Q1 2025 MasterCraft Boat Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Mastercraft boat holdings incorporated fiscal 1st quarter 2025 earnings conference call.
at this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.
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To withdraw your question, please press star one one again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Tim Oxley. Chief Financial Officer, please go ahead sir.
Tim Oxley: Thank you, operator and welcome everyone.
Thank you for joining us today as we discuss mass-class fiscal first quarter performance for 2025.
has reminded today's call has been webcast live, and also the archive to our website for future listening. With me this morning on this morning's call is Brad Nelson Chief Executive Officer.
who have again with an overview of our operational performance from the first quarter of then discuss our financial performance, then Brad will provide some closing remarks before we open the call for questions.
Before we begin, we'd like to remind participants that if the information contained in this call is currently as of today November 6, 2024.
The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts, or forward-looking statements, and subject to safe-arbitant statements, days, press release.
Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude items not indicative of our ongoing operations.
For each non-gap measure, we also provide the most directly comparable gap measure in today's press release, which includes a reconciliation of these non-gap measures to our gap 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'll turn the call over to Brad.
Brad Nelson: Thank you, Tim, and good morning everyone. Mastercraft delivered strong physical first quarter results above expectations, despite facing a backdrop of continued economic and industry headwinds.
Brad Nelson: We've made significant progress on our key priorities this quarter. Notably, we reduced dealer inventory levels more than we anticipated due to encouraging retail results. This promising start sets a strong foundation for the rest of our fiscal year.
Brad Nelson: Due to incremental visibility and added confidence in our wholesale plans, we are raising the lower end of our full year guidance. Tim will provide more details later on.
Brad Nelson: Before discussing our results, I wanted to address the recent weather events that have impacted the Southeast region. Our thoughts are with all of those who were recently affected by Hurricanes Helene and Milton, and we sincerely hope there is quick recovery from these disasters.
Brad Nelson: We are thankful that the disruption to our business and our dealers has been minimal.
Brad Nelson: Given the dynamic market, we continue to closely monitor economic conditions and the interest rate environment. As short-term rates trend lower, we and our dealers benefit from reduced floor plan interest costs.
Brad Nelson: Consequently, this strengthens the health of our dealers amidst the ongoing market uncertainty. We are cautiously optimistic that more attractive financing rates could provide a psychological boost and motivate potential buyers to come off the sidelines.
Brad Nelson: Internal retail results to date have exceeded our initial expectations and were positive compared to the prior year and significantly ahead of preliminary SSI results.
Brad Nelson: Keep in mind, our fiscal first quarter historically accounts for around 30% of retail units in our segments, marking this as the second most important quarter for retail.
Brad Nelson: This momentum, combined with our disciplined approach to wholesale, has positioned us well if retail continues to perform.
Brad Nelson: Due to our focused efforts towards reducing field inventories, we removed nearly 500 units at our Mastercraft and Crest brands during the quarter, well ahead of schedule. Over the last 12 months, we've reduced more than 1,000 units from dealer inventories at both brands.
Brad Nelson: Excluding the pandemic, this is by far the most units removed from the pipeline in any 12-month period since we have been a public company.
Brad Nelson: As a result, dealer inventory terms are in the range of pre-pandemic levels.
Brad Nelson: Although we are pleased with our inventory rebalancing efforts, we expect dealer ordering patterns to remain somewhat cautious through the off-peak retail season due to market uncertainties and elevated carrying costs.
Brad Nelson: Our wholesale plan continues to include an increase in production levels the second half of the fiscal year to capitalize on the upcoming boat show and summer selling seasons.
Brad Nelson: We recently held dealer meetings across our brands, which were met with renewed energy and excitement for the future. This was an important opportunity to strengthen our dealer relationships and reinforce direction and strategic alignment.
Brad Nelson: We are optimistic that the energy from these dealer meetings is indicative that we are at or near the bottom of the cycle.
Brad Nelson: We look forward to partnering with our dealers to capitalize on market opportunities in our segments.
Brad Nelson: Now let me briefly address the status of our Aviar transaction. As we announced in October, the branding component of this deal successfully closed as expected.
Brad Nelson: We expect the sale of our Merritt Island facility and related plant assets to close for $26.5 million towards the end of our fiscal second quarter. This will add to our financial flexibility and enhances focus across our business.
Brad Nelson: We continue to take measures to align our cost structure with current production levels while maintaining upside flexibility and investment in our key long-term growth initiatives.
Brad Nelson: Despite these low cycle volumes, we generated $3.8 million of adjusted EBITDA during the quarter. This, combined with our robust balance sheet and strong cashflow generation, reinforces our financial stability through the business cycle.
