Q3 2024 MasterCraft Boat Holdings Inc Earnings Call

Good day and thank you for standing by welcome to the Q3 2024 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.

Ask a question during this session you will need to press star one on your telephone and then you will hear an automated message of IV New your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today CFO Tim Oxley. Please go ahead.

Timothy M. Oxley: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss Mastercraft's third quarter performance for Fiscal 2024. 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 is Brad Nelson, Chief Executive Officer.

Timothy M. Oxley: Thank you operator and welcome everyone. Thank.

Timothy M. Oxley: Thank you for joining us today, as we discuss master scraps dirt poor performers for fiscal 'twenty 'twenty four is.

Timothy M. Oxley: Today's call is being webcast live and will also be archived on our website for future listening.

Timothy M. Oxley: With me on this morning's call is Brad Nelson Chief Executive Officer.

Timothy M. Oxley: We will begin with a review of our operational highlights from the third quarter. I'll then discuss our financial performance for the quarter. Then Brad will provide 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, May 8, 2024. The company assumes no obligation to update any statements, including forward-looking statements, or statements that are not historical facts or poor looking statements and are subject to a safe harbor disclaimer in today's press release.

Brad Nelson: We will begin with a review of our operational highlights from the third quarter I'll, then discuss our financial performance for the quarter.

Brad Nelson: And Brad will provide some closing remarks before we open the call for Q&A.

Brad Nelson: Before we begin we'd like to remind participants that the information contained in this call is current only as of today may eight 2024.

Brad Nelson: The company assumes no obligation to update any statements, including forward looking statements stay.

Brad Nelson: Statements that are not historical facts are forward looking statements are 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 items not indicative of ongoing operations for each non-GAAP measure. We also provide the most directly comparable GAAP.

Timothy M. Oxley: Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special or items not indicative of our ongoing operation. For each non-GAAP measure, we also 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's also a slide deck summarizing their 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'll turn the call over to Brad.

Brad Nelson: Measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results.

Brad Nelson: There's also a slide deck summarizing our financial results in the investors section of our website.

Brad Nelson: As a reminder, unless otherwise noted following commentary is made on a continuing operations basis with that I'll turn the call over to Brad.

Brad Nelson: Thank you, Tim, and good morning, everyone. We deliver results ahead of our expectations in what remains a dynamic and challenging environment for the marine industry. We'll dive into the details shortly, but let me first begin by sharing how pleased I am to be here on my first earnings call as CEO of Mastercraft. My first six weeks with our team have been energizing, and it's clear to me that our capabilities and opportunities are even greater than I anticipated.

Brad Nelson: Thank you, Tim and good morning, everyone.

Brad Nelson: We delivered results ahead of our expectations in what remains a dynamic and challenging environment for the marine industry will dive into the details shortly but let me first begin by sharing how pleased I am to be here on my first earnings call as CEO of Master craft My first six weeks with our team has been energizing and it's.

Brad Nelson: Clear to me that our capabilities and opportunities are even greater than I anticipated.

Brad Nelson: Since I joined the company, I've been on the road meeting with and getting to know our team, our customers, dealers, and business partners. And thanks to the openness and preparation of our strong and experienced team, I've learned a great deal in a short time. The headline takeaways from my listening tour, if you will, are highly encouraging.

Brad Nelson: Since I joined the company I've been on the road meeting with and getting to know our team our customers dealers and business partners and thanks to the openness and preparation of our strong and experienced team I have learned a great deal in a short time.

Brad Nelson: The headline takeaways from my listening tour, if you will are highly encouraging.

Brad Nelson: The foundation of the business is strong, and Mastercraft is home to iconic and leading brands. Customers and dealers are passionate about our products, and the long-term outlook for the industry is bright. We are intensely focused on and well positioned to navigate the near-term challenges in our industry as we evolve our long-term growth strategy. I would like to acknowledge the commitment of our employees, as well as our supplier and vendor partners who remain dedicated to achieving our shared goal.

Brad Nelson: Foundation of the business is strong.

Brad Nelson: Master craft is home to iconic leading brands customers and dealers are passionate about our products and our long term outlook for the industry is bright.

Brad Nelson: We are intensely focused on and well positioned to navigate the near term challenges in our industry as we evolve our long term growth strategy I would like to acknowledge the commitment of our employees as well as our Taylor and vendor partners, who remain dedicated to achieving our shared goals.

Brad Nelson: Our proactive approach of prioritizing inventory rebalancing and dealer health as we entered fiscal 2024 has proven to be prudent. The current retail environment is highly competitive and uncertain as we approach the all-important summer selling season. Recently, news that a competitor's largest dealer is in financial distress has heightened this competitive pressure with the potential for higher than normal competitor discounts. Although we made continued progress during the quarter, dealer inventories across the industry, including our brands, remain higher than optimal. Elevated inventory levels are driving higher carrying costs for dealers.

