MasterCraft Boat (MCFT) 12 Nov 182019 Q1 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Q1 2019 MasterCraft Boat Holdings Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded for replay purposes. It is now my pleasure to turn the conference over to your host, Tim Oxley, Chief Financial Officer. Please proceed, sir.

Thank you, operator, and welcome, everyone. webcast for will future being on be is website our listening. call live also and archived Today’s

Joining me in Boat Holdings’ today’s call is and Executive Terry Chief Officer. President McNew, MasterCraft

by Terry will our a by strategic by Our XXXX, for discuss of the agenda Then Terry, Q&A updated includes session. followed financials. the my fiscal overview followed expectations analysis

XXXX. no only that safe press release. in today’s this contained to we we’d as today, statements, statements. Before of information including begin, assumes to are in like not Statements the to statements The November any update that a X, is and disclaimer subject obligation historical remind current company forward-looking participants forward-looking harbor call facts are

or operations. or our exclude indicative of this not special discuss on Additionally, call, include we items ongoing conference will that non-GAAP measures

GAAP each of we measure, measure includes our fiscal directly provide release, non-GAAP first most these a measures in the which non-GAAP For earnings our quarter results. XXXX reconciliation comparable GAAP also to

the call a slide Before call Terry. is would the results turn our financial that, website. remind summarizing Investors I’ll there over in to to With I turning the of that deck our listeners to over Terry, section like

this thank also afternoon. I’d joining Thanks, Tim. everyone for like to us

Holdings, results, effective Before our announcement Boat saw yesterday, Inc. immediately. dive corporate Holdings, as we’ve name our we Inc., first in into MasterCraft quarter to changed likely you a separate from MCBC

names MasterCraft flagship will on brands sufficiently brand, we our we’ve innovation, Holdings, growing the performance, Exchange to our on retail as felt well be not a As premium not The iconic MCBC focused of segments focused and portfolio providing of powerboat company’s new name portfolio. remain do our The recognition our growth on premium, nor company ticker to premium will reflect nature serving execute shareholders. as of continued quality the to name, diversified powerboat the successfully Boat and fastest-growing with investors MasterCraft, a NASDAQ acquiring affected. institutional subsidiaries The attractive both will continue the the symbol of represent returns recognized industry, strategy MCFT. as expand strong for

October Regarding closed LLC. previously X, XXXX, our Marine, announced portfolio, diversified of acquisition the Crest growing on on we

as premium leading the growing Crest very expanded We’ve with in which a process sport excited is in behind sustainable, about brand large represents outboard second segment powerboat the management drive Crest With already business, with in excellence pontoon of going also high-quality, XXXX. operational the financial look our working propulsion Boat further market in performance this industry bringing We to acquisition Holdings’ the we Crest, large the to forward the core share acquisition NauticStar fastest growing Crest which We and boat we segment. the of are into team category, October well-respected with and strengths growth first forward. growing and brand. this begun integrating entered profitable into to our segment, MasterCraft

acquisition performance, closed the fiscal over to quarter note MasterCraft and Crest only as results of our company’s NauticStar reflect we after please quarter ended. switch first fiscal Before that the the review our first

MasterCraft, results consolidated NauticStar include our forward, Going will and Crest.

Holdings. our adjusted retail from and delivering EBITDA, which inclusion and saw as of net demand the record-setting first core record just part of levels Boat you our continued adjusted brand As its track gross anniversary sales, MasterCraft press by continued our quarter, NauticStar, driven MasterCraft release, during of celebrated we today’s profit, of income recently fiscal wholesale one-year net in and

further prior We U.S. MasterCraft year-to-date our year growth dealer best-in-class compared the internal dealer months and the attribute the performance market This XX% XX, growth September three strong strong to at from retail our the warranty expanding the registrations period. economic first our in network were As development, economic for and early up momentum previously to than continues increased quarter. product that fiscal versus up year-to-date indicators. MasterCraft September, disclosed share warranty Analyst registrations were XXXX, Day improving benefit more to our XXXX quarter. dealer ended prior during we internal And significantly

