Mastercraft Boat Holdings Inc. (MCFT) Q4 2020 Earnings Call Transcript

Mastercraft Boat Holdings Inc. (NASDAQ: MCFT) Q4 2020 earnings call dated Sep. 09, 2020

Corporate Participants:

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Fred Brightbill — Chairman & CEO

George Steinbarger — Chief Revenue Officer

Analysts:

Eric Wold — B. Riley — Analyst

Mike Swartz — Swartz Securities — Analyst

Brett Andress — KeyBanc — Analyst

Craig Kennison — Baird — Analyst

Joe Altobello — Raymond James — Analyst

Barry Haimes — Sage Asset Management — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q4 and Fiscal 2020 MasterCraft Boat Holdings, Inc Earnings Call. [Operator Instructions]

I would now like to hand the conference over to your speaker, Tim Oxley, Chief Financial Officer. Please go ahead.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Thank you operator and welcome everyone. Thank you for joining us today, as we discuss MasterCraft fourth quarter and full year performance for fiscal 2020. 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. To open the call, Fred who will provide commentary on our businesses, and I will discuss our fourth quarter and fiscal 2020 results, then I’ll turn the call back to Fred for 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, September 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, our fiscal 2020 fourth quarter and fiscal 2020 earnings release, which includes a reconciliation of these non-GAAP measures to our GAAP results. But 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.

Fred Brightbill — Chairman & CEO

Thank you, Tim, and good morning everyone. As the world continues to grapple with the effects of COVID-19 pandemic, it remains my sincerest wishes that everyone with us today has remained safe and healthy. As you saw from today’s press release, MasterCraft Boat Holdings delivered financial results in the fourth quarter, ahead of Street expectations, closing out a challenging fiscal 2020 with strong momentum heading into fiscal 2021.

For the year, net sales decreased 22% to $363.1 million, adjusted EBITDA decreased 44% to $44.3 million, and fully diluted adjusted net income per share declined nearly 52% to $1.34 per share, principally driven by the disruption to our manufacturing Our manufacturing operations due to the COVID-19 pandemic. Despite the headwinds faced throughout the year, our team embraced the challenge and continued to execute on our new customer-centric strategy, including improving our quality systems and working closely with our dealer partners to capitalize on the unprecedented consumer interest in boating. In the fourth quarter, after our various facilities were shut down from six to eight weeks, we delivered positive adjusted EBITDA on a net sales decline of 58%, a testament to our highly variable, low fixed cost business model and operational execution. Moreover, our strong cash management practices enabled us to pay back $25 million on a revolving line of credit at the end of the fourth quarter and an additional $5 million early in our fiscal 2021 first quarter. The near and long-term impact of the pandemic on recreational boating industry has been significant, specifically our industry experience a renaissance is consumers and their families found themselves with additional free time and fewer alternatives due to the cancellation of spring break and summer vacations, travel sports and kids summer camp. Even during the pandemic induced dealer closures, consumers flocked to our brand websites, social channels and dealer websites to explore the boating lifestyle, resulting in unprecedented retail demand across all our brands both for new and used models. Our internal data suggest that new to boating and returning to boating customers accounted for a growing percentage of our retail sales since March of 2020. This is served to increase our addressable market and bodes well for all our brands in the medium to long term, as we typically experienced high consumer retention rates. In addition, as competing brands have also benefit from this increased boating participation, the opportunity exists to convert these consumers to our leading brands over time. For example, our MasterCraft brand, which we believe is the most recognizable ski/wake boat brand in the world has historically generated approximately 80% of its annual retail sales from current boat owners, including the existing MasterCraft owners trading up to a new MasterCraft model, owners converting from a competing ski/wake boat brand and owners converting from a different segment of boating. Driven by this unprecedented retail activity, dealer inventories across all our brands declined to historically low levels, with dealer inventory turns at historically high levels. Impressively, we’ve continued to see strong retail demand through the first two months of our fiscal 2021, resulting an even lower dealer inventories and higher dealer inventory turns. On a consolidated basis, as of the end of August, we believe that our dealers are under inventoried by more than 2,100 units with nearly half of the shortfall at MasterCraft alone. This shortfall is directly attributable to the strong retail performance we’ve experienced combined with production shutdowns in the fourth quarter. We believe the current retail trends will persist beyond next summer’s busy selling season, this consumers prefer to stay local and seek safe alternatives for fun, family enjoyment. As a result, all of our brands are poised for strong growth in fiscal 2021 and beyond. Operationally, we continue to ramp up production across all our facilities. Working with our suppliers to ensure that we receive high quality parts on time. As our suppliers experience increased demand from other boating OEMs, we believe our scale and efficient supply chain management mitigate the risks of disruption to our production plans and position us to appropriately stocked dealer inventories throughout the seasonally low fiscal second and third quarters and allow us to fully participate in the retail momentum we anticipate in the next summer selling season. We will continue to ramp-up production in a controlled measured manner, ensuring the dealers get the inventory they need to meet retail demand, while also continuing to drive quality improvements across all our brands, which we believe is a competitive differentiator and a critical element of our strategy to deliver the best consumer experience on the water. Notably, our order books across all our brands are completely filled through the second fiscal quarter and well into the third fiscal quarter, as dealers order earlier than usual to lock in production slots. At our Aviara brand, we continue to see an overwhelmingly positive reception by both our dealer partner MarineMax and consumers alike. Retail performance at Aviara exceeded our expectations in its first fiscal year production. Combined with the retail momentum we are seeing in the industry, we decided to accelerate Phase II of the growth strategy we developed when building the business case for this brand. On August 17, 2020, we announced that we had entered into a purchase agreement to buy a boat manufacturing facility in Merritt Island, Florida, which will serve as the future dedicated facility for Aviara. The new Merritt Island facility will provide more than 140,000 square feet of dedicated manufacturing space, situated on 38 acres of land, including water access, the new facility provides ample room to grow the Aviara brand and will provide the opportunity for additional vertical integration. Having a dedicated Aviara facility of this scale with access to an experienced boat building workforce provides the quickest and most efficient way for Aviara to add incremental capacity, while providing a very efficient use of capital. Simultaneously, moving Aviara out of the MasterCraft facility will provide for additional capacity for MasterCraft, setting us up for many years of future growth. We expect to close on the facility purchase in October of 2020 with Aviara production up and running in the third quarter of fiscal 2021. Turning to NauticStar. On August 3, 2020, we announced the appointment of Scott Womack, as the new precedent for the brand. Scott, is a seasoned operating executive having held leadership roles in various automotive suppliers over the past 27 years. Scott brings a wealth of knowledge, experience and processes that will help NauticStar improve its operational and financial performance and unlock the value we believe can be generated by the brand. Scott’s track record of driving continuous improvement through lean principles, while generating strong financial results will serve him well in this role. We are confident we have the right leader in place to drive sustainable long-term growth and profitability for one of the leading brands in the fiber glass outboard segment. I will now turn the call back over to Tim, who’ll provide more color on our financial results and the expectations for the rest of the year. Tim?

