Q2 2025 MasterCraft Boat Holdings Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the Q2 2025 Master Craft Boat Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising that your hand just raised.
Draw. Your question. Please press Star one again, please be advised that today's conference is being recorded.
Speaker Change: I'd now like to hand, the conference over to your Speaker today, Tim Oxley Chief Financial Officer. Please go ahead.
Thank you operator and welcome everyone.
Speaker Change: Thank you for joining us today as we discuss mass perhaps fiscal second quarter performance for 2025.
Speaker Change: As a reminder, today's call is being webcast live and will also be archived on our website for future listening.
Speaker Change: With me on this morning's call is Brad Nelson Chief Executive Officer.
Speaker Change: We will begin with an overview of our operational performance during the second quarter.
Speaker Change: Then discuss our financial performance Brad will then provide some closing remarks before we open the call for questions before we begin we'd like to remind participants that the information contained in this call is current only as of today February six 2025.
Speaker Change: The company assumes no obligation to update any statements, including forward looking statements.
Speaker Change: Statements that are not historical facts are forward looking statements subject to safe Harbor disclaimer in todays press release.
Speaker Change: 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-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.
Speaker Change: 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 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 Master craft delivered fiscal second quarter results that exceeded expectations, our robust destocking efforts over the past 24 months have given our dealers the confidence to place new orders ahead of boat show season. Additionally, our portfolio of consumer centric brand.
Brad Nelson: It's highly variable cost structure and free cash flow generation provides us with the ability to continue investing in the business to drive long term growth.
Brad Nelson: Our flexible operating model and strategic production planning allows us to mitigate near term risks and deliver strong fiscal 2025 results as we position the business for sustained growth in the periods ahead.
Brad Nelson: Our purposeful lower production through the first half of our fiscal year puts us well ahead of schedule and reducing field inventories.
Assuming current retail trends continue through the summer selling season Destocking of field inventories should largely be in the rearview mirror.
Brad Nelson: We are narrowing our full year guidance range as a result of our second quarter performance and our promising launched of the Master craft ex Star product line, we will discuss this in greater detail later on.
Brad Nelson: Looking at the overall retail environment mixed economic conditions, and geopolitical uncertainty amplified typical second quarter seasonality, despite softer retail our aggressive inventory management and lower production levels led to a reduction of dealer inventories by more than 30% year over.
Brad Nelson: The year after.
Brad Nelson: We gear up for the summer selling season, despite retail uncertainty, there's still cautious optimism throughout our master craft dealer network.
Brad Nelson: Before discussing recent brand developments I wanted to briefly address the topic of tariffs at this point, we're expecting cost implications for fiscal 2025 to be modest while the vast majority of our materials are currently sourced from U S suppliers ongoing trade and tariff variability could affect certain components.
Brad Nelson: We have strong supplier relationships and an experienced supply chain team proactively working to mitigate risk. We will continue to monitor and act on the implications of trade dynamics on the broader economy and potential impact on retail customer sentiment.
Brad Nelson: Now turning to our brands.
Brad Nelson: For our Master craft segment, our team is actively supporting our dealer partners at the various boat shows worldwide Master craft has performed particularly well at the Salt Lake City, Minneapolis, and Dusseldorf, Germany shows.
Brad Nelson: As a reminder, we recently launched our new flagship ship X Star lineup initial consumer reaction has been overwhelmingly positive and has generated a noticeable buzz throughout our network and the industry.
Brad Nelson: The product is in high demand from our dealers and retail customers alike. We are experiencing a strong halo effect on the master craft brands since the launch resulting in ramped up interest across our product portfolio.
Brad Nelson: We are optimistic that this positive momentum will carry into remaining boat shows and into the summer.
Brad Nelson: Now, let me discuss more specifics related to the new X star.
Brad Nelson: Production commenced in our second quarter with the first wholesale shipments in our third quarter as early rate production steadily ramps. The X starts premium price point will drive significant earnings and free cash flow in our second half, particularly in the fourth quarter. The ultra premium ex star lineup consists of a REIT.
Designed twenty-three foot model and a brand new 25 foot offering this lineup sets a new benchmark in wake and wave performance through its all new hall and balanced design.
Brad Nelson: Utilizing the industry, leading search star system, the extra <unk>, most powerful and versatile waves with automated control.
Brad Nelson: I'll ask stars come standard with premium features including supercharged six two liter engine.
Brad Nelson: Evolutionary transom audio system and exclusive Z 100 tower, a stern thruster and an innovative dash interface.
Brad Nelson: Our team's renewed focus on innovation performance and luxury is showcased throughout this lineup, we hope that youre able to stop by our booth at an upcoming boat show.
Brad Nelson: Turning to our pontoon segment.
Brad Nelson: For some time now the pontoon industry has experienced softening retail.