Brad Nelson: We remain committed to growth through innovation, products and brand development, and highly selective inorganic opportunities.
Brad Nelson: Now turning to our brands.
Brad Nelson: For our Mastercraft segment, our Model Year 25 products have been well received, and the initial retail visibility has been encouraging. The team is gearing up for the launch of our completely redesigned flagship product, the X-Star, which will further enhance our Model Year 25 lineup.
Brad Nelson: This product is a testament to our renewed focus on differentiated innovation.
Brad Nelson: Initial reactions have been highly positive and is driving high energy among our dealer network and consumer base.
Brad Nelson: This strategic launch reestablishes our position in the ultra-premium SkiWake space and will further expand our addressable market.
Brad Nelson: We anticipate the first shipments of the X-Star will occur in the second half of the fiscal year. Innovation and differentiation are the lifeblood of the Mastercraft brand, and we look forward to sharing more details in coming quarters.
Brad Nelson: Turning to our pontoon segment.
Brad Nelson: For Crest, we began the year with positive retail signals. However, this interest rate sensitive consumer remains cautious, which has led to higher than optimal inventories throughout the pontoon market.
Brad Nelson: We have prioritized right-sizing channel inventories, even more at Crest than our other brands. Further easing of interest rates could provide strong retail demand for payment buyers in the entry-level pontoon space.
Brad Nelson: Our recent successful dealer meeting reinforced that our Crest team and dealers are strong. The brand has deep equity and we are positioned well for a return to growth in this segment.
Brad Nelson: Our new premium pontoon brand Belize continues to gain early traction in the market despite the challenging environment. Belize continues to receive incremental dealer interest and early consumer feedback has been positive.
Brad Nelson: We are in early stages and continue to expand distribution in specific target markets.
Brad Nelson: Keep in mind, pontoon retail sales are more seasonal than other categories with roughly half of retail sales yet to come in April through June.
Brad Nelson: Although we are optimistic regarding recent retail and macro trends, we have prudently held our production plan as we prioritize dealer health and pipeline management.
Brad Nelson: At all of our brands, our production schedule is aligned with current market and dealer sentiment, and we remain equipped with wholesale plans for a range of potential retail demand scenarios throughout the year.
Brad Nelson: 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 Oxley: Thanks, Brad. Focusing on the top line, net sales for our fiscal first quarter were $65 million, a decrease of $29 million or 31% from the prior year period. This decrease was primarily due to lower volumes and an unfavorable model mix.
Brad Nelson: For the quarter, our gross margin was 18.1% compared to the prior year period of 23.8%. Lower margins were the result of lower cost absorption from the planned decrease in production and higher DRO incentives.
Brad Nelson: Operating expenses were $10.8 million for the quarter compared to $11.9 million in the prior year period. Operating expenses decreased as we closely managed discretionary spend and due to lower share base compensation cost.
Brad Nelson: Turn to the bottom line, adjusting the income for the quarter was $1.9 million or $0.12 per diluted share.
Brad Nelson: This compares to adjusted net income of $10.3 million, or $0.60 per diluted share, for the prior year period, calculated using a tax rate of 20% for both periods.
Brad Nelson: Adjusted EBITDA was $3.8 million for the quarter, compared to $14 million in the prior year period. Adjusted EBITDA margin was 5.9%, compared to 14.9% in the first quarter of fiscal 2024.
Brad Nelson: Our balance sheet positions us well as we enter the quarter with nearly $83 million of cash and short-term investments.
Brad Nelson: We have no net debt as our cash and short-term investments exceeded our debt by more than $33 million.
Brad Nelson: As we recently announced, we entered into an amendment related to our credit agreement at the end of the first quarter.
Brad Nelson: Concurrently, we've paid the remaining $49.5 million on the term loan with our revolving credit facility. We maintain ample liquidity and financial strength to fund key growth initiatives and return capital to shareholders.
Brad Nelson: During the quarter we spent approximately 3.5 million dollars to repurchase more than 180,000 shares of our common stock as we believe our stock represents an outstanding value.
Brad Nelson: Since initiating our share repurchase program in June of 2021, we've allocated more than $68 million to repurchase nearly 2.8 million shares.
Brad Nelson: During our fiscal second and third quarters, we intend to repurchase shares at a slower pace due to the modified terms of the credit agreement.
Brad Nelson: As we look ahead, we are raising the lower end of our four-year guidance based on Q1 performance.
Brad Nelson: For fiscal 2025, consolidated net sales are now expected to be between $270 million and $300 million, with adjusted EBITDA between $17 million and $26 million, and adjusted earnings per share between $0.55 and $0.95.
