Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the First Quarter 2022 MasterCraft Boat Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker host today, Mr. Tim Oxley, CFO. Please go ahead, sir.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft’s first quarter performance for fiscal 2022. As a reminder, today’s call is being webcast live and will also be archived on our website for future listening. Joining me on today’s call are Fred Brightbill, Chief Executive Officer and Chairman; and George Steinbarger, our Chief Revenue Officer. Fred will begin with a review of our operational highlights for the first quarter. I will then discuss our financial performance for the quarter. Then I’ll turn the call back to Fred for some closing remarks before we open the call for Q&A. Before we begin, we’d like to remind participants that the information contained in this call is current only as of today, November 10, 2021. 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 a Safe Harbor disclaimer in today’s press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special items not indicative of our ongoing operations. For each non-GAAP measure, we also provide the most directly comparable GAAP measure in our fiscal 2022 first quarter earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results. We would also like to remind listeners that there’s a slide deck summarizing our financial results in the Investors section of our website. With that, I’ll turn the call over to Fred.

Good morning, everyone. Thank you for joining us today. Our business performed extremely well during the first quarter in a very challenging and dynamic environment. These results reflect a continuation of exceptional execution against our strategic and operational priorities as we delivered a record-setting performance for the fourth consecutive quarter. Net sales, gross profit, diluted adjusted earnings per share and adjusted EBITDA were all the highest for any first quarter in the company’s history. Despite the many challenges we faced, we grew net sales organically by nearly 39%, and we grew diluted adjusted earnings per share by nearly 16% year-over-year. When compared to our previous first quarter record in fiscal 2020, net sales were higher by more than 31%. This performance was driven by year-over-year unit increases at each of our segments, which resulted in the most wholesale units ever sold by the company in the first quarter. The credit goes for this to our more than 1,500 employees who continue to execute at a high level in the face of adversity. Although, we achieved another record quarter, our growth in net sales and earnings has been significantly constrained, primarily due to supply chain disruptions. Logistics challenges, combined with supplier shutdowns, labor shortages, capacity constraints have caused widespread, but largely intermittent component delays and scarcity across the industry. These disruptions, combined with labor challenges associated with the COVID Delta variant, limited our unit shipments and created significant production inefficiencies during the quarter. Constrained production, when coupled with continuing record retail demand for our products drove dealer inventories to new historic lows. We have managed through this challenging supply chain environment better than our competitors, and we expect to continue to leverage our operational prowess in the coming quarters. Historically low inventory levels at dealers are resulting in lower retail sales…

Thanks, Fred. Looking at the top line, net sales for the first quarter were a record $144 million, an increase of $40.3 million or 38.8% compared to $103.7 million for the prior year period. This increase was a result of higher wholesale unit volume price increases and favorable model mix. As Fred mentioned, this was the most profitable first quarter in the company’s history. Gross profit for the quarter increased $3.9 million to $30.1 million compared to $26.2 million for the prior year period, principally driven by higher sales volume, price increases and favorable model mix. This favorability was partially offset by higher material and labor costs driven by inflationary pressures and production inefficiencies from supply chain disruption. Our gross margin was 20.9% for the quarter, a decrease of 440 basis points compared to the prior year period. The decrease was primarily attributable to higher material and labor costs and incremental overhead cost from the new Aviara plant. Price increases for model year changeover partially offset these higher costs for the quarter. As Fred indicated, we expect the combined effect of our model year and mid-cycle price increases to cover the expected cost inflation for the remainder of the year. Although, we see some benefit from the mid-cycle increases during the second quarter, we will begin to realize their full impact at the start of the third quarter. Operating expenses were $16.1 million for the quarter, an increase of $3.3 million or 25.4% compared to the prior year period. Selling and marketing expense increased due to the timing of prior year expenses being impacted by the COVID-19 pandemic, resulting in lower cost for the first quarter of fiscal 2021. General and administrative expense increased as we continue to make investments in research and development and information technology areas. However, SG&A…

Thanks, Tim. We are pleased bear a record-setting start to fiscal 2022. Despite the incredible levels of disruption faced by the industry, we definitely manage the supply chain to increase production year-over-year at each of our brands. This exceptional execution resulted in industry-leading organic growth and market share gains. We continue to believe demand from consumers seeking the boating lifestyle will endure and will lead to continued strong growth for our company. As we manage through an unprecedented and dynamic business environment near term, we remain committed to long-term value creation for our shareholders and all stakeholders. We will continue to be a purpose-driven business, committed to our consumers, dealer and vendor partners and people. Operator, you may now open the line for questions.

Thank you. And our first question coming from the line of Craig Kennison with Baird. Your line is open.

Hey, good morning. Thanks for taking my questions. I wanted to ask about preorders. Is there a way for you to frame retail presold units and how that has changed?