Brad Nelson: Our proactive approach of prioritizing inventory rebalancing and dealer health as we entered fiscal 2024 has proven to be prudent the current retail environment is highly competitive and uncertain as we approach the all important summer selling season.

Brad Nelson: Recently news that our competitors largest dealer is in financial distress has heightened this competitive pressure with the potential for higher than normal competitor discounting.

Brad Nelson: Although we made continued progress during the quarter dealer inventories across the industry, including our brands remain higher than optimal.

Brad Nelson: Elevated inventory levels are driving higher carrying costs for dealers. This combined with competitor dealer disruptions.

Brad Nelson: This, combined with competitor dealer disruption, is causing dealers to approach ordering with extreme caution. We remain committed to reducing our dealer inventory by the end of the fiscal year to best position the company for a return to growth. Moving forward, we have a clearly defined set of capital allocation priorities that we will continue to execute on, including investing in innovation for our customers and sustainable growth for our shareholders. We are doing so prudently through targeted initiatives that will take advantage of the industry's positive underlying secular trend, supported by our strong financial position. Additionally, with our current strategic growth initiatives fully funded, we also expect to continue to prioritize our EPS-accretive share repurchase program.

Brad Nelson: It's causing dealers to approach ordering with extreme caution.

Brad Nelson: We remain committed to reducing our dealer inventory by the end of the fiscal year to best position the company for a return to growth.

Brad Nelson: Moving forward, we have a clearly defined set of capital allocation priorities that we will continue to execute on including investing in innovation for our customers and sustainable growth for our shareholders. We are doing so prudently through targeted initiatives that will take advantage of the industry's positive underlying secular trends.

Brad Nelson: Supported by our strong financial position and with our current strategic growth initiatives fully funded we also expect to continue to prioritize our EPS accretive share repurchase program.

Brad Nelson: Our balance sheet and capital allocation framework, together with our flexible operating model, provide us the ability to capitalize on the dynamic environment when our stance improves from cautious to optimistic. Given the currently challenged marine environment and near-term uncertainty, we will remain opportunistic and disciplined in our approach to inorganic growth through M&A. Let me now briefly review some of the latest developments across our brands. For our Mastercraft brand, net sales were $70 million for the quarter, down 41% from the prior year period.

Brad Nelson: Our balance sheet and capital allocation framework together with our flexible operating model provides us the ability to capitalize on the dynamic environment when our staff improves from cautious to optimistic.

Brad Nelson: Given the currently challenged marine environment and near term uncertainty, we will remain opportunistic and disciplined in our approach to inorganic growth through M&A.

Brad Nelson: The decrease in net sales was in line with our expectations given the planned production decrease to rebalance dealer inventory in response to lower retail demand. The Mastercraft team is currently executing an exciting model year 2025 product rollout, and I look forward to sharing those details with you next quarter. At Crest, net sales were $14 million for the quarter, down 61% from the prior year period.

Brad Nelson: Let me now briefly review some of the latest developments across our brands and our Master craft brand net sales were $70 million for the quarter down 41% from the prior year period.

Brad Nelson: 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.

Brad Nelson: Master craft team is currently executing and exciting model year 2025 product rollout and I look forward to sharing those details with you next quarter.

Brad Nelson: At crest net sales were $14 million for the quarter down 61% from the prior year period. These results were also in line with our expectations and are the result of a pullback in production to align with retail demand.

Brad Nelson: These results were also in line with our expectations and are the result of a pullback in production to align with retail demand. We recently announced the launch of an all new luxury pontoon brand, Belize. Belize will further diversify our product offerings, expand our addressable market, and grow our portfolio of strong brands. The Belize product will be built by our experienced team at Crest's existing manufacturing facility in Owasso, Michigan, which is a capital efficient use of existing capacity. Police production has already commenced, and products will be available to consumers for the model year 2025.

Brad Nelson: We recently announced the launch of an all new luxury pontoon brand beliefs beliefs will further diversify our product offerings expand our addressable market and grow our portfolio of strong brands.

Brad Nelson: The police product will be built by our experienced team at crest is this existing manufacturing facility and our Wassa, Michigan.

Brad Nelson: Which is a capital efficient use of existing capacity.

Brad Nelson: Police production has already commenced and products will be available to consumers for model year 2025.

Brad Nelson: The team behind Belize prioritized timeless artistry, sophisticated entertainment, radical innovation, and uncompromising quality in developing this exciting new brand. The lease will initially launch with two models, the Horizon and Helix, which have been extremely well received by dealers and consumers. We're eager to see this brand achieve its mission to become the most luxurious and innovative pontoon boat in the segment. At Aviara, net sales were $12 million for the quarter, down 8% compared to the prior year period.

Brad Nelson: The team behind beliefs, prioritize timeless artistry sophisticated entertainment radical innovation and uncompromising quality and developing this exciting new brand <unk>.

