Q1 2023 Mastercraft Boat Holdings Inc Earnings Call

November 9, 2022

[music].

Good day and thank you for standing by welcome to the first quarter 2023 Master Craft Boat Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is reyes.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to Tim Oxley Chief Financial Officer. Please go ahead.

Thank you operator and welcome everyone. Thank you for joining us today as we discuss <unk> first quarter performance for fiscal 2023.

As a reminder, today's call is being webcast live and will also be archived on our website for future listening.

With me on this morning's call are Fred Brightbill, Chief Executive Officer and Chairman.

And George Steinberger, our Chief revenue Officer.

Greg will begin with a review of our operational highlights from the first quarter.

Then discuss our financial performance for the quarter.

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 participants that the information contained in this call is current only as of today November nine 2020.

The company assumes no obligation to update any statements, including forward looking statements statements that are not historical facts are forward looking statements and subject to the safe Harbor disclaimer in todays press release. Additionally, on this conference call, we will discuss non-GAAP measures.

<unk> excludes special for items, not indicative of our ongoing operations.

For each non-GAAP measure we also provide the most directly comparable GAAP measure our fiscal 2023 first quarter earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results.

We would also like to remind listeners that there is a slide deck summarizing our financial results in the investors section of our website.

In addition, beginning this quarter the financial results of the Nordic Star segment are reported as discontinued operations separate from the results of our continuing operations. Following the sale did not expire business during the quarter unless otherwise noted the following commentary is made on a continuing operations basis with that I'll turn the call.

Fred.

Yes.

Thank you for joining us today before we begin our thoughts are with all of those including a more than 200 employees in the path of the storm currently impacting Florida.

Our sincere hope is that they all remain safe and secure.

Our business performed extremely well during the first quarter and a very challenging and dynamic environment.

Our results reflect continuation of exceptional execution against our strategic and operational priorities as we delivered the best first quarter in the company's history.

Furthermore, the first quarter represented an eighth consecutive period over period record setting quarter.

Net sales and diluted adjusted earnings per share.

Adjusted earnings per share were all the highest for any first quarter in the company's history.

This excellent performance also represents an eighth consecutive quarter of net sales growth of more than 20% a testament to our growth oriented strategy.

Each of our businesses contributed to our revenue growth and profitability during the quarter.

When compared to the first quarter of fiscal 2022 net sales were higher by nearly 30% adjusted EBITDA grew by nearly 73% adjusted EBITDA margin increased 530 basis points and adjusted net income per share grew by more than 90% year over year.

One of our four strategic priorities is a never ending pursuit of greater operational excellence. This focus allowed us to mitigate the impact of a very challenging supply chain environment.

Our superior supply chain management resulted in improved production efficiencies and throughput, which enabled each of our brands to make progress in replenishing dealer inventories during the quarter.

This success is a result of strategically building a world class supply chain team choosing to focus our operations on core competencies and aligning ourselves with the best supplier partners in the industry.

Although improving the supply chain continues to be a risk in particular for certain second tier supplier components sourced from China.

Labor efficiency and availability also improved during the quarter, our ability to successfully navigate these supply chain and labor challenges resulted in industry, leading gross margins for the quarter.

These results would not have been possible without the dedicated efforts of our employees our emphasis on human capital and our status as the premier employer in the communities in which we operate is enabling us to attract and retain skilled labor.

In addition, during the quarter, we continued our impressive track record of safety, achieving 3 million man hours worked without a lost time incident at our master craft brand.

This achievement is a testament to our commitment to safety and essential element of master craft core values and is attributable to every single individual in our workforce I could not be prouder of what they have achieved.

We believe our superior operating model is allowing us to make more progress in building much needed dealer inventories faster than our closest competitors.

As of the end of the first quarter dealer inventories are about 25% lower than the first quarter of fiscal 2019.

Our success in replenishing dealer inventories and improving product availability will be a competitive advantage heading into the 2023 summer selling season.

We continue to closely monitor economic conditions and evaluate the potential.

Impact on our businesses.

As we explained on our last earnings call macroeconomic and other demand indicators have shown some weakness and are generally signaling downturn within the next 12 months, which will negatively impact the upcoming summer selling season.

Expecting the expected weakening economy has caused us to approach our wholesale production plan for fiscal 2023 with a prudent level of conservatism.

