Ladies and gentlemen, thank you for standing by, and welcome to the MasterCraft Boat Holdings, Inc. Fiscal Fourth Quarter and Full Year 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Oxley, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft fiscal fourth quarter and full year performance for 2024. 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 is Brad Nelson, Chief Executive Officer. We will begin with an overview of our operational performance from the fourth quarter and full year. I will then discuss our financial performance. Then Brad will provide some closing remarks before we open the call for questions. Before we begin, we'd like to remind participants that the information contained in this call is current only as of today, August 29, 2024. 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 items not indicative of our ongoing operations. To each non-GAAP measure, we also provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. There's also a slide deck summarizing our financial results in the Investors section of our website. As a reminder, unless otherwise noted, the following commentary is made on a continuing operations basis. With that, I'll turn the call over to Brad.

Thank you, Tim, and good morning, everyone. MasterCraft delivered results ahead of our latest expectations, while continuing to navigate a challenging economic environment and a highly competitive retail landscape. Entering fiscal 2024, our focus was to proactively navigate market headwinds and execute our strategic and operational priorities to generate value for our stakeholders. Our efforts were centered-around destocking field inventory levels, advancing consumer and dealer-centric initiatives and returning capital to shareholders, while optimizing profitability and cash flow. Throughout the year, market conditions put downward pressure on retail and wholesale demand. In anticipation of this softness, we took early action to adjust production plans. Our proactive approach to wholesale proved to be prudent as we work to alleviate pressures our dealers are facing. In the summer selling season, we experienced a general slowdown in demand from retail customers across our brands, consistent with the majority of the marine industry. This, combined with continued economic uncertainty, elevated interest rates and lingering competitor dealer disruptions has driven up inventory carrying costs for dealers, contributing to caution throughout the dealer network. Field inventories have improved by approximately 20% from fiscal 2023, which was near the low end of our targeted range. We're pleased with our progress to date but field inventories remain higher than optimal based on recent retail trends. We continue to incentivize our dealers to sell through inventory in a judicious manner. Although these conditions have short-term implications for wholesale shipments, our inventory rebalancing efforts are positive for long-term dealer health. Pipeline management remains a primary focus as we move forward, positioning us well for the market recovery ahead. Before we turn to fiscal 2025, I would like to discuss the announcement we issued earlier this month relating to the divestiture of the Aviara business. After a thorough review of our strategic…

Thanks, Brad. Focusing on the top line. Net sales for the fiscal year were $366.6 million, a decrease of $295.5 million or 45% from the prior year. This decrease was primarily due to lower unit sales volume and an increase in dealer incentives, partially offset by higher prices. For the year, our gross margin was 18.3% compared to the prior year of 25.6%. The lower margins were the result of lower cost absorption from the planned decrease in unit volume and higher dealer incentives, partially offset by higher prices. Operating expenses were $59.5 million for the year, an increase of $6.7 million when compared to the prior year. This increase was predominantly due to a $9.8 million noncash impairment related to the Aviara business was partially offset by lower general and administrative expenses. Excluding the noncash impairment, operating expenses decreased during the year as we prudently manage cost. Turning to the bottom line. Adjusted net income for the year was $20.9 million or $1.22 per diluted share, calculated using an estimated annual effective tax rate of 20%. This compares to adjusted EBITDA, adjusted net income of $95 million or $5.35 for the prior year, calculated using the tax rate of 23%. Adjusted EBITDA was $32.9 million for the year compared to $131.5 million for the prior year. Adjusted EBITDA margin was 9% compared to 19.9% in the prior year. Our balance sheet positions us well as we ended the year with more than $86 million of cash and short-term investments. We have no net debt as our cash and short-term investments exceeded our debt by nearly $37 million. We maintain ample liquidity and financial strength to prioritize funding key growth initiatives and returning capital to shareholders. During the year, we spent approximately $16.3 million to repurchase more than 750,000 shares…

Thanks, Tim. Despite the uncertain macroeconomic environment and the industry headwinds faced during the fourth quarter and fiscal year 2024, we executed well against our strategic priorities and reduce dealer inventories. We continue to exercise a disciplined approach to capital allocation. For the past 3 years, we have returned nearly $65 million of excess cash to our shareholders through our share repurchase program. Our strong balance sheet provides us with the financial flexibility to pursue our strategic growth initiatives. The launch of the Balise brand and product enhancements at MasterCraft and Crest are examples of our forward commitment to innovation. As we look forward to fiscal 2025, we have developed business plans for a range of potential retail demand scenarios. Our highly variable business model allows us to proactively adjust to changes in demand. With a strong emphasis on pipeline management, we are positioning the business well for the market upswing that lies ahead. As we navigate this dynamic environment, we are well positioned to leverage our strong portfolio of brands and drive long-term growth opportunities while maintaining the flexibility to return capital to shareholders. Operator, you may now open the line for questions.

