Sales up for MasterCraft in Q4, fiscal year 2016

On Thursday, MasterCraft (NASDAQ:MCFT) announced financial results for its fiscal 2016 fourth quarter and full year ended June 30, 2016.

Fiscal Q4 highlights:

• Gross margin rose to 26.3 percent for the fourth quarter, a 300 basis point improvement over the prior-year fourth quarter
• Fiscal 2016 fourth quarter net income totaled $4.8 million, up from $2.5 million in the prior-year fourth quarter
• Diluted earnings per share grew 23.8 percent to $0.26 for the fourth quarter versus the prior-year period
• Fully diluted pro forma adjusted net income per share, a non-GAAP measure, grew 50 percent to $0.30 for the fourth quarter versus the prior-year period
• The company unveiled the XT23 crossover model and the revolutionary Dockstar Handling System
• The company’s Board of Directors declared a special cash dividend of $4.30 per share of common stock

Fiscal 2016 highlights:

• Fiscal 2016 full-year net sales rose 3.4 percent to $221.6 million; excluding the terminated Hydra-Sports manufacturing contract, MasterCraft-only net sales increased 10.9 percent versus the prior fiscal year
• Gross margin grew to 27.6 percent for fiscal 2016, a 370 basis point improvement over the prior fiscal year
• Fiscal 2016 net income totaled $10.2 million, up from $5.5 million in the prior fiscal year
• Fiscal 2016 adjusted EBITDA, a non-GAAP measure, increased 30.7 percent to $41.2 million and adjusted EBITDA margin, a non-GAAP measure, increased to 18.6 percent, a 280 basis point improvement over the prior fiscal year
• Fiscal 2016 fully diluted pro forma adjusted net income per share increased 57.0 percent versus the prior year to $1.24

Terry McNew, MasterCraft’s President and Chief Executive Officer, commented, “We ended the year with continued momentum, delivering strong top- and bottom-line results. Our core MasterCraft business continues to perform, and with our relentless focus on operational excellence and continuous improvement, we’re driving further efficiency gains. Moreover, we continue to innovate as a company. Examples during the fourth quarter include the launch of our new Dockstar Handling System, which we believe is a revolutionary product feature, as well as the XT23, which we think is a category-defying crossover boat. We will continue MasterCraft’s innovation leadership in fiscal 2017 with the introduction of three additional new models and a number of exciting new product features.”

Q4 results

MasterCraft-only net sales for the fourth quarter, which exclude the terminated Hydra-Sports manufacturing contract from the prior year, increased $2.6 million, or 5.2 percent, to $53.4 million from $50.8 million in the prior-year period. The increase was primarily due to a rise in MasterCraft unit volume of 37 units, or 5.9 percent.

“MasterCraft delivered continued revenue growth in the fourth quarter, driven by strong demand for our all new X23, X26, and NXT22 models. While international markets have been challenging, domestic demand for our boats remains solid and we continue to focus on delivering profitable, sustainable market share growth and dealer profitability across our product line,” said McNew

Gross profit for the fiscal 2016 fourth quarter increased $1.2 million, or 9.4 percent, to $14.0 million, compared to $12.8 million in the prior-year period. Gross margin rose to 26.3 percent from 23.3 percent for the prior-year period. The 300 basis point increase primarily stemmed from cost reductions driven by a culture focused on improving efficiency, sales of higher-end content option packages, and lower warranty costs. In addition, the company replaced its Hydra-Sports volume with higher-margin MasterCraft units.

Selling and marketing expense was relatively stable at $2.1 million for the fourth quarter ended June 30, 2016. General and administrative expense totaled $4.2 million versus $3.8 million for the prior-year period. This increase resulted mainly from increased legal costs, stock-based compensation and costs associated with the payment of the special cash dividend partially offset by decreases in professional fees.

Fiscal fourth-quarter net income totaled $4.8 million, up from $2.5 million in the year-earlier quarter. Fiscal 2016 fourth quarter adjusted net income increased 46.2 percent to $5.7 million, or $0.30 per share, on a pro forma, fully diluted weighted average share count of 18.6 million shares. This compares with $3.9 million, or $0.20 per share, in the prior-year period. Fiscal fourth-quarter adjusted EBITDA margin rose 280 basis points to 18.6 percent from 15.8 percent in the prior-year period. Fiscal 2016 fourth quarter adjusted EBITDA was $9.9 million, a 23.8 percent increase from $8.0 million in the prior-year period. See “Non-GAAP Measures” below for a reconciliation of adjusted EBITDA, adjusted EBITDA margin and adjusted net income to the most directly comparable financial measures presented in accordance with GAAP.