Importantly, we our while that MasterCraft, profitable growth working. drive at this focusing stated further gross industry-leading were margins to growth market demonstrating share able is retail of sustainable, our strategy maintaining on

retail boating As increased the MasterCraft for for NauticStar both benefiting we continue production inventory stage of dealer believe overall for industry. their further economy continued wholesale Further, sets exit years, we grow, levels the strongest to balance and at XXXX. fiscal will and levels season, the are healthy our overall U.S. inventory powerboat prime in which the turns the

NauticStar a On completely new, as larger segment expand the to NauticStar models, initiative saltwater be side benefiting from is setting occur four models to production on look business new will impact for during year With these prices in fishing that the XXXX. and major the up in cost the primarily margins. with XXXX associated the of year. lineup larger and will three XXXX, fastest-growing selling product the while NauticStar being allows its this average in our fiscal development market outboard sales we models gross affect into mind to addressable investment of the Keep fiscal models fiscal higher the while introduce business, introducing

AVIARA focus more to for the past on available be consumer International the To recreational are portfolio an day XXXX, on continue executing strategy. quality, from fill spelled fiscal over sport product white MasterCraft name, model Boat be be capturing drive will This on day recreational the AVIARA to Show fishing series mentioned our Miami space time. will and existing brand their boats new customers with In on XX future. model improvement very in over retaining combining a will as a feet. luxury The is combination first to the Holdings be the July call. of development a a At goal the last layout establish earnings offshore while boat. The ultimately was delivery boat the it in and regarding the introduced nor discussion in in start-up work with new the rec be XX forward unveiling the new Boat of clear, our the to February to A-V-I-A-R-A. new European integration Holdings is boat positioned look preferences we segment, hard boat styling crafted XXXX, engineering. serving and preeminent AVIARA safety, large XX-foot into with additional be not in progressive NauticStar’s customers performance the brand development, brand MasterCraft models put modern with of of of as styling evolve from AVIARA we large our the for the share will day we on precision details of XXXX, large category. margins. starting concept to the and quality we strategy Continuing ranging excited particular born standard months design as AVIARA XX carefully we with brand AVIARA, Additionally, operations Boat across building American boating product will

can of models of boats. this will Vonore, award-winning distributed be information our the network supporting register AVIARA the be will to core boat. Tennessee, a same be the will all facility the from link AVIARA brand complex of AVIARA of capability quality, our be MasterCraft our you MasterCraft manufactured outstanding learn dealers, to provided for There, and can separate and completely on more More in More this with expect is this, the with website, synonymous information and designed e-mail brand. and MasterCraft new dealerships is of at available brand. All it www.aviaraboats.com. selling reliability at manufactures about larger posted owners new which a through level made performance that our and media AVIARA later first were as exciting feeds, our which social time. is will models to updates, be Given

Lastly, we on impacted situation from it keeping industry industry. the eye certainly as powerboat an have the tariff perspective, been an

tariffs only discussed at by both to MasterCraft sales the impact from has and strong. a last To believe orders the remain date, mitigate X% we’re earnings U.S. we of in continued on strength the seeing helped As be our X% temporary, tariffs. we and retail our call, the consolidated impacted to dealers will tariffs. are basis, import annual to international these countries these our On Australia of

XXXX. these to tariffs financial impact our for where continue in support Canadian will and support import guidance monitor captured provide our The fiscal and, dealers. We is dealer already to of necessary, estimated European this

increases side, price cost the believe seeing from we the price by suppliers product is we that offset certain that On increases. are

of do at we our any not tariffs supply-side material businesses. impact from So any see

over Now over I’d to back our Tim like go to the turn to financials. call

The $XX mitigate ended of impacting from rebate represented quarter sales million or price a European September MasterCraft including our given $XX.X and or to and XXXX grew change increases, top Canadian increased million year-ago partially to an sales favorable perspective, line compared quarter. Thanks, million the tariffs mix XX.X%. dealers. the increase while in by expense, offset driven recognition impact million NauticStar first million for Terry. sales of for grows inclusion net The first the to overall $XX.X XX.X% the MasterCraft increase, or XX% $XX.X XX, $XX.X import increase revenue was product timing accounting higher in discounts volume, increase an retail by and the a new From

the the This On XX.X% due to period. of $XX.X decrease $X inclusion first for dilutive compared increased increase. NauticStar effect contributed prior-year the a to $XX.X decreased the for increase to gross $X profit gross was XX.X% fiscal the inclusion for period. MasterCraft of margin the the profit, $X from consolidated basis, prior-year primarily XX.X% NauticStar. quarter in or million First for million million accounted million quarter to the and to compared of gross million to

