MasterCraft Boat Holdings, Inc. — Fiscal 2022 First-Quarter 10-Q
Reporting period: Three months ended October 3, 2021, compared with the three months ended October 4, 2020. The company manufactures and sells recreational boats through the MasterCraft, Crest, NauticStar, and Aviara brands, each distributed through independent dealer networks. Results are seasonal and the quarter is not necessarily indicative of the full fiscal year.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Net sales | $144.0 million | $103.7 million | +38.8% |
| Gross profit | $30.1 million | $26.2 million | +14.8% |
| Gross margin | 20.9% | 25.3% | Down 440 bps |
| Operating income | $14.0 million | $13.4 million | +4.8% |
| Operating margin | Approximately 9.8% | Approximately 12.9% | Declined |
| Net income | $10.4 million | $9.6 million | +8.6% |
| Diluted EPS | $0.55 | $0.51 | +7.8% |
| Adjusted EBITDA | $19.4 million | $17.0 million | +14.3% |
| Adjusted EBITDA margin | 13.5% | 16.3% | Down 280 bps |
Sales growth reflected higher unit volumes, pricing, favorable model mix, increased options sales, and dealer restocking following strong consumer demand. Consolidated unit sales increased 30.0% to 1,809 boats. Crest sales rose 81.7%, MasterCraft sales rose 32.2%, Aviara sales rose 55.2%, and NauticStar sales rose 8.2%.
Cost of sales increased faster than revenue, primarily because of supply-chain disruption, higher material and labor costs, inflation, production inefficiencies, and unfavorable overhead absorption at the new Aviara facility. Operating expenses increased 25.4% to $16.1 million, including a $1.1 million non-cash goodwill impairment charge related to Aviara.
Net cash used in operating activities was $13.6 million, compared with $7.4 million of cash provided in the prior-year quarter. The use of cash primarily reflected a $22.1 million increase in inventory, higher receivables, and lower accrued liabilities. Capital expenditures were $3.6 million, focused on capacity expansion and maintenance.
Cash and cash equivalents were $11.7 million at October 3, 2021, down from $39.3 million at June 30, 2021. Total debt was $84.4 million, versus $93.1 million at fiscal year-end. Revolver borrowings were $25.7 million, leaving $74.3 million of stated availability under the $100.0 million revolving facility. The company was in compliance with its debt covenants. The credit agreement matures June 28, 2026, and the reported interest rate was 1.38% at quarter-end.
Material changes from the prior comparable period
- Revenue increased substantially because of dealer restocking, higher volumes, pricing, model mix, and options sales.
- Gross margin fell 440 basis points as inflation, supply shortages, labor challenges, and production inefficiencies offset price increases.
- Aviara production was fully transitioned to the 140,000-square-foot Merritt Island facility. The transition increased capacity but produced near-term losses from start-up inefficiencies, higher facility overhead, and a $1.1 million goodwill impairment.
- MasterCraft and Crest remained profitable; NauticStar’s operating loss widened to $2.3 million from $1.6 million, while Aviara’s operating loss widened to $3.6 million from $1.0 million.
- The company realigned its reportable segments to MasterCraft, Crest, NauticStar, and Aviara and recast prior-period segment information.
- The company repurchased 58,379 shares for approximately $1.5 million under a $50.0 million authorization, leaving approximately $48.5 million available.
Outlook, commentary, risks, and unusual items
Management reported historically strong marine retail demand and historically low dealer inventories, supporting wholesale demand. Fiscal 2022 model-year price increases did not fully offset inflation during the quarter. Additional mid-cycle price increases were scheduled for the second quarter, and management expected pricing to offset inflationary effects for the full year.
Key risks include continuing COVID-19 effects, supply-chain shortages, production delays, labor absenteeism, inflation, higher input costs, dealer dependence, changing consumer demand, competition, and the company’s ability to manage production and fixed costs. Management stated that future results will depend substantially on the capacity of the company and its suppliers to mitigate these conditions.
Unusual or non-recurring items included the Aviara goodwill impairment, share-based compensation, acquisition-intangible amortization, and prior-period Aviara transition costs. Management believes available cash, operating cash flow, and borrowing capacity will be sufficient for liquidity needs, although first-quarter operating cash flow was negative because of working-capital investment.
Important facts for investors to verify
- Whether supply-chain constraints, inflation, and production inefficiencies improve and whether announced price increases restore gross margins.
- Inventory growth, work-in-process levels, dealer inventory, and the resulting effect on operating cash flow.
- Aviara’s production ramp, profitability, overhead absorption, and potential for additional impairment charges.
- Compliance with minimum fixed-charge coverage and maximum net-leverage covenants as borrowing and working-capital needs change.
- Actual utilization of the remaining $48.5 million stock-repurchase authorization relative to liquidity and debt reduction.
- The sustainability of demand and dealer restocking after the pandemic-related increase in recreational boating activity.
- The filing text does not provide a clear full-year revenue or earnings guidance range.