MasterCraft Boat Holdings, Inc. (MCFT) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to the Mastercraft Boat Holdings, Inc. First Quarter 2026 Transition Period Earnings Conference Call. Please be advised that today's call is being recorded. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I would now like to hand the conference over to your speaker today, Alec Harman, Senior Director of Strategy and Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss the first quarter transition period performance of Mastercraft Boat Holdings. As a reminder, today's call is being webcast live and will also be archived on our website for one year for future listening. With me on this morning's call is Brad Nelson, Chief Executive Officer, and Scott Kent, Chief Financial Officer. Brad will begin with an overview of our operational performance. After that, Scott will discuss our financial performance. Brad will then offer some closing remarks before we open the call for questions. Before we begin, we would like to remind participants that the information contained in this call is current only as of today, November 10, 2026. 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 the Safe Harbor disclaimer in today's press release. Additionally, on this call, we will discuss non-GAAP measures that include or exclude items not indicative of our ongoing operations. For each non-GAAP measure, we will 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. Beginning this quarter, certain corporate costs that were previously reported within our performance and weight segment are now being reported separately. This change better reflects how we manage the combined company, affecting segment presentation only, and has no impact on our consolidated results. Prior period segment results have also been recast for comparability. Also, as a reminder, in connection with our change to a December 31 fiscal year end, today's results cover the first three months of our six-month transition period, which runs from July 1 through December 31, 2026. We will compare these results to the prior year period, which includes the three months ended September 28th, 2025. Because this quarter includes a full quarter of contribution from Chaparral and Robolo, and the prior year period includes no contribution from these brands, we will speak to our results on both a total company basis and a legacy basis, with legacy representing our performance and weight segment, including corporate costs, and our leisure segment. Unless otherwise noted, the following commentary is made on a continuing operations basis, and all references to specific quarters and periods will be on a physical basis. With that, I will turn the call over to Brad.

Thank you, Alec, and good morning, everyone. We delivered results above our expectations in the first quarter of the transition period. In our first full quarter, operating as a combined company following the acquisition of marine products, we exceeded expectations for both net sales and adjusted EBITDA with strong legacy execution complemented by the first full quarter contribution from Chaparral and Robolo. Total company net sales grew more than 120% year-over-year. Importantly, our legacy business net sales grew 37% and delivered adjusted EBITDA growth of nearly 140%. We are pleased with our performance this quarter. These results reflect the deliberate product, commercial, and operational actions we have taken across our business to drive premium mix. Clean channels and reduce costs. These efforts are foundational and continue to build on the momentum we have delivered over the past several quarters. Dealer health remains strong and continues to be a priority for MCBH. Dealer inventories across our established brands are healthy and below prior year levels with inventory turns better than last year and near pre-COVID levels as we exit the quarter. Because of this, we believe our dealers have more flexibility to respond to market demand while we remain disciplined in aligning wholesale shipments with retail demand. Now, turning to retail. On a calendar year-to-date basis, total company retail continues to outperform the broader market. Consumer sentiment remains cautious, and we are monitoring retail trends closely as we plan production. Against that backdrop, with the recent addition of the Chaparral and Robolo brands, the benefit from diversification of our portfolio is proving to be helpful, providing exposure across a broader range of consumers, product categories, and price points. Chaparral and Robolo perform particularly well at retail during the quarter. That broader coverage gives us more ways to serve customers and reduces our dependence on any single boating category or market. Looking ahead, we believe the breadth of our portfolio, combined with our continued focus on product innovation, positions us well to continue our momentum. We have an exciting pipeline of new products in development across our brands that we believe will further strengthen our competitive advantages and provide additional opportunities for growth. Our approach and priorities remain steady. We will continue aligning wholesale with retail demand to preserve dealer health, leveraging our flexible operating model to control costs, and investing in innovation and synergies throughout the cycle. Now, turning to our segments. In performance and wake, Mastercraft continues to lead in the premium ski wake category. Our model year 2027 lineup builds on the momentum of the Next Generation X series, with enhancements designed around the driver and rider experience. The success of the Next Generation X series is a clear example of the strength of our product and portfolio strategy and our ability to translate a deep understanding of our consumers into products that resonate in the market. Combined with our ongoing cost, productivity, and quality initiatives, those actions are driving stronger earnings and margin performance. Together, these factors contributed to a strong P1 performance, with MasterCraft delivering a 26.7% adjusted EBITDA margin, generating $21.8 million of adjusted EBITDA. The strength of these results are evidence of the earnings progress created by innovation, simplification, and sustained operational execution. During the quarter, Mastercraft also made its first appearance at the Monaco Yacht Show, where we showcased the X24 as a super yacht tender featuring custom factory-installed lifting points, expanding Mastercraft's presence within the ultra-premium boating market, and continuing to expand the brand globally with luxury customers. In leisure, adjusted EBITDA margin improved nearly 500 basis points year over year, driven by higher volumes, lower discounts, and cost initiatives. For model year 2027, Crest expanded its Conquest SE lineup at an accessible price point and refreshed the Caribbean series, including the new 22-foot model, while both Crest and Belize now offer twin-engine configurations on 24- and 26-foot models. Belize also broadened its addressable market with a 22-foot model across all layouts and an all-new entertainer layout featuring a wet bar, refrigerator, and grill. We are also building real momentum in distribution. Crest and Belize added a meaningful number of new dealers during the quarter, including several existing partners from across the broader MCBH network. This reflects the value of our broader brand portfolio and the opportunity to deepen relationships with high-quality dealers across categories. Expanded sales coverage, a focused dealer acquisition strategy, and an enhanced product lineup all position our leisure brands well for growth as conditions improve. Turning to recreation and sport fishing segment, we are pleased with our integration progress as we continue to advance operations as a combined company. Our focus on synergies has shifted from planning to execution, with initiatives underway and dedicated teams in place across product and portfolio strategy, distribution expansion, operating disciplines, and sourcing. On sourcing, our corporate sourcing team is beginning to realize the benefits from the increased scale of the combined company, while continuing to identify additional opportunities across our supplier base. Operationally, we are also taking steps to optimize our manufacturing footprint, improve capacity utilization, and reduce costs. These are foundational steps in building a more efficient and profitable combined company, and while we remain early in the process, we are encouraged by the progress to date and the opportunities we see ahead. Turning to capital allocation, our priorities remain unchanged. Maintaining a strong balance sheet, investing in innovation and growth, which includes synergies, returning capital to shareholders through share repurchases, And maintaining a disciplined approach to M&A. Overall, we executed well in a dynamic market, exceeded our expectations, and advanced the integration of our combined portfolio. With that, I'll turn the call over to Scott.