Brad Nelson: Police will initially launched with two models their horizon, and helix, which have been extremely well received by dealers and consumers were eager to see this brand achieved its mission to become the most luxurious and innovative pontoon boat in the segment.

Brad Nelson: Again, as expected, as that business continues to mature, Aviara continued to ramp up production of the all new AV28 during the quarter. Sequentially, net sales were up more than 20% from the second quarter, driven by a nearly 40% increase in units.

Brad Nelson: And all we are a net sales were $12 million for the quarter down 8% compared to the prior year period again as expected as that business continues to mature.

Brad Nelson: We are continuing to ramp up production of the all new <unk> 28 during the quarter sequentially net sales were up more than 20% from the second quarter driven by a nearly 40% increase in units of Euro shift 39 units during the quarter. The most units in any quarter since the brand was introduced in <unk>.

Brad Nelson: Aviara shipped 39 units during the quarter, the most units in any quarter since the brand was introduced in fiscal year 2020. Thanks to actions taken to increase operational efficiency, Aviara has also expanded its dealer network by adding 11 new domestic and international points of distribution this fiscal year. During the quarter, Aviara added its first dealer outside of North America as the brand begins its international expansion.

Brad Nelson: Full year 2020, thanks to actions taken to increase operational efficiencies.

Brad Nelson: <unk> has also expanded its dealer network by adding 11, new domestic and international points of distribution fiscal year to date during.

Brad Nelson: During the quarter RBR added its first you are outside of North America as the brand begins its international expansion.

Brad Nelson: Finally, we recently received acknowledgment of the success of our strategic focus on the consumer and quality. In February, the National Marine Manufacturers Association announced Mastercraft as a recipient of the 2023 Marine Industry Customer Satisfaction Index Awards for Excellence in Customer Satisfaction. The annual CSI award recognizes marine manufacturers who attain the highest levels of satisfaction as voted on by consumers. We are pleased that all three of our eligible brands won the award this year.

Brad Nelson: Finally, we recently received acknowledgment of the success of our strategic focus on the consumer and quality in February the National Marine Manufacturers Association announced master craft as a recipient of the 2023 marine industry customer satisfaction Index Awards.

Brad Nelson: For excellence and customer satisfaction, the annual CSI Award recognizes marine manufacturers, who attained the highest levels of satisfaction as voted on by consumers.

Brad Nelson: We are pleased that all three of our eligible brands won the award this year Master craft has a long track record of winning the CSI Award and crest has received the honor for five consecutive years, which is every year under master craft ownership <unk> received the award for the first time and it's here.

Brad Nelson: Mastercraft has a long track record of winning the CSI award, and Crest has received the honor for five consecutive years, which is every year under Mastercraft ownership. Aviara received the award for the first time in its history this year, a proud and well-deserved accomplishment. I will now turn the call over to Tim, who will provide additional commentary on the quarter and a detailed discussion of our financial results. Tim. Thanks, Brad.

Brad Nelson: Three this year.

Brad Nelson: And well deserved accomplishment I will now turn the call over to Tim who will provide additional commentary on the quarter and a detailed discussion of our financial results Tim Thanks, Brad focusing on the top line net sales for the quarter were $95 7 million a decrease of $71 1 million or <unk> 43.

Timothy M. Oxley: Thanks Brad. Focusing on the top line, net sales for the quarter were 95.7 million, a decrease of 71.1 million, or 43% from the record prior year period. This decrease was primarily due to lower unit sales volume and an increase in viewer incentives, partially offset by higher prices and favorable mix. Dealer incentives include higher retail rebates and other incentives as the retail environment remains very competitive.

Timothy M. Oxley: Percent from the record prior year period.

Timothy M. Oxley: 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: Dealer incentives include higher retail rebates and other incentives as the retail environment remains very competitive for the quarter. Our gross margin was 19, 2% a decrease of 630 basis points when compared to the prior year period lower margins were the result of lower cost absorption due to the planned decrease in unit.

Timothy M. Oxley: For the quarter, our gross margin was 19.2%, a decrease of 630 basis points when compared to the prior year period. Lower margins were the result of lower cost absorption due to the planned decrease in unit volume and higher dealer incentives, partially offset by higher prices in the federal model mix and options. Operating expenses were $14.4 million for the quarter, an increase of $0.8 million compared to the prior year period, primarily due to higher general and administrative expenses, including leadership transition costs.

Timothy M. Oxley: Volume and higher dealer incentives, partially offset by higher prices and favorable model mix and options.

Timothy M. Oxley: Operating expenses were $14 4 million for the quarter and an increase of <unk> 8 million compared to the prior year period, primarily due to higher general and administrative expenses, including leadership transition cost.

Timothy M. Oxley: Trends to the bottom line, adjusting net income for the quarter decreased to $6.3 million, or $0.37 per diluted share, calculated using an estimated annual effective tax rate of 20%. This compares to adjusted net income of $24.1 million, or $1.36 for the prior year period, calculated using a tax rate of 23%. Adjusted EBITDA decreased to $9.7 million for the quarter compared to $33 million in the prior year period. Just to leave it on the margin, the 10.1% was down 970 basis points from 19.8% in the prior year period.

