Q2 2024 MasterCraft Boat Holdings Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2024 Mastercraft Boat Holdings Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode.

Ladies and gentlemen, thank you for standing by welcome take Q2, 'twenty 'twenty four master craft boat note.

Holdings incorporated earnings Conference call at this time, all participants are in a listen only mode.

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Operator: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Bobby Potter, Vice President of Strategy and Investor Relations. Please go ahead.

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Like now to turn the conference over to Bob Potter, Vice President of strategy and Investor Relations. Please go ahead.

Bobby Potter: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss Mastercraft's second quarter performance for fiscal 2024. As a reminder, today's call is being webcast live and will also be archived on our website for people to listen. With me on this morning's call are Fred Brightbill, Chief Executive Officer and Chairman, and Tim Oxley, Chief Financial Officer. Brad will begin with a review of our operational highlights from the second quarter. Tim will then discuss our financial performance for the quarter. Then Fred will provide some closing remarks before we open the call for Q&A. Before we begin, we would like to remind participants that the information contained in this call is current only as of today, February 7th, 2024. The company assumes no obligation to update any statement, including forward-looking statements.

Bob Potter: Thank you operator and welcome everyone.

Bob Potter: Thank you for joining us today as we discuss master craft second quarter performance for fiscal 2024. As a reminder, today's call is being webcast live and will also be archived on the website with the list.

Bob Potter: With me on this morning's call are Fred Brightbill, Chief Executive Officer, and Chairman and Tim Oxley, Chief Financial Officer.

Frederick A. Brightbill: Brad will begin with a review of our operational highlights from the second quarter. Kim will then discuss our financial performance for the quarter.

Frederick A. Brightbill: Then Fred will provide some closing remarks before we open the call for Q&A.

Frederick A. Brightbill: Before we begin we would like to remind participants that the information contained in this call is current only as of today February 7th 'twenty 'twenty four.

Frederick A. Brightbill: Company assumes no obligation to update any statements, including forward looking statements.

Bobby Potter: Statements that are not historical facts are forward-looking statements and subject to the Safe Harbor disclaimer in today's press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special or items not indicative of our ongoing operations. For each non-GAAP measure, we will provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. There is also a slide deck summarizing our financial results in the investor section of our website. As a reminder, unless otherwise noted, the following commentary is made on a continuing operations basis. With that, I will turn the call over to Fred. Thank you, Bobby, and good morning, everyone.

Frederick A. Brightbill: Statements that are not historical facts are forward looking statements.

Frederick A. Brightbill: And subject to the Safe Harbor disclaimer in todays press release.

Frederick A. Brightbill: On this conference call, we will discuss non-GAAP measures that exclude or exclude special or items not indicative of our ongoing operations for each non-GAAP measure we will provide the most directly comparable GAAP measure in today's press release. This includes a reconciliation of these non-GAAP measures to our GAAP results.

Frederick A. Brightbill: There is also a slide deck summarizing our financial results in the investors section of our website.

Frederick A. Brightbill: As a reminder, unless otherwise noted the following commentary is made on a continuing operations basis with that I will turn the call over to Brett.

Brett: Thank you Bobby and good morning, everyone.

Frederick A. Brightbill: Our business performed well during the second quarter as we delivered better than expected results despite continuing macroeconomic uncertainty and a highly competitive retail environment. In the near term, we remain focused on rebalancing dealer inventories with anticipated demand to ensure the health of our dealer network. Despite near-term challenges, our portfolio of consumer-centric brands, a highly variable cost structure, and our strong balance sheet provide us with the confidence to continue to invest in long-term growth initiatives. In addition to maintaining a resilient balance sheet and investing for the future, our disciplined approach to capital allocation allows us the flexibility to return cash to shareholders through our share repurchase program. Views regarding the economic outlook are mixed and uncertain, which is limiting retail demand visibility.

Brett: Our business performed well during the second quarter as we delivered better than expected results, despite continuing macroeconomic uncertainty and a highly competitive retail environment.

Brett: Near term, we remain focused on rebalancing dealer inventories with anticipated demand to ensure the health of our dealer network. Despite.

Brett: Despite near term challenges our portfolio of consumer centric brands, a highly variable cost structure and our strong balance sheet provide us with the confidence to continue to invest in long term growth initiatives.

Brett: In addition to maintaining a resilient balance sheet and investing for the future our disciplined approach to capital allocation allows us the flexibility written.

Brett: Turning cash to shareholders through our share repurchase program.

Brett: Bruce regarding the economic outlook are mixed and uncertain.

Brett: It was limiting retail demand visibility.

Frederick A. Brightbill: Recently, we observed some relatively positive indications that favor cautious optimism, including the expectation of lower interest rates, improving consumer sentiment, and unexpectedly strong GDP growth. We continue to monitor retail results and assess the overall business and economic environment. We are confident that our flexible operating model will allow us to mitigate near-term risk and capitalize on the upside when we return to growth. Although inventories modestly increased during the quarter, seasonal increase was less than typical in the pre-COVID period.

Recently, we observed some relatively positive indications that favorite cautious optimism.

Bruce: Would it be your expectation for lower interest rates.

Bruce: Improving consumer sentiment.

Bruce: Unexpectedly strong GDP growth.

Bruce: We continue to monitor retail results and assess the overall business and economic environment.

Bruce: We are confident that our flexible operating model will allow us to mitigate near term risks and capitalize on the upside when we returned to growth.

Bruce: Although inventories modestly increased during the quarter.

Bruce: Seasonal increase was less we typically typical in pre COVID-19 periods.