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Thank you. As Fred noted, these are difficult times for the boating industry and the broader economy. While we started the quarter off on a strong note, the spread of COVID-19 across the globe and the corresponding economic and production shutdown has had a significant impact on our operations, and as a result, our financial performance.

Net sales for the fourth quarter were $51.1 million, a decrease of $71.7 million or 58.4% compared to $122.8 million for the prior-year period. The decrease was primarily due to the lost production as a result of the COVID-19 shutdowns and supplier and workforce ramp-up.

Gross profit decreased $24.1 million or 76.5% to $7.4 million compared to $31.5 million for the prior-year period, principally driven by the lower sales volumes for reportable segment. Our gross margins decreased to 14.5% for the fourth quarter compared to 25.6% for the prior-year period, a lower overhead absorption across each reportable segment.

Operating expenses decreased $33.2 million for the fourth quarter compared to $43 million for the prior year period, due to the $31 million of goodwill and intangible asset impairment charges recognized in the prior year period. Excluding these impairment charges, our operating expenses declined $2.2 million, resulting from cost management initiatives during the quarter in response to the COVID-19 pandemic.

Turning to the bottom line. Adjusted net loss for the fourth quarter was $1.8 million or a loss of $0.10 per share on a fully diluted weighted average share count of 18.7 million shares, computed using the Company’s estimated annual effective tax rate of approximately 23%, this compared to adjusted net income of $16.1 million or $0.85 per fully diluted share in the prior-year period.

Adjusted EBITDA was $0.9 million for the fourth quarter compared to $23.8 million in the prior year period. Adjusted EBITDA margin was 1.8%, down from 19.4% in the prior-prior period, principally due to lower sales volumes caused by the COVID-19 shutdowns.