Timothy M. Oxley: Turning to the bottom line adjusted net income for the quarter decreased to $6 3 million or <unk> 37 per diluted share.

Timothy M. Oxley: Calculated using an estimated annual effective tax rate of 20%.

This compares to adjusted net income of $24 1 million or $1 36.

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

Timothy M. Oxley: Adjusted EBITDA decreased to $9 7 million for the quarter compared to 33 million in the prior year period.

Timothy M. Oxley: Adjusted EBITDA margin was 10, 1% down 970 basis points from 19, 8% in the prior year period.

Timothy M. Oxley: Our balance sheet remains incredibly strong as we enter the quarter with nearly $206 million of total liquidity, including nearly $106 million of cash and short-term investments and $100 million of availability under our evolving credit facility. We enter the core with no debt and net cash and short-term investments of $55 million. Here today, we have generated more than $23 million of cash flow from operations.

Timothy M. Oxley: Our balance sheet remains incredibly strong as we ended the quarter with nearly $206 million of total liquidity, including nearly $106 million of cash and short term investments and $100 million of available availability under our revolving credit facility.

Timothy M. Oxley: We ended the quarter with no debt debt and net cash and short term investments of $55 million.

Timothy M. Oxley: Year to date, we have generated more than $23 million of cash flow from operations.

Timothy M. Oxley: Our balance sheet positions us exceptionally well and provides us with ample financial flexibility to reform during the business cycle and to fund strategic growth initiatives as well as capital returns to shareholders. During the quarter, we spent approximately $1.6 million to repurchase nearly 74,000 shares of our common stock. Since initiating our share repurchase program in June of 2021, we have spent more than $60 million to repurchase nearly 2.4 million shares. These cumulative repurchases provided a 14% benefit to our third quarter adjusted earnings per share.

Timothy M. Oxley: Our balance sheet positions us exceptionally well and provides us with ample financial flexibility performed during the business cycle and to fund strategic growth initiatives as well as capital returns to shareholders.

Timothy M. Oxley: During the quarter, we spent approximately $1 6 million to repurchase nearly 74000 shares of our common stock since initiating our share repurchase program. In June of 2021, we have spent more than $60 million to repurchase nearly two 4 million shares.

Timothy M. Oxley: These cumulative repurchases provided a 14% benefit to our third 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 a business that drives growth and generates long-term shareholder value. However, as we enter the prime retail selling season, macroeconomic uncertainty continues to limit demand visibility. Dealer inventories remain higher than optimal, and inventory carrying costs are elevated. Consequently, dealers are taking a cautious approach to ordering ahead of the annual model year changeover. We continue to focus on balancing dealer inventories with retail demand to prioritize dealer health.

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

Timothy M. Oxley: As we enter the prime retail selling season macroeconomic uncertainty continues to limit demand visibility.

Timothy M. Oxley: Dealer inventories remained higher than optimal inventory carrying foster elevated.

Timothy M. Oxley: Subsequently dealers are taking a cautious approach to ordering ahead of the annual model year changeover.

Timothy M. Oxley: We continue to focus on balancing dealer inventories with retail demand to prior prioritize dealer health.

Timothy M. Oxley: During the quarter, we made continued progress with respect to dealer inventory rebalancing as expected. On a unit basis, inventory levels at the end of the fiscal third quarter were lower than at the end of the fiscal second quarter, which emphasizes the extent of our efforts to manage inventories and support the health of our dealer network. For context, inventory levels typically increase from the second quarter to a seasonal peak at the end of the third quarter, just prior to the summer selling season.

Timothy M. Oxley: During the quarter, we made continued progress with respect to dealer inventory rebalancing as expected.

Timothy M. Oxley: A unit basis inventory levels at the end of the fiscal third quarter were lower than at the end of fiscal second quarter, which emphasizes the extent of our efforts to manage inventories and support the health of our dealer network for context, where inventory levels typically increase from the second quarter to a seasonal peak at the end of the third quarter Jeff.

Timothy M. Oxley: Prior to the summer selling season.

Timothy M. Oxley: We have a flexible operating model that allows us to adjust production to both mitigate near-term risk and capitalize on the upside when we return to growth. We plan to utilize this flexibility by reducing planned production for the remainder of our fiscal year. We have a highly variable cost structure and will continue to actively and aggressively manage costs. We have taken a proactive approach to production planning, inventory management, and dealer incentives to best position our dealers to capitalize on retail demand during the upcoming selling season, and we'll end the year with improved inventory levels.

Timothy M. Oxley: We have a flexible operating model that allows us to adjust production to both mitigate near term risks and capitalize on the upside when we return to growth.

