Fiscal 2024 Overview

The company experienced general market volatility and economic headwinds in fiscal 2024, leading to uncertainty and softness in the retail environment. As a result, the company approached its wholesale production plan with caution, focusing on rebalancing dealer inventories. This led to lower cost absorption, decreased sales volume, and lower net sales and gross margin compared to the prior fiscal year.

In March 2024, the company’s CEO and Chairman, Frederick Brightbill, announced his retirement. Brad Nelson was appointed as the new CEO, effective March 18, 2024. The company recognized $1.7 million in CEO transition costs during fiscal 2024.

Aviara Impairment Activity

During the fourth quarter of fiscal 2024, the company identified an indication of impairment related to its Aviara segment’s property, plant, equipment, and inventory. After performing a recoverability test, the company recognized a $9.8 million impairment charge, adjusting the related assets to their estimated fair value.

Subsequent to the fiscal year-end, the company announced it had entered into an asset exchange agreement to transfer the rights to its Aviara brand and certain related assets to a third party. The company intends to close the Merritt Island facility and offer the property for sale. Aviara will be classified as discontinued operations beginning in the first quarter of fiscal 2025.

Results of Operations

Consolidated Results

(Dollar amounts in thousands)	2024	2023	Change	% Change
NET SALES	$366,588	$662,046	$(295,458)	(44.6%)
COST OF SALES	$299,491	$492,333	$(192,842)	(39.2%)
GROSS PROFIT	$67,097	$169,713	$(102,616)	(60.5%)
OPERATING INCOME	$7,632	$116,915	$(109,283)	(93.5%)
NET INCOME FROM CONTINUING OPERATIONS	$8,722	$90,452	$(81,730)	(90.4%)

Net sales decreased 44.6% due to lower unit volume, increased dealer incentives, and unfavorable model mix and options, partially offset by higher prices. Gross margin declined 730 basis points due to lower cost absorption and higher dealer incentives. Operating expenses increased 12.6% due to the Aviara impairment charge and CEO transition costs.

Segment Results

MasterCraft Segment

(Dollar amounts in thousands)	2024	2023	Change	% Change
Net sales	$262,736	$468,656	$(205,920)	(43.9%)
Operating income	$29,573	$101,324	$(71,751)	(70.8%)
Unit sales volume	1,755	3,407	(1,652)	(48.5%)
Net sales per unit	$150	$138	$12	8.7%

Net sales and operating income decreased due to lower unit volume, higher dealer incentives, and CEO transition costs, partially offset by higher prices and favorable mix.

Pontoon Segment

(Dollar amounts in thousands)	2024	2023	Change	% Change
Net sales	$59,615	$141,247	$(81,632)	(57.8%)
Operating income (loss)	$(2,097)	$20,106	$(22,203)	(110.4%)
Unit sales volume	1,241	2,836	(1,595)	(56.2%)
Net sales per unit	$48	$50	$(2)	(4.0%)

Net sales and operating income decreased due to lower unit volume, increased dealer incentives, and unfavorable mix, partially offset by higher prices.

Aviara Segment

(Dollar amounts in thousands)	2024	2023	Change	% Change
Net sales	$44,237	$52,143	$(7,906)	(15.2%)
Operating loss	$(19,844)	$(4,515)	$(15,329)	339.5%
Impairments	$9,827	$-	$9,827	-
Unit sales volume	134	134	-	-
Net sales per unit	$330	$389	$(59)	(15.2%)

Net sales decreased due to unfavorable mix and higher dealer incentives, partially offset by higher prices. Operating loss increased due to the $9.8 million impairment charge and inefficiencies related to new product launches.

Non-GAAP Measures

The company uses several non-GAAP measures to evaluate its performance, including EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share.

(Dollar amounts in thousands)	2024	% of Net Sales	2023	% of Net Sales	2022	% of Net Sales
Net income from continuing operations	$8,722	2.4%	$90,452	13.7%	$87,945	13.7%
EBITDA	$18,814	5.1%	$127,484	19.3%	$125,926	19.6%
Adjusted EBITDA	$32,947	9.0%	$131,452	19.9%	$130,536	20.3%

Adjusted Net Income and Adjusted Net Income per share are also calculated, adjusting for non-cash charges and other items not indicative of core operations.

Liquidity and Capital Resources

As of June 30, 2024, the company had $7.4 million in cash and cash equivalents and $78.8 million in held-to-maturity securities. The company had no amounts outstanding under its $100 million Revolving Credit Facility and $49.3 million in outstanding Term Loan debt.

The company is in discussions with its bank group regarding an amendment to the Credit Agreement to obtain necessary consents and waivers related to the Aviara asset exchange and facility sale plans, as well as a waiver to certain covenant ratios. If the amendment is not completed, the company believes it has sufficient liquidity to continue funding operations and repay the outstanding debt.

During fiscal 2024, the company repurchased $16.3 million of its common stock. In July 2023, the Board authorized a new $50 million share repurchase program.

Cash Flows from Continuing Operations

(Dollar amounts in thousands)	2024	2023	2022
Net cash provided by operating activities	$12,569	$136,824	$82,378
Net cash used in investing activities	$(1,785)	$(120,933)	$(12,296)
Net cash used in financing activities	$(23,135)	$(27,148)	$(62,540)

Cash flow from operations decreased in fiscal 2024 due to lower net income and working capital usage. Investing activities included $16.4 million in capital expenditures, partially offset by net purchases and maturities of held-to-maturity securities. Financing activities included $16.3 million in stock repurchases and $4.5 million in debt payments.

Critical Accounting Estimates

The company’s critical accounting estimates include:

Asset Impairment

• Goodwill is tested annually for impairment, using a quantitative or qualitative assessment.
• Other intangible assets are assessed for impairment if events or changes in circumstances suggest impairment.
• Long-lived assets are assessed for impairment by comparing book value to estimated future cash flows.

Product Warranties

• The company estimates the costs that may be incurred under product warranties and records a liability at the time of sale.

Income Taxes

• Significant judgment is required in evaluating uncertain tax positions and determining the provision for income taxes.

Revenue Recognition

• Revenue is recognized when control of products is transferred to customers, net of estimated dealer incentives.

Overall, the company faced significant headwinds in fiscal 2024, leading to lower sales, profits, and cash flow. The Aviara impairment and CEO transition also impacted results. However, the company maintains a strong liquidity position and is working to amend its credit agreement to provide flexibility. Going forward, the company will need to navigate the challenging market environment while executing on its strategic initiatives.