Thanks, Brad, and good morning, everyone. I'll start by reviewing our results for the first quarter, then cover our balance sheet and capital allocation, and finish with our outlook for the remainder of the transition period. Net sales for the quarter were $154.1 million, an increase of 123.4% compared to the prior year period, including $59.3 million from our recreation and sport fishing segment. On a legacy basis, net sales were $94.8 million, an increase of 37.4% compared to $69 million in the prior year period, driven by higher volumes of our next-generation X-Series models, which drove favorable mix, along with disciplined pricing and lower discounts. Consolidated gross margin was 21.1% compared to 22.3% in the prior year period, reflecting the blended margin profile following the marine products acquisition. Legacy gross margins expanded 600 basis points to 28.3% from 22.3% in the prior year period, driven by improved fixed cost absorption, favorable mix, lower discounts, and operating improvements across both our performance and weight and leisure segments. Operating expenses were $20.5 million, compared to $11.6 million in the prior year period. The increase primarily reflects a full quarter of recreation and sport fishing, as well as additional acquisition and integration costs related to the marine products transaction. Adjusted end income was $12.2 million, or $0.50 per diluted share, compared to $4.7 million, or $0.29 per diluted share in the prior year period. Adjusted EBITDA was $20.1 million, with an adjusted EBITDA margin of 13%, compared to $7 million and 10.1% in the prior year period. On a legacy basis, adjusted EBITDA was $16.7 million, with margin expanding 750 basis points to 17.6%. As a reminder on the purchase accounting, our adjusted results this quarter exclude $1.9 million of integration and transaction-related expenses, $0.6 million of amortization of acquired intangibles, and the remaining $0.3 million of inventory step-up related to the marine products combination, which is now fully recognized. Consistent with what we outlined last quarter, intangible amortization and depreciation for the acquired company are now running at normalized levels of approximately $0.6 million and $2.6 million per quarter, respectively. Turning to the balance sheet, we generated $2.9 million of free cash flow in the quarter and ended the period with $41.9 million in cash, no debt, and full availability under our $75 million revolving credit facility for total liquidity of $116.9 million. After pausing share repurchases while completing the marine products for acquisition, we resumed buybacks in the quarter, consistent with our long-standing approach to capital allocation. We repurchased approximately $4.8 million of our shares, with approximately $18.7 million remaining under our current authorization. With a strong balance sheet and cash generation, share repurchases remain an important part of our capital allocation strategy. Now turning to our outlook. Based on our first quarter outperformance and current expectation, we are raising our guidance for the six-month transition period. We now expect net sales of between $293 million and $297 million, adjusted EBITDA of between $32 and $34 million, and adjusted earnings per share of between $0.75 and $0.80. We continue to expect capital expenditures of approximately $9 million for the period. Our priorities for the remainder of the period remain unchanged, aligning wholesale with retail demand, protecting dealer health, maintaining cost discipline, and executing our synergy plan. We believe this discipline approach positioned us well to navigate the current environment while continuing to strengthen the business for the long term. As we look to the December quarter, we expect our underlying build rates and AUSPs to remain consistent with Q1. However, normal holiday seasonality will likely result in modestly lower sequential shipments due to fewer production days. Overall, we remain confident in the strength of our portfolio, our balance sheet, and the long-term earnings power of the combined company. This quarter's performance demonstrates another step forward with strong execution, disciplined cost management, and commercial optimization. Our financial flexibility will allow us to continue investing in innovation while also aggressively pursuing our synergy plan. As we continue executing our focus plan and leveraging the scale of the combined company, we believe we have a meaningful opportunity for ongoing value creation. With that, I'll turn it back to Brad for closing remarks.

