Q4 2023 MasterCraft Boat Holdings Inc Earnings Call
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Good day and thank you for standing by welcome to the Q4 'twenty twenty-three Master Craft 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 this session you want each press star one on your telephone you didn't hear it on the major message it bites and you're again just raise to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded.
I would like now to turn 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 matched crest fiscal fourth quarter and full year performance for 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.
George Steinberger President of crashed Bobby Parker, Vice President of strategy Investor Relations.
Fred will begin with a review of our operational highlights from the fourth quarter and full year I will then discuss our financial performance then 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 just get the information contained in this call is currently.
As of today August 30 of 2023.
<unk> assumes no obligation to update any statements, including forward looking statements.
Statements that are not 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 ongoing operations for each non-GAAP measure. We also provide the most directly comparable GAAP measure are first for 2023 fourth quarter earnings release, which includes a reconciliation of these non-GAAP measures.
<unk> to our GAAP results.
Also a slide deck summarizing our financial results in the investors section of our website.
As a reminder, unless otherwise noted the following commentary is made on a continuing operation basis with that I'll turn the call over to Fred Thank.
Thank you, Tim and good morning, everyone.
We concluded fiscal year 2023 by delivering a record performance of $662 million and net sales more than $131 million of adjusted EBITDA and $5 35 of adjusted earnings per share for the full year.
Outstanding results represent a third consecutive record setting year for net sales and earnings our strong operating performance resulted in the highest cash flow for any year in the Companys history, as we generated more than $136 million of operating cash flow driven by strong earnings and diligent working capital management, we are <unk>.
All of our team for their outstanding work fiscal.
Fiscal 2023 was a dynamic year for our businesses. We began the year in an environment of very low dealer inventories uncertain retail demand, continuing but easing supply chain disruption and emerging economic headwinds we were early to identify and discuss this changing environment beginning with our initial guidance last September .
Our goals for the year included fully restocking our dealers in advance of the summer selling season, maintaining a healthy dealer inventories and maximizing our financial performance as the year progressed, we closely monitor the environment and adjusted production plans accordingly.
The fiscal third quarter, we succeeded in restocking dealer inventories to what we considered optimal levels.
Through the fiscal third quarter retail activity performed closer to the upper end of our range of potential outcomes.
Prevailing expectation for a return to more historical seasonal demand patterns provided us with cautious optimism for retail sales and the all important fiscal fourth quarter and summer selling season.
Historically, 40% to 50% of annual retail sales occur in our fiscal fourth quarter.
Weather adversely impacted retail sales early in the quarter and sales did not recover by the end of the quarter.
As a result retail sales for our fiscal fourth quarter fell short of the historical pattern and we trimmed our production plans in response.
Recall that on our fiscal third quarter earnings conference call. We estimated that consolidated wholesale unit sales would exceed projected retail sales by approximately 4500 units for fiscal 2023, representing a onetime pipeline refill based.
On our expectations for fiscal fourth quarter, 2023, and fiscal year 2024 retail sales. This reflected the production that we believed we needed to replenish dealer inventories in fiscal 2023 at optimal levels.
However, because of the unexpected retail level of demand activity for our fiscal fourth quarter did not materialize wholesale unit sales exceeded retail sales by more than our <unk> hundred unit estimate as a result dealer inventories ended fiscal 2023, <unk> higher than we would now consider optimal even so.
Dealer inventories ended the fiscal year about 10% lower than at the end of fiscal year 2019. Additionally.
Additionally, the average number of units per dealer location is lower by approximately 20% per master craft and 37% for crest as we've expanded distribution networks since fiscal year 2019.
Macroeconomic factors, including elevated interest rates as well as tightening credit standards and availability are creating significant uncertainty, which is limiting our retail demand visibility.
In addition, the general expectation for an economic downturn in fiscal 2024 will likely be a headwind for the industry.
This backdrop of economic uncertainty has caused us approach our wholesale production plan for fiscal 2024 with a prudent level of conservatism and we have developed plans for a range of potential retail demand scenarios.
Because of the lower than expected retail sales in our fiscal fourth quarter and the uncertain outlook for retail sales wholesale unit sales for fiscal 2024 will be lower than projected retail sales production.