During the fourth quarter, the company’s Board of Directors declared a special cash dividend of $4.30 per share of common stock. The dividend totaled an aggregate payment of $79.9 million and was funded with cash on hand and borrowings under a new senior secured credit facility.

Fiscal 2016 results

Net sales for fiscal 2016 were up $7.2 million, or 3.4 percent, compared to $214.4 million for the prior fiscal year. MasterCraft-only net sales for fiscal 2016, which exclude the terminated Hydra-Sports manufacturing contract from the prior year, increased $21.7 million, or 10.9 percent, to $221.6 million from $199.9 million in the prior fiscal year. The gain was primarily due to a rise in MasterCraft unit volume of 195 units, or 7.7 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.

Gross profit for fiscal 2016 increased $9.9 million, or 19.3 percent, to $61.1 million, compared to $51.2 million in the prior fiscal year. Gross margin rose to 27.6 percent from 23.9 percent for the prior fiscal year. The 370 basis point increase primarily stemmed from cost reductions driven by a culture focused on improving efficiency, sales of higher-end content option packages and lower warranty costs. In addition, the company replaced its Hydra-Sports volume with higher-margin MasterCraft units.

Selling and marketing expense for fiscal 2016 increased $1.1 million, or 12.8 percent, to $9.7 million, compared to $8.6 million in the prior fiscal year. The increase was primarily due to investments in marketing. General and administrative expense totaled $29.2 million versus $18.5 million for fiscal 2015. This expected increase resulted primarily from $13.7 million of stock-based compensation and increases in costs associated with being a public company, partially offset by the elimination of $5.7 million in transaction costs incurred during fiscal 2015 related to our recapitalization activities.

Fiscal 2016 net income totaled $10.2 million, up from $5.5 million in the prior fiscal year. Fiscal 2016 adjusted net income increased 58.1 percent to $23.4 million, or $1.24 per share on a pro forma, fully diluted weighted average share count of 18.8 million shares. This compares with $14.8 million, or $0.79 per share, a year earlier. Adjusted EBITDA margin rose 280 basis points to 18.6 percent from 15.8 percent in the prior fiscal year. Fiscal 2016 adjusted EBITDA was $41.2 million, a 30.8 percent increase from $31.5 million in the prior fiscal year. See “Non-GAAP Measures” below for a reconciliation of adjusted EBITDA, adjusted EBITDA margin and adjusted net income to the most directly comparable financials measures presented in accordance with GAAP.

Key milestones

During the quarter, MasterCraft announced its new Dockstar Handling System. “Dockstar enables boat drivers of any ability to confidently drive in reverse and more easily navigate tight docks and crowded marinas,” said McNew. “The Dockstar system improves the on-water experience for boaters and gives the MasterCraft portfolio the exceptional slow speed handling characteristics previously only found on outboard and stern drive configurations.”

MasterCraft also unveiled the new XT23, the company’s latest multi-sport model. Designed to be a do-it-all crossover, the new XT23 will anchor MasterCraft’s new XT line of boats targeting the sweet spot between the company’s entry-level NXT line and its X series.

“Embracing the idea that endless possibilities result in endless fun, the XT23’s intuitive digital dashboard interface instantly dials in the size and shape of the wake for any sport on the water: wakeboarding, waterskiing, wakesurfing, towsports or tubing. Equipped with MasterCraft’s award-winning Gen 2 Surf System, the XT23 can be loaded up with plenty of gear and up to sixteen friends for an action-packed day on the water,” McNew said.

Outlook

“We continue to deliver solid performance, and we target continued organic growth in fiscal 2017,” McNew concluded. “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 and mid-line 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, 2017, MasterCraft expects net sales growth in the low- to mid-single digits, and continued growth in adjusted EBITDA margin with a target in the low 19 percent range. Net sales and EBITDA growth will result in continued growth in net income and adjusted net income, partially offset by increased interest expense due to our refinancing completed in the fourth quarter of fiscal 2016.

Conference call and webcast information

MasterCraft will host a live conference call and webcast to discuss fiscal fourth-quarter results today, September 8, 2016, at 5:00 p.m. ET. To access the call, dial 800-219-6861 (domestic) or 574-990-1024 (international) and provide the operator with the conference ID 62595353. Please dial in at least 10 minutes prior to the call. To access the live webcast, go to the investor section of the company’s website, www.mastercraft.com, on the day of the conference call and click on the webcast icon.

For an audio replay of the conference call, dial (855) 859-2056 (domestic) or 404-537-3406 (international) and enter 62595353. The audio replay will be available beginning at 8 p.m. ET on Thursday, Sept. 8, 2016, through 11:59 p.m. ET on Thursday, Sept. 22, 2016.

For more information, visit www.mastercraft.com.