Brad Nelson: As payment buyers had been deterred by higher interest rates and other macroeconomic pressures. This softening retail combined with a more pronounced seasonality for these types of products has contributed to elevated aged inventory levels across the pontoon industry.
Brad Nelson: <unk> retail environment.
Brad Nelson: Reducing field inventories has been a key focus for our crest brand fiscal year to date, we have successfully reduced pipeline levels that crashed through the off peak season, as we near the all important summer selling season, our top priority continues to be selling through aged inventory and pipeline management.
Brad Nelson: Early boat show results for our crest brand have been mixed we've been encouraged by credit performance at the all important Minneapolis and Chicago boat shows.
Brad Nelson: For our beliefs brand the early consumer response to our horizon and helix models have been promising as we wrap up brand visibility and continue adding strong dealers in targeted locations.
Brad Nelson: Lastly, as we announced in December the sale of our Merritt Island facility and related plant assets closed as expected the net cash proceeds of over $26 million bolsters, our balance sheet and adds to our financial flexibility and ability to invest in our key long term growth initiatives.
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. Thanks, Brad as we turn to our fiscal second quarter results keep in mind that our financial results reflect historically low production volumes.
Brad Nelson: Although retail uncertainty persist we are optimistic that we are near the bottom of this prolonged market downcycle.
Brad Nelson: Focusing on the top line net sales for the quarter were $63 4 million, a decrease of $26 4 million or 29% from the prior year period.
Brad Nelson: This decrease was primarily due to the planned lower volume and unfavorable model mix for.
Brad Nelson: For the quarter gross margin was 17, 2%.
Impaired to the prior year period of 23, 3%. The decrease was primarily attributed to lower cost absorption from the production decrease operating.
Brad Nelson: Operating expenses were $10 seven nine for the quarter compared to $10 2 million in the prior year period.
Brad Nelson: Operating expenses increased primarily due to higher share based compensation.
Brad Nelson: On the bottom line adjusted net income for the quarter was $1 7 million or 10 cents per diluted share. This compares to adjusted net income of $99 5 million or <unk> 55 per diluted share for the prior year period calculated using a tax rate of 20% for both periods.
Brad Nelson: Adjusted EBITDA was $3 5 million for the quarter.
Brad Nelson: Paired to $12 9 million in the prior year period.
Brad Nelson: Adjusted EBITDA margin was five 6% compared to 14, 4% in second quarter of fiscal 2024.
Brad Nelson: Our balance sheet positions us well as we ended the quarter with nearly $63 million in cash and short term investments we have no debt as we paid off our revolving credit facility balance early in the quarter.
Brad Nelson: <unk> and 100 million of revolver availability at the end of Q2.
Brad Nelson: Despite low cycle volumes, we generated nearly $11 million of free cash flow during the quarter.
Brad Nelson: Our airport ample liquidity and financial strength enables us to foreign key growth initiatives and return capital to shareholders.
During the quarter, we spent nearly $750000 to repurchase approximately 40000 shares of our common stock.
Brad Nelson: We repurchased shares at a slower pace as planned since initiating our share repurchase program in June of 2021, we have allocated nearly $69 million to repurchase more than two 8 million shares.
Brad Nelson: Our robust balance sheet and strong free cash flow generation reinforces our financial stability through the business cycle, we remain committed to growth through innovation product and brand development and highly selective inorganic opportunities given the currently suppressed marine environment.
Brad Nelson: As Brad alluded to earlier, we are narrowing our full year guidance range.
Brad Nelson: For fiscal 2025 consolidated net sales are now expected to be between $275 million and $295 million.
Brad Nelson: Adjusted EBITDA of between $19 million and $24 million and adjusted earnings per share between 64% and 86 cents.
Brad Nelson: We continue to expect capital expenditures to be approximately $12 million for the year.
Brad Nelson: For the third quarter of fiscal 2025 consolidated net sales are expected to be approximately $75 million.
Brad Nelson: With adjusted EBITDA of approximately $5 million and adjusted earnings per share of approximately <unk> 17.
Brad Nelson: As a reminder, our second half is expected to have a favorable model mix, which includes the ramp up of effect start production.
Brad Nelson: I will turn the call back to Brad for his closing remarks.
Brad Nelson: Thank you Tim.
Brad Nelson: Our business executed well during our fiscal second quarter by delivering better than unexpected results, despite ongoing macroeconomic uncertainty and a highly competitive retail environment.
Brad Nelson: Improving dealer health as we approach the summer selling season, combined with lower short term rates and prudent production levels positions, our business well for sustained long term success.
Brad Nelson: Our first half performance provides a solid foundation for the back half of fiscal 2025 and enter 2026.
Brad Nelson: With a strong balance sheet and robust cash flow generation, we remain we maintain the financial flexibility to pursue our key growth initiatives as we move beyond inventory rebalancing. We are highly focused on positioning the business to capitalize on the upcoming market recovery.