Frederick A. Brightbill: We prioritize pipeline rebalancing and dealer health as we enter fiscal 2024. Other industry participants are now signaling softening demand while lowering their expectations significantly in some cases. We believe the decisive action we took to right-size our production plan from the start of fiscal 2024 has allowed us to transition to a more historical pattern of inventory build and destock. Dealer inventory units normally increase to a relative peak during our fiscal third quarter before declining throughout the summer selling season, while dealer inventories remain higher than we consider optimal. However, we expect levels to improve by the end of the fiscal year. As other inventory, excuse me, as other industry participants begin to react to lower demand, the retail environment has become increasingly competitive. Dealers continue to focus on de-stocking to manage inventory levels and reduce floor plan costs. The resulting increase in promotional activity is pressuring margins across the industry. Results from early boat shows are mixed, although many of the latest shows have exceeded expectations.

Bruce: We prioritize pipeline rebalancing is dealer health as we entered fiscal 2024.

Bruce: Other industry participants are now signaling softening demand, while peering their expectations significantly in some cases.

Bruce: We believe the decisive actions, we took to right size. Our production plan from the start of fiscal 2024 has allowed us to transition to a more historical pattern of inventory build that destock.

Bruce: Dealer inventory units normally increase to a relative peak during our fiscal third quarter before declining throughout summer selling season.

Bruce: Our dealer inventories remain higher if we consider optimal we expect levels to improve by the end of fiscal year.

Bruce: As other inventory excuse me as other industry participants begin to react to lower demand the retail environment has become increasingly competitive.

Bruce: Dealers continue to focus our destocking to manage dealer to manage inventory levels and reduced <unk> cost.

Bruce: <unk> increase in promotional activity is pressuring margins across the industry.

Bruce: Results from early boat shows are mixed although many of the latest shows have exceeded expectations.

Frederick A. Brightbill: We anticipate that retail activity will support our range of wholesale expectations. The environment is very competitive as inventory availability is improved, providing consumers with more choice. The good news is that they're a buyer. However, a general lack of urgency is contributing to increased promotional activity.

Bruce: We anticipate that retail activity will support a range of wholesale expectations.

Bruce: The environment is very competitive as inventory availability has improved providing consumers with more choices.

Bruce: The good news is that there are buyers.

Bruce: However, a general lack of urgency is contributing to increased promotional activity.

Frederick A. Brightbill: Our dealer inventory levels and production plans position our dealers to capitalize on the remaining boat shows in the upcoming summer selling season. We expect to have a clear picture of retail demand as we progress through our third and fourth quarters. Despite the cyclical headwinds facing the industry, we are well positioned to pursue our capital allocation priorities, including investment and long-term growth. We are prudently investing in targeted initiatives that will take advantage of the industry's positive underlying secular trend. I will briefly discuss one such initiative as I review the operational results of our brand.

Bruce: Our dealer inventory levels and production plans position our dealers to capitalize on our remaining boat shows in the upcoming summer selling season.

Bruce: We expect to have a clear picture of retail demand as we progressed through our third and fourth quarters.

Bruce: Despite the cyclical headwinds facing the industry, we are well positioned to pursue our capital allocation priorities, including investment in long term growth.

Bruce: We're prudently investing in targeted initiatives that will take advantage of the industry's positive underlying secular trends.

Bruce: We'll briefly discuss once such initiative as I review the operational results of our brands.

Frederick A. Brightbill: With our financial position secure and our current strategic growth initiatives fully funded, we expect to continue to allocate most of our free cash flow for the year to our EPS-accretive share repurchase program. Our balance sheet and capital allocation framework provide us with flexibility to adjust our stance from cautious to optimistic, depending on our view of the cycle. Given the currently suppressed marine environment and near-term uncertainty, we will remain opportunistic in our approach to growth through M&A. Let me now briefly review some of the latest developments across our business. Our Mastercraft brand net sales were $73 million for the quarter, down 33% from the record prior year period.

Bruce: As our financial position secure and our current strategic growth initiatives fully funded we expect to continue to allocate most of our free cash flow for the year to our EPS accretive share repurchase program.

Bruce: Our balance sheet and capital allocation framework provides us with flexibility to adjust our stance from cautious optimistic depending on our view of the cycle.

Bruce: Given the currently suppressed marine environment and near term uncertainty, we will remain opportunistic in our approach to grow through M&A.

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

Bruce: Our master craft brand net sales were $73 million for the quarter down 33% from a record prior year period.

Frederick A. Brightbill: The decrease in net sales was in line with our expectations given the planned production decrease to rebalance dealer inventories in response to lower retail demand. The MassCraft team is actively supporting our dealer partners at boat shows occurring across the country and globally. MassCraft performed particularly well at the Atlanta, Seattle, and Salt Lake City shows at Crest.

Bruce: The decrease in net sales was in line with our expectations given the planned production decreased to rebalance dealer inventories in response to lower retail demand.

Bruce: <unk> team is actively supporting our dealer partners at boat shows occurring across the country and globally.

Bruce: <unk> performed particularly well at the Atlanta, Seattle, and Salt Lake City shows.

Frederick A. Brightbill: Net sales were $17 million for the quarter, down 54% from the prior year period, as expected due to a pullback in production to align with retail demand. Early results show results have been mixed, but encouraging, as consumer interest in pontoons has been better than anticipated. However, consumers lack a sense of urgency, and the sales cycle is taking longer than expected in the last few years. Press performed particularly well at the Minneapolis show, the largest pontoon market in the U.S., along with the Chicago Atlantic and Detroit Show.