And we have developed plans for a range of potential retail demand scenarios.

Despite the negative near term economic outlook. There are reasons to believe our core consumer is better positioned to withstand this recession.

For example, as recently measured by the Federal Reserve higher income households of nearly $1 five trillion of savings in excess of the level that they had prior to the pandemic.

We are optimistic that strong household balance sheets will continue to support consumer spending and that our diversified portfolio of premium brands is unmatched in its ability to serve this affluent customer.

Despite the continuing supply chain disruption and macroeconomic volatility we are making progress toward our overarching objective of driving sustainable accelerated growth by being the most consumer focused recreational boat manufacturer.

We remain determined to execute against each of our four strategic priorities.

<unk> experienced consumer acquisition operational excellence and human capital development.

Guided by these priorities, we are intent on continuously improving our business to maximize shareholder value.

We are confident that the divestiture divestiture of the non <unk> business resulted in a more agile and focused company and provided structural improvement to the growth potential and margin profile of our business.

Let me now briefly review some of the latest developments across our brands.

Our mass craft brand performed extremely well by growing net sales to a first quarter record of $113 million and expanding gross profit margin by 220 basis points year over year.

This tremendous result is due to the extraordinary efforts of the master craft team and the continued success of Master Crafts best in class operating model now.

Master craft continue to take market share during the recently completed summer selling season and remains the number one brand in the fastest growing and highest margin category and the powerboat industry.

For model year, 2023, Master craft focused on its most affordable product lineup as.

As part of our product refresh and expansion. The recently announced all new NXT 21, an NXT 23 set a higher standard for the entry level Towboat segment with best in class way performance, a spacious spacious hybrid vial added storage and telematics.

These new models are designed for exceptional convenience the newly designed them Bimini top with upgraded surf sleeps provide the most storage foods' board storage in the industry and the new swim stuff makes it easier than ever to enter and exit the water.

The innovative hybrid <unk> increase the seating capacity and allows for additional storage.

With a class leading balanced capacity of 3000 pounds combined with the surf Star system writers can experience master craft perfectly sculpted wakes and waves and an approachable price.

Master craft recently completed ISO recertification with flying colors for quality management systems, which is ISO 9001 safety and health management systems, which is <unk> 18001, and environmental management systems, which is ISO 14001.

Master craft is the only recreational boat manufacturer to meet these exams exacting standards.

Mastercraftsman World Class operating model and its continuous release of innovative products and consumer centric features are just two of the reasons the iconic Matt Master craft brands continues to outpace the competition.

At <unk> net sales were up nearly 33% year over year. In addition to a track record of strong growth, Chris continued to generate exceptional profitability by achieving a record gross margin of nearly 23% for the quarter.

Since its acquisition in fiscal 2019, <unk> expanded its gross margin by 540 basis points and increased net sales by nearly 70%.

<unk> ability to grow consistently while generating exceptional earnings demonstrates the success of the crest acquisition and highlights our value enhancing growth strategy.

The key element of <unk> growth strategy is dealer expansion and crest has added more than 30, new points of distribution over the past several months.

According to the most recent all states reporting Ssi market share data as of the Rolling 12 months period ended June 30th.

2020 to crest increased market share by 20 basis points.

In Europe net sales were up by more than 120% compared to the prior year period, driven by a 68% increase in units and a favorable model mix.

In the quarter <unk> reached profitability and as production continues to increase we expect margins to continue to increase and result in positive adjusted EBITDA for the full year.

As widely reported from the recent boat shows demand for premium product continues to be robust.

<unk> achieved record results in units and revenue that's our recent Fort Lauderdale International boat show.

According to the most recent allstate's reporting Ssi market share data as of the Rolling 12 month period ended June 32022, <unk> increased its market share by 230 basis points in the $30 to 43 foot premium day boat segment. This was the largest increase amongst all competitors further solidifying the.

Brand's position as the pre eminent luxury day boat.

I will now turn the call over to Tim who will provide more detailed analysis of our financial results. Tim. Thanks, Fred as a reminder, beginning this quarter. The financial results that are not extra business are reported as discontinued operations separate from the results of our continuing operations.

Unless otherwise noted the following commentary and outlook reflects our continuing operations only.

We delivered another excellent quarter.

