MBUU - NASDAQ

Good morning and welcome to Malibu Boats Conference to discuss First Quarter Fiscal Year 2025 Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats. And as a reminder, today's call is being recorded. On the call today from management are Mr. Steve Menneto, Chief Executive Officer, Mr. Bruce Beckman, Chief Financial Officer; and Mr. Ritchie Anderson, President. And I'll now turn the call over to Mr. Beckman to get started. Please go ahead, sir.

Thank you, and good morning, everyone. Joining me on today's call is our CEO, Steve Menneto. On the call, Steve will provide commentary on the business, and I will discuss our first quarter of fiscal year 2025 financials. We will then open the call for questions. A press release covering the company's fiscal first quarter 2025 results was issued today and a copy of that press release can be found in the Investor Relations' section of the company's website. I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements, including predictions, expectations, estimates, and other information that might be considered forward-looking and that actual results could differ materially from those projected on today's call. You should not place undue reliance on these forward-looking statements, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events. Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review our SEC filings for a more detailed description of these risk factors. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted fully distributed net income and adjusted fully distributed net income per share. Reconciliations of GAAP financial measures to non-GAAP financial measures are included in our earnings release. I will now turn the call over to Steve. Steve?

Thank you, Bruce. Thank you all for joining the call. Before we dive into the results, I would like to comment on the hardships caused by the two hurricanes. Our heart goes out to all those affected. At Malibu, the safety of our people, customers, dealers, and communities is always paramount. Our Fort Pierce facilities experienced some delays, but we have implemented measures to minimize any disruptions to production and distribution. However, some of our partners have asked to delay shipments for a short amount of time as they work through operational challenges. We have incorporated that into our plans and expect no impact on our outlook for the fiscal year. Turning to the first fiscal quarter. As expected, we navigated a challenging market environment driven by continued macroeconomic factors and slower retail demand. Net sales decreased by approximately 33% year-over-year as we maintained our focus on reducing channel inventories. While we are encouraged by the recent move in interest rates, we will need a sustained cycle of rate cuts to bring back payment buyers into the market. Retail demand remains challenging and will likely remain challenging until payment buyers return to the market. As stated, our key focus has been on maintaining disciplined control over dealer inventories by adjusting production levels. As expected, Q1 showed sequential improvements in inventory alignment compared to quarter four, positioning us well for the coming quarters. In addition, our margin performance in the first quarter also improved compared to prior quarter, which aligned with our expectations as promotional support returned to more normalized levels. This tailwind, coupled with our resilient business model, highlighted by our variable cost structure, enables us to adapt quickly to changing market conditions and maintain financial stability. Adding to the stability of our business, we are bringing the Tommy matters to closure. The trustee has liquidated nearly all of the remaining new Malibu and Axis inventory. As mentioned in prior discussions, our newly authorized dealers are up and running, selling boats and providing great service to our customers. And following the legal settlement announced earlier this month, which covers all impacted locations, we are now turning our full attention to supporting our dealers in restoring and ultimately improving our market share in these important markets. Turning to our model year 2025. We are excited to enter the boat show season, where we will showcase our newest models, including the recently launched all-new Malibu M230 and the Cobalt R31. The all-new M230 exemplifies our commitment to luxury and advanced functionality. This model features a state-of-the-art Malibu Command Center enhanced with the new Malibu operating system, which allows for seamless wave control and preset water sport options. Other notable design elements include the E-