Brad Nelson: The incremental increase in adjusted earnings per share is reflective of lower interest expense and taxes. We continue to expect capital expenditures to be approximately $12 million for the year.
Brad Nelson: For the second quarter of fiscal 2025, consolidated net sales are expected to be approximately $60 million, with adjusted EBITDA of approximately $1 million and adjusted loss per share of approximately $0.01.
Brad Nelson: Keep in mind our lower wholesale shipments in the first half remain consistent with our initial production plans for the year as we prioritize pipeline reductions.
Brad Nelson: In the second half, we plan to ramp up production as we execute our new product initiatives and meet seasonal demand. I'll now turn the call back to Brad for his closing remarks.
Brad Nelson: Thank you, Tim.
Brad Nelson: Our team executed well against our strategic priorities during the fiscal first quarter, and we appreciate their efforts. Our disciplined approach to balancing production volumes, combined with promising Q1 retail, has improved the outlook for dealer health as we exit the selling season. Further strengthening
Brad Nelson: of the retail environment could open the door for some wholesale plan adjustments later in the year.
Brad Nelson: Our fiscal first quarter results provide a solid foundation for the remainder of fiscal 2025 and into 2026, and our strong balance sheet and cash flow generation provides us with the financial flexibility to pursue our key growth initiatives.
Brad Nelson: Moving forward, our focus remains on positioning the business to capitalize as the market recovers and over the long term. We appreciate the ongoing support of our dealers, team members, and shareholders as we work together to achieve our goals for fiscal 2025.
Brad Nelson: Operator, you may now open the line for questions.
Speaker Change: Thank you very much. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to 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 roster.
Speaker Change: Unknown Speaker 0
Speaker Change: Our first question comes from the line of Joe Altobello at Raymond James. Joe, your line is open.
Joe Altobello: Thanks. Hey guys, good morning. Wanted to start with retail. Sounds like, as you mentioned several times already, it was a little bit better than you anticipated. Was that really share gains or are you seeing any improvement in underlying demand across the categories?
Speaker Change: You know, it's difficult to predict the share gain because we did have, you know, Tommy's Boats starting to enter into the retail results. I'm pleased that it's held up and we're in positive territory.
Speaker Change: But I can't attribute it to share gain yet. I'll wait and see how the numbers shake out.
Speaker Change: Okay, and you mentioned Tommy, so I'll go there next. Any impact in the quarter from that deliquidation there? And is it now complete or do you still expect some impact in Q2?
Speaker Change: You know, based on the SSI results in September, they're starting to show up in retail results.
Speaker Change: I've been pleasantly surprised that it has not been more disruptive to Mastercraft. I think it speaks to the loyalty of our dealers and consumers and really the strength of our brand, the fact that people haven't been tempted by fire sale prices.
Speaker Change: from Tommy's. So that was one of our pleasant surprises during this quarter. But all the Tommy's boats haven't shown up in retail yet. I expect you know that the good news is I expect those to get into the hands of retail consumers before the upcoming
Speaker Change: Boat Show season.
Speaker Change: Okay, got it. Thank you.
Speaker Change: Thank you very much. One moment for our next question.
Speaker Change: Our next question comes from the line of Craig Tennyson from Barron. Craig, your line is open.
Craig Tennyson: Hey, good morning. Thanks for taking my questions as well. I wanted to follow up on retail and to what extent did elevated promotional activity contribute to the trend?
Speaker Change: You know, certainly that was a contributing factor. We focused really on helping the dealers.
Speaker Change: clear out their aged inventory and made good progress there so it was a contributing factor. It's always difficult to isolate one variable versus others but certainly that was a contributor.
Speaker Change: You know, I would add, this is Brad, our Model Year 25 product has been pretty well received out there too. We've been encouraged at some spiking happening there at the retail level.
Speaker Change: Yeah, that's sequentially. Our plan remains, and I think we've stated this prior, of taking out in the range between 600 and 1,000 units across our brands. That skews a little bit more towards Crest than Mastercraft.
Speaker Change: And typically, Q1, you know, looking backwards is relatively flat from a pipeline perspective. So removing around 500 units in the fiscal first quarter is pretty significant.
Speaker Change: And is there a channel fill opportunity of any significance related to your premium pontoon category?
Speaker Change: Well, the stocking levels, you know, certainly, you know, being a new brand, and now we're just a reminder, we're in low rate production mode consciously right now.
Speaker Change: as ramp production, get the product right, sign on new incremental dealers in our targeted markets. And that's going well in the early phase of the ramp. But this is still a startup. Yes, new dealers will need to take a stocking position on Belize.