Hey, Craig. Good morning. It’s George. We haven’t disclosed that, but I would tell you that the vast majority of the orders that we have scheduled in our system, which take us through the end of this fiscal year are already have a retail name on it, and we’ve seen that percentage increase since this last quarter. So we continue to see all of our dealers preselling the units that have been allocated to them. And that’s what gives us that visibility and confidence that the pipeline will remain at historical lows and give us that channel fill opportunity well into what we now believe in the fiscal 2024.

That’s helpful. Thanks, George. And I guess a related question would be, how are you managing the allocation process to dealers given the tremendous demand and need to ration I guess, allocation?

Yes, it’s a little bit more art than science for sure, Craig. But obviously, we’re looking at each dealer how much inventory they have what percentage of their orders are retail sold. Our focus is always going to be on the consumer and making sure that the consumers that are ordering boats ahead of time that they’re going to – we’re trying to do everything we can to make sure that they get their boats in time for the summer season. So we’re communicating frequently with our dealers, getting that visibility on the retail sold, and we are prioritizing consumer or retail sold boats in the production lineup. And then the next step would be looking at the market and available inventory and making sure that we’re getting the boats into the right markets that we believe have the highest probability of sell-through.

Thanks. And then is there a way – I think you’d mentioned it won’t be until 2024 until you see inventory normalize. But is there a way to preserve any of this preorder dynamic where I’m sure you capture the best margin and consumers get exactly the right boat in that future state, when inventory is back to normal. Just curious if there’s any thought around preserving some of this dynamic.

Yes, absolutely. I mean we certainly think that the demand will stay there for at least the next season and beyond. So I think consumers today with some of the model year changes we’ve introduced the new features and innovations. That’s obviously drawing consumers to want to put more features and options on their boats. We’re seeing that option uptake drive be a positive for our margins. And we think with innovation, we’ll continue to drive that. And the dealers will always stock boats that tend to be a little more balanced from an option uptake. And so we – with our drive to maintain dealer inventories at a leaner level, we think that will necessitate a higher percentage of custom orders, which we believe is a healthier balance, both for us and the dealer and should help preserve some of that margin benefit that we’re seeing.

Craig, this is…

Also how, Craig, that there’s some muscle memory from what consumers are experiencing today which is, of course, a shift from the way they behaved historically. So they may be more comfortable ordering ahead for the next season.

Hey Craig, this is Tim. I would add that we’ve invested in digital marketing to facilitate that activity from the consumers. So we want to make it as easy as we can for them to see the assets on websites and so forth. And to Fred’s point, continue that muscle memory and be comfortable in ordering their boats, because we’re answering all their questions on the website.

Good stuff. Well, thanks so much.

Thank you.

And our next question coming from the line of Joe Altobello with Raymond James. Your line is open.

Hey guys, this is Adam on for Joe. Congrats on the strong quarter. I wanted to follow-up, you guys gave some good color on the price increases on the new model year and then also the planned mid-years. Is there any way you can quantify some of that further just in terms of some more detail on it, that would be really helpful.

Hey Adam, it’s George. So we don’t typically disclose our price increases. But what I would tell you is that we have price increases. We do our traditional price increase in July with the start of our model year across all the brands. What we saw was inflation came in higher than our expectations, which necessitated a mid-year price increase, which for most of our brands went into effect at some point in this fiscal second quarter. We are, however, price protecting certain retail customer boats, because we don’t want to change the game on some of the consumers that ordered well ahead of time. So to I think in Tim’s remarks, he commented that we expect to see the full benefit of those mid-year price increases really starting in the third quarter. We’ll see some of that benefit in the second quarter. But because we are shipping such a high percentage of retail sold boats. Some of the – a high percentage of those are going to be price protected. So that’s really what we’re open to sharing right now, Adam.

I would just add, Adam, to give you a context, the mid-year price increases are substantially greater than the model year price increases.

Got you. That’s very helpful. And if I could ask 1 more. You guys basically reiterated the 2,500 boat kind of shortage there in terms of the dealer levels and kind of discuss the fiscal 2024, as you guys have discussed. Is there any expectation of when we can start chipping away at that? I know it’s a very difficult and dynamic question, but just curious how you guys were thinking about it in the near-term at the very least.

Well, we’re trying to build inventory during the, if you will, off season, right, going into the next summer selling season. So to the extent, we can build – our ability to build inventory is going to be highly contingent upon how the supply chain behaves. We’ve built inventory. We’ve got substantial flexibility in terms of pushing through units that are partially finished, and we have a business plan at this point constrained by the supply chain. If there’s a little upside there, that’s going to allow us to accelerate that. But next summer, I think we’ll put our dealers in decent shape, but we won’t – by the end of the summer, I expect we’re going to have sold through most of what we replenished.

Great. Thanks, Fred.

You’re welcome.

And I’m showing no further questions at this time. Ladies and gentlemen, that does conclude the conference for today. We thank you for your participation. You may now disconnect. Everyone, have a great day.