Additionally, in mix, the and the incentives change, sales impact support accounting part decrease volume, product by to timing for the retail new stemmed partially offset revenue MasterCraft and cost, sales warranty in price unit due import higher dealer tariffs, favorable growth recognition from increases. from higher

to $X.X to first meeting XXXX, million This quarter the increase for On selling period. and front, the $X.X dealer marketing timing annual the of MasterCraft’s million of the to for XX, the XX.X% mainly ended September increased expense year-earlier million and $X.X NauticStar. due was expense or inclusion compared

of million start-up NauticStar, million, compared to to prior-year the due costs $X.X First increased expense an and acquisition-related related to headcount investment to due $X.X brand $X.X initiatives, AVIARA. costs to XX.X% mainly inclusion was to Crest, for by million support general increase The in period. growth new quarter or administrative the and

bottom to Turning the line.

of $X.X year-earlier Act. million by fiscal net financial Adjusted section the or of to higher and sales million adjusted reduced for net effective annual tax from share the shares XX.X% of income NauticStar, fully and press period. the on for of first directly First prior in margin Recall with was average Cuts Measures accordance million diluted $X.X per XXXX first in Adjusted measures the adjusted Jobs tax EBITDA fully using in Tax weighted Adjusted a enactment GAAP. quarter the period. XX%. down was versus year, income of the approximately quarter. net and totaled the the $XX.X to company’s tax reconciliation a XX.X%. $X.XX the EBITDA or $X $X.XX rate for million of was prior-year for and $XX rates from EBITDA inclusion last in EBITDA, net comparable Please quarter net million income release diluted adjusted was prior-year XX%, XX-Q period, compares million million see compared XX.X presented period income of the Non-GAAP per our computed This estimated driven that adjusted effective count the $XX rate of share margin the to most share our

start for With call fiscal our momentum to forward to look and the Terry We over with that, the are I’d to to very back turn this for year. building like XXXX of on pleased remainder the outlook.

Tim. Thanks,

categories, rest the fiscal through network, of additional remain operational and both strategy growth to we through share new strengthening adjacent through dealer margin and from capturing ahead profitable and sustainable, driving the XXXX steadfast of organically beyond, and on of Looking products, market boating excellence acquisitions. expansion development our our driving innovative

with new dealer operational well strong positioned continued product all we levels, With AVIARA growth executing drive at strong retail initiatives on Coupled brand, going at strategy forward. the MasterCraft, are in acquisition the healthy of our fronts. our remain development and we to NauticStar, Crest inventory of economy, we growth believe the strong performance the improvement launch

be we our fully XXXX, On MasterCraft fiscal to guidance full to previously including low a EPS we in the be June the to given growth our low range. the be and expected For year Crest. XX, mid-XX% range, to growth percentage in up sales NauticStar provided ended to consolidated basis, net EBITDA and the margins core XX% mid- retail brand we are strong range. performance adjusted is increasing Adjusted expect percentage to MasterCraft in now high mid-XX% expected are for of the

ending expected For low December, growth XX% fiscal percentage mid-XX% in growth to percentage EBITDA expected with adjusted net be range, the in is is EPS QX the range. sales Recall Adjusted in included was margins quarter acquired fiscal year, the NauticStar to our in will to and in second mid-XX% be our XXXX be last fiscal second results. quarter range. low Crest during

Now I’d over to like it questions. to the for turn operator

first Our Baird. of Kennison comes Craig Instructions] question from [Operator

line is Your open. now

this have like wanted take have dealers the for you again, a when Good congratulations my Thanks available? in Do up It strategy you afternoon. signed sounds ask performance. I on product to distribution taking AVIARA. question different it’s and actual to about mind.

