MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) Q3 2025 Earnings Call Transcript

MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) Q3 2025 Earnings Call Transcript May 7, 2025

MasterCraft Boat Holdings, Inc. beats earnings expectations. Reported EPS is $0.3, expectations were $0.18.

Operator: Ladies and gentleman, thank you for standing by, and welcome to the MasterCraft Boat Holdings, Inc. fiscal Q3 2025 Earnings Conference Call Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Kent, Vice President Finance and Incoming Chief Financial Officer. Please go ahead, sir.

Scott Kent: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft’s fiscal third quarter performance for 2025. As a reminder, today’s call is being webcast live and will also be archived on our website for future listening. With me on this morning’s call is Brad Nelson, Chief Executive Officer and Tim Oxley, Chief Financial Officer. We will begin with an overview of our operational performance from the third quarter. After that Tim will discuss our financial performance. Brad will then provide some closer remarks before we open the call for questions. Before we begin, we’d like to remind participants that the information containing this call is current only as of today, May 07, 2025.

The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to safe harbor disclaimer in today’s 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-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. There is also a slide deck summarizing our financial results in the Investors 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, Scott, and good morning, everyone. I want to start by acknowledging that this will be Tim Oxley’s final earnings call. As we announced last month, Tim will be retiring as CFO at the June and will remain in an advisory role through December. Scott Kent, who you just heard from, will assume the CFO role on July 1. Tim Oxley has had a tremendously successful career with nearly 35 years in the powerboat industry, including 18 years here at MasterCraft. He has played a key role in the evolution of our company. Tim’s leadership and guidance have been invaluable and I’m incredibly grateful for our partnership. He leaves MasterCraft in outstanding financial shape and with a strong finance team. On behalf of everyone at MasterCraft, I thank him for his service to the company and wish him all the best as he transitions towards retirement.

Looking to the future, I’m pleased to have Scott succeed Tim as Chief Financial Officer. He has over 25 years of powerboat experience, including more than 6 years of proven leadership here at MasterCraft. His appointment reflects our depth of talent and careful succession planning. I look forward to working closely with Scott and the rest of the team to deliver long-term growth for our stakeholders. Now turning to our third quarter results. We delivered results that exceeded expectations despite the dynamic industry and macroeconomic backdrop. Sequentially, profitability improved due to higher volumes, operating efficiencies and a favorable mix over fiscal Q2, driven largely by the ramp in production of our premium XStar model. We continue to focus on what’s in our control, including disciplined cost, cash and pipeline management.

Our renewed focus on product development and prudent destocking over the past two plus years has positioned our dealers well for the selling season. Our flexible operating model and ability to generate cash flow even at these low volumes combined with our Fortress balance sheet affords us the ability to navigate near term uncertainty while positioning the business for sustainable long-term growth. During the quarter, Spring Boat Show results were up from last year and generated strong energy heading into the critical summer selling season. That said, persistent macroeconomic headwinds and tariff uncertainty continue to put pressure on the marine sector. We continue to monitor and take proactive action to mitigate the impact from these external factors.

To reflect the evolving macro conditions and the challenging demand environment, we are revising our full year guidance, which we’ll detail later in the call. We continue to make meaningful progress in managing dealer health and reducing inventory levels. Over the last year, dealer inventories across our brands have decreased by 30%, compared to the same pre pandemic period in fiscal 2019, dealer inventories are lower by more than 45%. This highlights the effectiveness of our careful production planning, dealer support programs and strength of our products and brands. Despite broader economic turbulence, we remain confident in achieving our fiscal year inventory reduction target of 600 to 1,000 units, assuming retail expectations hold through the summer selling seasons.

Turning to the evolving trade and tariff environment. While we anticipate a modest impact from tariffs on fiscal 2025 costs, we continue to work diligently with key suppliers to mitigate risk. We’re also closely monitoring broader demand implications. Regardless of market dynamics, our intent is to keep our dealers healthy and ensure inventories are closely aligned with retail demand. Our capital allocation priorities remain disciplined and consistent despite the external pressures. We have a solid balance sheet with no debt. We are generating cash and our strategic growth initiatives are fully funded. We continue to prioritize our share repurchase program to return capital to shareholders. Given the suppressed marine environment, we remain opportunistic and highly selective with respect to inorganic growth.

Shifting to recent developments across our brands. In February, the XStar, MasterCraft’s flagship model was awarded the prestigious National Marine Manufacturers Association Innovation Award in the Towboat Category at the Miami International Boat Show. Additionally, the NMMA recognized both MasterCraft and CREST with Marine Industry Customer Satisfaction Index Awards for 2024. This recognition underscores our continued focus on quality and innovation. MasterCraft has a long-standing track record of winning CSI awards and CREST has now received the honor for six consecutive years every year under our ownership. Within our MasterCraft segment, our team supported dealers at key boat shelves where we showcased our XStar product. Its halo effect has been particularly positive for the MasterCraft brand globally.