Turning to our liquidity and balance sheet. We took steps during the quarter to maintain financial flexibility and conserve cash. As of June 30, we had more than $16 million of cash on our balance sheet. As Fred mentioned in his remarks, we paid down $25 million on our revolver during the fourth quarter. Combined with our cash on hand, we ended the year with more than $41 million of liquidity. Since that time, we’ve received to make additional $5 million payment on our revolver early in our fiscal 2021 first quarter Early in our fiscal 2021 first quarter. Given our current liquidity position and near-term outlook, we do not anticipate any liquidity issues. We remain bullish on the long-term prospects of both the markets we serve and the brands we own, especially with the backdrop of historically low dealer inventory levels combined with unprecedented retail demand. We would — you’ll recall that we withdrew financial guidance in March, given the onset of the COVID-19 pandemic and the expected negative impact on retail demand. Our visibility has improved since that time, while uncertainties in the marketplace remain, we are initiating guidance for both the full year and the first quarter of fiscal 2021. Our guidance assumes that we were able to operate all of our facilities throughout the fiscal year without any COVID-19 related shutdowns. For full year fiscal 2021, consolidated net sales is expected to grow in the mid 20% range year-over-year with adjusted EBITDA margins in the 13% to 14% range and adjusted earnings per share growth in the low to mid 40% range year-over-year. This guidance assumes revenue and profitability growth across all our segments with the exception of Aviara, as we facilitate the shifting of Aviara production from our facility in Tennessee to our Merritt Island Florida facility, we anticipate the mid-year integration disruption, production ramp-up with an all-new workforce and the adding of incremental overhead to support Aviara’s future growth through result in a moderate adjusted EBITDA loss for the year. We are confident that the Aviara brand will be profitable in fiscal 2022, its first full year producing product in the new facility. With new capacity and a dedicated manufacturing team driving the brand, we expect Aviara to generate more than $50 million in net sales within the next three years. For the fiscal first quarter consolidated net sales is expected to be down in the low to mid teens percent range year-over-year with adjusted EBITDA margins in the 11% to 12% range and adjusted earnings per share down in the mid to high 30% range. As Fred mentioned in his remarks, we will continue to ramp up production throughout the year in a controlled measured manner, heading into the seasonally low selling season, the seasonally low retail selling season, our production cadence will ensure that dealers get inventory they need to meet retail demand heading into the summer selling season, which historically accounts for 70% to 75% of annual retail. I will now turn the call back to Fred for closing remarks. Fred?

Fred Brightbill — Chairman & CEO

Thanks, Tim. While COVID-19 presented many challenges for MasterCraft in the fourth quarter and fiscal 2020, we implemented a plan to manage through the near-term headwinds and position the Company for success over the long term. Our number one priority is the health and safety of our employees, as we continue to ramp up production across all our facilities, we are committed to maintaining rigorous health and safety standards. We’re following the best practices, including health screening certification, temperature scans, use of masks, physical distancing, enhanced personal hygiene, heightened cleaning protocols and contract tracing at all our locations. We will continue to monitor the sites closely and consider local and federal government guidelines throughout this transition period.

Our outlook is much improved from a quarter ago, depleted dealer inventories and strengthened retail demand provide an attractive backdrop for the boating industry and in particular our leading brands. I am confident in our strong foundation of committed employees and dealers, resilient business model and long-term plan to grow our market share and drive shareholder value.

With that, we’ll go ahead and open the line for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Eric Wold with B. Riley. Your line is open.

Eric Wold — B. Riley — Analyst

I’ve two questions. I guess one, the 40% to 50% — the inventory being 43% below on average at year-end, June, obviously lowers since then in August. I am assuming that’s kind of an average across the three brands. Any major variations from that range between three brands and all kind of within there?

Fred Brightbill — Chairman & CEO

That actually isn’t the average, that’s the range across the brands. So, they were all between 40% and 50%. And, as you alluded, it’s much, much lower than that now.

Eric Wold — B. Riley — Analyst

And then follow-up on that. Obviously, Crest gone off to a little bit slower start, following the acquisition, one of the reasons being, the level of inventory out there with competitors in the pontoon segments. Maybe given what we’ve seen recently, give us an update on how you frame that environment for crafts and the opportunity potentially take share?

Fred Brightbill — Chairman & CEO

Chris has been doing very well. There year-over-year retail has been among the highest we’ve seen amongst our brands. So that segments bounce back and they bounced back very strongly. Their inventory is in great shape again. It’s a fraction of what it was previously and they positioned themselves for a great year and are in the process of putting their pedal to the floor and accelerating their production ramp-up.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

I would add that the pontoon segment is also benefiting from the first time boaters because of the ease of use and the relative value of the pontoon boats. So, we’re very happy to participate in that segment. So more first time boaters, I think, in the pontoon segment and in some of the other brand.

