 200 basis point decline in EBITDA margin in Q1 year over year, I think sequentially, it's down about 300 basis points help us understand what's what's dragging down margins in Q1, and I guess, how much confidence you have in the balance of the year.
To offset that Thats, what you get back to flat.
Sure the headwinds were experiencing margin wise starts with labor inefficiencies associated with the supply chain disruptions.
We're putting parts on the boats out of sequence.
We're working overtime because parts are coming in later than we.
We expected so that is a big.
Big driver to the decrease in margin. We're talking about we also have a mix of profit coming from lower margin segments during the quarter.
We have the effect of the avera overhead.
But which is incremental to compared to the quarter a year ago.
We've got a bit higher inflation than we originally anticipated.
We established our budget and keep in mind that those things were partially offset by overhead absorption and <unk>.
Operating expense leverage.
Okay. Thank you guys appreciate it.
Thank you.
Our next question comes from the line of Craig Kennison with Baird. Your line is now open.
Hey, good morning, Thanks for taking my questions.
Sounds like.
You've done a better job of getting supply into the channel, but you're still well below where you want to be with respect to inventory. So is there a way to think through how much retail you might be missing out on based on the level of demand versus what you've actually seen churn at retail.
One of the thing I'm going to turn it over to George after I make a brief comment one of the things that is important now as we have consumers that are.
Ordering.
<unk>.
And therefore, we have wholesale shipments that are immediately translating to retail sales as soon as they hit the dealer.
As a result inventory isn't there on the floor, but.
We're still able to support that retail sales so.
To some extent, we've seen a change in behavior.
Well beyond what was past practice in terms of.
Ordering ahead by consumers, Georgia.
Yes, Greg I guess, what I would add it's difficult to pinpoint, but what we're seeing and what we're hearing from our dealers is that retail continues to be robust consumers continue to be attracted to the boating lifestyle, obviously with.
Consumers are recognizing that things arent going to go back to normal anytime soon and so.
We've got many consumers that even if they don't have inventory on the ground today are putting in orders for boats that there they're already pre buying boats today for next summer selling next summer's boating season. So.
I think we're not losing much its just delaying that when the consumers get the boats and we are hearing from dealers that a high percentage of the boat that they have already been allocated are pre sold.
And so thats encouraging to us and we think that momentum will continue.
And George just following up on that with more pre sold units I assume there may be more customized does that mean, they're coming.
With higher a higher level of fee cherries, and therefore, it may be a higher margin higher ASP kind of boat in the preorder book.
Yes, that's absolutely right Craig that we experienced that obviously last year with.
With the high percentage of retail sold boats and we expect that trend to continue.
In particular as we continue to come out with new innovations and features as Fred described on the call with our latest model year introductions, we think that will continue to drive additional ASP and margin growth.
And then lastly, with respect to guidance.
It does just the revenue guidance.
Is the cap on that Europe production capacity or is it some assumption about retail and inventory.
Because it does seem like.
Such an urgent need for inventory and pretty strong demand that there's probably demand for more than what your revenue guidance implies.
First and foremost.
It's absolutely not.
Retail and demand.
We believe we've got a two year runway ahead of us where we'll be scrambling to satisfy that demand having said that when we talk about capacity, it's capacity constrained by the supply chain and the Covid.
The pandemic that continues to linger and.
Its head again in the Delta form so we.
We have.
Probably 25% 30%.
More capacity today.
And we're able to operate it based on.
The cap due to the supply chain so supply chain is sure.
Short answer.
Great Hey, thank you.
Welcome.
Thank you as a reminder to ask a question you will need to press Star then one on your telephone.
One moment for questions.
There are no further questions ladies and gentlemen. This concludes today's conference call. We thank you for your participation you may now disconnect.