Good day, and welcome to the Second 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. As a reminder, this call is being recorded. I would now like to turn the call over to Tim Oxley, CFO. You may begin.

Thank you, operator and welcome everyone. Thank you for joining us today as we discuss MasterCraft's second 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 from the second quarter. I will then discuss our financial performance for the quarter. Then I will 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 February 3, 2022. 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 conference call, we will discuss non-GAAP measures that include or exclude special or 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 second 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 is 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 second 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 fifth consecutive quarter. Net sales, gross profit, diluted adjusted earnings per share, and adjusted EBITDA were all the highest for any second quarter in the company's history. Despite the many challenges we faced, we grew net sales organically by more than 34% and we grew diluted earnings -- diluted adjusted earnings per share by nearly 21% year-over-year. When compared to our previous, second quarter record in fiscal 2019, net sales were higher by more than 31%. This performance was driven by a more than 11% year-over-year increase in units. The credit for this goes 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 and 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 and Omicron variants, limited our shipments and created significant production inefficiencies during the quarter. These challenges resulted in the deferral of shipping certain nearly completed boats to subsequent quarters. Constrained production, when coupled with continuing record retail demand for our products is keeping dealer inventories at historic lows for this time of the year. Over the last several years, we have strengthened our supply chain team by nearly doubling headcount, including the addition of many industry veterans. This has allowed us to…

Thanks, Fred. Looking at the top line net sales for the second quarter were a record $159.5 million, an increase of $40.8 million or 34.4% compared to $108.7 million for the prior year period. This increase was a result of higher wholesale unit volume, favorable model mix and price increases. As Fred mentioned, this was the most profitable second quarter in the company's history. Gross profit for the second quarter increased $5.9 million to $35.2 million compared to $29.3 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 22.1% for the second quarter, a decrease of 260 basis points compared to the prior year period. The decrease was primarily attributable to higher material and labor costs and incremental overhead costs from the new Aviara plant, acquired in the second quarter of fiscal 2021. Price increases partially offset these higher costs for the quarter. Although lower on a year-over-year basis, our gross margin increased by 120 basis points sequentially from our first quarter. As Fred indicated, we expect the combined effect of our model year and mid-cycle price increases to mitigate the expected cost inflation for the remainder of the year. Although, we saw some small benefit from these increases during the second quarter, the impact will be phased in during the second half with the full benefit being fully realized in the fourth quarter. Operating expenses were $14.6 million for the quarter, an increase of $2.3 million or 18.8% compared to the prior year period. General and administrative expense increased as a result of increased variable compensation costs and investments in information technology. Selling and…

Thanks, Tim. We are pleased by our record-setting pace for fiscal 2022. Despite the severe 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 expect demand from consumers seeking the boating lifestyle to endure and to lead to continued strong growth for our company. As we've managed 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.

We have a question from Kevin Condon with Baird. Your line is open.

Hi. Good morning, everyone. I just wanted to ask a little bit about channel inventory and specifically your comment on taking until fiscal 2024 to get back to optimal levels. I mean some of the assumptions within that. As we look at this year just given the supply constraints and the strong sustained retail demand do you expect making any progress like adding to dealer inventory in fiscal 2022? And with that as we look out into 2023 and 2024 is it really reliant on supply chain getting better to actually take up wholesale accounts to get inventory back into the channel, or is there a expectation for retail to flatten out or potentially back off a bit?

Let me start by saying that I think we'll -- I anticipate we'll end the year in a little bit healthier overall inventory position than we did last year and the fiscal year. But it was really tight last year so that improvement is still going to be not nearly where we would like to be. So I think we'll be in a little bit better shape for the second half of the summer selling season, but it is very dependent on the supply chain continuing to improve. While we expect modest improvement for this year we hope that pace just continues. And that's based on a variety of factors. Major suppliers are adding capacity. They've been able to catch their breath in some cases. But that still does not preclude the occasional severe disruption like we're experiencing at the end of this quarter, which ends up being more of a timing phenomenon than it is an overall damper on demand and throughput because we're able to build ahead. So I think we catch up a little bit this summer, but then it takes through next summer for us to really get back where we would like to be optimally. I don't know, if that answers all of the points that you were raising, but it's difficult to predict the supply chain. So we're -- our business plans are predicated on a tough slide for a while. But in spite of that, we still think we can make substantial progress.

I'd like to add that, as we think about our dealers' optimal inventory level, we expect them to carry less inventory than they have traditionally. Said another way, we expect their inventory turns to be a bit higher than normal. So, that's what we're shooting for mitigates the risk for the dealers and ourselves.

Great. Thanks. And then if I could just a quick one on pre-sold units and price protection. If you're -- I think you had mentioned doing some of that on pre-sold orders. Is there an approach there? Can you just elaborate on what goes into your strategy to price protect units on pre-sold?

Yes. Hey Kevin, it's George. So we have price protected some boats for the -- we still have a handful -- not more than a handful obviously, but we'll have some continuing price protection here into our third quarter, but we expect that to be fully flushed out through this third quarter which will allow us to realize the full benefits of our price increases in Q4. And so, that has been communicated to dealers and consumers. And so we're managing through that and getting the last units out as quickly as we can to get that product to consumers' hands. But we expect the price increases to moderate here in our third quarter and be fully done with that by fourth quarter.

Kevin, the overall context there clearly is, we entered the year thinking we were going to be able to produce at higher levels and the supply chain has inhibited us from doing that. As a result, our plans with dealers in terms of delivery have been extended. So they've made commitments in their partners. So, we share in that extension with them, even though it causes us some duress in the near term, it's the right thing to do.

Makes sense. Thanks for taking my questions and congrats on a strong quarter.

Thank you.

Thank you.

Our next question comes from Michael Swartz with Truist. Your line is open.

Hey guys, good morning. This is Lucas on for Mike. I just had a quick question on guidance. And so for fourth quarter, you would imply really strong EBITDA margins. Can you give us a little bit more color as to your comfort with that, or any detail you could add?

Yes. When we look at our margin guidance for the year, I'm more confident in that than I am in the timing between Q3 and Q4. As we mentioned with the supply chain disruption, there may be some timing differences between those quarters. We recognize that we -- that the guidance we -- that we backed into in quarter four is very high, but it will shake out timing-wise between those quarters and more confident in the year than I am on the timing.

Sounds good. Thank you.

There are no further questions. Ladies and gentlemen, thank you for participating in today's program. You may now disconnect. Everyone have a great day.