Our production plans will allow us to rebalance dealer inventories with anticipated retail demand and keep our dealer pipeline healthy.
Cyclical industry requires periodic rebalancing of wholesale unit sales to retail demand we've experienced this before in our industry veteran management team is well prepared to navigate through a challenging economic environment.
Based on our current outlook for retail demand, we anticipate returning to net sales growth in fiscal 2024.
Moving on to supply chain, the general environment, including cost inflation delivery disruption continues to improve.
Limited supplies and longer than normal lead times on certain components, including those that utilize micro chips and some propulsion components could continue to intermittently affect our operational efficiency and production schedules.
However, we do not expect supply chain disruption to be a constraint on our fiscal year 2020 for production.
Given the uncertain macroeconomic environment, our fortress balance sheet is a significant competitive advantage and provides us with abundant financial flexibility.
Despite the cyclical headwinds facing the industry, we are well positioned to pursue our capital allocation priorities first and foremost of which is investment in growth.
We have the ability to grow through multiple approaches including organically through our existing brands internally brand development and acquisitions.
We have been laying the foundation for long term growth by actively investing in targeted initiatives that will take advantage of the industry's positive underlying secular trends.
These investments will continue into fiscal 2024, as we prioritize long term growth and value creation through product line expansion relentless innovation and an unrelenting focus on the consumer.
Let me now briefly summarize some of the developments across our brands.
At our mass craft brand net sales were $129 million for the quarter down 12% from a record prior year compared to fiscal 2019, However, mask, perhaps net sales with more than 60% higher for the quarter and 50% higher for the year.
Master craft recently announced its model year, 2024 lineup, including a range of new features and enhancements, including the first ever introduction of power Board racks.
And underwater exhaust outcome standard on the <unk> X and XR S models.
While the XT series received some upgraded dashes and the standard touch screen.
With the most models available on the market, including the all new <unk> 25 release in June mass craft offers a boat to meet a wide range of consumer needs. The expansive 16 model lineup delivers unsurpassed way performance. The most wave adjustability exceptional handcrafted quality unmatched comfort and innovative <unk>.
Activity through telematics.
At crest net sales were nearly $25 million for the quarter down 37% from the prior year period.
Third to fiscal 2019 crest net sales were up 6% for the quarter and more than 44% higher for the full year.
Crest recently announced since 2024 model lineup, which redefined excellence within its premium series by focusing on the details that matter most to consumers. In 2024 lineup includes a completely redesigned Caribbean model, featuring a refreshed helm with upgraded electronics navigation and audio components.
All new tower, and a new convenient boarding ladder.
George Steinberger was recently appointed President of crest, having previously served as our Chief revenue Officer, We look forward to Georgia, leading the next phase of crest growth.
But our euro net sales were nearly $13 million.
For the quarter up more than 19% compared to the prior year period, driven by a 17% increase in units and a higher average unit price.
<unk> continues to build on its pillars of progressive style elevated control modern comfort and quality details by launching the all new <unk> 28.
28 represents a next phase of <unk> product evolution, and we will expand the brand's addressable market.
In addition to Stern drive and outboard options. The 80 28 series includes the impressive search centric forward facing drive variant the AAV 28 S. The AAV 28, Fs utilizes master craft proprietary surf star technology to create the most refined surfing experience on the water.
Javier as introduction of search capabilities and consumer centric features such as an innovative holding power hard top convenience submersible swim platform are just a few examples of how <unk> continues to offer luxury without limits.
<unk> is also expanding distribution to additional north American and international markets.
Portfolio and distribution expansion positions the brand for long term net sales and earnings growth.
I'll now turn the call over to Tim who will provide more detailed discussion of our financial results. Jim Thanks, Craig focusing on the top line net sales for the full year were $662 million, an increase of $20 4 million or three 2%. This increase was primarily due to higher prices, partially offset by decrease.
Unit volumes increased dealer incentives and changes and bottlenecks dealer incentives include higher floor plan financing cost as a result of increased dealer inventories in interest rates and other incentives as the retail environment it becomes more competitive.
For the year, our gross margin was 25, 6% a decrease of 60 basis points when compared to the prior year lower margins or lower margins were mainly due to higher cost for inflationary pressures higher dealer incentives.