Eric Wold — B. Riley — Analyst

Thanks Tim. And lastly, on Aviara, I know you gave the commentary, you talked about your digital $50 million plus in sales next three years. Any chance you can get some idea kind of where you ended up last year and how that could change this year? And then on the new facility, the Aviara facility acquired. One, what will need to be spent there ahead of production start? And two, what do you ultimately think full production capacity could be at that facility over the next few years?

Fred Brightbill — Chairman & CEO

Well, we certainly think it’s going to be worth 50 million as far as capacity goes, that’s been a successful both plant in the past. Our ramp up costs will certainly impact us and starting in Q2, but we’re going to get back up to profitability in fiscal 2022.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

And Eric, from a revenue standpoint for Aviara this past year, you will recall, we guided to 10 million to 15 million at the start of the year, due to the COVID we were impacted in that, but still hit the low end of that range. So call it around $10 million of revenue for Aviara this year.

Eric Wold — B. Riley — Analyst

I hope the ram up costs just thinking CapEx cost at new facility not operating cost to get it going?

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Yes, the purchase of the property is $14 million, and we estimate another $4 million to $6 million to get that facility back up and running to where we need it to run high production levels like we intend there. And that would be on top of our kind of normal CapEx across MasterCraft and NauticStar and Crest. So for the full year, we’re probably looking somewhere in the low to mid $20 million CapEx range, all in.

Operator

And our next question comes from Mike Swartz with Swartz Securities. Your line is open.

Mike Swartz — Swartz Securities — Analyst

Maybe just starting with the fiscal ’21 guidance, thanks for providing that. I think it would imply that revenue get back to fiscal year ’19 levels, but if I do the math, it says that EBITDA would be between 15 million and 20 million below fiscal year ’19. And I know there’s obviously the start-up costs and some of the inefficiencies with Aviara. Can you maybe walk us through why profitability would be lower than what we saw in ’19?

Fred Brightbill — Chairman & CEO

Well, let me first start it with the top line, you commented on. If you remember, ’19 came in very heavy with regards — inventory was very heavy at the end of that year. And so, there was a big carry over. That’s not a normal situation or one that you know is a good benchmark. So, unfortunately that’s the comp that you’re looking at from the revenue standpoint. With regard to the costs, they’re all included in our margin, but I would say also a full year worth of Crest in our numbers is one of the diluting factors on the overall margin.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Yes, because we’re comparing nine months worth of Crest, diluted margins in fiscal 19. So as you mentioned, we have the start-up cost at the new facility. In addition, since we’re ramping up really on a measured pace throughout the year at MasterCraft, you’ve got costs associated with getting new employees up to speed and trains and so forth.

Mike Swartz — Swartz Securities — Analyst

And then I just want to make sure, I heard the number right I think you said, maybe it was Fred, but you believe you’re around 2,000 units under inventory right now. I guess what is that based on? And what would that assume? Or what’s your — when you state that number, what is your kind of outlook for retail demand going forward?

Fred Brightbill — Chairman & CEO

I would just say two things to consider in that. I think that’s a conservative estimate because we use much higher inventory turns then historically have been the average in our segment or for us. So, we increase our expectation with regard to how fast we’re going to be able to turn dealer inventory and in addition use very conservative retail assumptions.

Operator

Thank you. Our next question comes from Brett Andress with KeyBanc. Your line is open.

Brett Andress — KeyBanc — Analyst

If you could just help us a little more with the 1Q sales expectations, I mean, how should we think about that low-to mid-teens decline by brand? And I guess, are there any specific factors holding you back from growing shipments in 1Q?

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Well, as we mentioned, we’re in ramp up mode throughout the first quarter. And so, that’s holding us back a bit. The cadence is going to be a little more backend loaded for the year since we are, I could say, in ramp up mode. As far as holding us back, we’re going to maintain our quality standards and suppliers have to come up to speed at the same time. So, those are kind of the gating items for Q1.

Brett Andress — KeyBanc — Analyst

And then, it sounds like inventory got lighter since the end of the quarter. So just any color on the level of retail demand for your brand here in August and September?