Thanks, Steve. Our results in the first quarter were slightly above our expectations. Net sales decreased 32.9% to $171.6 million and unit volume decreased 39.7% to 1,024 units. The decrease in net sales was driven primarily by decreased unit volumes across all segments, resulting primarily from decreased wholesale shipments, partially offset by favorable model mix and modest inflation driven year-over-year price increases. The Malibu and Axis brands represented approximately 37.5% of unit sales. Saltwater fishing represented 29.3% and Cobalt made up the remaining 33.2%. Consolidated net sales per unit increased 11.2% to $167,559 per unit, primarily driven by favorable model mix and modest inflation driven year-over-year price increases. Gross profit decreased 50.3% to $28.2 million, and gross margin was 16.4%. This compares to a gross margin of 22.2% in the prior year period. The decrease in gross margin was driven primarily by lower net sales associated with a nearly 40% reduction in unit volume. Cost of sales decreased 28% in a period where revenues declined 33%, demonstrating our operational excellence and highly variable cost structure, in line with our historical range of 80% to 90%. Sequentially, gross margins improved by 850 basis points, primarily due to a return to more normalized levels of promotional support as expected. Selling and marketing expense decreased 15.4% in the first quarter. The decrease was driven primarily by lower event costs. As a percentage of sales, selling and marketing expense increased versus the prior year by 60 basis points to 2.8%. General and administrative expenses increased 31.6% or $6.5 million. The decrease was driven primarily by an increase in compensation related expenses and higher legal fees, inclusive of the $3.5 million legal settlement with the trustee for the Tommy’s state previously mentioned by Steve. As a percentage of sales, G&A expenses increased 780 basis points versus the prior year to 15.9%. GAAP net income for the quarter decreased 124.8% versus prior year to a net loss of $5.1 million. Adjusted EBITDA for the quarter decreased 74.6% to $9.9 million and adjusted EBITDA margin decreased to 5.8% from 15.2%. Non-GAAP adjusted fully distributed net income per share decreased 92.9% to $0.08 per share. This is calculated using a normalized C-Corp tax rate of 24.5% and a fully distributed weighted average share count of approximately 20.6 million shares. For a reconciliation of GAAP metrics to adjusted EBITDA and adjusted fully distributed net income per share, please see the tables in our earnings release. Turning our attention to capital. We continue to execute on our capital allocation priorities by repurchasing $10 million of stock in the quarter. Capital expenditures in the quarter were $8.6 million, putting us on track to our expected $30 million to $35 million in capital expenditure levels for the fiscal year. Our strong balance sheet and ample liquidity gives us the ability to invest in our core business and pursue value-creating acquisitions. Turning our attention to the full year. Our view of the market has not changed since we last updated you during the Q4 earnings call in late August. The market continues to be challenging. The long anticipated interest rate cuts have begun, which is a positive, but time will tell how many more cuts are required for payment buyers to return to the market. As discussed previously, we expect there to be a continued decline in retail demand for the remainder of the fiscal year, albeit at a reduced rate of the decline from last year. We also continue to expect our dealers to maintain a heightened focus on reducing their inventory below historical levels. We remain confident in our ability to execute our long-term strategy despite the near-term uncertainties. Therefore, we are keeping our fiscal year 2025 outlook unchanged. For the full fiscal year, we continue to expect a year-over-year net sales increase of low single-digit percentage points. For Q2, we expect net sales to be up sequentially, but down high single-digit percentage points on a year-over-year basis, given a challenging prior year comparison. This is our last challenging comparison of the year, and we expect our sales to return to growth in the back half of the year. We continue to expect consolidated adjusted EBITDA margin for the full fiscal year to range between 10% to 12%. For Q2, we expect adjusted EBITDA margins of mid-single digit as we maintain modest production levels and a focus on dealer inventories. Our performance in the first quarter came in as expected, underscoring our progress on reducing channel inventories and normalizing promotional spending. We expect this progress to continue and provide tailwinds for the remainder of the year, particularly in the back half where comparisons ease. We are encouraged to see the recent interest rate cuts and given the strength of the innovation we are bringing to market, we are eagerly anticipating the boat show season. We remain optimistic about our competitive positioning in the industry and are prepared to support a resurgence in demand when the market recovers. Until then, our resilient business model, flexible cost structure and vertical integration strategies allow us to generate strong cash flow and execute on our capital allocation priorities. We are confident that our strategies, combined with our strong brand portfolio and dedicated team will drive long-term growth and value creation for our shareholders. With that, I'd like to open up the call for questions.

Thank you. [Operator Instructions] The first question comes from Eric Wold with B. Riley Securities. Please go ahead.

Thank you. Good morning, everyone. A couple of questions for me. I guess, first of all, can you maybe dig in a little bit more into the strength of ASPs in the quarter and how sustainable you think these levels can be going forward? I guess for incoming orders, from the dealers now that inventories have normalized? Are you seeing any kind of upward downward shifts in kind of options and kind of whatnot baked into the models or ordering? And then as payment buyers return to the market, how would you expect that to skew ASPs, if at all? And I have a follow-up.

Yeah. Look, well -- good morning, Eric. What I would say is it's really driven a lot by the mix and just where the market is right now. So it's the premium cash buyers that are driving the market, and we have a lot of premium offerings that we're bringing to market right now, particularly this year in Malibu, the new models that we're introducing are all in the Malibu line and they're very premium models. And so within the quarter, that's really -- has been a big driver of our ASPs was that skewing towards the Malibu models. Yeah. And saltwater as well continues to be driven by the larger pursuits, and we've invested in the Cobia product lines as well, which are driving the mix there as well. So pretty strong mix in Q1.

Got it. Thank you. And then I know we're at the start of the boat show season right now. You mentioned that your margins were benefited by your promotional activity kind of returning to more normalized levels. What would you expect to see at the boat shows? Or kind of what are you seeing from competitors in your markets right now in terms of their promotional activity? And how do you think that kind of plays out as you move through the boat show season as they're still a little bit too heavy in inventory in their markets?

