Jack Springer - Chief Executive Officer Wayne Wilson - Chief Financial Officer.

Tim Conder - Wells Fargo Securities Joe Hovorka - Raymond James Mike Swartz - SunTrust Gerrick Johnson - BMO Capital Markets.

Good morning and welcome to the Malibu Boats Conference Call to discuss the Third Quarter Fiscal 2015 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, this call is being recorded. On the call today from the management are Mr. Jack Springer, Chief Executive Officer and Mr. Wayne Wilson, Chief Financial Officer. I will now turn the call over to Mr.

Wilson to get started. Please go ahead, sir..

Thank you and good morning everyone. Ritchie Anderson, the company’s Chief Operating Officer is also on the call today. Jack will provide commentary on the business and I will discuss our third quarter financials and outlook for fiscal 2015. We will then open the call for questions.

A press release covering the company’s third quarter fiscal 2015 results was issued this afternoon 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 or 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 and adjusted fully distributed net income. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release.

Now, let me turn the call over to Jack Springer..

Thank you, Wayne. And I would like to welcome everyone to our call. We had another very strong quarter at Malibu and I want to commend the Malibu team for continuing to execute at a very high level.

While we don’t provide specific earnings guidance, we did lay out a lot of detail about the way that we planned our business on the last two conference calls. I am happy to tell you that the business has performed in line or better than those plans, and we are exceeding the metrics we have communicated to the investors.

For the quarter, net sales increased very strong 29% and unit volume was up over 24%. Net sales per unit increased 6.7% in the United States and 3.5% globally for the third quarter and the Malibu brand made up nearly 73% of the unit volume.

If you recall we told you that we anticipated a heavier mix of Malibu units this quarter and this would have positive implications for sales and margins. That is exactly what happened in our third fiscal quarter. The result was a healthy increase in our adjusted EBITDA margin, which climbed to 20.5% in the quarter.

It’s also worth noting that during Q3 we lost a week of production due to bad winter weather, primarily ice and snow. We were able to make up that production in the quarter, which was important for us to meet the demand that we had.

Despite the additional over time and a couple of Saturdays that we work, the quarter was still very strong which we are proud of. I will let Wayne speak of the rest of the numbers in a minute, but I just want to reiterate how pleased we are with our business model and our ability to continue to execute the business objectives.

As we discussed on the last call, we knew there would be some headwinds in Canada and certain international areas due to the strength in the U.S. dollar over the past 9 months. In Canada, a boat now costs 15% to 20% more than in the fall. South America has been extremely hard hit as well with the Brazil real down almost 33% from 9 to 12 months ago.

We have seen our sales decrease in those markets specifically as well as Europe versus last year. Now, this is not a pervasive event. Australia is benefiting from this reality and Asia is a growing market for us despite any currency headwinds. In addition, the Middle East remains strong for us. To-date, strength in the U.S.

market has compensated for the weakening demand in Canada and in some other international markets and we are delivering well against our global growth initiatives.

Our third quarter is our boat show season and this is the time when our dealers are conducting their shows, getting perspective buyers into the showroom are on the water and closing new sales. This is the period when custom boat orders from retail consumers become more pronounced.

A custom order is an order from a retail customer who chooses not order a boat from the dealer stock, but orders a boat with the exact details and specifications as they desire. The order still comes to Malibu from the dealer base.

Memorial Day is the unofficial kick off of the boating season and customers who want to be on the water with a customized boat by that time must generally place their orders by the 1st of April.

As a result, the end of our fiscal third quarter and the beginning of our fourth fiscal quarter is the time when we are building those boats needed by Memorial Day. We are also very pleased with all of our new products that we introduced for 2015. Largely, this has just been seen by the consumer in the last three months at the boat shows.

The performance of our new and redesigned models, were strong coming out of the boat shows. The A22 by Axis is our number one selling Axis models historically and it is also for this year. It is doing very well. The Malibu Wakesetter VLX is historically our second best selling model in the Malibu brand and the new 22 VLX continues that trend.

The T23 is our second traditional bow Axis model introduced and the demand for that boat has been as strongly as we had expected it to be. And lastly the new Response LXR entry level ski boat that we launched in January has performed better than we expected since we consider that boat to be for a niche market and had a lower volume rate.