Timothy M. Oxley: We plan to utilize this flexibility by reducing planned production for the remainder of our fiscal year, we have a highly variable cost structure and we will continue to actively and aggressively manage costs. We have taken a proactive approach to production planning inventory management and dealer incentives to best position our dealers to <unk>.

Timothy M. Oxley: Capitalized on retail demand during the upcoming selling season.

Timothy M. Oxley: And the year with improved inventory levels.

Timothy M. Oxley: As a result of reducing production to maintain our commitment to rebalancing dealer inventories by the end of the fiscal year, we are revising our guidance for the full year. Consolidated net sales are now expected to be between $360 million and $365 million, with adjusted EBITDA between $28 million and $30 million and adjusted earnings per share between $0.95 and $1.05. We also now expect capital expenditures to be approximately $17 million for the full year. I'll now turn the call back to Brad for his closing remarks.

Brad Nelson: As a result of reducing production to maintain our commitment to rebalancing their inventories by the end of the fiscal year, we are revising our guidance for the full year.

Timothy M. Oxley: Consolidated net sales is now expected to be between $360 million and $365 million.

Brad Nelson: Adjusted EBITDA between $20 million $30 million and adjusted earnings per share between $95 five.

Timothy M. Oxley: We also now expect capital expenditures to be approximately $17 million for the full year.

Timothy M. Oxley: I'll now turn the call back to Brad for closing remarks.

Brad Nelson: As we continued our focus on rebalancing dealer inventories, our business performed well during the third quarter despite continuing macroeconomic uncertainty and a highly promotional retail environment. We continue to exercise a disciplined approach to capital allocation. Over the past three years, we've returned more than $60 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, including continued investment in innovation and product development.

Brad Nelson: Thank you Ken.

Brad Nelson: As we continued our focus on rebalancing dealer inventories our business performed well during the third quarter, despite continuing macroeconomic uncertainty and a highly promotional retail environment.

Brad Nelson: We continue to exercise a disciplined approach to capital allocation over.

Brad Nelson: Over the past three years, we've returned more than $60 million of excess cash to our shareholders through our share repurchase program.

Brad Nelson: Our strong balance sheet provides us with financial flexibility and affords us the opportunity to pursue our strategic growth initiatives, including continued investment in innovation and product development. The launch of beliefs pontoon boats is the latest example of our unwavering commitment to growth and innovation.

Brad Nelson: The launch of Belize's pontoon boats is the latest example of our unwavering commitment to growth and innovation. As we continue to take action to best position Mastercraft in this dynamic environment, 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, everyone.

Brad Nelson: As we continue to take action to best position Master craft in this dynamic environment, 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.

Brad Nelson: Operator, you May now open the line for questions.

Operator: 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.

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

Operator: One moment while we compile our Q&A roster. And our first question is going to come from the line of Joe Altobello with Raymond James. Your line is open. Please go ahead.

Speaker Change: Your question. Please press star one again, one moment, while we compile.

Operator: While our Q&A roster.

Joseph Nicholas Altobello: And our first question is going to come from the line of Joe <unk> with Raymond James Your line is open. Please go ahead.

Joseph Nicholas Altobello: Thanks. Hey guys, good morning. First, welcome, Brad. Looking forward to working with you.

Joseph Nicholas Altobello: Thanks, Hey, guys. Good morning, first welcome Brad looking forward to working with you.

Brad Nelson: I just want to try to understand, you know, the 4Q guide or implied 4Q guide a little bit better, given the 3Q plan. Did demand get worse? Did the promotional environment actually get worse, or were you expecting it to, or just expecting it to, or did dealers get more cautious, or was it sort of all of the above?

Brad Nelson: I just wanted to try to understand.

Brad Nelson: For Q guide or implied <unk> guide.

Brad Nelson: A bit better given the beat.

Brad Nelson: It did demand did worse.

Brad Nelson: Did the promotional environment actually get worse are you expecting it to we're just expecting it to dealers get more cautious of what it was it sort of all of the above.

Brad Nelson: I think the dealer caution is largely driven by the distress in one of our competitors' channels. That has caused our dealers to pause and really reassess their stocking risk, you know, and then the interest rates are not coming down as we had hoped, and there is macroeconomic uncertainty, so when you combine all three of those, I think it's what's causing us to take production down significantly in Q4.

Brad Nelson: I think the dealer caution is largely driven by the distress and one of our competitors channels.

Brad Nelson: That has caused our doers to pause and really reassess their stocking risk.

Brad Nelson: And then the interest rates are not coming down as we had hoped.

Brad Nelson: And the macroeconomic uncertainty so when you combine all three of those.

Brad Nelson: Think it's what's causing us to take production out significantly.

Brad Nelson: In Q4.

Joseph Nicholas Altobello: Okay, but have you seen the higher promotion levels yet? Or are you just anticipating them? [inaudible] Okay, got it. We're seeing it now, and we anticipate it to continue. Got it. My second question on your last call, I think you estimated that you'd be pulling between 600 and 800 units out of the channels this year. Is that still the right number, and does your revised guide assume the channel is clean heading into model year 25?