At crest.

Bruce: Net sales were $17 million for the quarter down 54% from the prior year period as expected due to a pullback in production to align with retail demand.

Bruce: Early boat show results have been mixed but encouraging as consumer interest in cartoons has been better than anticipated.

Bruce: However, consumers lack of sense of urgency and the sales cycle is taking longer than expected in the last few years.

Bruce: <unk> performed particularly well, it's Minneapolis show.

Bruce: The largest brought to market in the U S along with the Chicago, Atlanta and Detroit shows.

Frederick A. Brightbill: On the strategic front, we will be launching a new pontoon brand for model year 2025 that will be built in our Crest facility. This new brand was conceived through our consumer-centric approach to strategic planning and will be focused on targeting an affluent customer with an elevated on-water and in-water experience. We will be launching the brand to consumers in the spring and look forward to sharing more information on this exciting growth initiative with investors on our next earnings call. At Aviera, net sales were $10 million for the quarter, down 30% compared to the prior year period.

On the strategic front, we will be launching a new pontoon brand for model year 2025 that will be built in our credit facility.

Bruce: This new brand was conceived through our consumer centric approach to strategic planning and we will be focused on targeting the affluent customer with an elevated on water and water experience.

We will be launching the brand to consumers in the spring and look forward to sharing more information on this exciting growth initiative with investors on our next earnings call.

Bruce: Europe net sales were $10 million for the quarter down 30% compared to the prior year period.

Frederick A. Brightbill: During the quarter, Aviara was focused on the ramp-up of the all-new AV28, an impressive product platform consisting of four distinct model variants. We expect the AB 28 production to continue to wrap up for the remainder of the year. Aviera has also expanded its distribution network by adding eight new domestic and international points of distribution this fiscal year to date.

Bruce: During the quarter <unk> was focused on the ramp up of the all new <unk> 28, and impressive product platform consisting of four distinct model variance.

Bruce: We expect the 28 production to continue to wrap up for the remainder of the year.

Bruce: Javier has also expanded its distribution network by adding eight new domestic and international points of distribution for fiscal year to date.

Frederick A. Brightbill: Show results for Aviar have been mixed, but we were encouraged by the results at some shows, including New York and Seattle. We recently hired Mike O'Connell, a 30-year industry veteran, to be president of Aviar. Mike's senior leadership roles at several boat manufacturers give him a wealth of experience and knowledge that he will leverage to improve Aviera's operational performance and execute its growth strategy. I will now turn the call over to Tim, who will provide a more detailed discussion of our financial results. Tim?

Bruce: <unk> results for IV or have been missed but we're encouraged by the results in some shows including New York and CF.

Bruce: We recently hired Michael Carnival, a 30 year industry veteran to be president of Bob Europe, Mike.

Bruce: <unk> senior leadership roles at several bulk manufacturers gives him a wealth of experience and knowledge that he will leverage did prove out here is operational performance and execute its growth strategy.

Bruce: I'll now turn the call over to Tim who will provide more detailed discussion of our financial results Tim Thanks, Brad focusing on the top line net sales for the quarter were $99 5 million, a decrease of $59 7 million or 38% from the record prior year period.

Timothy M. Oxley: Thanks, Fred. Focusing on the top line, it sells for $99.5 million, a decrease of $59.7 million, or 38%, from the record prior year period. This decrease was primarily due to lower unit cell volume and an increased endurance center, partially offset by higher prices in favor of MIP. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains very competitive. For the fourth quarter, our gross margin was 18.8%, a decrease of 520 basis points when compared to the prior year period. Lower margins were the result of lower cost absorption due to planned decreased production volume. Higher dealer incentives and higher costs were attributed to material labor and overhead inflation, partially offset by higher prices.

Timothy M. Oxley: This decrease was primarily due to lower unit sales volume and an increase in dealer incentives, partially offset by higher prices and favorable mix.

Timothy M. Oxley: Fewer incentives include higher floor plan financing cost.

Timothy M. Oxley: As a result of increased dealer inventories in interest rates and other incentives as the retail environment remains very competitive.

Timothy M. Oxley: For the fourth quarter, our gross margin was 18, 8% a decrease of 520 basis points when compared to the prior year period.

Timothy M. Oxley: Lower margins were the result of lower cost absorption due to planned decrease production volume higher dealer incentives and higher costs related to material labor and overhead inflation, partially offset by higher prices.

Timothy M. Oxley: Operating expenses were relatively consistent for the second quarter of fiscal 2024 compared to the prior year period.

Timothy M. Oxley: The pursuit of growth growth initiatives, we continue to invest in product development and marketing.

Timothy M. Oxley: Operating expenses were relatively consistent for the second quarter of fiscal 2024 compared to the prior year period. In pursuit of growth initiatives, we continue to invest in product development and marketing. Turning to the bottom line, adjusted net income for the year decreased to 6.3 million or 37 cents per diluted share, computed using an estimated annual effective tax rate of 22%. This compares to adjusted net income of $21.3 million, or $1.20 for the prior year period, computed using a tax rate of 23 percent. Adjusted EBITDA decreased to $9.8 million for the quarter, compared to $29.8 million in the prior year period.

Timothy M. Oxley: Turning to the bottom line adjusted net income for the year decreased to $6 3 million or <unk> 37 per diluted share computed using an estimated annual effective tax rate of 22%.

Timothy M. Oxley: This compares to adjusted net income $21 3 million or $1 20.

Timothy M. Oxley: For the prior year period computed using a tax rate of 23%.