Cost absorption due to decreased production volumes and changes in model mix, partially offset by higher prices and improved production efficiencies.
Operating expenses were $52 8 million for the year up 800000 from the prior year.
SG&A expenses as a percentage of net sales remained relatively flat as we prudently managed costs.
Turning to the bottom line adjusted net income for the year increased one 8% to $95 million compared to adjusted net income of $93 3 million for the prior year.
Adjusted net income per share increased six 8% to $5 35.
Compared to $5 <unk> for the prior year and was computed using the company's estimated.
Annual effective tax rate of 23%.
The increase in adjusted net income per share was primarily due to higher short term investment income and reduced share count as a result of our share repurchase program.
Adjusted EBITDA increased about 1% to $131 5 million for the year compared to one <unk>.
$35 million in the prior year adjusted.
Adjusted EBITDA margin was 19, 9% down 40 basis points from 23% in the prior year period.
As for the fourth quarter results net sales were $166 6 million, a decrease of $30 7 million or 15, 5% compared to the prior year period the.
The net sales decrease reflects lower unit sales volumes changes in model mix and increased dealer incentives, partially offset by higher prices.
Gross profit for the quarter was $42 9 million and gross margin was 25, 8% a year over year decrease of 320 basis points.
Gross margin decreased year over year, mainly due to higher dealer incentives higher cost for inflationary pressures changes in model mix and lower cost absorption due to decreased production volumes, partially offset by higher prices.
Adjusted net income for the quarter was $23 9 million or $1 37 per diluted share computed using the company's estimated annual effective tax rate of 23%.
This compares to adjusted net income of $34 8 million or $1 92 per diluted share for the prior year period.
Our balance sheet remains incredibly strong as we ended the year with more than $211 million of total liquidity, including more than $111 million of cash and short term investments and $100 million of availability under our revolving credit facility.
<unk> ended the year with no net debt as cash and short term investments totaled more than twice our outstanding debt balance strong earnings and working capital management translated a record cash flow from operations.
Cash flow from continuing operations was a record $136 million for the year, an increase of 66% from the prior year, our balance sheet positions us exceptionally well and provides us with ample financial flexibility to ensure a sound operations through the business cycle and the ability to fund strategic growth initiatives.
During the year, we spent nearly $23 million to repurchase more than 70000 shares of our common stock.
At the end of fiscal 2023, we had spent 96% of our initial $50 million.
Program authorized in June of 2000 $21 million to $48 million.
The $48 million of cumulative share repurchase during the since the inception of our share repurchase program provided a 10% benefit to our fiscal fourth quarter adjusted net income per share and an 8% benefit to a fully full year adjusted net income per share.
We recently announced our board of directors approved a new $50 million share repurchase authorization.
This new authorization permits us to continue to prudently return excess cash to shareholders, while prioritizing financial flexibility and higher returns on investments in the business that generate growth and long term shareholder value.
And now onto our outlook for fiscal 2024.
We expect consolidated net sales to be between $390 million and $420 million.
With adjusted EBITDA of between $42 million at $52 million and adjusted earnings per share of between $1 46 per share and $1 88.
Expect capital expenditures to be approximately $22 million for the full year.
For the first quarter of fiscal 2020 for consolidated net sales.
Expected to be approximately 98 million with adjusted EBITDA of approximately $11 million and adjusted earnings per share of approximately <unk> 41.
Importantly, this guidance reflects our view that industry retail unit sales could be down as much as mid teens percent for fiscal 2024, although our guidance reflects a significant decline in earnings for fiscal 2023, we expect to generate positive cash flow, which is a testament to our flexible highly variable cost structure.
And proactive cost control efforts I will now turn the call back to Craig for his closing remarks. Thanks, Tim are.
Our business performed extremely well during fiscal 2023, delivering a third consecutive record setting year for net sales and earnings we generated nearly $136 million of operating cash flow the highest ever cash flow in the company's history.
We've returned 46 $48 million of excess cash to our shareholders over the course of the last two fiscal years using our share repurchase program and we have authorized an additional $50 million program or <unk>.
<unk> brands recently announced exciting and innovative model year 2024 product lineups.