Speaker Change: Okay, but have you seen the higher promotional levels yet.

Joseph Nicholas Altobello: We're anticipating that.

Joseph Nicholas Altobello: Both.

Joseph Nicholas Altobello: Okay got it we're seeing it now and we anticipate it to continue.

Speaker Change: Got it.

Joseph Nicholas Altobello: My second question on your last call you estimated that you'll be pulling.

Joseph Nicholas Altobello: Or between six and 800 units out of the channel. This year is that still the right number and does your revised guide assume the channel is clean heading into model year 'twenty five.

Brad Nelson: We anticipate pulling the inventory down even further, Joe, upwards of 1000 units. And, you know, with that kind of reduction, but you know, that's our plan reduction, based on retail assumptions, we expect the channel to be very healthy at the end of June. And, and hopefully, that'll drive additional increases in fiscal 25.

Joseph Nicholas Altobello: We anticipate pulling the inventory down even further.

Brad Nelson: So upwards of a 1000 units.

Brad Nelson: And with that kind of reduction, but that's our plan reduction based on retail assumptions, we expect the channel to be very healthy at the end of June.

Brad Nelson: <unk>.

Brad Nelson: And hopefully that will drive additional increases in fiscal 'twenty five.

Joseph Nicholas Altobello: Got it. Okay. Thank you.

Joseph Nicholas Altobello: Got it okay. Thank you.

Operator: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Drew Crum with Stiefel. Your line is open. Please go ahead.

Speaker Change: Thank you and one moment as we move on to our next question.

Operator: And our next question is going to come from the line of drew Crum with Stifel. Your line is open. Please go ahead.

Andrew Edward Crum: Okay, thanks. Hey guys, good morning. As far as the competitive pressures that were cited in the press release and your preamble, is this leading to reductions in production for the Mastercraft brand specifically, or is it across your entire portfolio? And is this something that's limited or isolated to fiscal 4Q this year, or do you think it lingers and bleeds into fiscal 25? And then I have a follow-up.

Speaker Change: Okay. Thanks, Hey, guys good morning.

Andrew Edward Crum: As far as the competitive pressures that were cited in the press release in your preamble.

Andrew Edward Crum: Is this leading to reductions to production for the master craft brands, specifically or is it across your entire portfolio and is this something thats limited or isolated fiscal <unk>. This year or do you think it lingers and bleeds into fiscal 'twenty five and then I have a follow up.

Brad Nelson: We certainly hope that this, you know, drastic reduction in Q4 is going to get our dealers healthy. And, and, and then, you know, for fiscal 25, assuming we take as many boats out of the pipeline as we plan, I think there will be opportunities, even though we do intend for our dealers to operate with lower levels of inventory and higher turns than they have in the past in recognition of the higher carrying cost.

Andrew Edward Crum: We certainly hope that this.

Brad Nelson: Drastic reduction in Q4 is going to get our dealers healthy.

Brad Nelson: And then for fiscal 'twenty five assuming we take as many boats out of the pipeline as we plan I think there'll be opportunities, even though we do intend for our dealers to operate with lower levels of inventory.

Brad Nelson: Higher returns than they have in the past in recognition of the higher carrying costs.

Andrew Edward Crum: Okay, got it. And then on the Belize product, any financials you can share with us, you know, margins, sales expectations, time to break even, etc.

Speaker Change: Okay got it and then on the beliefs product any financials, you can share with us margin sales expectations time to breakeven et cetera.

Brad Nelson: We're excited about the lease. We're taking orders now. So far, market interest from dealers and consumers has been very positive. That model is set for launch to impact model year 25. We're not providing guidance for 25 at this juncture. But from a unit perspective and from a margin perspective, we expect accretive levels of margin contribution. The unit level might be less than the broader press business, but this is approaching the ultra-premium part of the segment, which we're very intrigued with.

Andrew Edward Crum: We're excited about the lease that we're taking orders now so far market interest from dealers and consumers have been very positive.

Brad Nelson: That model is set really for launch to impact model year 'twenty five.

Brad Nelson: Not providing guidance for 25 at this juncture.

Brad Nelson: But from a from a unit perspective and from a margin perspective, we expect accretive levels of margin contribution.

Brad Nelson: The unit level might be less than the broader crest business, but this is approaching our premium and ultra premium part of the segment, which we're very intrigued with the fact that we are using the existing facility drew.

Andrew Edward Crum: The fact that we're using the existing facility, Drew, means that the break-even is really, you know, not even applicable to this brand because it'll be, you know, valuable for the entire Crest facility to get additional capacity utilization.

Andrew Edward Crum: It means that the breakeven is really.

Andrew Edward Crum: Not even applicable to this brand because it'll be it'll be.

Andrew Edward Crum: Valuable for the entire credit facility get additional capacity utilization.