[Operator Instructions] Our first question comes from Joseph Altobello with Raymond James.

This is Martin on for Joe. I was looking at the guide and trying to understand a little bit better. We're looking at the lower EBITDA margin. Is that largely coming from the volume deleverage? Or do you anticipate that the promotional environment is going to get a little bit worse?

It's primarily from a lower volume deleveraging from the overhead absorption. There is additional G&A expenses as we fund bonuses at 100%. So we have both those headwinds.

Got it. And just to better understand sort of the guide, would you mind providing the adjusted EBITDA and EPS -- ex Aviara for the year? I believe in your prepared comments, you said $40 million?

For fiscal 2024, that is correct, $40 million for -- without the effect of Aviara.

And would you have the adjusted EPS?

I don't have that in front of me, sorry.

[Operator Instructions] Our next question comes from Drew Crum with Stifel.

Just on your guidance, again, you laid out a range of scenarios in terms of retail demand. What are you assuming or how are you assuming that trend as the year progresses? And then I have a follow-up.

We're off to a decent start, a little bit ahead of our expectations. But as Tommy's inventory continues to be reaching the hands of retail customers. We expect that to be a significant headwind for our dealers.

Got it. So Tim, would you expect things to get better as the year progresses? Or it's just too early to tell?

I think it's too early to tell. We're off to a good start, but it is really early.

Okay. Okay. Fair enough. And then maybe more big picture. Go ahead, Brad.

Drew, just to add to that, of course, we're going to continue to work with our dealers from an incentive perspective in balance with their participation, of course, to help that through the selling season, primarily through the winter. We all remain hopeful that the retail environment is going to approve. And at some point, this protracted recession in marine is going to rebound, and we're positioned well for that.

Got it. Okay. And then maybe more big picture, but it's [indiscernible] and now Aviara, the company has moved on from 2 brands that seem promising, at least initially, but this didn't work out. So based on those experiences, is adding new brands, whether it's organically or through acquisitions, still an important part of the strategy? And if so, is the company refining its approach to portfolio management?

Yes. Drew, on the decision with Aviara relative to other forward-looking ventures, obviously, that's a careful decision we made after a thorough strategic review. As you know, that business was challenged with volume to truly absorb cost in a start-up facility that was dedicated to that unit. There's -- we [summit] losses there for quite some time. It never was able to be profitable pretty much due primarily due to volume issues. Let me just remind you, too, that deal is not closed yet. We do expect it to close in our fiscal Q1 here. But going forward, there are some big differences in a brand launch like Balise, which is underway compared to Aviara. In fact, in some ways, it's opposite. I would just remind you that the Balise is being manufactured in our existing Crest facility where we currently produce pontoon side by side with the same experienced team. There's open capacity in that factory. So it helps us actually with utilization on day one and producing those new units. A couple of other things I would highlight the Balise product line is largely going to an incremental new dealer network in exciting markets with strong dealers, whereas Aviara, we had a strong dealer with the retailer but it was largely exclusive to that retailer. So it's much more diverse channel strategy, and we're really excited about that. So from a margin perspective, it's accretive to the segment as well, we expect it to be profitable in year one, very different scenario and circumstances from Aviara.

Our next question comes from Kevin Condon with Baird.

I think on the call, you mentioned that you finished fiscal '24 with inventory 20% lower year-over-year. Is that true? And I guess, when you think about your guidance and the retail outlook, is there a similar target that you might have to finish fiscal 2025?

Yes. And speaking of the raw numbers, we were planning on the year being down between 600 and 1,000 units in fiscal '24, and it was at the lower end of that range. So we did have significant destocking in '24, but the market has been soft. So we anticipate also destocking in '25, probably in that same kind of range between 600 and 1,000 boats.

And that is between MasterCraft and Crest.

Correct. And probably a little more weighted towards the Crest as we look at those numbers.

Is there any way to think through the Balise impact of you're ramping up there? Does that -- I mean I guess that's all in the pontoon segment now. But would you still expect that overall segment to destock?

Yes. Keep in mind the Balise units are significantly higher AUSP and so the destocking will be on Crest as opposed to Balise.

Thank you. As there are no further questions, this does conclude the question-and-answer session. You may now disconnect. Everyone, have a great day.