Yeah, Eric, we expect it to be a competitive environment. I mean, we saw sequentially our promotional spending improve as expected because we invested so heavily in Q4 to get our inventories in a good spot. They were lower in Q1, but they were not lower on a year-over-year basis. We continue to expect it to be a competitive retail market.

Understood. Thank you, both.

Thank you. The next question is from Craig Kennison with Baird. Please go ahead.

Hey. Good morning and thank you for taking my questions. Steve, it's been about 100 days since you've been in that chair. And I'm just curious what observations you've made about opportunities or challenges, now that you've had a chance to meet a lot of people and assess operations.

Sure. Operations are really the core of the business. I think if you look at the history of Malibu has been, particularly, strong aspect of our business, being able to jump into it deeper with Ritchie and learning a lot from him, and really solidifies what I thought going in, which is that's a pillar of strength of our business. So, that was good to see. The market dynamics are a challenge with the current customers and how we look at payment buyers and so forth as we alluded to earlier in the call. So we'll continue to monitor the industry, monitor the consumer, look to how do we sharpen our game on how to drive demand to our stores and help them work with our dealers to maximize retail to the fullest potential while we're in this kind of -- we're in this down cycle a little bit. And when it returns and those buyers recover, I think we're positioned well to do well. So, the company is in a good position. I've got more confidence in where we're going. We have operational strength, and we'll continue to work on our commercial side of our business to meet demand and to help our dealers maximize retail.

Thanks. And I'm wondering, you came from the powersports world, just the nature of that distribution channel that seem to be -- there seem to be an incentive to -- for OEMs to take up as much showroom space as possible. Otherwise, they would lose share. Is that dynamic similar in boats? Or do you feel like you have more partnership arrangements with your boat dealers such that if you've got a key brand in a category, you don't have to act irrationally with respect to how you plan inventory for that dealer?

Yes. I think there is a difference between marine and powersports clearly. I think the size of the units itself, right, creates opportunities for share of floor. But yes, the relationships of how they represent the brands. Some of the marine segments, the dealers are only carrying one brand in a particular segment and so forth. So the dynamics are different. But partnership is at the core in both industries, right? And partnering with the dealers is at the core, and that's what we plan on doing and we're heading to our Malibu dealer show here in a couple of days, and we'll meet with the dealer council and continue to meet dealers across the business. I've been to the Pursuit dealer meeting, been to the Cobalt dealer meeting and continue to really engage dealers and learn from them and understand what challenges and what opportunities there are in their businesses and how we can be a better OEM. So, it's been educational. It's been different than powersports, which is noted, and we'll continue to work to make sure in the marine space, we're an OEM that dealers want to be part of our business and be a partner with as we grow our business together.

Great. Thanks, Steve.

Thank you. The next question comes from Joe Altobello with Raymond James. Please go ahead.

Thanks, guys. Good morning. I guess, first question for you, Steve. In your prepared remarks, you mentioned the quarter was a little better than you expected. And maybe kind of at a high level, what drove that? It seems like sales were better and margins are better. I assume that's related, but what was the positive surprise in the quarter?

The positives have been the new product has been doing really well. The innovation continues to pay off in terms of driving share, satisfying customers. Those are the boats, both Malibu, what we've seen in Pursuit have been helping us in the first quarter. And it's, again, been the core of this business. And so that's kind of really where it mainly has been.

Okay. Got it. And just a follow-up on that. I was a little surprised to hear that the promotional environment sounds like it's easing a little bit. How much of that is seasonal as we enter the winter months here?

I think it is a little bit seasonal result. It's also us having our inventories under control, smartly working with the dealers to get those in the right position. As we're entering the boat show season, as we said, we'll monitor where promotional environments go. We're encouraged right now that as we kick-off Fort Lauderdale, we're optimistic about the boat show, but time will tell here over the weekend. So right now, I think it's a little seasonal. I think it's some other competitors working through reduction of their inventories. But we're in pretty good shape. And I think we'll continue to monitor what's necessary to be competitive.

Okay. Super. Thank you.

Thank you. We have the next question from Noah

Hi. Thanks for taking my question. Maybe just one on the kind of M&A front. I guess, has the thought process kind of remained the same or changed around potentially kind of pursuing pontoons?

Go ahead, Bruce. Go ahead, Steve.

Thought process that hasn't changed. It remains an option for us. The -- what we've said previously has been we're looking for value-creating M&A opportunities. If we get the right opportunity, we'll take a look. And if it makes sense for our business, we may move forward. But pontoons continue to be an option for us if it makes sense.

Thanks. And not to put too fine a point on it, but have you given kind of like unit expectations for the fiscal year in terms of industry retail units? And then I guess, relatedly, like maybe within your plan, how you're thinking about number of rate cuts and magnitude? Thanks.

