MasterCraft Boat Holdings, Inc. — Fiscal Q1 2024 Summary
Reporting period: Three months ended October 1, 2023, compared with three months ended October 2, 2022. The company’s fiscal year ends June 30. Results are seasonal and are not necessarily indicative of the full fiscal year.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $104.2 million | $169.5 million | Down 38.5% |
| Gross profit | $21.8 million | $46.0 million | Down 52.5% |
| Gross margin | 21.0% | 27.1% | Down 610 bps |
| Operating income | $8.6 million | $32.2 million | Down 73.5% |
| Net income from continuing operations | $7.1 million | $24.6 million | Down 71.3% |
| Net income | $6.2 million | $4.1 million | Up $2.1 million |
| Diluted EPS from continuing operations | $0.41 | $1.37 | Down $0.96 |
| Diluted net EPS | $0.36 | $0.23 | Up $0.13 |
| Adjusted EBITDA | $12.2 million | $35.9 million | Down 66.0% |
| Adjusted EBITDA margin | 11.7% | 21.2% | Down 950 bps |
Net income benefited from the substantially smaller loss from discontinued operations. The NauticStar business generated an after-tax loss of $0.9 million in Q1 FY2024 versus a $20.6 million loss in the prior-year quarter, which included a $22.1 million loss on sale.
- Unit volume: 881 boats, down 46.9% from 1,659. MasterCraft volume declined 36.7%, Crest declined 57.2%, and Aviara declined 21.9%.
- Revenue per unit: Consolidated revenue per unit increased 15.7% to approximately $118 thousand, primarily reflecting higher pricing and mix. MasterCraft increased 6.2%; Crest was flat; Aviara declined 2.0%.
- Operating segments: MasterCraft revenue was $75.8 million and operating income was $10.3 million. Crest revenue was $18.5 million and operating income was $0.3 million. Aviara revenue was $9.9 million and generated a $2.0 million operating loss.
- Cash flow: Continuing-operations operating cash flow was negative $8.8 million, compared with $20.7 million provided in the prior-year quarter. Total operating cash flow, including discontinued operations, was negative $9.1 million.
- Investing and capital expenditures: Continuing-operations investing cash flow was positive $21.2 million, including $25.6 million of net investment maturities and purchases and $4.4 million of capital expenditures. Capital spending focused on tooling, facility enhancements, and information technology.
- Financing: Continuing-operations financing cash outflow was $8.4 million, including $1.1 million of debt principal payments and $5.8 million of share repurchases.
- Liquidity: Cash and cash equivalents were $23.5 million, and held-to-maturity securities were $66.5 million at October 1, 2023. Total debt was $52.6 million. The company had no revolver borrowings and $100.0 million of available revolving capacity.
- Leverage and covenants: The term loan balance was $52.9 million before issuance costs, with a 6.67% interest rate at October 1, 2023 and maturity on June 28, 2026. The company reported compliance with its financial covenants.
Material changes versus the prior comparable period
- Management reduced wholesale production plans to rebalance dealer inventories in response to softer anticipated retail demand.
- Revenue and unit volumes declined across all three segments, with the largest revenue decline at Crest.
- Gross margin contracted due to lower fixed-cost absorption from reduced volume, higher dealer incentives, higher floor-plan financing costs, and material, labor, and overhead inflation. Higher prices partially offset these pressures.
- Operating expenses declined only 3.4%, considerably less than the sales decline, resulting in significant operating deleverage.
- Interest expense increased 56.2% to $0.9 million, while interest income increased to $1.4 million from $0.2 million due to higher investment yields and cash balances.
- Inventory declined to $55.5 million from $58.3 million at June 30, 2023 as production was adjusted to lower demand.
- The company repurchased 241,764 shares for $5.8 million. The prior $50 million authorization was fully utilized, and $45.9 million remained available under a new $50 million authorization at October 1, 2023.
- On October 4, 2023, after quarter-end, the company amended its credit agreement to exclude certain fiscal 2024 stock repurchases from the minimum fixed-charge coverage ratio calculation.
Outlook, commentary, risks, and unusual items
Management cited general market volatility, economic headwinds, softer retail demand, elevated dealer inventories, competitive pricing conditions, higher interest rates, and inflation. The company stated that it was taking a cautious approach to fiscal 2024 wholesale production and focusing on dealer-inventory rebalancing. The filing does not provide specific revenue, earnings, margin, or unit-volume guidance.
- Key risks include changes in interest rates, supply-chain disruptions, production inefficiencies, consumer demand, inflation, changing preferences, competition, reliance on independent dealers, fixed-cost management, new-product execution, geopolitical conflicts, and financial institution disruptions.
- Warranty liabilities were $31.7 million at October 1, 2023, including $1.7 million of changes for pre-existing warranties during the quarter.
- Customer deposits and service-related contract liabilities totaled $3.4 million; $1.3 million was expected to be recognized as revenue during the remainder of fiscal 2024.
- The final settlement of the NauticStar sale working-capital adjustment was settled in October 2023 without a significant impact on the previously recorded loss. Retained claims remain subject to change.
- Legal accruals were not material, and management did not expect current litigation to have a material adverse effect. No off-balance-sheet financing arrangements were reported.
- Disclosure controls were assessed as effective, and no material changes to internal control over financial reporting were reported.
Important facts for investors to verify
- Whether retail demand and dealer inventories stabilize sufficiently to support production and sales recovery.
- The sustainability of the 21.0% gross margin given dealer incentives, floor-plan costs, inflation, and lower production volumes.
- Cash conversion and working-capital requirements after negative operating cash flow in the quarter.
- Term-loan interest costs, covenant headroom, and the effect of the October 2023 credit-agreement amendment.
- Future warranty claims, particularly the elevated prior-model-year costs affecting Crest.
- Performance and profitability trajectory of Aviara, which reported a $2.0 million operating loss.
- Remaining liabilities and claims associated with the discontinued NauticStar business.
- The capital-allocation tradeoff between the new $50 million share-repurchase authorization and maintaining liquidity during a softer demand environment.