Speaker Change: Operator, you May now open the line for questions.
Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And our first question will be coming from Joe <unk>.
Belo: Belo of Raymond James Your line is open Joe.
Speaker Change: Thank you Hey, guys good morning.
Speaker Change: First question I wanted to talk about channel inventory you mentioned you made further progress. So I was hoping you could give us some numbers around that I think he said or have said previously that you are targeting roughly 600 to 1000 boats coming out of the channel. This year and I think Q1, you did 500, so maybe update us on where we are through Q2.
Speaker Change: And what you expect to do by the end of the year.
Speaker Change: So we had some very modest channel increase in Q2.
Speaker Change: Which is.
Speaker Change: The typical cadence for us the increase going from Q1 to Q2 was.
Speaker Change: The lowest increase we've had in <unk>.
Speaker Change: Since we've been a public company. So we're making good progress on the on the.
Speaker Change: Inventory reduction that we called out earlier, so we still expect to end up in that range.
Speaker Change: Okay Super and then just the <unk>.
Speaker Change: <unk> gears over to master craft it looks like the Asps were down pretty significantly for that brand or that business can you.
Speaker Change: Shed a little light on that for us.
Speaker Change: You really said it.
Speaker Change: Tissue that we alluded to earlier.
Speaker Change: And we will be seeing the mix grow substantially in both Q3 and Q4 as we ramp up the <unk> production I think we had a mix going towards more of the <unk> Nx Ts and <unk> Ts is that dealers are waiting for the.
Speaker Change: Promising XR launch and so now that we will see that the Isps coming back up.
Speaker Change: You probably recall for NXT NXT models, we adjusted pricing on some of those downward actually to address the affordability issue. We didn't do that across the board on the entire portfolio that all starts to come back in balance here in the second half with the launch of our new ultra premium stuff.
Speaker Change: Got it okay. Thank you guys.
Speaker Change: Okay.
One moment for our next question.
Speaker Change: Our next question will be coming from Craig Kennison of Baird. Your line is open Craig.
Craig Kennison: Hey, good morning, Thanks for taking my question and kudos on the work to build a strong balance sheet in this market.
Craig Kennison: You mentioned buybacks, but also strategic growth initiatives is there any way to frame what fits into that strategic bucket. I mean is it brand startups like you've done in the past could it be brand acquisitions vertical integration and I'm just.
Craig Kennison: Based on conversations we have investors like how do you compare the.
Craig Kennison: Roy of investments.
Craig Kennison: And acquisitions versus your own stock.
Craig Kennison: Yes. Thanks.
Speaker Change: Thanks for the question Craig on the short term our focus is on executing within our brands and of course, increasing overall shareholder value, while we do that.
Speaker Change: As we look at what to do with our cash how to leverage the balance sheet.
Speaker Change: We're working in parallel simplifying our business focused innovation.
Speaker Change: Our products and brand development and improving distribution.
Speaker Change: Those are more execution related while also returning capital to.
Speaker Change: To shareholders.
Speaker Change: We're going to continue to bolster and strengthen our fortress balance sheet I mean, that's a capital allocation priority.
Speaker Change: We will continue to fully fund our strategic and operating initiatives on just improving the business overall and returning cash to shareholders. That's how we balance those things of course, we track returns on all of our investments and return on investment capital internally and we're pleased with our progress in doing that.
Speaker Change: We also maintain flexibility and we all know we're in a we're in a pretty variable market right now so having some padding there is helpful.
Speaker Change: But that flexibility will help us really as we position for the recovery.
Speaker Change: Bound to happen soon.
Speaker Change: Thanks, Brad and maybe just a follow up could you frame the opportunity you see in distribution.
Speaker Change: Yes, I mean, it really starts of course with geographic coverage.
Speaker Change: It's a big world out there and it goes beyond the United States domestically in the United States.
Speaker Change: Boating markets are pretty highly concentrated in certain areas and it's highly competitive out there and distribution we have great dealer partners, but we also have pockets geographic pockets of opportunity for growth with expanding and partnering with our dealers for more presence more stores more rooftops.
Speaker Change: And positioning, especially as we fill out white space in our portfolio that product thrust together with distribution improvements.
Speaker Change: In parallel our that's where we get the energy that lines up well to do that in the down part of the cycle because when the market and retail starts to pop then it's easier for dealers to get a return on that investment as well. So it's really about geographic coverage.
And just hitting consumers in the past in the areas of growth and then with affordability. There is certain theres certain demographic profiles in certain geographies that are more important than others. So as the world continues to turn there we need to be constantly vibrant and changing and enhancing improving our distribution coverage.
Speaker Change: <unk>.
Speaker Change: Thanks, Brad.