Thanks, Scott. This quarter reinforces three important drivers of our long-term earnings potential. First, commercial and operational execution across our business is translating into higher earnings. Second, our expanded brand portfolio and growing dealer network are creating new opportunities for growth across categories and end markets. And third, the investments we are making to capture synergies and leverage the scale and capabilities of the combined company provide meaningful opportunities that we believe will drive further value creation. Looking ahead, our priorities remain clear. We will continue to align wholesale with retail demand, drive operational improvements, and invest in product innovation that supports the long-term competitive strength of our brands. We are moving decisively from synergy planning to execution. Our focus is on preserving what makes each of our brands unique and successful, while unlocking opportunities created by the scale and capabilities of the combined company. With a strong balance sheet, a flexible operating model, and five leading brands, we are confident in our ability to execute through the current environment while building an even stronger company for the long term. I want to thank our team members, dealer partners, suppliers, and shareholders for their continued support and another strong quarter. Operator, you may now open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Joe Altebello with Raymond James. Please go ahead.

Thanks. Hey, guys. Good morning. First question on the guidance. You obviously raised the transition period guidance, but it seems like the September quarter was better than you originally thought, and the December quarter maybe a tad lighter than you originally thought. Were there any timing issues in the quarter? Are you seeing any margin pressures cropping up here in the December quarter?

Yeah, Joe, I think we really outperformed a little bit in the first quarter, and some of that was timing, so we did shift a bit of our production from Q2 into Q1 or just shift a few of it a little early. You know, so that's a lot of it. Remember, the December quarter does have some less production days in it because of the normal holiday seasonality, so it is a little lower from a quarter sequential basis. But the underlying build rates and really the AUSPs and all that are consistent with Q1, so it's just a matter of some timing fluctuations between costs as well as build rates between the quarters.

Okay, perfect. And you sort of address this a little bit in your prepared remarks, but how would you assess the promotional environment in the ski weight category at this point?

Uh, generally, I think we're, you know, it's still a competitive environment out there. We're still having to do discounts. We think they're pretty much more normalized to some degree. You know, there is a cleaner channels out there from our perspective, and that does help us to keep our discounts low. Our new products that we've been introducing, especially around the X-Star and the X-Series product line, have also helped us not have to do a lot of discounting. So, a lot of the actions we've been taking, really, over the last two years are really helping us keep those discounts a little lower than what we might have to do if our channels were a little more unhealthy.

Are you being forced at all to sort of counter other manufacturers' discounts?

Again, discounts are probably a little higher, but not anything beyond what we'd call normal. We're generally doing our discounts in the normal times we do discounts. So, again, we think our position with our dealer health as well as our channel and product are really helping us keep our discounts a little lower.

Okay, great. Thank you.