I won’t do carry the February, it is get apologize. into AVIARA. yes, We’ll of share Craig, to dealers in signed we – we detail I more tonight. but do. up that have

could total addressable landscape – frame And maybe be you us willing and competitive into help market that might share share? ASP you any that of data the to sort the of frame segment

a want don’t strategy, again, get ahead to I Well, Craig. got launch. of our very we’ve well-defined marketing

specifics calendar prepared of more share earnings basis. And XXXX, probably more about guys probably now earnings remarks, will in all earnings start giving to not interested AVIARA our And So but as I not year call. But as until on we so numbers we’ll talk we’ll you Remember, early that term July of XXXX book in May of more on February specifics we’re on remember, prepared. our our be in year full guidance will a fiscal July call. right XXXX. just know

We’re see as you we and you very excited we all, be, guys when in about will Miami. the know it brand,

information And I expected than today. get it’s more we

you so for shared you with thank what have us So far.

us the the retail MasterCraft comment in front, and on On or in NauticStar quantify you’ve seen share maybe what could with and November? and trends you October quarter

Sure.

you at MasterCraft. said in continues models be and when we’ve continue the guys very, As were strong, received. especially extremely our be very to at retail The well to comments, prepared Analyst new Day, here

XStar, Just been the the XXX – in XX months, last are well is the up. the the we’ve just Demand XTXX, they and extremely released XXX, and received.

highest last both inventory inventory two – dealer the because in strong are prepared well remarks, in NauticStar The the years. said center NauticStar and released two later our be days, four confident release MasterCraft they not year Alabama level we and a bay going XXX the XXX extremely a to quite just well. and going in received. at larger console. they’re dealer ago, product. about we As meeting be and believe the pipeline of boat we’ve retail turns, turns in their I next the we’ll in run models has equally month XX-plus I’m to seen fiscal at models, at And of was they’re their recently

So retail both is good. companies’

investment a not be them also mentioned, department building process product in to year NauticStar produce to and in development development As products. for the has only these able but product their changing major we production

pleased. we’re So very

in great year. for shape We’re fiscal really the

than started we this is the boating season expected. but like a add I’ll – it boating seems this extended to more Craig, It late Tim. year bit longer little the a color season. started

another You October asked month for was about October, good us. and retail

– boating season. with pleased this – very I’m So the season

your And expectations. was light that expectations? shipments line number were of Overall, revenue a in tick our you specifically beat our number, NauticStar, on your with internal but

time. Yes, over of kind let me go back

an portfolio dealer demand third the it communicated day network. lines satisfied and you unit last And one over quarter, demand. by about that there we pent-up product within by facility. that was unit the the to talked January. increased in October, We increased and December the investment NauticStar out course purchased we strategies execute today, count began in we’ve in a Then a fiscal product our when for of then we laying we we’ve fourth and existing the As know, day, existing them one again

little quarter. bit and in be the that in more back a advancing So bit we a QX in first then somewhat QX. pulled We’ll

quarter stage will year. rest each So space will over they of up up throughout fiscal – they this the

just a question. then final And

front, turning carry inventory reluctant to of the want to like but well, inventory are sounds it the On more it’s cost higher inventory? that dealers given financing

Really, haven’t we no, any had pushback.

MasterCraft, – new In I’ve looking the demand product at fact, kind we’re I’ll turns charts. the But this. – at is of it’s as mentioned, off the segregate for of

So looking If plug production future may in considering quarters. we even Fridays. we’re it continues, some at

demand. our calling, been If But don’t again, line And way we meet now, have as continues, high they’ve increase back. may in to we that’s hold that asking the dealers short-term to count. As years. any turns as you then are us

Fantastic. Thank you much. so

Craig. you, Thank

you. Thank

Our of comes Altobello Joe next question from Raymond James.

now is line open. Your

Hi, guys. This is actually [indiscernible] on for Joe.

curious looks the much – margin maybe would curious would Crest? how little Or – just consider of for worded given you base outlook excluding of guys light, temporary? We’re another bit if degradation business, has changed terms a so the in Thanks margin anything we’re be much. this way,

Sure. this the the brand Keep has in highest MasterCraft, in mind, among world alone in category. that margins

them times acquisitions their shared be we – NauticStar many margin well. profile. ultimately, in as have they’ll most the get low And produces we’ve margins And So but will we again, We’ve gross we dilutive. investment likely in XXs. believe said before,

to Crest, right now, a on early again, So to margin we’re them have similar it’s probably on NauticStar. profile too but plan. they tell

quarter. first got to the NauticStar last dilution now of in were first reason. where So our primarily to compared what quarter we’ve we a And is year, related Adam, primarily that’s that see in margin not the they

much. helpful. you so very Thank That’s

Thanks. bet. You

Thank you.