Focusing on the top line net sales for the quarter were $169 5 million, an increase of $38 9 million or 29, 7% to net sales increase reflects increased volume and mix along with price increases partially offset by increased dealer floor plan financing cost and other incentives.

As dealer inventories again to return to normal following a historically low levels due to the COVID-19 pandemic.

For the quarter, our gross margin was 27, 9% an increase of 370 basis points when compared to the prior year. Our margins were primarily the result of higher net sales and improve production efficiencies, partially offset by higher costs for inflationary pressures and higher dealer incentives.

Operating expenses were $13 $8 million for the quarter or 280 basis points lower as a percentage of net sales compared to the prior year.

Turning to the bottom line adjusted net income for the year increased more than 81% to $25 7 million or $1 43 per diluted share.

Peter using the company's estimated annual effective tax rate of 23%.

This compares to an adjusted net income of $14 2 million or <unk> 75 per diluted share in the prior year period.

Adjusted EBITDA increased nearly 73% to $35 9 million for the quarter compared to $20 8 million for the prior year period.

Adjusted EBITDA margin was 21, 2% up 530 basis points from 15, 9% in the prior year period, as we continue to prudently manage SG&A costs.

Our balance sheet remains incredibly strong as we ended the quarter with more than $140 million of total liquidity, including nearly $41 million of cash and $100 million of availability under our revolving credit facility.

In the quarter with net leverage of two times adjusted EBITDA on a trailing 12 month basis.

Our balance sheet positions us exceptionally well and provides us with ample financial flexibility to ensure sound operations through the business cycle and the ability to grow aggressively in alignment with retail demand.

Given our recent operating performance strong balance sheet and positive long term outlook. We believe our stock represents an outstanding value at recent prices during.

During the quarter, we spent approximately $4 2 million to repurchase more than 190000 shares of common stock.

To date, we spent nearly 60% of our $50 million program authorized in June of 2021.

We expect to continue to Opportunistically return cash to shareholders through the program are prioritizing financial flexibility and high return investments in the business that generate growth and long term shareholder value.

Looking forward, we are raising our guidance for the full year based on our strong performance.

We'll continue to monitor the strength of retail demand and our dress to our production plans as appropriate to maintain healthy dealer inventories our guidance range reflects the potential for a range of retail demand scenarios.

For full year fiscal 2023 consolidated net sales is now expected to be between $590 million and $625 million with adjusted EBITDA between $108 million and $118 million and adjusted earnings per share of between $4 24.

$4 60.

We continue to expect capital expenditures to be approximately $30 million for the full year.

For the second quarter of fiscal 2023 consolidated net sales are expected to be approximately $150 million with adjusted EBITDA of approximately $26 million and adjusted earnings per share of approximately $1 per share.

Despite the dynamic business environment, we are confident in delivering strong financial results for our shareholders I'll now turn the call back to Fred for his closing remarks. Thanks, Tim.

We're very proud of our outstanding start to fiscal 2023, despite macro economic volatility and the dynamic business environment, We achieved the best first quarter in the company's history.

Our ability to mitigate supply chain disruption is enabling more efficient production and throughput and as a result, we made progress in replenishing dealer inventories and enhancing product availability.

Each of our segments contributed to our growth and profitability improvement during the quarter.

And we realized structural improvements to the growth potential and margin profile of our business with the sales not extort.

We are on track to achieve the second best year of financial performance in the Companys history.

Look forward to continuing our mission of generating long term value for our shareholders.

As a purpose driven business and committed to our consumers dealers and vendor partners and people operator.

Operator, you May now open the line for questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please standby, while we compile the Q&A roster.

Our first question comes from Joe <unk> with Raymond James. Please go ahead.

Thanks, Hey, guys good morning.

One thought on dealer inventories I think Greg you mentioned that 25% below where you were in 2019.

Two questions there one how does that vary between master craft and congrats.

Where does that eventually normalize as it probably doesn't normalize in line with what you would think.

Hey, Joe It's George good morning, so.

22, obviously as an average across the brands, but master craft as a higher or lower.

Versus 19.

And then crest is closer to 19 levels and then in terms of normalization I think your comment is correct as we think about what we're seeing now 2019 levels feel like.

A good benchmark for where we ended up normalized and it keep in mind with our expanded distribution in particular at crest.

Youre approaching 19 levels is not a not a bad thing.