Your next question comes from Anna Glaskin with B Reilly Securities. Please go ahead.

Hi, good morning. Thanks for taking my questions. I'd like to start with that gross margin number you gave us on the legacy business, 28.3%. Pretty impressive considering, you know, the historical performance, a number we haven't seen in, you know, quite some years. Maybe give us some perspective on how this was achieved despite, you know, still at a lower production rate than historical norms, and to what extent there was maybe anything one-timey in there. Thanks.

Again, the legacy gross margin did expand about 600 basis points to the 28.3% that you mentioned. It does reflect some improved absorption year over year on that increased volumes. It does have favorable mix. Again, our X-Series product that is driving a bit extra sales in the quarter from what X-Series would typically do because of the success of that product. We do have some lower discounts on a year over year basis. And we do continue to have continued operating improvements, not just in our Mastercraft division, but also in our leisure segment and our pontoon brands as well. So, again, all of our strong pipeline management, the new products and operating execution has really been transferring into profitability and showing just the kind of power that we can have when we actually are able to grow sales.

Got it. And then coming back to retail, are you still expecting for the overall transition period for units to decline in the 5% to 10% range?

Yeah, Anna, morning. This is Brad. It's clearly a selective market out there. Consumers remain cautious, but yes, consistent with our prior review, our guidance assumes market down for this calendar year period to be roughly down between the 5% to 10% that we mentioned. Prior. And then going forward, we're planning for a continued cautious market, but there are buyers out there. It's just the market's not broken. It's just more selective. And in recent periods of time, we continue to be rewarded just with good execution on product, as well as a clean channel. And we'll continue to align production of retail to wholesale to retail.

Thanks. Your next question comes from Gregory Miller with Truist Securities. Please go ahead.

Thank you. Good morning. For my first question, I'd like to get your perspective on how initial boat shows have proceeded, including flips recently. I appreciate there's weather in Fort Lauderdale, but outside of that, I'd be curious to get your questions on your brand's performance there. Thank you. Yeah, hi, Greg.

Yeah, the read on FLIBS and just some of the early sentiment out there. Across the industry and the sectors within the industry in our categories have been pretty much flattish year over year. There's a couple of exceptions to that rule, maybe some strengths and weaknesses, but in general, we've seen our performance at both shows has been consistent with that, with the broader breeding category, which is flattish. In a couple of categories, we've seen better performance, but it seems like attendance at the show was down a little bit, but at the same time, there were still active buyers engaged, so the quality of the buyers seemed slightly improved.

Thanks. You might remember that the FLIMS show is really a saltwater show as well as a bigger boat show. So our brands are not quite as fully represented at the FLIMS show. Really, it's our Riballo brand mostly that is at that show and has the more significant presence. So being flattish on Riballo was actually pretty positive for us.

Great. Thank you. For my follow-up, you mentioned on the call and then you had the press release before earnings on the dealer network expansion, which is a pretty significant number of dealer additions, including from your legacy brand. So I'm going to get a little more context in terms of how that all came to pass in the last couple of months, and in particular, any thoughts on further growth internationally.

Yeah, distribution in general and a strong dealer network, that's a growth lever for us, long stated. It's part of our core strategy. So we always work on that and we'll continue. Now with the addition of Chaparral and Robolo, we have a boat for everybody. We've got a wide range of price points. We have a diversity of categories. We're not as reliant on a category or two within Marine. So that certainly helps us. So we were able to add dealers in the past quarter in all of our brands. And some of those were international, but most of those were in North America. And some of them were cross-brand. Pollinization within our MCBH family. There are active discussions happening. We've already signed some of those and already seeing some boats move accordingly. But there are ongoing discussions, numerous, in fact, between our newly expanded dealer network going forward. And we see strong potential as that unfolds. Ultimately, our broader portfolio gives our dealers much more flexibility through this dynamic market environment, and it just gives us a lot more ways to win, and we're starting to see that.

Great. Thank you very much.

Your next question comes from Noah Zatzkin with KeyBank Capital Markets. Please go ahead.

Hi, thanks for taking my questions. I guess maybe if you could expand a bit on kind of like where you're tracking in regards to the synergy opportunities around Chaparral and Ravalo. Just some context about kind of where you're tracking a plan and the opportunity that remains Thanks.

