MasterCraft on Thursday announced financial results for its fiscal 2016 third quarter, ended March 27, 2016.
- Net sales were $57.0 million, an increase of 11.6 percent versus the year-earlier period excluding the terminated Hydra-Sports manufacturing contract
- Total third-quarter net sales rose 5.1 percent versus prior-year third quarter net sales of $54.3 million including Hydra-Sports
- Gross margin rose to 27.8 percent, a 410 basis point improvement over the prior-year third quarter
- Adjusted EBITDA increased 35.3 percent to $10.1 million and adjusted EBITDA margin increased to 17.7 percent, a 310 basis point improvement over the prior-year third quarter
- Net income totaled $4.9 million, up from $0.1 million in the year-earlier quarter
- Fully diluted, pro forma, adjusted net income per share grew 82.4 percent to $0.31 versus the prior-year third quarter
Terry McNew, MasterCraft’s President and Chief Executive Officer, commented, “Once again, strong demand for performance sport boats, combined with our relentless focus on operational excellence and continuous improvement, drove notable revenue and earnings growth, as well as gross margin and adjusted EBITDA gains. Among our boat models, we saw particular strength in X23, X26 and NXT22 orders.”
MasterCraft-only net sales for the three months ended March 27, 2016, which exclude the terminated Hydra-Sports manufacturing contract, increased $5.9 million, or 11.6 percent, to $57.0 million from $51.1 million in the prior-year period. The gain was primarily due to a rise in MasterCraft unit volume of 49 units, or 7.5 percent.
Net sales per MasterCraft unit grew by 3.8 percent, chiefly stemming from greater adoption of higher-end option packages, demand for new models, in particular, the X23, X26 and NXT22, and price increases. Including Hydra-Sports in the prior-year period, net sales for the three months ended March 27, 2016, were up $2.7 million, or 5.1 percent, compared to $54.3 million for the three months ended March 29, 2015.
“Like most marine manufacturers, we saw international headwinds, particularly in Canada, persist. And while these partially offset U.S. results, we continue to deliver domestic sales increases. Moreover, demand for our boats remains solid, particularly in the entry-level segment, and we expect to continue to drive sustainable and profitable market share gains,” said McNew.
Gross profit for the fiscal 2016 third quarter increased $2.9 million, or 22.9 percent, to $15.8 million, compared to $12.9 million in the prior year. Gross margin rose to 27.8 percent from 23.7 percent for the prior-year period. The 410 basis point increase primarily stemmed from cost reductions driven by a culture focused on eliminating waste, sales of higher-end content option packages, lower warranty costs and new innovative features. In addition, the company replaced its Hydra-Sports volume with higher-margin MasterCraft volume.
Selling and marketing expense was relatively flat at $2.2 million for the three-month period. General and administrative expense totaled $6.1 million versus $9.5 million for the fiscal 2015 third quarter. This decrease resulted mainly from the elimination of transaction costs incurred in the year-earlier quarter related to the company’s recapitalization activities. This was partially offset by an increase in stock-based compensation expense and higher costs associated with being a public company incurred during the fiscal 2016 third quarter.
Adjusted EBITDA margin rose 310 basis points to 17.7 percent from 14.6 percent in the prior year. Fiscal 2016 third-quarter adjusted EBITDA was $10.1 million, a 35.3 percent gain from $7.5 million in fiscal 2015.
Fiscal 2016 third-quarter adjusted net income increased 84.8 percent to $5.8 million, or $0.31 per share, on a pro forma, fully diluted weighted average share count of 18.6 million shares. This compares with $3.2 million, or $0.17 per share, a year earlier. See “Non-GAAP Measures” below for a reconciliation of adjusted EBITDA and adjusted net income to net income. Net income totaled $4.9 million, up from $0.1 million in the year-earlier quarter.
MasterCraft’s new X26, unveiled earlier in the fiscal year, continues to perform very well, with demand rising over fiscal 2016 second-quarter levels, the company said.
Said McNew, “Positive feedback on the new X26 continues to pour in from both dealers and consumers alike. Since its release, MasterCraft has sold 160 percent more X26 boats than the prior-year model it replaced. As we’ve previously mentioned, all X26 production slots are fully allocated for the remainder of the model year.”
Operationally, MasterCraft continues to focus on driving sustainable margin improvement through the company’s robust value added/value engineering program and commitment to operational excellence. A key factor has been MasterCraft’s successful employee empowerment program, an ongoing company-wide initiative that encourages factory line workers to suggest enhancements to the production process. More than 13,000 employee-generated improvements were implemented over the course of the last fiscal year alone.
“In addition to being named a 2015 IndustryWeek Best Plant in North America Recipient—the only boat manufacturer to receive that honor—we continue to set new benchmarks for operational excellence and establish best practices in manufacturing,” said McNew. “This commitment can be seen in our overall boat quality and in our strong margin improvement.”
During the fiscal third quarter, the company’s board of directors authorized share repurchase activities using a portion of the company’s growing cash balance. Under the program, up to $15 million in company common stock may be repurchased from time to time in open-market purchases, accelerated share repurchase transactions or privately negotiated transactions, in each case, subject to market conditions and other factors, through the end of fiscal 2017. During the 2016 third quarter, 366,084 shares were repurchased for a total cost of $4.2 million.
“We continue to deliver solid performance, and we expect organic growth to remain strong in the fiscal 2016 fourth quarter,” McNew said. “As a company we are steadfast in our five-pronged growth strategy: developing new and innovative products in core markets; further penetrating the entry-level segment of the performance sport boat category; capturing share from adjacent boating categories; strengthening our dealer network; and driving margin expansion through continuous operational excellence.”
For the fiscal year ending June 30, 2016, the company reiterates its expectations for MasterCraft sales and unit volume growth, compared to fiscal 2015 sales and unit volume excluding Hydra-Sports, in the high-single to low-double digit range. Gross margin and adjusted EBITDA margin are both expected to increase at least 200 basis points from fiscal year 2015, with contributions from higher net sales and continued operating efficiency gains offsetting the absorption of public company costs following MasterCraft’s July 2015 IPO. Adjusted net income is expected to grow faster than adjusted EBITDA, while GAAP net income was impacted, primarily in the first half of the year, by charges related to changes in the fair value of the company’s common stock warrants, as well as stock compensation expense related primarily to restricted stock and options granted prior to and in connection with the IPO.