Consumer interest remains strong and we’ve ramped up XStar production in the third quarter to meet demand. We continue to identify growth opportunities within our distribution network. Recently MasterCraft strengthened its dealer presence in Dallas, the largest ski weight market in the United States. We’ve also announced dealer expansion in Southern Utah and Lake of the Ozarks in Missouri. As such, we’re experiencing early momentum in these key markets. We’ll continue to explore additional opportunities to enhance our dealer network. Turning to our pontoon segment, which includes CREST and BALISE brands. Dealer inventories across the broader pontoon market remain challenged, which has created a more promotional and competitive environment. Overall, we continue to proactively adjust production levels to right size filled inventories as evidenced by a 40% year-over-year unit reduction in this segment.

As announced in February, Mike O’Connell has been appointed President of the Pontoon business, and he’s hit the ground running joining the team in Owasso. The team’s priorities are centered on product enhancements, dealer and pipeline management and operational improvement through this dynamic timing. With that, I’ll now turn the call over to Tim to provide additional commentary on the quarter and walk through our financials. Tim?

Tim Oxley: Thanks, Brad. To start, I want to sincerely thank all of you for your support and interest in the company over the years. Our team will closely work together over the coming months to ensure a smooth transition. I’ll certainly miss MasterCraft and working alongside this strong team, but I’m looking forward to retirement and spending more time with my family. Now turning to our Q3 financial results. Focusing on the top line, net sales for the quarter were $76 million a decrease of $8 million or 10% from the prior year period. This was primarily due to lower unit sales volume, partially offset by favorable mix. For the quarter, our gross margin was 20.8% compared to 23.3% in the prior year period. Lower margins were the result of lower cost absorption from the production decrease, partially offset by favorable mix.

Operating expenses were $11.7 million for the quarter, a decrease of $1.2 million compared to the prior year period, primarily due to lower general and administrative expenses. As a reminder, the prior year period included CEO transition cost. On the bottom line, adjusted net income for the quarter was $5 million or $0.30 per diluted share, calculated using a tax rate of 18%. This compares to adjusted net income of $8.5 million or $0.50 per diluted share for the prior year period, calculated using a tax rate of 20%. Adjusted EBITDA was $7.5 million for the quarter compared to $11.7 million in the prior year period. Adjusted EBITDA margin was 9.9% compared to 13.9% in the third quarter of fiscal 2024. Our balance sheet remains incredibly strong.

We ended the quarter with nearly $167 million of total liquidity, including nearly $67 million of cash and short-term investments and $100 million of availability under our revolving credit facility. We ended the quarter with no debt. Year-to-date, we generated nearly $19 million of operating cash flow. Our balance sheet positions us exceptionally well, provides us with ample liquidity and financial strength to perform through the business cycle, fund strategic growth initiatives and return capital to shareholders. During the quarter, we spent nearly $750,000 to repurchase more than 41,000 shares of our common stock. We expect to repurchase shares at an accelerated pace in our fiscal fourth quarter, particularly given our recent valuation. In fact, fourth quarter-to-date, we’ve already spent more than $1.8 million to repurchase over 115,000 shares.

Despite ongoing macroeconomic and trade uncertainty, we remain within the range of our previously stated guidance. That said, for fiscal 2025, consolidated net sales is now expected to be approximately $275 million with adjusted EBITDA of approximately $20 million and adjusted earnings per share of $0.71. We also now expect capital expenditures to be approximately $9 million for the full year as we closely manage cash flow. I’ll now turn the call back to Brad for his closing remarks.

Brad Nelson: Thanks, Tim. Our business performed well during the third quarter against the backdrop of economic and demand uncertainty. With our strong financial foundation, we are well positioned to mitigate near-term risks and pursue our strategic growth initiatives. We continue to utilize a disciplined approach to capital allocation, including returning approximately $70 million of excess cash to our shareholders through our share repurchase program since 2021. Looking ahead, given the fluid trade environment and limited demand visibility, we remain focused on what’s in our control, managing production levels, driving innovation and delivering operating efficiencies all while maximizing cash flow and aggressively managing costs.

Our flexible operating model allows us to adjust production to both mitigate near-term risk and capitalize on potential upside. We have taken a proactive approach to production planning and dealer incentives to capitalize on retail demand during the upcoming selling season. In this dynamic environment, we are focused on continuing to provide value for our stakeholders, while positioning MasterCraft to capitalize on the next market recovery. Operator, please open the line for questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Joseph Altobello of Raymond James Financial, Inc. Your line is now open.