Timothy M. Oxley: And Tim, will you guys report this as part of CREST, or will it be broken out separately?

Timothy M. Oxley: And Tim will you guys report. This is part of cross store will be broken out separately.

Timothy M. Oxley: It'd be important as far as Crest is concerned. Got it. Okay.

Timothy M. Oxley: It would be reported as part of Chris.

Andrew Edward Crum: Got it. Okay. All right. Thanks, guys.

Andrew Edward Crum: Got it okay, alright, thanks, guys.

Operator: Thank you, and one moment for our next question. And our next question comes from the line of Noah Zatzkins with Key Bank Capital Markets. Your line is open, please go ahead.

Andrew Edward Crum: Okay.

Speaker Change: Thank you and one moment for our next question.

Noah Seth Zatzkin: And our next question comes from the line of Noah <unk>.

Noah Seth Zatzkin: <unk> with.

Noah Seth Zatzkin: Keybanc capital markets. Your line is open. Please go ahead.

Noah Seth Zatzkin: Hi, thanks for taking my question. Maybe just on kind of the ASP front, just any early thoughts around model year 25 pricing, kind of given the dynamics going on in the industry right now. Thanks. Sure, our plan for model year pricing is to, you know, make it as small as we possibly can, in recognition of the headwinds in the marketplace. Thanks, and maybe maybe just one follow up. Maybe if you could kind of talk through, you know, whether it's, you know, you know, changes to the new model year or any levers that you have in terms of incenting kind of dealers to take inventory when the changeover does happen, just just any kind of controllables be great. Sure, we

Speaker Change: Hi, Thanks for taking my question, maybe just on the ASP.

Noah Seth Zatzkin: Any early thoughts around model year, 'twenty, five pricing kind of given the dynamics going on.

Noah Seth Zatzkin: In the industry right now thanks.

Noah Seth Zatzkin: Sure.

Noah Seth Zatzkin: Our plan for model year pricing is.

Noah Seth Zatzkin: Make it as small as we possibly can and recognition of that.

Noah Seth Zatzkin: The headwinds in the marketplace.

Speaker Change: Thanks, and maybe just one follow up.

Speaker Change: Maybe if you could kind of talk through.

Noah Seth Zatzkin: Whether it's.

Noah Seth Zatzkin: Changes to the new model year any levers that you have in terms of exempting kind of dealers to take inventory when the changeover.

Noah Seth Zatzkin: Does having just just any kind of controllable would be great. Thanks.

Brad Nelson: Sure, we have some nice enhancements to a number of our models, and so there will be some cosmetic changes, which I think will be well-received, and there's always renewed interest when you have a model year changeover. Thank you. It is not unusual for dealers to remain kind of cautious at the end of one model year in anticipation of the new model year's product coming out.

Brad Nelson: Sure we have some nice enhancements to a number of our models.

Brad Nelson: And so there will be.

Brad Nelson: Some cosmetic changes, which I think will be well received.

Brad Nelson: And there is always kind of renewed interest when you have a model year changeover.

Brad Nelson: Thank you got it done not unusual for dealers to remain kind of cautious at the end of one model year in anticipation of the new model years product coming out.

Operator: Thank you. And one moment as we move on to our next question. And our next question comes from the line of Kevin Condon with Baird. Your line is open. Please go ahead.

Kevin Condon: Thank you and my mum and as we move on to our next question.

Kevin Condon: And our next question comes from the line of Kevin <unk> with Baird. Your line is open. Please go ahead.

Kevin Condon: Hi, good morning, everyone. This is Kevin. I'm for Craig. I wanted to ask a little bit about the Go-To-Market Strategy for Belize and whether you intend for that to go through existing Crest dealers, or maybe there's a different strategy just given the premium positioning of that brand, as well as anything I understand that it's a different category, but any learnings from the Aviara launch that, and maybe are applicable here for, as you launch that brand. Yeah, hello, Kevin.

Kevin Condon: Hi, Good morning, everyone. This is Kevin on for Craig I wanted to ask a little bit about the.

Speaker Change: The go to market strategy for beliefs and weather.

Speaker Change: Do you intend for that to go through existing crest dealers or maybe there's a different strategy just given the premium positioning of that brand.

Kevin Condon: As well as anything I get that it's a different category, but any learnings from the <unk> launch that.

Speaker Change: Or maybe are applicable here for <unk>.

Speaker Change: We launched that brand.

Brad Nelson: Yeah, hello, Kevin. Given that Belize really enters a new part of the space and a new segmentation of the market, the current strategy is to be additive and expand our distribution for Pontoons, and the team is actively working on that response has been very well with adding points of distribution as well as new dealers so far. We'll have some existing Crest dealers that will pick up that brand, but we will also have new dealers that will be incremental to us as well.

Speaker Change: Yes, Hello, Kevin given given the beliefs really enters a new part of the space in our new segmentation in the market.