Timothy M. Oxley: Adjusted EBITDA decreased to $9 8 million for the quarter compared to $29 8 million in the prior year period.

Timothy M. Oxley: Adjusted EBITDA margin was nine 8% down to 890 basis points from 18, 7% in the prior year period.

Timothy M. Oxley: Our balance sheet remains incredibly strong as we ended the quarter with nearly $209 million of total liquidity, including nearly $109 million of cash and short term investments and $100 million of availability under our revolving credit facility.

Timothy M. Oxley: Adjusted EBITDA margin was 9.8%, down 890 basis points from 18.7% in the prior year period. Our balance sheet remains incredibly strong as we enter the quarter with nearly $209 million of total liquidity, including nearly $109 million of cash and short-term investments and $100 million of availability under a revolving credit facility. We ended the quarter with no debt, as cash and short-term investments exceeded our outstanding debt balance.

Timothy M. Oxley: We ended the quarter with no debt debt as cash and short term investments exceed our outstanding debt balance.

Timothy M. Oxley: Year to date, we have generated more than $19 million of cash flow from operations.

Timothy M. Oxley: 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 fund strategic growth initiatives.

Timothy M. Oxley: During the quarter, we spent approximately 4.4.

Timothy M. Oxley: $4 4 million to repurchase more than 214000 shares of our common stock.

Timothy M. Oxley: Here today, we have generated more than $19 million of cash flow from operations. 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 fund strategic growth initiatives. During the quarter, we spent approximately $4.4 million to repurchase more than 214,000 shares of our common stock.

Timothy M. Oxley: Since initiating our share repurchase program maturity 2021.

Timothy M. Oxley: More than $58 million to repurchase over two 3 million shares.

Timothy M. Oxley: These cumulative repurchases provided a 13% benefit for our fiscal second quarter adjusted net income per share.

Timothy M. Oxley: We expect to continue to return cash to shareholders, while prioritizing financial flexibility and high return investments in the business that generate growth and long term shareholder value.

Timothy M. Oxley: Since initiating our share repurchase program in June of 2021, we've spent more than $58 million to repurchase over 2.3 million shares. These cumulative repurchases provided a 13% benefit for the fiscal second quarter adjustment in income per share. We expect to continue to return cash to shareholders while prioritizing financial flexibility and high-return investments in the business that generate growth and long-term shareholder value. Looking ahead, we are narrowing our guidance range for the full year. Consolidated net sales are now expected to be between $400 million and $412 million, with adjusted EBITDA between $42 million and $47 million, and adjusted earnings per share between $1.53 and $1.78. We also now expect casual expenditures to be approximately $20 million for the full year.

Timothy M. Oxley: Looking forward, we are narrowing our guidance range for the full year.

Timothy M. Oxley: Consolidated net sales is now expected to be between $400 million and 412 million with adjusted EBITDA between $42 million of $47 million.

Timothy M. Oxley: Adjusted earnings per share $1, 53, stacks and $1 78.

Timothy M. Oxley: We also now expect capital expenditures to bear.

Timothy M. Oxley: Be approximately 29 for the full year.

Timothy M. Oxley: For the third quarter of fiscal 2020 for consolidated net sales is expected to be approximately 92 million with adjusted EBITDA of approximately $7 million and adjusted earnings per share of approximately <unk> 23.

Timothy M. Oxley: Although our guidance reflects the significant decline in earnings for fiscal 2023.

Timothy M. Oxley: We expect to generate positive free cash flow, which is a testament to our flexible highly variable cost structure and proactive cost control efforts.

Timothy M. Oxley: Now I'll turn the call back to Fred for his closing remarks, thanks, Tim as.

Frederick A. Brightbill: As we continued our focus on rebalancing dealer inventories our business performed well during the second quarter by delivering better than expected results. Despite the continuing economic uncertainty and a highly competitive retail environment.

Timothy M. Oxley: For the third quarter of fiscal 2024, consolidated net sales are expected to be approximately $92 million, with adjusted EBITDA of approximately $7 million, and adjusted earnings per share of approximately $0.23. Although our guidance reflects a significant decline in earnings for fiscal 2023, we expect to generate positive free cash flow, which is a testament to our flexible, highly variable cost structure and proactive cost control efforts. I'll now turn the call back to Fred for his closing remarks.

Frederick A. Brightbill: We continue to exercise a disciplined approach to capital allocation for.

Frederick A. Brightbill: Over the past two years, we've returned more than $58 million of excess cash to our shareholders through our share repurchase program.

Frederick A. Brightbill: Our strong balance sheet provides us with financial flexibility and affords us the opportunity to pursue our strategic growth initiatives.

Frederick A. Brightbill: The upcoming launch of our exciting new pontoon brand as an example of why we are confident in our ability to deliver long term growth for our shareholders as.

Frederick A. Brightbill: As we move beyond inventory rebalancing, we are determined to leverage our strong and growing portfolio of brands deliver on our commitments pursue long term growth opportunities and generate exceptional shareholder returns.

Frederick A. Brightbill: Thanks, Tim. As we continued our focus on rebalancing dealer inventories, our business performed well during the second quarter by delivering better than expected results despite the continuing economic uncertainty in a highly competitive retail environment. We continue to exercise a disciplined approach to capital allocation.

Speaker Change: Operator, you May now open the line for questions.

Speaker Change: Thank you.

