MasterCraft Boat (MCFT) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The company reports significant sales growth but modest net income increase due to higher costs and a goodwill impairment charge Unaudited Condensed Consolidated Statements of Operations Net sales grew 38.8% year-over-year, but higher costs and a goodwill impairment charge constrained net income growth to 8.6% Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Financial Metric | Three Months Ended Oct 3, 2021 | Three Months Ended Oct 4, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | NET SALES | $144,010 | $103,745 | 38.8% | | GROSS PROFIT | $30,122 | $26,230 | 14.8% | | OPERATING INCOME | $14,044 | $13,404 | 4.8% | | Goodwill impairment | $1,100 | $0 | N/A | | NET INCOME | $10,386 | $9,567 | 8.6% | | Diluted EPS | $0.55 | $0.51 | 7.8% | Unaudited Condensed Consolidated Balance Sheets Total assets increased slightly while liabilities decreased, driven by a significant shift from cash to inventory Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | October 3, 2021 | June 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,651 | $39,252 | | Inventories, net | $75,536 | $53,481 | | Total current assets | $112,751 | $110,227 | | Goodwill | $28,493 | $29,593 | | Total assets | $278,864 | $276,460 | | Total current liabilities | $75,379 | $74,289 | | Long-term debt, net | $81,559 | $90,277 | | Total liabilities | $161,471 | $168,672 | | Total stockholders' equity | $117,393 | $107,788 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity grew by $9.6 million, primarily driven by net income and partially offset by stock repurchases - Total stockholders' equity increased by $9.6 million during the quarter, mainly due to net income of $10.4 million[18] - The company repurchased and retired 58,379 shares of common stock for $1.5 million[18] Unaudited Condensed Consolidated Statements of Cash Flows Cash flow from operations turned negative due to a significant increase in inventory to manage supply chain risks Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Oct 3, 2021 | Three Months Ended Oct 4, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(13,555) | $7,372 | | Net cash used in investing activities | $(3,618) | $(2,042) | | Net cash used in financing activities | $(10,428) | $(12,791) | | NET CHANGE IN CASH | $(27,601) | $(7,461) | - The negative operating cash flow was driven by a $30.1 million use of cash in operating assets and liabilities, primarily a significant increase in inventory[21] Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail a segment realignment, a goodwill impairment, increased inventory, and a new credit agreement - Beginning in Q1 fiscal 2022, the company realigned its reportable segments to MasterCraft, Crest, NauticStar, and Aviara[26][58] - Inventories increased from $53.5 million to $75.5 million, with raw materials and work-in-process rising to support higher production and mitigate supply chain disruptions[35] - A goodwill impairment charge of $1.1 million was recognized for the Aviara reporting unit due to start-up inefficiencies and near-term operating losses[37][38] - The company repurchased 58,379 shares of common stock for $1.5 million under its $50.0 million stock repurchase program[57] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong sales driven by retail demand, offset by margin pressures from supply chain and inflation issues - Strong marine retail demand has led to historically low dealer inventory levels, driving a 38.8% increase in the company's net sales[66] - Key operational challenges included supply chain disruptions, production inefficiencies leading to higher labor costs, and inflationary pressures on raw materials[67][68][69] - Gross margin declined by 440 basis points to 20.9% compared to the prior year, primarily due to higher material and labor costs[75] - The company's liquidity remains strong, with $11.7 million in cash and $74.3 million of available borrowing capacity[103][105] Results of Operations Consolidated net sales rose 38.8% from higher unit volume, but operating income growth was limited by margin pressures Consolidated Unit Sales Volume by Segment | Segment | Q1 2022 Units | Q1 2021 Units | % Change | | :--- | :--- | :--- | :--- | | MasterCraft | 783 | 640 | 22.3% | | Crest | 716 | 453 | 58.1% | | NauticStar | 291 | 286 | 1.7% | | Aviara | 19 | 13 | 46.2% | | Total | 1,809 | 1,392 | 30.0% | Consolidated Net Sales by Segment (in thousands) | Segment | Q1 2022 Sales | Q1 2021 Sales | % Change | | :--- | :--- | :--- | :--- | | MasterCraft | $92,015 | $69,591 | 32.2% | | Crest | $32,780 | $18,039 | 81.7% | | NauticStar | $13,360 | $12,342 | 8.2% | | Aviara | $5,855 | $3,773 | 55.2% | | Total | $144,010 | $103,745 | 38.8% | - The Crest segment showed exceptional growth, with net sales increasing 81.7% and operating income rising 128.6% year-over-year[82][83] - The Aviara segment's operating loss increased to $3.6 million from $1.0 million, driven by ramp-up inefficiencies and a goodwill impairment charge[89] Non-GAAP Measures Adjusted EBITDA and Adjusted Net Income provide a clearer view of core operations, excluding certain non-recurring items Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended Oct 3, 2021 | Three Months Ended Oct 4, 2020 | | :--- | :--- | :--- | | Net income | $10,386 | $9,567 | | EBITDA | $17,398 | $16,143 | | Goodwill impairment | $1,100 | - | | Share-based compensation | $896 | $640 | | Aviara transition costs | - | $178 | | Adjusted EBITDA | $19,394 | $16,961 | | Adjusted EBITDA Margin | 13.5% | 16.3% | Reconciliation of Net Income to Adjusted Net Income (in thousands) | Line Item | Three Months Ended Oct 3, 2021 | Three Months Ended Oct 4, 2020 | | :--- | :--- | :--- | | Net income | $10,386 | $9,567 | | Adjustments (Goodwill, Amortization, etc.) | $2,995 | $1,778 | | Adjusted Net Income before income taxes | $16,657 | $14,163 | | Adjusted Net Income | $12,826 | $10,906 | | Diluted Adjusted Net Income per share | $0.67 | $0.58 | Liquidity and Capital Resources The company's cash position decreased due to inventory build-up, debt repayments, and stock repurchases - Cash and cash equivalents decreased by $27.6 million to $11.7 million as of October 3, 2021[103] - Working capital was significantly impacted by a $22.1 million increase in inventory to build safety stock and support higher production volumes[104][110] - During the quarter, the company repurchased 58,379 shares for $1.5 million under its authorized stock repurchase program[106][111] - As of October 3, 2021, the company had $84.4 million in total debt and $74.3 million of available borrowing capacity[103][105] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk profile since the last annual report - There have been no material changes in market risk from those disclosed in the 2021 Annual Report[116] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of October 3, 2021[119] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[120] PART II OTHER INFORMATION Legal Proceedings The company reports no material legal proceedings for the period - None[122] Risk Factors No material changes to risk factors were reported since the last annual filing - No material changes to risk factors were reported during the three months ended October 3, 2021[123] Unregistered Sales of Securities and Use of Proceeds The company repurchased $1.5 million of common stock under its authorized $50.0 million program - The company has a $50.0 million stock repurchase program authorized through June 24, 2024[124] Common Stock Repurchases (Q1 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Value Remaining (thousands) | | :--- | :--- | :--- | :--- | | Aug 30 - Oct 3, 2021 | 58,379 | $25.45 | $48,513 | Exhibits, Financial Statement Schedules This section lists all exhibits filed with the report, including required certifications and XBRL data - The report includes standard exhibits such as CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents[130]