Good day, and thank you for standing by. Welcome to the First Quarter 2023 MasterCraft Boat Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Tim Oxley, Chief Financial Officer. Please go ahead.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft's first quarter performance for fiscal 2023. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. With me on this morning's call are Fred Brightbill, Chief Executive Officer and Chairman; and George Steinbarger, our Chief Revenue Officer. Greg will begin with a review of our operational highlights during 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 9, 2020. 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 2023 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. In addition, beginning this quarter, the financial results of the NauticStar segment are reported as discontinued operations, separate from the results of our continuing operations following the sale of the NauticStar business during the quarter. Unless otherwise noted, the following commentary is made on a continuing operations basis. With that, I'll turn the call over to Fred.

Thank you for joining us today. Before we begin, our thoughts are with all of those, including our more than 200 employees in the path of the storm currently impacting Florida. Our sincere hope is that they all remain safe and secure. Our business performed extremely well during the first quarter, in a very challenging and dynamic environment. Our results reflect a continuation of exceptional execution against our strategic and operational priorities as we delivered the best first quarter in the company's history. Furthermore, the first quarter represented an eight consecutive period over a period of record setting quarter. Net sales, diluted adjusted earnings per share, adjusted earnings per share were all the highest for any quarter in the company's history. This excellent performance also represents an eighth consecutive quarter of net sales growth of more than 20%, a testament to our growth-oriented strategy. Each of our businesses contributed to our revenue growth and profitability during the quarter. When compared to the first quarter of fiscal 2022, net sales were higher by nearly 30%, adjusted EBITDA grew by nearly 70%, adjusted EBITDA margin increased 530 basis points and adjusted net income per share grew by more than 90% year over year. One of our core strategic priorities is a never ending pursuit of greater operational excellence. This focus allowed us to mitigate the impact of a very challenging supply chain environment. Our superior supply chain management resulted in improved production efficiencies and throughput, which enabled each of our brands to make progress in replenishing dealer inventories during the quarter. This success was a result of strategically building a world-class supply chain team, choosing to focus on our operations on core competencies and aligning ourselves with the best supplier partners in the industry. Although improving, the supply chain continues to be…

Thanks, Fred. As a reminder, beginning this quarter the financial results of the NauticStar business are reported as discontinued operations, separate from the results of our continuing operations. Unless otherwise noted, the following commentary and outlook reflects our continuing operations only. We delivered another excellent quarter. Focusing on the top-line net sales for the quarter were $169.5 million, an increase of $38.9 million or 29.7%. The net sales increase reflects increased volume and mix along with price increases, partially offset by increased dealer floor plan financing cost and other incentives as dealer inventories began to return to normal following historically low levels due to the COVID-19 pandemic. For the quarter, our gross margin was 27.1%, an increase of 370 basis points compared to the prior year. Higher margins were primarily the result of higher net sales and improved production efficiencies, partially offset by higher costs from inflationary pressures and higher dealer incentives. Operating expenses were $13.8 million for the quarter, or 280 basis points lower as a percentage of net sales compared to the prior year. Turning to the bottom-line, adjusted net income for the year increased more than 81% to $25.7 million or $1.43 per diluted share, computed using the company's estimated annual effective tax rate of 23%. This compares to an adjusted net income of $14.2 million or $0.75 per diluted share in the prior year period. Adjusted EBITDA increased nearly 73% to $35.9 million for the quarter, compared to $20.8 million for the prior year period. Adjusted EBITDA margin was 21.2%, up 530 basis points from 15.9% in the prior year period as we continue to prudently manage SG&A cost. Our balance sheet remains incredibly strong as we ended the quarter with more than $140 million of total liquidity, including nearly $41 million of cash and $100…

Thanks, Tim. We are very proud of our outstanding start to fiscal 2023. Despite macroeconomic volatility and the dynamic business environment, we achieved the best first quarter in the company's history. Our ability to mitigate supply chain disruption is enabling more efficient production and throughput. And as a result, we made progress in replenishing dealer inventories and enhancing product availability. Each of our segments contributed to our growth and profitability improvement during the quarter, and we realized structural improvements to the growth potential and margin profile of our business with the sale of NauticStar. We are on track to achieve the second best year of financial performance in the company's history. We look forward to continuing our mission of generating long-term value for our shareholders, as 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. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Joe Altobello with Raymond James.