Yes. We don't give specific unit guidance and -- but we have shared that we expect the retail markets that we participate in to be down in the mid single-digit range. We have shared that, and that's what we continue to believe.

Thanks. And then just on rate cuts in the plan. How you're kind of thinking about that?

Yeah. What I would say is, we don't speculate on interest rate cuts. We don't build a forecast on interest rate cuts. So we just deal with the cards that we have visible in our hands, and that's factoring into the industry down in the mid-single-digit percentage range. We would love to be pleasantly surprised at some point in the future, if there are enough cuts to kind of rekindle that activity of the payment buyers. And so that's -- given how we schedule our factories and how we have the ability to ramp and respond with the capacity that we have in place. We're confident we can support an upturn in the environment, if that materializes.

Thank you.

Thank you. The next question comes from Griffin Bryan with D.A. Davidson. Please go ahead.

Hi. Good morning. So it seems like retail for September specifically within the ski-wake category looks pretty good relative to the rest of the categories. I guess kind of like what do you attribute this to? And is there any indication that this continued through October?

Yeah. What I would say is we -- there always seems to be a little bit of a lag of when we see things kind of on an internal warranty registration and when some of the boats flow through SSI. I mean -- so I think what you're seeing is some of our Q4 promotion activities showing up in the numbers as well as the Tommy's liquidation event really kicked into high-gear in the September timeframe. So those boats are starting to flow through the SSI numbers as well.

Got it. And then with the hurricane impacts are there any early signs that there will be sizable insurance claims that could help with some dealer destocking for your products specifically?

That's counting on insurance companies to pay quickly enough to get people to have the cash in their pocket to buy a new boat is not something I want to base my guidance on. We would -- we hear anecdotally that there will likely be some replacement activity that takes place, but I wouldn't really want to speculate on the exact timing of that activity.

Understood. Thank you.

Thank you. The next question comes from Greg Badishkanian from Wolfe Research. Please go ahead.

Hey guys. It's Fred Wightman on for Greg. I just -- I wanted to come back to the hurricane impact. I think you made a comment that some of the shipments -- the dealers had asked for some delays or deferrals in shipments tied to the storms. I'm wondering if that in any way showed up in the reported 1Q results, if that's more of a shift to the back half of the year versus how you sort of thought the year would shake out initially? And if you could just help us with what, if any, the timing shift might be.

Yeah.

Go ahead, Bruce.

Yeah. Fred, I would just say it's minimal. It's a minimal shift from what we might have shipped in Q2 to what -- into the back half. So -- but it's a modest impact.

Okay. That's helpful. And in the past, really last quarter, you had talked about some market share impact from those impacted Tommy’s markets. I'm wondering if you're still seeing those former Tommy’s markets underperformed or lag from a share perspective or if it's kind of closer to what you're seeing broadly?

Yes. I mean the Tommy’s markets are starting now to see that liquidation activity go through those markets. And up until that time, it's been a pretty big drag on us. I would expect that it's going to be a tailwind for the next couple of months as those boats flush through SSI. And then is when we get back to the kind of a more normalized where our new dealers are the ones that are competing and market share battles in their respective markets.

Great. Thank you.

Thank you. Next question comes from Jaime Katz with Morningstar. Please go ahead.

Hi. Good morning. I want to ask about the line in your press release where you guys articulate that you're seeing some encouraging signs from a macro perspective. I think the rhetoric was a little bit different in the commentary. And so I'm curious if maybe that's something beyond just the start of interest rate cuts and OEMs behaving better.

No. I think it's really that start of interest rate cuts. I mean, we've been talking about them for a long time. They've actually now started to happen. I think that was the spirit behind that comment. We're also -- like we've been commenting on, we work hard to help our dealer partners get their inventories back in line at the end of last fiscal year. And so we feel like we're going into the boat show season where the interest rates now have started to come down with a great model lineup and a pretty healthy inventory roster going into the show. So that's probably maybe a little more color on that spirit of optimism comment.

Okay. And then can you give us some color on input cost inflation? I'm thinking about does that improve with higher throughput through the back half of the year? Are there some break points that maybe help ease any input cost inflation you guys are seeing and just sort of what to expect there? Thanks.

Yes. I mean, I guess what I would say, Jaime, is that we're seeing very modest inflation. I mean, certainly has come down quite substantially from where it was in the peak of COVID. Not really seeing it come down, though. I mean it's not turned into deflation. And I wouldn't expect that will be where we'll see tailwinds on margin. I would say, we'll get -- as the volumes increase, it will be more of a volume leverage on more of our fixed costs within the cost of sales line where we'll see the benefits.

Great. Thanks.