Okay got it and maybe second question in terms of capital allocation you guys, obviously bought back in the dark.

You've talked about doing more acquisitions, but given your valuation.

Is buyback the priority today versus M&A.

I Wouldnt say its priority our priority is first and foremost financial flexibility.

Very close to that if not concurrent with that is growth. So how we generate that growth is through a variety of different alternative options some of which are organic and some of which may be inorganic or M&A oriented. So Joe I'd say once again, we're going to be very prudent and careful.

And we have many alternatives for each one of those strategies. So stay tuned for us to be able to unfold some of those plans as we roll forward.

Okay. Thank you.

Thank you one moment for our next question.

Our next question comes from Alex <unk> with Baird. Please go ahead.

Yes, good morning, gentlemen.

Craig Kennison this morning.

Just wanted to touch on guidance Hamid I think you mentioned that it reflects the potential for a range of retail scenarios. How should we think about the kind of the core in a base case retail outlook, that's embedded in that range.

Alex I would say, it's consistent with kind of the guidance that we provided last quarter kind of in that RV.

Our view is that with the all important summer selling season, and where we think the macro headwinds align with that were seeing something in that mid teens.

The high teens low 20% range is kind of.

Consistent with where we where we were last quarter.

I don't think we've seen anything in the retail environment today that would suggest that.

As we look forward that anything has changed if anything the macro.

Indicators have somewhat worsened.

And so that continues to be our view.

Once again.

Mid to high teen decline.

Yes, yes. Thank you.

And then just you noted in your release and I think in your comments.

And some increased floorplan cost and other incentives, maybe flush that out a bit more weighted promotional activity stand today and what are you expecting over the next six to 12 months of inventory normalizes.

Yeah, one thing to keep in mind as we.

Talk about promotional activity, we're comparing to a year that had virtually no promotional activity. So we have an increase.

But it's not back to yes, and no way hi, it's kind of back to more approaching normal levels.

But when we look at the whole year I think between the increased floorplan cost and increased promotional activities is probably going to be in the neighborhood of 250 basis points.

Year over year headwind.

Is embedded in our guidance.

Okay. That's helpful. That's all for me thanks.

Thank you one moment for our next question.

Our next question comes from Michael Swartz with <unk> Securities. Please go ahead.

Hey, guys good morning.

Couple of quick questions. One some others have talked about the impact of Hurricane E and at the end of the September quarter I, just wanted to get some incentive was that impactful to you. It often production or delivery standpoint is there any shift between your fiscal first quarter and second quarter due to that.

No not really for us I would say, we're very fortunate in that.

Our.

Our key dealer.

Locations.

Comparatively very well and while there'll be some disruption in their business near term and their employees.

Long term outlook is very good for them so.

I actually think.

With regard to our distribution and again.

In it when we talk about the West Coast of Florida, We're talking primarily about avera and marine Max.

They are in very good shape in terms of recovery and business going forward.

But no not a significant impact on us from a wholesale standpoint.

Okay perfect.

And then just a point of clarification on the <unk>.

<unk> guidance for second quarter.

Suggests roundup.

300 ish basis points or 400 ish basis point deceleration in margin essentially.

Is that just seasonality or is there something else driving that.

Quarter over quarter decline.

Seasonality primarily.

Yes, we have.

Q2 is a quarter with the largest number of holidays and so it's mostly a reflection of <unk>.

Reduced production in comparison to Q1, so you've got less leverage on your SG&A less leverage on your overhead.

And we continue to see increasing our floorplan cost so that is part of the picture as well.

Okay perfect. Thanks, guys.

Okay.

Thank you I'm showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program you may now disconnect.

[music].

Good day and thank you for standing by welcome to the first quarter 2023 Master Craft Boat Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hand is reyes.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to Tim Oxley Chief Financial Officer. Please go ahead.

Thank you operator and welcome everyone.

Thank you for joining us today as we discuss <unk> first quarter performance for fiscal 2023.

As a reminder, today's call is being webcast live and will also be archived on our website for future listening.

With me on this morning's call are Fred Brightbill, Chief Executive Officer and Chairman.

And George Stein Barker, our Chief revenue Officer.

Greg will begin with a review of our operational highlights during the first quarter and will then discuss our financial performance for the quarter.

I'll turn the call back to Fred for some closing remarks before we open the call for Q&A.