Speaker Change: A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Operator: For the past two years, we've returned more than $58 million of excess cash to our shareholders through our share repurchase program. Our strong balance sheet provides us with financial flexibility and affords us the opportunity to pursue our strategic growth initiatives. The upcoming launch of our exciting new pontoon brand is an example of why we are confident in our ability to deliver long-term growth for our shareholders. As we move beyond inventory rebalancing, we are determined to leverage our strong and growing portfolio of brands, deliver on our commitments, pursue long-term growth opportunities, and generate exceptional shareholder returns. Operator, you may now open the line for questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A room. The first question comes from Joe Altobello with Raymond James.

Speaker Change: Withdraw your question. Please press star one again please.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: The first question comes from Joe Alto Bello with Raymond James Your line is now open.

Speaker Change: Thanks, Hey, guys good morning.

Speaker Change: First question I wanted to ask about the guidance it implies a sequential decline.

Speaker Change: In sales and EBITDA from Q2 to Q3, which is unusual is that.

Speaker Change: Is that all due to heightened promotional activity or are there other dynamics going on in the business.

Speaker Change: There are other domain dynamics, Joe for instance, we were shut down for a full week of production due to snow here in Tennessee, No an ice storm effective production at crest as well. The other thing we're doing is making sure we allow our dealers some breathing room to clear their decks are cleared the decks for additional inventory.

Speaker Change: In Q4.

Joe: Okay. That's helpful. Tim and maybe in terms of units. This year I think the expectation at least three months ago was units would be down over 40%.

Joe Altobello: Your line is now open. Thanks. Hey, guys. Good morning.

Joe: That's still the case and if so does that get field inventories to where you need them to be by fiscal year end.

Timothy M. Oxley: So the first question I want to ask about the guidance, it implies a sequential decline in sales and EBITDA from Q2 to Q3, which is unusual. Is that all due to heightened promotional activity, or are there other dynamics going on in the business? There are other dynamics, Joe. For instance, we were shut down for a full week of production due to snow here in Tennessee.

Timothy M. Oxley: That's what we're expecting Joe.

Joe: Okay. So it sounds like you guys will exit the fiscal year clean if you will from an inventory perspective.

Joe: Absolutely and keep in mind, the all important fourth quarter of a retail.

Joe: Determining exactly.

Joe: Where we land.

Speaker Change: Okay got it thank you.

Timothy M. Oxley: You know, an ice storm affected production at Crest as well. The other thing we're doing is making sure we allow our dealers some breathing room to clear their decks, to clear the decks for additional inventory in Q4. Okay, that's helpful, Tim. And maybe in terms of, you know, units this year, I think the expectation at least three months ago was that units would be down over 40%. Is that still the case? And if so, does that get field inventories to where you need them to be by fiscal year end? That's what we're expecting, Joe.

Speaker Change: Yes.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Craig Kennison with Baird. Your line is now open.

Craig Kennison: Hey, good morning, Thanks for taking my questions I wanted to start with just <unk>.

Craig Kennison: Question Fred on your perspective on the health of your dealer network. We know they are under a lot of strain with skinny margins.

Craig Kennison: Excess floorplan cost, but how would you characterize the health of your dealer network.

Frederick A. Brightbill: I would characterize it overall is very good.

Timothy M. Oxley: Okay, and so it sounds like you guys will exit the fiscal year clean, if you will, from an inventory perspective. Absolutely, and keep in mind that our fourth quarter of retail will determine exactly where we land. Okay, got it.

And thats not to say that there isn't an occasional issue here or there, but it's been very sporadic and isolated.

Frederick A. Brightbill: But certainly as you indicated.

Joe Altobello: Thank you. One moment for our next question. The next question comes from Craig Kennison with Baird. Your line is now open.

Frederick A. Brightbill: Dealers.

Frederick A. Brightbill: In general heavily inventory.

Frederick A. Brightbill: Recurring additional costs and they are selling at very tight margins, which is not a long term sustainable situation. We don't expect it to be in that situation long term, we expect to get through this and be able to return to more normal conditions.

Craig Kennison: Okay, good morning. Thanks for taking my questions. I wanted to start with just a question, Fred, on your perspective on the health of your dealer network. We know they're under a lot of strain.

Speaker Change: Craig I would I would add we monitor the DMT ourselves.

Frederick A. Brightbill: Skinny margins, excess floor plan costs, but how would you characterize the health of your dealers? I would characterize it overall as very good, and that's not to say that there isn't an occasional issue here or there, but it's been very sporadic and isolated, but certainly, as you indicated. Dealers are, in general, heavily in inventory, incurring additional costs, and they're selling at very tight margins, which is not a long-term sustainable situation. We don't expect them to be in that situation for the long term.

Craig Kennison: It's very closely we have a monthly meeting with the floorplan copies to make sure. There are no no early warning signs of duress and we will continue that through the through the season.

Craig Kennison: Is there a way to frame the number of units by which.

Craig Kennison: You exceed maybe target inventory levels.

Craig Kennison: And the channel.

Speaker Change: Well the way, we think about it.

Speaker Change: Craig is again, where we're trying to end up at the end of the year and this year we still.

Speaker Change: Expect to pull out somewhere between 600 800 units.

Speaker Change: Split fairly between mass trapped and perhaps brands.

Frederick A. Brightbill: We expect to get through this and be able to return to more normal conditions. Craig, I would add we monitor the dealer's health. We're watching very closely. We have a monthly meeting with the floor plan companies to make sure there are no early warning signs of duress.

Speaker Change: That's really helpful and then.

Speaker Change: Yes, one more question on the decision to add a pontoon brand within the credit facility. Just if you would talk about any.

Speaker Change: Capital requirements.