We have an enviable balance sheet, providing us with financial flexibility to ensure sound operations through the business cycle and affording us with the opportunity to pursue our strategic initiatives in short we are executing well despite the dynamic and uncertain macroeconomic environment, we look forward to delivering strong results.
While maintaining our commitment to the pursuit of long term growth opportunities and thereby generating exceptional shareholder returns.
Operator, you May now open the line for questions.
As a reminder to ask a question. Please press star one on your telephone.
For your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
The first question comes from Craig Kennison with Baird. Your line is now open.
Hey, good morning, and thank you for taking my question.
You had talked very clearly about.
Inventory and the opportunity to restock the channel.
Last year, and I think you said 4500 units.
How much or how many units do you think youre heavy high.
At this point and are there categories, where you think you are particularly heavy.
Craig Let me frame it this way maybe.
As you think forward next year in terms of retail versus wholesale.
And that differential.
I would expect that us.
To pull down inventory by 900 units.
Kind of split between almost evenly between crest and mesh crib.
In terms of particular categories.
It's not concentrated in any particular area.
We do we're very carefully manage our retail distribution in sold units. So.
Really don't have any particular area, where there's been an accumulation.
And I guess I'm curious what your dealer feedback is I imagine they're facing elevated floorplan cost are they telling you they want to reduce inventory or is this more based on what looks like a conservative retail forecast on your part.
<unk> been in the industry long enough to know we finished the summer selling season, and nobody really wants to take on significant inventory in the second fiscal quarter.
We do it through our programs right. So that's an area where dealers carry that and we're able to level production and then as we get into the following selling season right.
And Thats typically ideally if they had their druthers you'd.
We'd like to ramp up their inventory availability.
We smooth it out with our program and we're very very sensitive to our dealers as partners long run in their financial health. So.
That's why we used off the throttle very early and leveled out our production throughout the year take some pressure off of them.
And I guess, if I could squeeze in one more Tim as we think about lower production to what extent does that lower production weigh on your gross margin outlook.
Yes.
Significant.
In the neighborhood of <unk> overhead absorption 400 basis points and obviously, we do leverage some on our operating expenses as well.
That helps a lot great. Thank you.
Please standby for the next question.
The next question comes from Joe OXXO Bello with Raymond James Your line is open.
Good morning, It's Martin Taylor on for Joe I was wondering if you can get a little bit more color around the tightening credit standards and how that's affecting is it the consumers or is it also to dealers as well.
Hey, Martin storage.
It's principally when we talk about the credit standards were really talking about the consumer.
We've seen the tightening standards, both increasing pricing and then also limiting people's ability to actually get financing to close on some both deals.
So it's a combination of both the pricing and that's impacting the monthly payments that consumers are getting quoted from from the banks and the dealers based on the rate Theyre getting but also in some cases we've seen.
Some consumers not be able to get financing due to lenders being more aggressive with their underwriting standards.
Got it thank you and just moving onto <unk> I know you have a new model out how does that expand.
The <unk> market and how does the pricing compared to its competitors.
It will be priced competitively with the premium offerings in that category.
<unk> de bulk.
And in this case the expanded search centric capabilities.
In terms of addressable market.
It's a pyramid in volume typically within within boating is size decrease so as we move down into lower size ranges. There are many more units down there available. We're very excited about that market opportunity. Its a big part of <unk> growth for this year, particularly in the second half of the year.
Got it thank you very much guys.
Please standby for the next question.
The next question comes from drew Crum with Stifel. Your line is open.
Okay. Thanks, Hey, guys good morning.
You noted a variety of retail scenarios, including units being down in the mid teens range can you address how you're approaching price this year.
And then I guess just from a phasing perspective.
What does your forecast assume are you assuming things get progressively worse as you move through the year or they moderate and then I have a follow up.
Let me start with pricing think about low to mid single digits.
As a range of price increase is pretty similar pretty tight across our brand so back to kind of pre COVID-19 type levels of price increase for us.
Sure.
And I'm sorry, the second question was.
Yes, sorry, just what you're assuming from a phasing perspective as you move through the fiscal year as far as retail okay.
Yeah, I think that's important.