Before we begin we'd like to remind participants that the information contained in this call is current only as of today November nine 2000, and the company assumes no obligation to update any statements, including forward looking statements statements that are not historical facts are forward looking statements and subject to the safe Harbor disclaimer in space.

Yes release.

Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special items not indicative of our ongoing operations for.

We would also like to remind listeners that there is a slide deck summarizing our financial results in the investors section of our website.

Fred.

Yes.

Thank you for joining us today before we begin our thoughts are with all of those including a more than 200 employees in the path of the storm currently impacting Florida.

Our sincere hope is that they all remain safe and secure.

Our business performed extremely well during the first quarter and a very challenging and dynamic environment.

Our results reflect continuation of exceptional execution against our strategic and operational priorities as we delivered the best first quarter in the company's history.

Furthermore, the first quarter represented an eighth consecutive period over period record setting quarter.

Net sales and diluted adjusted earnings per share.

Adjusted earnings per share were all the highest for any first quarter in the Companys history.

This excellent performance also represents the eighth consecutive quarter of net sales growth of more than 20% a testament to our growth oriented strategy.

Each of our businesses contributed to our revenue growth and profitability during the quarter.

When compared to the first quarter of fiscal 2022 net sales were higher by nearly 30% adjusted EBIT grew by nearly 73% adjusted EBITDA margin increased 530 basis points and adjusted net income per share grew by more than 90% year over year.

One of our core strategic priorities is a never ending pursuit of greater operational excellence. This focus allowed us to mitigate the impact of a very challenging supply chain environment.

Although improving the supply chain continues to be a risk in particular for certain second tier supplier components sourced from China.

In addition, during the quarter, we continued our impressive track record of safety, achieving 3 million man hours worked without a lost time incident at our master craft brand.

This achievement is a testament to our commitment to safety and essential element of Master crafts core values and is attributable to every single individual in our workforce I could not be prouder of what they have achieved.

We believe our superior operating model is allowing us to make more progress in building much needed dealer inventories faster than our closest competitors.

As of the end of the first quarter dealer inventories are about 25% lower than the first quarter of fiscal 2019.

Our success in replenishing dealer inventories and improving product availability will be a competitive advantage heading into the 2023 summer selling season.

We continue to closely monitor economic conditions and evaluate the potential.

Impact on our businesses.

Expecting the expected weakening economy has caused us to approach our wholesale production planned for fiscal 2023 with a prudent level of conservatism.

And we have developed plans for a range of potential retail demand scenarios.

Despite the negative near term economic outlook. There are reasons to believe our core consumer is better positioned to withstand this recession.

For example, as recently measured by the Federal Reserve higher income households of nearly $1 five trillion of savings in excess of the level that they had prior to the pandemic.

We remain determined to execute against each of our four strategic priorities.

<unk> experienced consumer acquisition operational excellence and human capital development.

Guided by these priorities, we are intent on continuously improving our business to maximize shareholder value.

We are confident that the divesture divestiture of the non <unk> business resulted in a more agile and focused company and provided structural improvement to the growth potential and margin profile of our business.

Let me now briefly review some of the latest developments across our brands.

Our master craft brand performed extremely well by growing net sales to a first quarter record of $113 million and expanding gross profit margin by 220 basis points year over year.

This tremendous result is due to the extraordinary efforts of the mass scrap team and the continued success of Master craft best in class operating model.

Mr. Kraft continue to take market share during the recently completed summer selling season and remains the number one brand in the fastest growing and highest margin category and the powerboat industry.

For model year, 2023, Master craft focused on its most affordable product lineup.

These new models are designed for exceptional convenience the newly designed been bimini top with upgraded serve sleeps provide the most storage.

<unk> board storage in the industry and a new swim stuff it makes it easier than ever to enter and exit the water.

The innovative hybrid <unk> increase the seating capacity and allows for additional storage.

With a class leading balanced capacity of 3000 pounds combined with the surf Star system writers can experience master crafts perfectly sculpted wigs and waves and an approachable price.

Master craft recently completed ISO recertification with flying colors for quality management systems, which is ISO 9001 safety and health management systems, which is ISO 18, one and environmental management systems, which is ISO 14001.

Master craft is the only recreational boat manufacturer to meet these exams exacting standards.