Yeah, we've already captured approximately $6 million of annual public company and overhead savings from the transaction. We are now moving from a broader synergy and integration perspective. We're pleased with our progress. It's on pace. We're moving now from planning into execution. We do have dedicated teams working initiatives around sourcing, operating initiatives, footprint, portfolio, as well as distribution initiatives, and we're seeing some early sourcing benefits. Starting to emerge. So that will continue to mature with time. Some of these things will take a little bit more time, and we look forward to giving updates as visibility improves in the future.

I generally say we're on track, if not ahead, in some of our synergy plans versus what we laid out. So I think we're really pleased with the progress so far.

Thanks, and hoping you could maybe just comment on what you're seeing or hearing in terms of kind of health of the broader industry dealer base now out of selling season. Thanks.

You know, as we talk to our financing partners, generally speaking, I'd say industry inventories are down across the board. Dealer health is generally healthy across. That doesn't mean you don't have the occasional problem with a dealer here and there, but certainly nothing broad-based. It's certainly causing any overall concerns at the moment.

Well, and I would add, in general, with the inventory side of that, Noah, So managing pipeline inventory, as you probably know, is central to how we manage this business. So managing that pipeline, we feel good about the number of units that are out there as well. We feel generally good about the aging profile of those units, and that's going to help us. Dealers right now seem fine. It's one of the stronger parts of our story, actually, as we lean forward as they now have flexibility to deal with a dynamic consumer.

Thank you. Very helpful.

Your next question comes from Garrick Johnson with Seaport Research Partners. Please go ahead.

Hey, good morning. Thank you. I'm interested in Crest and the expansion of distribution there. You know, pontoons are obviously very competitive, and you have a few new competitors coming into the space. So it looks like you added 13 dealers. How much of that came from the MPX relationship? And if it was organic, what is it about Crest that's enticing dealers to take on the brand?

Yeah. Hi, Garrick. Overall, let me make a broader statement around leisure. Team is really engaged, strong team, making progress, moving in the right direction. That business, just from a broader perspective, margins up nearly 500 BIPs. It's now six consecutive quarters of profit growth. Due to cost initiatives and efficiency initiatives. So, we're pleased with the progress. It's not fully where it needs to be, but key to that effort is distribution expansion that you've mentioned. Finding dealers that are truly aligned with our product innovation and with the market right now is core. So among those that we signed, yes, some of those are due to MCBH relationships across, including Chaparral and Robolo, and we're early. So we're pleased with the early progress there. It has strong potential. As you know, some of those things take time to unfold, to get a dealer on board, to get them signed, to get them engaged on the product, trained, developed to where they can take a healthy stocking position, and then start retailing boats. We're making progress on all those fronts, but it's still early. And that's really what we're seeing with dealers is interest in the product refreshes that we've done. So we've expanded our Conquest lineup, our SE lineup, which adds a variety of new affordable price points. The team has refreshed the Caribbean series, added twin-engine configurations on all of our 24- and 26-foot models for both Crest and Belize. And a brand-new Belize 22-footer across layouts. So we're seeing dealers engaged on product, on our innovation stance, some of the structural changes we've made in the business, and then the quality of the products remains high. We're pleased with the data that we're seeing there, too.

Okay, great. Thank you. Sounds good. And then on Rabala and Chaparral, you're kind of more of a mid-range kind of a… Boat Brands there. That's kind of the cohort of consumers that are feeling the most pressure. So what's going on there to drive the outperformance versus the industry for both Rabala and Chaparral?

Well, you've got, you know, you've got two proud brands that have been, Chaparral, obviously, being a market leader in the Genrec and runabout space, continues to be that. Tremendous dealer network, tried and true, proven products. Proven execution, high quality boats, and with Robolo on the salt fish and sport fish side of the house is surging. We're pleased with market share gains there and a very engaged dealer network, and we're seeing some continued vibrancy in that sport fish. Market. It's one of the more resilient categories within marine, and our price point diversity now across those boats, it's not all mid-range. We've got price points from low to premium, and that diversification across all of our brands is helping us right now. We've been pleased with the early progress.

I think some of the product that we've introduced, especially the Robalo, has also been really strong. They've got a really strong dual console lineup with a couple new entrants in the dual console lines. They've also added some additional center consoles. They also have a Bayboat series, and frankly, we've been winning share in all three of the segments that we compete in with some of the product introductions that we've been introducing with that lineup as well. So Robalo's really been a shining star for us from a market share perspective.

Okay, great. Thanks a lot, guys.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.