We are looking at this current environment and the uncertainty and the headwinds and assuming the current conditions continue so what's really important to hear is how you think about the next summer selling season.
And if that if in fact, we're through the worst of the economy and there is some.
Uptick we're through with rate increases and potentially there is even a rate decrease by them I think we've got upside, but we did not build that into our plan our plan assumes.
This continuing.
Malaise, if you will of not better and not dramatically worse, just kind of continuing to slug, along as we are.
Got it Okay. That's helpful. And then just a quick follow up can you comment on your share performance with the Master craft brand over the last 12 months and.
In the most recent quarter, if you have that available.
Hey, drew so the June data is still preliminary.
But.
Based on the preliminary data on a rolling 12 basis Master craft flat, if not maybe slightly down a couple basis points basis points. There. We think that will improve as more states report in the June official data comes out our.
Our view on market shares we try to take a more long term view.
If you look more long term historical the master craft brand has actually been the leading brand in the <unk> category for the last six years. So we're pretty proud of that sustainability and I think when you look at some of the competitors are competitors that are seeing market share growth.
Some cases, they are actually coming off of market share losses over the last couple of years. So.
We're looking at market share more on our long term sustainable and profitable nature, which has been consistent with our view of market share since we've gone public.
Yes, Okay, alright, thanks, guys.
Please standby for the next question.
The next question comes from Eric Wold with B Riley Securities. Your line is open.
Thank you good morning a.
Couple of questions I guess, one kind of a follow up on prior comments kind of around.
Craig demand levels and consumers have the ability to get some credit for that.
Answering our term they want it where you're able to tinker around with any kind of promotional.
Activity or discounting kind of throughout the quarter or in this quarter that could give you some.
I won't say confident but just to get some insight into it.
Discounting I forgot prices downwards.
Actually drive demand are going to really boosting at a level that was still profitable for you or is it really just.
It's tough to get down to a level right now where consumers are that really can drive that mobile ventures.
No.
Eric we have certainly utilized discount our programs with our dealers and partnering with our dealers to help them move inventory and I would say, we've seen pockets of strength, where we've seen that really help move the needle in retail we've seen other areas, where we haven't seen it move the needle as much and I think part of that is.
There were a lot of it depends on where the competitors what their positions are in certain geographies and how aggressive they are being so you really have to look at it on a market by market basis, and really adjust to what the.
<unk> the local dealers are doing so so we will continue to utilize programs.
And Avenue to help our dealers sell through the inventory they have and help them enter into the next selling season in a more healthy position and obviously willing to take more bulk orders.
And so we'll continue to tinker with those I think interest rates right now is probably the biggest opportunity where we can get more creative and try to help our consumers with finding a monthly payment price that suits their budget budgetary needs and Thats certainly something that we will continue to look into and have an opportunity.
Thanks, George and then your last question.
You mentioned.
So the opportunity to expand domestically and internationally in terms of distribution.
Given your outlook for the retail demand environment for fiscal 'twenty four what is your desire to expand the dealership network for.
Crest, this year and kind of what's baked and therefore, either crest in RBR given.
That malaise.
For fiscal year.
So Eric on the crest front, we're still seeing a strong interest from dealers due to add the crest brand. We added about 25 dealers last year.
Last fiscal year in our plan. This year is to continue to add distribution.
Some of that distribution, we've been talking to for a while in others. We continue to have discussions obviously, some some dealers are coming into the new relationship with crest with maybe a little heavy inventory on some of their other products. So we're working through that but still seeing really positive.
Willingness to take on the brand and we're excited for getting into some markets, where we have not previously had distribution or strong distribution on <unk> I would say the interest level is.
It remains very strong we've got a lot of interest from from dealers internationally and in some domestic markets, where marine Max doesn't have a location and so we're pursuing those aggressively we think the product that were offering at <unk>.
Like it in the marketplace and with the introduction of the new 28 products that only further expand the addressable market of new dealers that are interested in carrying the brand. So.
Very excited about the growth opportunities, we have in distribution without VR.
That was launched recently and extremely well received.
We are it could be more optimistic.
About that product offerings, we expansion.
Perfect. Thank you both.
I show no further questions at this time.
This concludes today's conference call. Thank you for participating you may now disconnect.
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