Joseph Altobello: Good morning. This is Martin on for Joe. You had mentioned the tariff impact may have modest impact. Can we get a little bit of quantification around that and an idea about what the potential price increase might be for model year 2026?

Tim Oxley: The it seems like it changes almost on a daily basis, so we have not yet determined the effect on pricing. But we do expect it to have some inflationary impact on our prices, and we have our modest impact in fiscal Q4 embedded in our guidance already.

Joseph Altobello: Got it. And then just kind of quickly thinking about Retail, I believe you said down 5% to 10% prior. Would that change in any way?

Tim Oxley: I expect it to be closer to 10 than five right now. But because Q4 is our easiest comp, we’ll know better at the June and not really before then.

Joseph Altobello: Got it. Thank you very much and congratulations on your retirement.

Tim Oxley: Thank you.

Operator: Thank you. Our next question comes from Craig Kennison of Robert W. Baird & Co. Your line is now open.

Craig Kennison: Hey, good morning. Thanks for taking my question. Tim, congratulations. It’s really been a pleasure working with you. You probably did it a quarter too late because I have a tariff question for you. But I wonder if you could just help us understand the kind of direct exposure you think you have. I mean, it’s primarily a U.S. based production footprint. And then if you’ve done any work to understand what indirect exposure you might have through some of your suppliers that have tariff exposure? I know it’s a tough question, but curious if you have any thought.

Tim Oxley: Yes. We’ve had discussions with all of our significant suppliers, so we do think we have a good handle on what I’m going to call them the parts of parts. So oftentimes, even our engines, I think, for one variety of engine, the block comes from Canada. So I think we’re we have a good spreadsheet that we use to determine those costs. And as the changes occur, we drop them into the spreadsheet. What we don’t know is exactly how much is in the pipeline, how much is in the warehouses in the U.S. and so, there will be a modest impact on Q4, but we’re continuing that’s continuing to evolve as it relates to fiscal 2026.

Craig Kennison: Okay. Thanks. And then Brad, you mentioned some dealer network expansion wins. Just talk about what’s working in the sense of your ability to add dealerships in some of these key markets. It feels like you’ve made pretty significant progress there.

Brad Nelson: Yes. We feel good about progress and that’s always going to be a work in motion there as things are constantly changing. We look at it really in two ways. There’s geography coverage and there’s still white space out there that’s not being covered or only getting modest coverage from a dealer perspective. And then within territories, we have tremendous dealers, mature, highly sophisticated, but in some pockets, we’ve got territories where our density in our store and our rooftop coverage has opportunity for expansion. So we’re really pleased with progress in some of our larger markets, in particular pointing to Texas and Utah. Those two markets alone are needle movers from a national perspective. So as we drive at least get up to national market share in those markets, it’s really helpful for us.

And our dealers — just a shout out to our dealers and their focus going through a turbulent period of time. We’re proud of our partnership there, both dealers long established as well as new ones.

Craig Kennison: Yes. I guess that’s my last question, if it’s okay. I mean, Tim, you’ve done an amazing job with your own balance sheet and you’re very well positioned to fund a buyback as you’ve said. But how would you frame the balance sheet of your dealer network overall? And do you see any pockets of stress that you’re concerned about?

Tim Oxley: Craig, it’s one of the areas that really I’m particularly pleased in the fact that we’ve been able to navigate this difficult environment without having any significant dealer failures. So we have a number of tools in our toolkit, if you will. And knock on wood, we feel good about the health of our dealers, and we continue to monitor it closely, in particular, with our floor plan suppliers.

Craig Kennison: Great. Thanks, Tim. Congratulations.

Tim Oxley: Thank you.

Operator: Thank you. Our next question comes from Michael Swartz of Truist Securities. Your line is now open.

Michael Swartz: Yes. Hey, guys. Good morning. This is Adam on for Mike. First, just wondering how the early response has been to BALISE and if you guys still think that could add $10 million in revenue for the fiscal year.

Brad Nelson: Yes. Hey, Adam. The BALISE product, we’re in conscious low rate production as we ramp up that brand and doing it amidst the challenging market. I think we all know dealer credit lines are under pressure right now in some areas. But we are anticipating net sales in the neighborhood of what we previously stated in that $10 million ballpark for fiscal 2025. We’ve signed dealers in the top 10 BTAs, top 10 markets. We now have 20 plus dealers, net new dealers and some really top-notch dealers for BALISE. So far interest in the product is high, very favorable and positive response rate to the product fit and function as well as quality of the product. It just we knew it would take some time launching a product in the down part of the market and that’s proving out as per plan.

Tim Oxley: The other thing because we have such a concentration in the Upper Midwest of dealers, we think as those boats are seen out on the waterways, that’s going to spur some additional demand. So we remain optimistic about the lease.