George Steinbarger — Chief Revenue Officer

Yes, Brett, this is George. So for July and August, we continue to see strong retail momentum across all the brands. What we tell you is that the range was anywhere from up 25% to up 75% across the three brands from a July-August retail. So, the momentum certainly continued and we were very pleased by that and so certainly well positioned for the rest of the year to restock dealers and get positioned to take additional retail and market share in next summer selling season, which as you know accounts for about 70% to 75% of retail that April through September period next summer.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Keep in mind in particular for MasterCraft, we have challenging comps last year in the first fiscal quarter. So, that’s even more remarkable than we’re up from those comps.

Brett Andress — KeyBanc — Analyst

And then, I guess I can do the math on my last question. But if we exclude, Aviara in the start-up cost and the headwinds there, as you ramp that facility. I guess, what would your EBITDA margin expectation be for 2021, excluding Aviara?

George Steinbarger — Chief Revenue Officer

I don’t know that we have the math right here in front of you, Brett. But I would — just to give you a little more guidance, I would kind of pencil in a negative $2 million to negative $3 million EBITDA loss at Aviara for the year, when we said a moderate loss, that’s kind of the range of what we were looking at that bakes in all of those costs. So, I think with that information, you can do the math, but I don’t have it in front of me.

Operator

Thank you. Our next question comes from Craig Kennison with Baird. Your line is open.

Craig Kennison — Baird — Analyst

Great. Thanks and good morning. I have a question on your revenue guidance and the comment you made on 2,100 units of inventory. Just can’t fully reconcile that, if you shipped 5,300 boats, roughly in fiscal 2020, and you replenished 2,100 units of inventory in a flattish retail environment, you’d be shipping almost, I don’t know, 400 boats, that’s 40% growth. So no ASP impact much better than I guess that 25%-ish revenue growth you’re calling for. So, what am I missing there? Is that a function of less restocking or more pessimistic retail? Can’t quite reconcile that?

George Steinbarger — Chief Revenue Officer

No, Craig, I mean, I think, we certainly believe that 2,100 shortfall in inventory is going to take longer than just fiscal 21 to fill the channel. So, we’re obviously — we’re comfortable putting out guidance with the visibility we see. And so, we’re confident in our number, but we’re not going to just stuff the channel. We’re going to guide to height where, we’re going to manage this business with higher terms than we have historically keep dealers healthy, continue to watch the retail environment and make sure that and that stays on track. So, we certainly view the 2,100 as a significant opportunity for growth and set us up for long-term growth beyond 2021. And we’ll make sure that we’re filling the pipeline in a very measured controlled way. And so, that’s really kind of what I would answer there.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Sure, and I think, if you think of normalizing the pipeline sometime in fiscal 2022, and we also intend to operate the Company at hired dealer inventory terms, and we’ve historically seen, we think that’s a good for the dealers and good for us as well.

Craig Kennison — Baird — Analyst

Thanks for that. And just maybe looking at it from a capacity standpoint, do you even have sufficient capacity to fully catch up to that? Or is there a limit to what you could produce in fiscal 2021?

Fred Brightbill — Chairman & CEO

Well, other than the ramp up, we do not have a constraint with regard to terminal capacity. Because once again, moving Aviara freeze up MasterCraft capacity, a substantial additional amount of master capacity. And we don’t foresee consuming that for many years.

Craig Kennison — Baird — Analyst

Thank you. And then looking at ASP in the fourth quarter, very strong results across the board relative to our expectations, what’s the ASP growth expectation embedded in your revenue guidance?

Fred Brightbill — Chairman & CEO

We’re expecting low growth of ASPs in fiscal 2021, and keep in mind what drove it in our fiscal four quarter was the disproportionate number of retail sold boats that we were producing and they traditionally have a larger load of options selected.

Craig Kennison — Baird — Analyst

And finally, I think Fred, you’ve mentioned first time buyers or people who are new to boating. Could you share those metrics again? I may have missed the actual percentage there.

Fred Brightbill — Chairman & CEO

Well, we just say, we said 80% are boaters and the other 20% roughly are what we’ve seen in terms of either returning to boating or new to boating. And I would just say those are kind of the historical ranges. Currently, we’ve seen essentially a doubling in the new voting people. So, we’re getting those entrants and it’s our focus on making sure that we deliver the experience they’re looking for and continue to keep them loyal to our brand. So, it’s a wonderful opportunity to expand the market and we think it’s not a one-time phenomenon. We think it’s a situation that is going to last for years.

Operator

Our next question comes from the line of Joe Altobello with Raymond James. Your line is open.

Joe Altobello — Raymond James — Analyst

Just want to go back to your comment regarding ASPs and the impact from retail sold boats. Curious what you’re seeing from first time boat buyers? Are they bringing up the average as well with a lot of bells and whistles on the boats that they’re buying?