Speaker Change: Now, this is a higher price point premium boat, so it does consume floor plan, and the volumes on this boat could be relatively modest just because of the price point.
Speaker Change: But there will be a stocking load, as well as we expect some incremental demand for boat show season.
Joe Altobello: And finally, just to clarify on your retail comments, are you saying that retail for
Speaker Change: All of your boat brands was up in the quarter.
Speaker Change: Correct, year over year.
Speaker Change: Yes. Is there any way to quantify like the magnitude of...
Speaker Change: Sorry, I don't want to quantify the magnitude, but I will say that they continue to be up on a year-to-date basis. Obviously, we monitor that weekly, so it wasn't just a flash in the pan in the first quarter.
Speaker Change: Good to know. Thank you.
Speaker Change: Thank you very much. One moment for our next question.
Speaker Change: Our next question comes from the line of Eric Wold of B. Riley Securities. Eric, your line is open.
Eric Wold: Thanks and good morning guys. A couple of questions. Can you talk about the...
Eric Wold: the strong ASPs, your Mastercraft held up well, your nice move to Quenchy Upward and Crest Marine. How much of that
Speaker Change: reflects price taken and then how much reflects kind of a mix of buyers, maybe towards the, you know, cash buyers right now with industry to be elevated as we move through the year.
Speaker Change: and maybe, you know, production ramps and payment buyers start to return. Where would you expect ASQs for the two brands to move throughout the year?
Speaker Change: You know that the SPS and Q2 will be down a bit due to mix.
Speaker Change: and then we'll see pretty significant increases in particular with the ASPs at the Mastercraft brand in the second half as we ramp up X-Star production, which is an ultra-premium product of ours.
Speaker Change: Very little price driving this. Mastercraft's net price was flat to down a little and Kraft's price increase for this model year was certainly low, low single digits. So we're not seeing price being the drivers of the ASP growth.
Speaker Change: Got it. And then last question, as you're moving to boat show season, obviously, you mentioned you're well ahead of your plan, removing inventory from the channel. So I guess, what would you expect?
Speaker Change: some competition and some other ones in the market still are not doing as well as you. So what would you expect to see at the boat shows in terms of discounting and promotion from both your dealers and competitive brands? And then how much would you lean into support to continue to move inventory?
Speaker Change: Yeah, it is a highly promotional environment that we're living in now, and we expect that to continue in Boat Show season. We try to be judicious about our retail rebates and help dealers, and certainly the dealers participate in that on their side.
Speaker Change: So, yeah, it'll continue probably for the balance of this year, I think.
Speaker Change: What will cause the promotional environment to go kind of back to normal is when, you know, non-current inventory kind of gets back to, you know, normal levels and dealers are no longer kind of dealing with that burden.
Speaker Change: I would add, although we remain in a highly competitive environment and we're anticipating that's going to continue somewhat into the boat show season.
Speaker Change: Specifically, probably more pronounced in the pontoon space.
Speaker Change: But promotional activity for us remains relatively balanced and appropriate for the level of the competitive environment that we're seeing now. And just a reminder, we of course share in those discounting levels with our dealers.
Speaker Change: Yeah, understood. Thank you both.
Speaker Change: Thank you very much. One moment for our next question.
Speaker Change: Our next question comes from the line of Drew Crum from Stifle. Drew, your line is open.
drew Crum: Hey guys, good morning. Obviously a lot of moving pieces, parts on the gross margin line. How do you guys see that progressing as you move over the balance of fiscal 25? And then I have a follow-up.
Speaker Change: Yeah, I think, you know, because mix is going to be down a bit in Q2, so I think the margins will be down a bit as well, and will remain kind of at a lower level due to lower levels of production, so we're not getting the overhead absorption that we will be getting in the second half.
drew Crum: Likewise, Belize and X-Stars both have higher margin profiles than our other products, and so we'll see some margin improvement in the second half, both through overhead absorption and as a result of mix.
Speaker Change: Got it. And then on capital allocation, you know, aside from the planned slowdown in share repurchases you mentioned in your preamble, you know, with the expected proceeds from the Aviara facility sale, any other changes around redeployment of cash flow? Thanks.
Speaker Change: Well, I'll hit that initially here, Drew. Our priorities remain unchanged on capital allocation. Number one,
Speaker Change: Fortress Balance Sheet, of course.
Speaker Change: Number two, fully funding our organic growth and strategic initiatives and balanced CapEx.
Speaker Change: Number three, returning capital to shareholders through our share purchase program, although slightly adjusted through the next couple quarters. And then fourth, very selective and opportunistic.