To start on dealer inventories. I think, Fred, you mentioned that you're 25% below where you were in 2019. I guess two questions there. One, how does that vary between MasterCraft and Crest, and two, where does that eventually normalize? Because it probably doesn't normalize in line with 2019, I would think.

Joe, it's George. So the '22 obviously, is an average across the brands, but MasterCraft has a higher or, I guess, lower versus '19. And then Crest is closer to '19 levels. And then in terms of normalization, I think your comment is correct as we think about what we're seeing now, 2019 levels feel like a good benchmark for where we end up normalized.

Keep in mind, with our expanded distribution in particular, at Crest, approaching ‘19 levels is not a bad thing.

Okay. Got it. Maybe second question in terms of capital allocation. You guys obviously bought back some stock. You talked about doing more acquisitions. But given your valuation, is buyback the priority today versus M&A?

I wouldn't say it's a priority. Our priority is first and foremost, financial flexibility and very close to that, if not concurrent with that is growth. So how we generate that growth is through a variety of different alternative options, some of which are organic and some of which may be inorganic or M&A oriented. So Joe, I'd say, once again, we're going to be very prudent and careful and we have many alternatives for each one of those strategies. So stay tuned for us to be able to unfold some of those plans as we roll forward.

Thank you. One moment for our next question. Our next question comes from Alice Wycklendt with Baird.

I'm in for Craig Kennison this morning. Just want to touch on guidance. I mean I think you mentioned that it reflects the potential for a range of retail scenarios. How should we think about kind of the core of the base case retail outlook that's embedded in that range?

Alex, I would say it's consistent with kind of the guidance that we provided last quarter, kind of in that our view is that with the all-important summer selling season and where we think the macro headwinds aligned with that, we're seeing something in that mid-teens to high teens, low 20% range is kind of consistent with where we were last quarter. I don't think we've seen anything in the retail environment today that would suggest that as we look forward, that anything has changed, if anything, the macro indicators have somewhat worsened. And so that continues to be our view.

Once again, mid to high-teens decline.

And then just -- you noted in your release and I think in your comments, you've seen some increased floor plan costs and other incentives. Maybe flesh that out a bit more. Where does promotional activity stand today? And what are you expecting over the next 6 to 12 months as inventory normalizes?

One thing to keep in mind as we talk about promotional activity, we're comparing to a year that had virtually no promotional activity. So we have an increase but it's not back to -- it's not in the way high, it's kind of back to more approaching normal levels. But when we look at the whole year, I think between the increased floor plan costs and the increased promotional activities its probably going to be in the neighborhood of 250 basis points year-over-year headwind that is embedded in our guidance.

Thank you. Our next question comes from Michael Swartz with Drew Securities.

Just a couple of quick questions. One, some others have talked about the impact of Hurricane Ian at the end of the September quarter. I just wanted to get some sense of was that impactful to you at all from a production or a delivery standpoint? Is there any shift between your fiscal first quarter and second quarter due to that?

No, not really for us. I would say we're very fortunate in that our key dealer locations survived comparatively very well. And while there will be some disruption in their business near term and their employees, the long-term outlook is very good for them. So I actually think with regard to our distribution -- and again, when we talk about the West Coast of Florida, we're talking primarily now about Aviara and MarineMax, they're in very good shape in terms of recovery in business going forward. But no, not a significant impact on us from a wholesale standpoint.

Okay. Perfect. And then just a point of clarification on -- the applied guidance for second quarter would, I think, suggest around like a 300-ish basis point or 400-ish basis point deceleration in margins just potentially. Is that just seasonality? Or is there something else driving that quarter-over-quarter decline?

Seasonality, primarily.

Yes. We have the -- Q2 is the quarter with the largest number of holidays. And so it's mostly a reflection of reduced production in comparison to Q1. So you've got less leverage on your SG&A, less leverage on your overhead. And we continue to see increasing of floor plant cost. So that is part of the picture as well.

I'm showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program. You may now disconnect.