Fred Brightbill — Chairman & CEO

I think in my opinion, it’s the range. We’ve seen first time, because you think of our different brands first time buyers at Crest at those price points. They’re totally different than what we’ve seen, and across the MasterCraft range, we’ve seen first time buyers all the way from the entry level all the way up to the high end. So, it’s — in my opinion, it’s been spreads.

Joe Altobello — Raymond James — Analyst

And then, in terms of retail you mentioned, it was still very strong in July and August. I’m curious, what you saw in Labor Day. Typically, the time of year when retail does start to normalize and I’m just curious if you did — if you did see trends start to slow or to quote unquote, normalize as we approach the holiday?

Fred Brightbill — Chairman & CEO

I think that’s a correct characterization that it’s starting to quote normalize. But remember also in the previous year, there was a heavy carryover of inventory. And so, there was a lot of promotion that took place that around the Labor Day holiday to move some of those votes. And certainly throughout that first quarter, it was a very active promotional time for ourselves and our competitors. So on a comp basis, your normal is not necessarily what last year’s results were.

Joe Altobello — Raymond James — Analyst

Yes, I meant normalizing in terms of year-over growth versus growth in the last couple months?

Fred Brightbill — Chairman & CEO

Well, we’re coming off the selling season, it’s finally winding down.

Joe Altobello — Raymond James — Analyst

And just one last, it goes back to, I guess with your questions that Greg asked about the 2,100 pros that you’re under inventory to the channel. How much of those do you think you can address this year? And how much of those are more of a 2020 event?

Fred Brightbill — Chairman & CEO

I think we’re going to be in very good shape, but we probably are still going to be lean on inventory exiting this year, and we just feel that that really provides us a cushion. Should there be any negative impacts in the environment? And that’s why we felt comfortable being able to give guidance.

Operator

Thank you. And our last question comes from Barry Haimes with Sage Asset Management. Your line is open.

Barry Haimes — Sage Asset Management — Analyst

So, I had a couple. One is the Merritt Island edition, just on a square footage basis, how much does that increase your capacity?

Fred Brightbill — Chairman & CEO

That facility is a 140,000 square feet that will be dedicated to Aviara. That is more than quadruple the amount of square footage that we’ve got allocated to Aviara here today. So, as we’ve stated, there’s ample capacity there to grow that brand, hopefully, at or above $50 million within three years.

Tim M. Oxley — VP, CFO, Treasurer & Secretary

Equally important, it allows us to expand our capacity for the MasterCraft, so both those are very positive.

Barry Haimes — Sage Asset Management — Analyst

That was going to be my second question is, what percent capacity increase will MasterCraft get once Aviara vacates that facility?

Fred Brightbill — Chairman & CEO

I think on the order of 35% to 40%.

Barry Haimes — Sage Asset Management — Analyst

Okay, great and then next question I had, in answer to an earlier question, you talked, I think about $4 million to $6 million, costs in addition to the plant cost to get everything moves in up and running. And, I missed this, if that was the capital costs or expense items as well. So could you just give us a little help around, what’s capital and what’s expense in terms of going through that change process?

Tim M. Oxley — VP, CFO, Treasurer & Secretary

The number that was referenced on the call was a capital number, and we’ve not itemized — we won’t be shared, but as, as we guided to, we expected $2 million to $3 million EBITDA loss, which includes all of the start-up costs and ramp up of getting that facility operational in addition to the CapEx number.

Barry Haimes — Sage Asset Management — Analyst

Okay. And then my final question is, if, so again, you’re doing this transition in the first half of your fiscal year. When we look to the second half of the year, should we expect the quarterly results to be more in line with the sort of fiscal ’18, fiscal ’19 years where you were kind of doing a $2 to $3 a share run rate? Is there any reason you wouldn’t get back to that kind of level in the second half of the fiscal year? Thanks.

George Steinbarger — Chief Revenue Officer

Yes, I don’t have — we’re not going to give second half guidance. I think you can look at the implied kind of second half with what we’ve given on Q1 and for full year, and kind of compare that to historical years, but that’s as comfortable as we feel at this point.

Operator

Thank you. And I’m not showing any further questions at this time. And I’d now like to turn the call back to your speakers.

Fred Brightbill — Chairman & CEO

I want to thank everybody for joining us today. We appreciate your interest and your support of MasterCraft and hope you all stay safe. Thank you.

Operator

[Operator Closing Remarks]