of Dan Charrow Our next Capital KeyBanc from Markets. question comes

my It’s Dan for on Hey, taking Thanks for guys. questions. Brett.

think By revised touch it the expecting to bit implies bulk math, to year. for about a on of outlook conservatism guide. our – towards in your some the consolidated the from wanted back that half in a or quickly sales more growth the Crest, coming as back maybe of more Should year? we the bit fiscal weighted the of the that half you’re seasonally decelerate Just less

by deceleration I’m break bit don’t anticipate on We a any comment, we don’t but Well, anticipate little me your – that let from MasterCraft. out confused category.

that opportunity In there’s but... possibly to increase fact,

Well, I think brands. all three for

I execute bit. that then a quarter we All going three I demand to as see investment just mean, I output that. And as them should strategy, great was improve each that’s mentioned, brands. NauticStar, great say Crest, product, we a the on

We’re executing to we’ve changes and in developed with at get them there flow of synchronous MasterCraft. the processes manufacturing all that

share comment So I’m I on the not sure that.

some each expect quarter. We increases

Yes.

have So you Terry we expecting because, what may increases. we’re back telling is model follow to and mentioned, go your up on as

Got your Canadian tariffs, it, regarding of any you us give more of bit some and some expectations dealer detail the definitely. can market? that in resolution the support for And about a

trying Yes, – we gather can. been much we’re obviously, doing we’ve as as to intelligence

We’re hopefully, conservative mean, a first quarter. this situation be optimistic the I always we’re will accrue bit is And it for as in we forecast. that resolved, a and in temporary the our money

And to so going it’s and... temporary be

in And guidance. it’s our

Yes.

our import our as to our tariffs, Canada. And or sales are prepared only into X% to of have comments, Dan, baked that reiterated combined the countries guidance. X% Europe Already in consolidated we

Thanks much guys. Great. so

bet. You Thank you.

you. Thank

Securities. next Wells Conder from of Tim Fargo Our comes question

now is open. line Your

of things Thank here. just couple a you. Gentlemen,

lower just each color guess, review, on here, you of maybe and if you’d that’s like much could to seeing would – guide floor the were, maybe that to of a components, support sales that warranties, not just just need take through the or I point it, the really but I here, little then too that that. incentives there. just again, anything guide it clarify giving EBITDA But plan dealer. the And financing, the measure. I you’re you mean, support. be like about that Is sound of the some of On not think. any to whoever again, And where doesn’t go the And Terry, the Tim, that talked in bit you a dealers type have inventory sound wants

with assistance their year includes dealers cost for a period they on based buy plan time for of programs floor standard boat. Our the what

the – levels. their have a think the getting that’s of far from we we effect certainly as not – And cost as we’re we’re on stocking program pushback like I think I and very the product. not I said shielding say dealers competitive flooring earlier, there,

Yes. – at way, Tim or different in pressure said both see We and finance don’t slightly we on see, any a wholesale don’t credit retail all.

I is a also relates it prior as cadence the than the different be rebates, retail – year. bit We’ve going year this to to think

to rebates, we’re retail ahead, in so to we’ve a comparing quarter and And quarter. had no more low this

certainly add accounting us comparison, quarter-over-quarter in in it with cost this was associated when particular, a a the – you not on it timing So – change, was bit. it

a look Yes. drivers. this are the that of that three an And but exist just temporary. It’s That in difference. then support our things believe when year, the component net it’s primary those last didn’t year. you wasn’t issue large is we at to tariffs, Again, probably gross guidance,

So tariffs adjusted the drivers again, flooring retail the on were – the cadence, of and support, lower the rebate the then EBITDA? three the those

retail Tariffs, the of the retail rebates, rebates... timing

higher warranty some And cost.

warranty we cost. higher and had Yes, some

– the if warranty reason we the sold that accrual. the a you first the factory more of year And As that had end we warranty. was more to will. bit you life, the the probably tail we claims five-year model a And recall, in warranty was at had XXXX year book model of coming

Yes.