Michael Swartz: Okay, got it. And any way to think about fiscal year 2026?

Brad Nelson: Not ready to talk about fiscal 2026 at this point in time.

Michael Swartz: Okay, got it. If I could just one more, any trends you guys have been seeing at retail in April and May so far, just given everything going on in the macro and tariff environment? Thank you.

Tim Oxley: Yes. I think as I mentioned on my prepared remarks, Q4 is our easiest comps, and we’re looking at it on a daily, weekly basis. And our easiest comp in Q4 is June. So we still have a line of sight to being down in that 10% range, but we really won’t know until it all concludes. But our dealers remain optimistic. The sun is coming out and we’re going to make hay while the sun shines.

Brad Nelson: I would add, we’re doing well with premium buyers. The market is skewing to the premium right now, and that’s nice with the launch of our new premium XStar product in MasterCraft, it will help us even more with BALISE as the summer selling season unfolds here as Tim mentioned. But there’s retail momentum there with XStar that we’ve seen coming out of boat shows and with CREST and pontoons, of course, that’s more of a compressed selling season in the summer. It’s more even more seasonal than in the toe wake market. But the we haven’t seen sustained vibrant retail momentum yet, but as Tim mentioned, we are seeing some signs of life in green shoots from many of our dealers.

Tim Oxley: As evidence of the strong MasterCraft brand internationally, we sold 8 of the XStars in Europe at the Dusseldorf Boat Show. So MasterCraft has a strong brand, not only in U.S., but in Canada and the rest of the world as well.

Michael Swartz: Awesome. Thanks, guys.

Operator: Thank you. One moment for our next question. Our next question comes from Eric Wold of Texas Capital Securities. Your line is now open.

Eric Wold: Thanks. Good morning and thanks for taking my questions. And I’ll also echo congrats, Tim on the retirement, the great work with you over the years. I guess think about the guidance, so you took the high end of the guidance range, you have $275 million to $295 million on the last call down to $275 million now. Was that $295 million upper end previously, was that more of an assumption that things improved to get there? Or would you characterize it as more that things have, degraded since that last guidance was given?

Tim Oxley: Thank you. I think that if retail were trending to being down 5%, I think that the high end of the range would have been more appropriate. As it is now, there’s a lot more caution out there, not only from a retail perspective, but from a dealer stocking perspective. And so that’s the reason you see us moving the range down a little bit.

Eric Wold: Got it. Okay. And then so on that last part on dealer stocking, you got about almost two months left in the quarter and you still feel comfortable with the 600 to 1,000 inventory units coming out of the channel. Assuming things don’t materially change from here, I know June is a big question mark. I guess what takes you to the higher end of that range versus the lower end of the range? Is it really kind of dependent on June or is it something else that plays one way or the other?

Tim Oxley: Yes, because we’ve been judicious with our production, I expect us to be in the upper end of that range as far as taking out of it’d be more likely to be 1,000 than 600 now.

Eric Wold: Got it. Very helpful. Thanks, guys. Appreciate it.

Tim Oxley: Thanks, Eric.

Operator: Our next question comes from Anna Glaessgen of B. Riley Securities. Your line is now open.

Anna Glaessgen: Good morning. Thanks for taking my question. I’d love to expand a little bit on your approach to taking price, in the face of tariffs. I’m not trying to get specific numbers, but would you be looking to react with a consistent price increase or give credence to maybe some variable elasticity, across the pricing architecture? Just any thoughts there.

Brad Nelson: Yes. Good morning, Anna. Balancing three things is our aim every day: volume, price and cost. With the variability with tariffs and the trade environment, we remain proactive on balancing the three of those. It’s likely what we’ll see going forward is a traditional market-based price adjustment. And then we may be moving into more of a variable pricing model looking forward. We’ve not made any judgments nor we communicated that we’re proactively modeling those things. And our goal ultimately always is to cover our input costs. The challenge with tariffs, which I think everyone can understand and appreciate is sometimes there’s a latency and there’s a lot of change happening there every day. And with that, when we finally snap and make decisions on this stuff, there could be lag time in there that’s difficult to balance.

But we’re modeling all those activities proactively, while also working with suppliers to mitigate cost impact as opposed to just accepting and passing along cost impact.

Anna Glaessgen: Got it. I guess, have you already spoken to dealers about the potential for more variable pricing?

Brad Nelson: We’ve not unfolded our full model year and fiscal year pricing yet for 2026.

Tim Oxley: But we have discussed with them the variable nature of these costs, and we certainly hope that the tariffs are temporary and so that leads us more toward a variable pricing model going forward.

Anna Glaessgen: Got it. Thanks, guys.

Operator: Thank you. This now concludes the question-and-answer session. I would now like to thank you for participating in today’s conference. [Operator Closing Remarks]