Speaker Change: inorganic activity as it presents itself, if it aligns with our strategy. In terms of the recapture of the cell of the Merritt Island facility, that basically further adds to that flexibility within those priorities.
Speaker Change: Okay, got it. Thanks, guys.
Speaker Change: Thank you very much. As a reminder to ask a question, please press star 11 on your phone. One moment for our next question.
Speaker Change: https://www.kenhub.com
Speaker Change: Our next question comes from the line of Michael Schwartz of Truist Securities. Michael, your line is open.
Michael Schwartz: Hey guys, good morning. Just maybe a couple of points of clarification. One is is the outlook for Belize still, from a revenue perspective this year, still about $10 million or a little over $10 million? I think that's what you said before.
Speaker Change: Yeah, that remains unchanged.
Speaker Change: And then you had mentioned in the preamble that inventory turns at the dealer level, I think, currently are back to where they were pre-pandemic. Any color on where, you know, absolute inventory levels are, weeks on hand are right now?
Speaker Change: Lee has not guided or provided that detail in the past.
Speaker Change: but it's something we're watching literally on a weekly basis. So, pleased with the progress we made in Q1, and the dealers due to carrying costs, probably would like to have less inventory than they traditionally have had, and we're preparing for that.
Speaker Change: Okay. Great. Inventory level. Great.
Speaker Change: Michael, Inventory Levels 2, we're pleased with the progress there.
Speaker Change: And in general, at Mastercraft, our...
Speaker Change: relatively in line with with historic levels.
Speaker Change: pre-pandemic.
Speaker Change: Slightly more elevated in the pontoon space, just because of the nature of that business, you know that that consumer.
Speaker Change: Although pontoons are a minority of our business, that consumer being very sensitive to interest rates, more of a finance buyer typically has added to that pressure in the pontoon space. But at Mastercraft, a healthy spot, we think relative compared to the rest of the industry and remains a key focus.
Speaker Change: Okay, that's helpful. And then Brett, maybe just final question for you. Now six, seven months into the role, any additional insight or opportunities that you've identified with the business that you can speak to, whether that's innovation, product development, distribution, just anything you can share with us. Thanks.
Brett: Yeah, you bet. You know, we have an opportunity to further simplify.
Brett: are business. You know, this is a strong operating company, as everyone knows, with iconic brands.
Speaker Change: more iconic than what I even expected coming in. You know, with the industry outlook, market rebound looming, we're positioned well. As we simplify our product offerings, reduce overlaps.
Speaker Change: and then drive differentiated innovation.
Speaker Change: at a whole new level through product and brand development. And there'll be more to come on that in future periods of time. We felt very good about that baseline, but those are the areas of focus right now. Simplifying, differentiated innovation, products, brand development.
Speaker Change: and then continuing to just advance and develop as a strong operating company, which we already have a high baseline.
Speaker Change: Okay, great. Thank you.
Speaker Change: Our next question comes from the line of Noah Zatzkin from Key Bank Capital Markets. Noah, your line is open.
Noah Zatzkin: Hi, thanks for taking my question. A lot of my questions have been kind of asked and answered, but maybe just one kind of higher level industry question.
Speaker Change: If you could provide kind of an update on how you're feeling about kind of the health of the
Speaker Change: the broader dealer base.
Speaker Change: And then from an industry perspective, kind of how are dealers feeling about their inventory levels in general? Thanks.
Speaker Change: I think as dealers move through their non-current inventory, which has more of a carrying cost burden for them,
Speaker Change: they become more optimistic. So at the same level of inventory, the more currents they have, the better they feel and the healthier they are. So we've, by selling a number of the non-currents,
Speaker Change: for our brands. I think they're incrementally healthier than they were at the end of June. And so pleased with that progress and optimistic about the future. We look forward to the boat show season to kind of see how this all shakes out.
Speaker Change: I would just add, you know, a strong consumer, obviously, is what makes all this work, and we certainly feel better about that picture of inventory, as do our dealers, than three months ago, as Tim stated.
Speaker Change: and then on the strengthening of consumer, with some modest down-ticket interest rates, that's certainly helping some, more psychologically.
Speaker Change: But overall, the retail picture, you know, as you don't know, we stated an expectation prior of a pretty broad range of retail being down between five and 15%.
Speaker Change: for the year. Our updated retail view is now down mid to high single digits across our brands, really driven by positive Q1 start, being the second most important quarter for retail being the most recent Q1.
Speaker Change: Very helpful, thanks.
Speaker Change: Thank you very much. At this time I'm showing no further questions.
Speaker Change: This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.