Speaker Change: And one moment for our next question.
Speaker Change: Our next question will be coming from nowhere that skin of Keybanc capital markets. Noah Your line is open.
Noah: Alright, Thanks for taking my question.
Speaker Change: Just in general I guess.
Speaker Change: You guys mentioned kind of what what industry retail assumptions are baked into the guide.
Speaker Change: And then as it relates to kind of the early boat shows just anything to call out in terms of any changes you've noticed.
Speaker Change: And maybe consumer sentiment or our appetite any green shoots you could point to that would be helpful. Thanks.
Speaker Change: So.
Speaker Change: We guided at the beginning of the year that we thought retail was going to be down between five and 10% and we still think that is the case and work within that range on a year to date basis.
Speaker Change: As far as boat shows.
Speaker Change:
Speaker Change: Yeah.
It was very much a pleasant surprise to see how much demand there is for the <unk>.
Speaker Change: So the expense about the ultra premium.
Speaker Change: We had outstanding.
Speaker Change: Reception on that boat in Europe.
Speaker Change: And so in spite of.
Speaker Change: Economies being down in Europe, and so forth there is still no.
Speaker Change: Wealthy people that.
Speaker Change: I would like their toys, and we're taking full advantage of that worldwide.
Speaker Change: Yes, I would just just to build on that with boat show and consumer sentiment even though.
Speaker Change: Sort of at or near the bottom of the cycle and also off peak season, the seasonality that the double negative.
Speaker Change: There is increasing.
Speaker Change: This cautious optimism.
Speaker Change: Amongst what we're hearing from dealers about the potential for retail here as the season starts to starts to turn on and in particular, we had strong shows that Salt Lake City.
Tim Oxley: Tim mentioned dusseldorf.
Tim Oxley: And as Minneapolis, Theres, a nice halo effect with new product of course. So this ex star product lineup is drawing a lot of eyeballs a lot of attention and solid energy, we've taken a lot of deposits on that boat or back half loaded in our production.
Tim Oxley: Planning there, but we're excited about that and then on.
Tim Oxley: On the pontoon side. Although this shows had been more mixed there is as those buyers are typically a credit buyer interest rates still remain elevated. This is the first time in this boat show season to get our new beliefs product line, which is also a premium offering in front of customers.
Tim Oxley: And in some cases some dealers.
Tim Oxley: To see the product and product feedback on that product is also very favorable and we knew with beliefs launching in a in a low part of the market that it's going to take some time, but we're encouraged with the <unk> product as well and we're looking forward to the Miami show next week.
Tim Oxley: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone.
Speaker Change: And our next question will be coming from Griffin Brian.
Speaker Change: <unk> D a davidson.
Griffin Your line is open.
Speaker Change: Hi, good morning. So it seems like you guys are doing fairly well with Destocking. Overall can you just speak to what you're seeing from competitors in the categories you operate in and if overall dealer inventories are also seeing this level of destocking.
Speaker Change: We think I mean.
Speaker Change: Let's talk about the boat shows first you get some sense of how competitors are doing.
Speaker Change: We think we've had a more successful boat show season, there are competitors I'm sure that varies from show to show.
Speaker Change: But overall, we're very pleased with how we've how competitive we've been it continues to be an environment that has.
Speaker Change: A fair amount of discounting so.
Speaker Change: We've been judicious with those.
Speaker Change: Sale rebates.
Speaker Change: To drive and drive sales.
Speaker Change: And then on the pontoon side, it's a tough.
Speaker Change: It's tough market out there and so we do a hand to hand combat every every show and try to make sure that we don't lose a deal within reason.
Speaker Change: Got you.
Speaker Change: We've heard from dealers that client that continues to be the biggest weighed on consumer shoulder sure.
Speaker Change: With purchasing a unit is there a certain rate hurdle that you think would help get retail back to positive or at least kind of influence more purchasing.
Speaker Change: It's pure speculation on my part, but I think is probably go down go down another 50 to 100 basis points.
Speaker Change: Keep in mind that these.
Speaker Change: Our consumer rates or largely.
Speaker Change: Tied to the long term interest rates as opposed to the short term short term gets all of the publicity affects our carrying cost and the dealers carrying cost.
Speaker Change: But the long term rates are I think more more closely aligned with our retail.
Speaker Change: Loan lending environment.
Speaker Change: All of this can be of course psychological too just for dealer and consumer.
Speaker Change: Sentiment.
Speaker Change: Any improvement is positive on the master craft side, I mean, roughly half of our buyers are cash buyers.
Speaker Change: And so master craft is less impacted it has some impact of course, but less impacted by interest rates and the pontoon space much more impacted so we would expect to see more positive input there as interest rates.
Speaker Change: Got it thanks guys.
Speaker Change: Okay.
Speaker Change: I am showing no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].