Frederick A. Brightbill: And we'll continue that through the season. Is there a way to frame the number of units by which you exceed, maybe, target inventory levels and the channel? Well, the way we think by Craig is again where we're trying to end up at the end of the year. And this year, we still expect to pull out somewhere between 600 and 800 units, split fairly between Mastercraft and Professor Brands. That's really helpful. And then, I guess, one more question on the decision to add a Pontoon brand to the Crest facility. Just, if you would, talk about any... Capital Requirements, that entails, and

Speaker Change: That entails and.

Speaker Change: What's the broader vision for having two brands instead of just one.

Speaker Change:

Speaker Change: First of all.

Speaker Change: Minimal capital expense.

Speaker Change: I don't have the same 200 requirements the pontoon business as you would in the fiberglass in terms of molds.

Speaker Change: No facility expansion.

Directly related to that.

Speaker Change: Our facility expansion was recently completed within the last year that provides the capability.

Speaker Change: To be able to produce this product so.

Frederick A. Brightbill: What's the broader vision for having two brands instead of... Oh, first of all, minimal capital expense. Don't have the same tooling requirements for the pontoon business as you would for fiberglass in terms of molds, no facility expansion directly related to that. A facility expansion was recently completed in the last year that provides the capability to be able to produce this product. So there was some investment made, but it has been made historically, and as we look forward, don't expect any significant capital allocation to the new brand. With regard to the positioning, because of its premium, almost ultra-premium positioning, we felt it was appropriate to have a distinct brand and be able to target it to those consumers specifically. It will touch on the upper end of the offering in terms of price points.

Speaker Change: There was some investment made but it has been made historically.

Speaker Change: We look forward.

Speaker Change: Don't expect any significant capital allocation.

Speaker Change: To the new brand with regard to the positioning.

Speaker Change: Because of its <unk>.

Speaker Change: Premium mobile social premium positioning.

Speaker Change: We felt it was appropriate to have a distinct brand and be able to target those consumer specific lease.

Speaker Change: It will touch on the upper end of the offering in terms of price points are good press brand. So theres some minor overlap, but in general it's going to be <unk>.

Speaker Change: <unk> differently than the crush spread.

Speaker Change: Great. Thank you.

Speaker Change: One moment for the next question.

Speaker Change: The next question comes from Eric Wold with B Riley Securities. Your line is open.

Eric Wold: Thank you.

Eric Wold: Good morning, everybody.

Eric Wold: Two questions I guess, one is a follow up.

Frederick A. Brightbill: So there's some minor overlap. But in general, it's going to be positioned differently than the Crest. Great, thank you. One moment for the next question. The next question comes from Eric Wold with B Raleigh. That's your line.

Eric Wold: Thank you Marcos Shredder Timna is that what you're talking about.

Eric Wold: The dealers being kind of extraordinary low margins right now on boat sales.

Eric Wold: It take floorplan cost out of the equation and try to kind of get to an apples to apples basis with.

Eric Wold: Pre pandemic levels to take interest rates out.

Eric Wold: Thank you. Thank you. Good morning, everybody.

Eric Wold: Are the margins as being lower than pre pandemic because of higher promotions or the extra pressure purely from the floorplan cost.

Timothy M. Oxley: Two questions, I guess. One, just to follow up. I can't remember if it was Fred or Tim that said this, but you talked about the dealers seeing, you know, kind of extraordinary low margins right now on boat sales. If you take floor plan costs out of the equation and try to kind of get to an apples-to-apples basis with, you know, pre-pandemic levels to take industry rates out, are the margins lower than pre-pandemic because of high promotions, or is the extra pressure purely from the floor plan costs? And I believe it's... It's in addition to the floor plan costs, Eric. Hello,

Eric Wold: And I believe it's.

Eric Wold: It's in addition to the floor plan costs.

Eric Wold: Eric.

Speaker Change: Such competitive market now.

Speaker Change: <unk>.

Speaker Change: The price competition is driven down their margins in addition to.

Speaker Change: Four point cost right.

Speaker Change: Typically the dealer's book before plant cost and their G&A, so it doesn't affect their margin.

Speaker Change: It's very competitive out there and their margin on current product is significantly different than the margin on non currents and thats always been the case, but they have more non current incentives typical so.

Timothy M. Oxley: It's such a competitive market now that price competition has driven down their margins in addition to the floor plan costs. And, you know, typically, the dealers put the floor plan cost in their G&A, so it doesn't affect their margin. So it's, you know, it's very competitive out there. And their margin on current product is significantly different from the margin on non-currents. And that's always been the case, but they have more non-currents than is typical.

Speaker Change: Typically for dealers Youll see the non current margins coming down in the current margins remain pretty steady and I think thats. The case, but there are more non current now than they've had in the past.

Speaker Change: And do you expect that competitive environment to remain in place even after.

Speaker Change: Channel inventories get to more healthier levels.

Speaker Change: Different environment, we're in now or is it mainly because of the higher inventories out there.

Frederick A. Brightbill: So, you know, typically for dealers, you'll see the non-current margins come down and the current margins remain pretty steady. And I think that's the case, but there are more non-currents now than they've had in the past. And do you expect that competitive environment to remain in place even after channel inventories get to more healthy levels? Or is that kind of a different environment right now?

Speaker Change: I don't think it will remain at the same level of.

Speaker Change: Discounting, but we do expect it to revert to normal aggressive competition.

Speaker Change: Hopefully.

Speaker Change: Hopefully of being clear on my answer I think it's it's.

It's at a peak of competitiveness currently.