in adjusted tariffs gross then Tim, them revenue the – impact, the EBITDA recognition the followed order and to of the by I put impact, increased followed of think if leading by warranty probably the you net are impact timing cost. the the

of Swartz [Operator SunTrust. Thank comes you. from next Our Instructions] Michael question

open. now is line Your

A differential margin, going and some last good to you on retail horse gross not questions think of the a on just I this out rebates. but called the to had Tim, beat the timing – back evening couple quarter, sorry, – of – dead, Hey, couple guys. completely timing

year will the quarter also Obviously, be quarters second we impact you of some in quarter, fiscal the this but can first most as us just So see that well? remind should impacted? which

We will.

have accrue for predicted lifetime this the will So we there paying these the now however years rebates. any difference accrue boats many of that out over in treatment the rebates accounting to we’re retail

wholesale. time the we at And

we to similar accrual. At so warranty the time wholesale, the

normal And kind be – so of back-end The kind fourth to follows we’re of cadence. cadence will for mostly our that comparing the loaded of year. normal the quarter fiscal

So one show an of from negatively and a to timing affect and it’s quarters it’s primarily going to improvement two. in bit a there us perspective, going

Yes.

slightly the Mike, we’re fiscal the So book said of we – different, – retail About generally QX to where of XX% programs XX% are retail season. that’s in year, in actual in happens historically booked it. our retail and

spread that. recognition It’s us makes a evenly over revenue New impact wholesale more of quarter. each change

it and in the – it puts QX, it it out QX, puts in takes of QX, it where So takes large...

QX some boat shows. has

So...

balance, generally percent; XX%-ish QX. is in the around is, to – is annual XX-ish QX XX% is retail. QX call then of Yes. XXs and QX QX XX%. it, QX that XX%. roughly

about evenly Now just think it the all through quarters.

on And I think I or margins And high year more I the out. you’ve guess it it, acquired called look new there XX% cost as were it helpful. then know was bring next you at – around be there were or I guess, some out investment NauticStar, over increased really or larger some I that’s you Okay, will boats in so. boats, XX%, that just teens. some or out quarter, when you called it as as the gross

of related or seasonality, just how product those just development. a items was So sense to trying onetime-type of some much maybe I’m elevated that get cost to of

combination. Yes, of it’s kind a

in when impacted. So But Michael, purchased was range. it, to we gross XX% their margins – the high high their were them, teens, mid- production call

production we pivot, not that impact further they’ll in QX and in a their in, of new as facility, QX. start this output, make the the – models making we’re move an As out we increase to change, impacted the bringing QX and make plan, smaller and but models start as little in bit and changes to it increase an planned as much, then will

it function deleveraging somewhat that the We’ll So that’s really in start QX, QX. QX in QX. run will in picking and of cadence in accelerate and rate and up

– but statement, costs not the development, As impact in those output our – we to for our mentioned prepared deleverages. product on only

So absorption, G&A. into a that’s you that fixed don’t certainly the get and development the is but product cost, cost more

doesn’t It should XXs. our view into get the change their view – margin long-term that

XXXX strong Yes. investment And this it a XXXX. really sets up for us – very

and just you some with you going out, that you’re boats larger brand? bring what have to – said then of the lengths And with

but NauticStar in been center consoles the the and with overall product, forth, will continuing about and out to have market. fish, XX their the We’ve laid of has changes capacity they facility feet. out someday to the XX are portfolio. ventilation saltwater larger lay to so XX-foot and historically in the really the an facility processes like new to build up generally an is the volume, still XX- of below, XX% part feet, important But with where growth are

Now but I the year won’t larger large, – that half that models feet. in the market they of be don’t the second out be in the want release two launch. get we’ll will XX than They to

was of feet. sold concluded. Fort And They Lauderdale XX a number just

yes. XX,

saw they really show. in where strong And that that’s demand

Yes, of some half XX the larger in year. be there fiscal than will that that will but the are be second released

Okay, for great. That’s all your Thanks for me. time.

You bet.

you. Thank

Ladies turn and McNew, over back gentlemen, to CEO, comments. this concludes to session. closing any today’s call I for the question-and-answer like Terry would

thanks to us Once for our this operator. and organization. again, everyone Thank across joining you, evening

February. again. to and be forward to in updating results progress our and look Thanks on continue for We quarter well fiscal you second We beyond. XXXX positioned

in you great thank gentlemen, day. for today’s and participating concludes a and have conference. you may today’s This Ladies program, Everyone, all disconnect.