Master craft with World class operating model and its continuous release of innovative products and consumer centric features are just two of the reasons. The iconic master craft brands continues to outpace the competition.

At craft net sales were up nearly 33% year over year. In addition to a track record of strong growth, Chris continued to generate exceptional profitability by achieving a record gross margin of nearly 23% for the quarter.

Since its acquisition in fiscal 2019, <unk> expanded its gross margin by 540 basis points and increased net sales by nearly 70%.

<unk> ability to grow consistently while generating exceptional earnings demonstrates the success of the crest acquisition and highlights our value enhancing growth strategy.

The key element of <unk> growth strategy is dealer expansion and crest has added more than 30, new points of distribution over the past several months.

According to the most recent all states reporting Ssi market share data as of the Rolling 12 months period ended June 30th.

2020 to crest increased market share by 20 basis points.

Europe net sales were up by more than 120% compared to the prior year period, driven by a 68% increase in units and a favorable model mix.

During the quarter of Euro reach profitability and as production continues to increase we expect margins to continue to increase and result in positive adjusted EBITDA for the full year.

As widely reported from the recent boat shows demand for premium product continues to be robust.

<unk> achieved record results in units and revenue at the recent Fort Lauderdale International boat show.

This was the largest increase amongst all competitors further solidifying the brand's position as the pre eminent luxury day boat.

I'll now turn the call over to Tim who will provide more detailed analysis of our financial results. Tim. Thanks, Brad as a reminder, beginning this quarter. The financial results that are not extra business are reported as discontinued operations separate from the results of our continuing operations.

Yes, otherwise noted the following commentary and outlook reflects our continuing operations only.

We delivered another excellent quarter.

Focusing on the top line net sales for the quarter were $169 5 million, an increase of $38 9 million or 29, 7% to net sales increase reflects increased volume and mix along with price increases.

They are offset by increased dealer floor plan financing costs and other incentives as dealer inventories again to return to normal following a historically low levels due to the COVID-19 pandemic.

Operating expenses were $13 $8 million for the quarter were 280 basis points lower as a percentage of net sales compared to the prior year.

Turning to the bottom line adjusted net income for the year increased more than 81% to $25 7 million or $1 43 per diluted share computed using the company's estimated annual effective tax rate of 23%.

This compares to an adjusted net income of $14 2 million or <unk> 75 per diluted share in the prior year period.

Adjusted EBITDA increased nearly 73% to $35 9 million for the quarter compared to $20 8 million for the prior year period.

Adjusted EBITDA margin was 21, 2% up 530 basis points from 15, 9% in the prior year period, as we continue to prudently manage SG&A costs.

In the quarter with net leverage of two times adjusted EBITDA on a trailing 12 month basis.

Our balance sheet positions us exceptionally well it provides us with ample financial flexibility to ensure sound operations through the business cycle and the ability to grow aggressively in alignment with retail demand.

Given our recent operating performance strong balance sheet and positive long term outlook. We believe our stock represents an outstanding value at recent prices during.

During the quarter, we spent approximately $4 $2 million to repurchase more than 190000 shares of common stock.

To date, we spent nearly 60% of our $50 million program authorized in June of 2021.

Looking forward, we are raising our guidance for the full year based on our strong performance will continue to monitor the strength of retail demand and our dress to our production plans as appropriate to maintain healthy dealer inventories our guidance range reflects the potential for a range of retail demand scenarios.

And $4 60.

We continue to expect capital expenditures to be approximately $30 million for the full year.

For the second quarter of fiscal 2023 consolidated net sales is expected to be approximately $150 million with adjusted EBITDA of approximately $26 million.

The earnings per share of approximately $1 per share despite the.

Dynamic business environment, we are confident in delivering strong financial results for our shareholders I'll now turn the call back to Fred for his closing remarks. Thanks, Tim.

We're very proud of our outstanding start to fiscal 2023, despite macro economic volatility and the dynamic business environment, We achieved the best first quarter in the company's history.

Each of our segments contributed to our growth and profitability improvements during the quarter.

And we realized structural improvements to the growth potential and margin profile of our business with the sale of non xdr.

We are on track to achieve the second best year of financial performance in the Companys history.

Look forward to continuing our mission of generating long term value for our shareholders.

As a purpose driven business committed to our consumers dealers and vendor partners and people operator.

Operator, you May now open the line for questions.