Frederick A. Brightbill: Or is it merely because of the higher inventories out there? I don't think it will remain at the same level of discounting, but we do expect it to revert to normal, aggressive competition. Mm-hmm. Hopefully. Hopefully, I'm being clear on my answer. I think it's at a peak of competitiveness currently. I don't think it will revert anywhere near COVID situations, but I think it'll be much more like the pre-COVID period.

Speaker Change: I don't think it will.

Speaker Change: Anywhere near Covid situations, but I think it'll be much more like pre COVID-19 periods.

Speaker Change: Got it and then just final question if I may.

Speaker Change: Earlier now lets you are looking for.

Speaker Change: 25, <unk> guidance, but I guess.

Speaker Change: There is a hope that interest rates do come down to some degree.

Frederick A. Brightbill: Got it. And then final question I may, I know it's early enough, not necessarily looking for fiscal 25-5 guidance, but I guess, you know, there's the hope that, interest rates do come down to some degree, you know, over the next 12 months or so, I guess, you know, I guess, what are you hearing from dealers now in terms of any indications in terms of if they look at a model 25, what level of inventory they're willing to hold on their floors, given interest rates, competitive environment, you know, macro uncertainty, if you look at that compared to what you may have seen pre pandemic, I mean, how much lower you think that they're willing to hold inventory versus back back then?

Speaker Change: The next 12 months or so.

Speaker Change: I guess what are you hearing from dealers now in terms of any indications in terms of looking at a model 25, what level of inventory. They are willing to hold on their floor is given interest rates and competitive environment.

Speaker Change: Or uncertainty.

Speaker Change: Look at that compared to what you may have seen pre pandemic, how much lower you think that they're willing to hold inventory versus back back then.

Speaker Change: I think the dealers.

Speaker Change: The way we.

Speaker Change: Work with dealers is too.

Speaker Change: Project retail demand and bouncer inventories accordingly.

And so it's all going to depend on as we entered the year with the annual business plan is and what our outlook is and Eric as you know we're right now in a period of limited visibility in terms of what next year is really going to look like so I can't opine on.

Frederick A. Brightbill: I think the dealers, you know, the way we work with dealers is to project retail demand and balance their inventories accordingly. And so it's all going to depend on, as we enter the year, what the annual business plan is and what our outlook is. And Eric, as you know, we're right now in a period of limited visibility in terms of what next year is really going to look like. So I can't comment on next year with any degree of certainty other than to say we will know as we finish May and June how we're set up for the following year and how we progress through the summer. My personal opinion is that if we see interest rate reductions, that's going to boost consumer confidence and their level of activity in addition to the other benefits that you described with regard to overall financing costs, et cetera.

Speaker Change: Next year with any degree of certainty other than to say it we will know as we finish may and June.

Speaker Change: How we're set up for the following year and how we progress through the summer my personal opinion is if we see interest rate reductions that's going to boost consumer confidence in their level of activity. In addition to the other benefits that you described with regard to overall financing costs et cetera, but.

Speaker Change: Will that happen and to what extent will we see those will be initial rate reduction would be a signal that encourages consumers to be more active or willing to take more significant.

Speaker Change: Reductions and then how will those reductions play out in terms of short term rates versus longer term rates and retail financing for consumers.

Frederick A. Brightbill: But, you know, will that happen, and to what extent will we see it? Will the initial rate reduction be a signal that encourages consumers to be more active, or will it take more significant reductions? And then how will those reductions play out in terms of short-term rates versus longer-term rates in retail financing for consumers?

Speaker Change: Perfect. Thank you guys.

Speaker Change: Please standby for the next question.

Speaker Change: The next question comes from Zach <unk> with Keybanc. Your line is open.

Zach: Hi, Thanks for taking my questions I guess just first.

Frederick A. Brightbill: Perfect. Thank you, Jeff. Please stand by for the next question. The next question comes from Noah Zatkin with KeyBank. Your line is open. Hi, thanks for taking my questions.

Zach: Not to beat inventory depth and I know, there's obviously a seasonal component.

Zach: Inventory.

Zach: Up in the second quarter.

Noah Zatkin: I guess just first. Not to beat inventory to death, and I know there's obviously a seasonal component to inventory levels up in the second quarter. But as you're thinking about it today, would you expect to make progress on inventory exiting the third quarter? Or is that kind of more of a fourth quarter push?

Zach: But as you're thinking about it today would you expect to make progress on inventory exiting the third quarter.

Zach: Or is that kind of more of a fourth quarter push.

Zach: And then relatedly.

Zach: Just in terms of the competitive environment.

Frederick A. Brightbill: And then relatedly, just in terms of the competitive environment, I guess, is anything changing via incentives or promotions to help clean inventory looking forward relative to what kind of took place? I think the third quarter will see increased competition, and that's kind of reflected in our outlook for the third quarter in terms of discounting margins, etc., competitiveness. With regard to the inventory model, you know, it peaks seasonally in the third quarter and then is increasingly worked off. So, you know, it starts with boat shows and then builds.

Zach: <unk>.

Zach: I guess is there anything changing via incentives or promo to help clean inventory looking forward relative to what kind of it took place in the second quarter.

I think the third quarter, we will see increased competition.

Zach: And thats kind of reflected in our outlook for the third quarter.

Zach: In terms of discounting the margins et cetera, competitiveness with regard to inventory model.

Zach: It peaks seasonally.

Zach: In the third quarter, and then as increasingly worked off so.

Zach: Starts with boat shows and then builds but as you well know that fourth quarter is 45% to 50% of retail demand and Thats really.