Brad Nelson: The current strategy is to is to be additives and expand our distribution.

Brad Nelson: For pontoons and the team is actively working that response has been very well without any points of distribution as well as new dealers so far.

Brad Nelson: Have some existing crest dealers that will pick up that brand, but we will also have new dealers that will be incremental to us as well, we're excited about that space, leading to the premium side and it's true across the industry and across our more premium categories, they're more resilient through the cycles as well so we see long term.

Brad Nelson: We're excited about that space. You know, leaning to the premium side, and it's true across the industry and across our more premium categories. They're more resilient through the cycles as well, so we see long-term benefits.

Brad Nelson: <unk> benefit.

Operator: And one moment as we move on to our next question. And again, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our next question comes from the line of Griffin Bryan with D.A. Davidson. Your line is open. Please go ahead.

Speaker Change: Thank you.

Griffin Bryan: And one moment as we move on to our next question.

Griffin Bryan: And again, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone.

Operator: Next question comes from the line of Christian Brian with D. A Davidson. Your line is open. Please go ahead.

Griffin Bryan: Yeah, thanks for taking my question. I guess, just talk about, you know, what are the current conversations sounding like with dealers considering the model, model year 25 ordering? You know, obviously, the entire industry is still seeing some bloated inventories. I'm just curious if the playbook is there as we head into the model year changeover.

Griffin Bryan: Yes, Thanks for taking my question I guess.

Griffin Bryan: Talk about what are the current conversation starting like with dealers considering model model year 'twenty five ordering.

Griffin Bryan: The entire industry is still seeing some some bloated inventories I'm just curious the playbook is there as we head into <unk>.

Griffin Bryan: Model year changeover.

Brad Nelson: You know, this time of year, since, you know, we're so heavily dependent on retail, April, May, June, most of our conversational dealers are focused on getting them healthy now and, you know, blowing through as much of the existing inventory as they can.

Brad Nelson: This time of year since.

Brad Nelson: We're so heavily dependent on retail April may June most of our conversations with dealers are focused on getting them healthy now.

Brad Nelson: And blowing through as much of the existing inventory as they can.

Brad Nelson: And then it sort.

Brad Nelson: Premature to have very much in the way of conversations with model year 'twenty five matter of fact, the more we tout 25, it makes it harder for them to sell a 20 force data.

Brad Nelson: And then, you know, it's sort of premature to have very much in the way of conversations about model year 25. Matter of fact, the more we tout 25, it makes it harder for them to sell the 24s if they have an inventory. So not very many conversations, you know, focused on 25 yet.

Brad Nelson: They are in inventory so.

Brad Nelson: Not very many conversations focused on 25 yet.

Griffin Bryan: Okay. And just one more follow-up here. Can you speak to the current health of your dealer network and if you're seeing any cracks by, you know, maybe geography or by category of product being carried? Thanks. We've been, you know, fortunate.

Speaker Change: And just one more follow up here.

Speaker Change: Can you speak to the current health of your dealer network, and if youre seeing any cracks by geography or by category of product being carried.

Brad Nelson: You know, we've been, you know, fortunate, as we have focused on dealer health from the beginning of the year and that we've avoided any significant dealer issues. We remain focused on dealer health; we meet monthly with the floor plan companies. They're kind of our early warning system for us. If they see any issues, we have a well-used toolkit on what we do to prevent dealers from getting into financial distress.

Griffin Bryan: We've been.

Brad Nelson: Fortunate.

Brad Nelson: We are focused on dealer help from the beginning of the year and.

Brad Nelson: That we've we've avoided any significant.

Brad Nelson: Dealer issues.

Brad Nelson: We remain focused on dealer health, we meet monthly with the floor plan companies. They are kind of early warning system for us if they see any issues, we have a well used toolkit on what we do to prevent dealers from getting in financial distress.

Brad Nelson: We've been, you know, utilizing those tools, which include, obviously, retail rebates, reducing production, moving both sideways to more dealers and markets with healthier demand. You know, so we have a number of those things that we've used, and so far, we've been successful in avoiding any significant dealer failures. And then we certainly have less of a concentration with one dealer than our competitors.

Brad Nelson: Ben utilizing those tools, which includes obviously retail rebates, reducing production move about sideways to more.

Brad Nelson: Dealers and Markus will healthier demand.

Brad Nelson: We have a number of those things that we've used and so far we've been successful in avoiding any significant dealer failures.

Brad Nelson: And then we certainly have a less of a concentration with one dealer.

Brad Nelson: Than our competitors.

Operator: Thank you, and this does conclude today's question and answer session. Ladies and gentlemen, this also does conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.

Speaker Change: Thank you and this does conclude today's question and answer session, Ladies and gentlemen. This also does conclude today's conference call. Thank you for participating and you may now disconnect everyone have a great day.

Operator: Okay.

Operator: Okay.

Operator: Yeah.

Operator: [music].