Our first question comes from Joe <unk> with Raymond James. Please go ahead.

Thanks, Hey, guys good morning.

One thought on dealer inventories I think Craig you mentioned that your 25% below where you were in 2019.

Two questions there one how does that vary between master crab and crab.

Where does that eventually normalize as it probably doesn't normalize in line with what I would think.

Hey, Joe It's George good morning, so.

22, obviously as an average across the brands, but master craft as a higher or I guess lower.

Versus 19.

Then crest is closer to 19 levels and then in terms of normalization I think your comment is correct as we think about what we're seeing now 2019 levels feel like.

A good benchmark for where we ended up normalized it keep in mind with our expanded distribution in particular at crest.

Youre approaching 19 levels is not a not a bad thing.

Okay got it and maybe second question.

Capital allocation you guys, obviously bought back in stock.

You've talked about doing more acquisitions, but given your valuation.

Is buyback the priority today versus M&A.

I Wouldnt say its priority our priority is first and foremost financial flexibility.

<unk> and <unk>.

We have many alternatives for each one of those strategies, so stay tuned for us to be able to unfold some of those plans as we roll forward.

Okay. Thank you.

Thank you one moment for our next question.

Our next question comes from Alex <unk> with Baird. Please go ahead.

Yes, good morning, gentlemen, and then for.

Craig Kennison. This morning, just wanted to touch on guidance I mean, I think you mentioned that it reflects the potential.

For a range of retail scenarios, how should we think about kind of the core of the base case retail outlet that's embedded in that range.

Alex I would say, it's consistent with kind of the guidance that we provided last quarter kind of in that.

Our view is that with the all important summer selling season, and where we think the macro headwinds align with that were seeing something in that mid teens.

The high teens low 20% range is kind of.

Consistent with where we where we were last quarter.

I don't think we've seen anything in the retail environment today that would suggest that.

As we look forward that anything has changed if anything the macro.

Indicators have somewhat worsened.

And so that continues to be our view.

Once again.

Mid to high teen decline.

Yes, yes. Thank you.

And then just you noted.

In your release and I think in your comments you.

<unk> seen some increased floorplan cost and other incentives, maybe flesh that out a bit more where did promotional activity stand today and what are you expecting over the next six to 12 months of inventory normalizes.

Yeah, one thing to keep in mind as we.

Talk about promotional activity, we're comparing to a year that had virtually no promotional activity. So we have an increase.

But it's not back to yes and no.

Hi, it's kind of back to more approaching normal levels.

But when we look at the whole year I think between the increased floor plant cost and increased promotional activities is probably going to be in the neighborhood of 250 basis points.

Year over year headwind that is embedded in our guidance.

Okay. That's helpful. That's all for me thanks.

Thank you one moment for our next question.

Our next question comes from Michael Swartz with <unk> Securities. Please go ahead.

Hey, guys good morning.

Couple of quick questions one.

Some others have talked about the impact of Hurricane E and at the end of the September quarter I, just wanted to get some incentive was that impactful to you at all from production or delivery standpoint is there any shift between your fiscal first quarter second quarter due to that.

No not really for us I would say, we're very fortunate in that.

Our.

Our key dealer.

Locations.

Survive comparatively very well and while there will be some disruption in their business near term and their employees.

Long term outlook is very good for them so.

Actually think.

With regard to our distribution and again.

In it when we talk about the West Coast of Florida, We're talking primarily about of Europe and Marine Max.

They are in very good shape in terms of recovery in business going forward.

No not not a significant impact on us from a wholesale standpoint.

Okay perfect.

And then just a point of clarification on the <unk>.

<unk> guidance for second quarter.

<unk> suggests around up.

You only get 300 ish basis points or 400 ish basis point deceleration in margins just essentially.

Is that just seasonality or is there something else driving that.

Quarter over quarter decline.

This seasonality primarily.

Yes, we have.

Q2 is a quarter with the largest number of holidays and so it's mostly a reflection of.

Reduced production in comparison to Q1, so you've got less leverage on your SG&A less leverage on your overhead.

And we continue to see increasing our floorplan cost so that is part of the picture as well.

Okay perfect. Thanks, guys.

Okay.

Thank you I'm showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program you may now disconnect.

Q1 2023 Mastercraft Boat Holdings Inc Earnings Call

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