Frederick A. Brightbill: But, as you well know, that fourth quarter is 45 to 50 percent of retail demand. And that's really, you know, what you're trying to predict and forecast and be ready for. Not underestimate, not overestimate. So you see some, you know, some movement as sales accelerate in the third quarter. But really, it's the fourth quarter when you see the big movement.

Zach: What youre trying to predict and forecast and be ready for not underestimate not overestimate. So.

Zach: You see some.

Some movement as sales accelerate in the third quarter, but really it's the fourth quarter when you see the big movement.

Frederick A. Brightbill: Got it. That's helpful. And then just on the new Pontoon brand, any additional color positioning relative to the crest and just maybe some thoughts around kind of why now would be helpful. Think of it as premium, or super premium, if you will. Think of it as being, it's going to be a very stunning and unique style. Um, and we felt like it deserved specific attention and positioning, given its uniqueness and given its differentiation. The Crest product line is very broad, as you know, covers a wide range of price points, and they still have, you know, luxury models, and those models will continue to be enhanced as we roll forward. But there will be, you know, a positioning and styling differentiation between the two brands. It's significant.

Speaker Change: Got it that's helpful. And then just on the new pontoon brand.

Speaker Change: Any additional color on positioning relative to kras and just maybe some thoughts around.

Speaker Change: Kind of why now would be helpful. Thanks.

Speaker Change: Think of it as premium Super premium if you will.

Speaker Change: Think of it as being it's going to be a very stunning and unique style.

Speaker Change: And we felt like it deserved specific attention positioning given its uniqueness and given its differentiation so.

Speaker Change: The <unk> product line is very broad as you know.

Speaker Change: Covers a wide range of price points.

Speaker Change: And they still have luck.

Speaker Change: Luxury models.

Speaker Change: Those models will continue to be enhanced as we roll forward.

Speaker Change: But there will be.

Speaker Change: Our positioning in our styling differentiation between the two brands that significant.

Speaker Change: Thank you.

Noah Zatkin: Thank you. One moment for our next question. The next question comes from Mike, with Truist Securities. Your line is open. Hey, guys. Good morning.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Michael Swartz with true with Securities. Your line is now open.

Michael Swartz: Hey, guys good morning.

Michael Swartz: I think when you when you gave initial guidance for 'twenty four back in I think it was late August it was.

Mike: I think when you gave initial guidance for 24 back in, I think it was late August, it was based upon a mid-teens decline in retail demand for the fiscal year. I think since then, the industry's been down something more in the range of low single digits. So maybe just give us an update on what's embedded into your guidance today and maybe how you're thinking about the year playing out. I know a lot's contingent on interest rates, but just as far as you have visibility today, how do you see the year playing out from a retail standpoint? I think it's going to vary certainly by brand segment of the market. But you know, our view is a little more optimistic than it was at the start of the fiscal year. We're just gonna really have to work hard, and the doers are gonna have to work hard for every retail sale.

Michael Swartz: It was based upon a mid teen decline in retail demand for the for the fiscal year I think since then the industry has been down something.

Michael Swartz: And the range of low single digit so maybe just give us an update on what's embedded into your guidance today, and maybe how youre thinking about.

Michael Swartz: The year, playing out I know a lot's contingent on interest rates.

Michael Swartz: As far as you have visibility today, how do you see the year playing out from a retail standpoint.

Michael Swartz: Vivek, it's going to vary certainly by brand segment of the market.

Michael Swartz: But our view is a little more optimistic than it was.

Michael Swartz: At the start of the fiscal year.

Michael Swartz: Really have to work hard and doers, we don't have to work hard for every retail sale.

Frederick A. Brightbill: Okay, thanks. And then maybe just to follow up on Aviara, we haven't discussed that in a little bit, but some change in leadership, sounds like there, just maybe give us a little bit of a backdrop on where we are from a profitability standpoint. I think years ago, that the view was that this brand would be, you know, from a profitability standpoint, in line with the corporate average. Is that still the target today? Our target hasn't changed, and we believe, with a new leader down there, that we expect this to be an inflection point between the new leader and getting the four model variants of the 28 up to speed. We expect both those things to be positive for us on a go-forward basis. I think that Q2 was kind of a low point, and we're going to climb out of that, but in the long term, we do expect the margin opportunity there to be second only to Mastercraft within our portfolio.

Michael Swartz: Okay.

Thanks, and then maybe just to follow up on <unk>.

Speaker Change: Got that in a little bit but.

Speaker Change: Some change in leadership it.

Speaker Change: It sounds like there just maybe give us a little bit of a backdrop on where we are from a profitability standpoint, I think years ago. The view was that this brand would be from a profitability standpoint in line with the corporate average I guess is that still the target today.

Speaker Change: But our target Hasnt changed and we believe with the new leader down there that we expect this to be an inflection point between a new leader and getting the.

Speaker Change: For our variant model variants of the 28 up to speed.

Speaker Change: We expect both those things to be positive.

Speaker Change: For things on a go forward basis.

Speaker Change: I think that Q2 was kind of a low point and we are going to climb out of that but in the long term, we do expect the margin.

Speaker Change: Opportunity there to beat.

Speaker Change: Second only to master craft within our portfolio.

Frederick A. Brightbill: Okay, great. Thank you. I have no further questions, and this will conclude the question and answer session. Thank you for participating, and this concludes today's conference call. You may now disconnect. Have a great day. Thank you for watching. Please subscribe.

Speaker Change: Okay, great. Thank you.

Speaker Change: Yeah.

Speaker Change: I show no further questions. This will conclude the question and answer session. Thank.

Speaker Change: Thank you for participating and this concludes today's conference call. You may now disconnect have a great day.

Speaker Change: Okay.

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