It is also very exciting to see the strong demand for our flagship Malibu 23 LSV Wakesetter. It’s in the second year since this complete remodel. Normally, the second year sees about the same demand as year one, but in this case, the 23 LSV is on a pace to set a new annual shipment record.

Given that the 23 LSV is the best selling performance sports boat of all time, this achievement is very encouraging to us. As we are pleased we told you Malibu has launched more new features and innovations this year than any other time in the company’s history. Normally, there is a 6-month lag before new product, new features begins to take route.

And this occurs simultaneously when consumers see this new product at boat shows when everything on display. The boat shows confirm that the new dash with the 12-inch touch screen and the Viper II technology platform of being very well accepted.

Our integrated surf system combining Surf Gate and the new Power Wedge II is also in high demand and the new G4 tower is the premium must-have for our Malibu Wakesetter boats. The Power Wedge II is rapidly becoming a feature that is gaining attention and we expect the Power Wedge II to be strong selling point for Malibu as we go forward.

With this rapid planning ability and full integration into our proprietary Surf Gate system, it lowers fuel cost while providing a level of surf wave control that has never been seen before in the industry.

We believe our integrated surf system is well ahead of any other commodity on the market and reinforces our position as the market leader when it comes to performance and innovation. Let me speak for a minute about our Australian business. The integration of our Australian business continues to move along nicely.

And this business is performing in line or better than our plan. In the third fiscal quarter, Australia delivered 80 boats and we continued to see the strong demand. Manufacturing in Australia gives us the strategic advantage over our U.S. export competitors.

Not only are we capable of being three to four times faster to market, we do not face the currency headwinds to the same extent. We continue to believe we are very well positioned in Australian and excited about the longer term growth opportunities in that market.

Last quarter, we told you about the next phase of our vertical integration strategy, the in-house manufacturing of our trailers for our boats. This quarter, I am very pleased to tell you that our new trailer shop is operational and we have built our first trailers in April.

It remains our goal to deliver a better value trailer to our dealers and over time bring innovations to the trailers just as we have with our boat. As you all know since 2008, we have increased our market share dramatically among manufacturers of performance sports boats.

This is being driven by a combination of new product development, redesigned models, innovative features and improved distribution. The good news is when December trailing 12 months market share was released, our 2013 market share was revised upward by 20 basis points to 33%. This has happened for each of the past 3 years.

However, this contributed to a modest share decline that we saw during 2014 as our competitors became more aggressive in their product introductions, increase their distribution, and again compete more with our patented Surf Gate system. We continue to maintain incredibly strongly of over 1,100 basis points of share to our nearest competitor.

And we believe that we are well positioned to maintain and grow our market share given our industry leading dealer network in a robust new product pipeline that we will continue forward with.

As I have said in my commentary earlier, there is a minimum of the fixed month lag between the time our dealers showcase our new products and features and this really begins to take route in the marketplace as of the boat show season.

We have launched a number of incredible innovations over the past 2 years, but more importantly, we have fully integrated those offerings into one comprehensive system that provides unparalleled performance and convenience to our customers.

A fully integrated, open-ended system that can be upgraded and expanded over time is something our industry has never seen before and we are blazing the trail here. We think that this is a very powerful differentiator over our competitors. We continue to state that we believe we will gain incremental market share over time.

In the last 18 months, we have delivered three new Axis models to market and built the Axis brand into a full brand with five models. During the past 18 months, Axis has also moved from the number six market share position to the number four market share position. There is no doubt in our minds that this was the right strategic objective for Malibu.

We know this has been a huge addition to our long-term business and has provided another competitive advantage for Malibu as a whole. Our dealers continue to tell us that the ability to offer both Malibu and the Axis is a powerful combination, which allows end of sales of just about any customer in the marketplace.

Now that we have Axis as a full brand, we will be focusing future new model development more to the Malibu brand side of our company. It’s still a little early to provide details on our new product introductions for next year, but I can tell you that we are very excited about the offerings.

We are currently targeting another four new or completely remodeled boats in fiscal 2016. Three of those four models will be Malibu. The first two Malibu models are slated to begin production in July and August for shipments to dealers and we look forward to providing you with more details on our next earnings call.

We are also introducing new features again this year, some which have never been seen before in the marine market. In closing, let me say again how pleased we were with our third quarter results. We feel like that we are very well positioned to close out this year and head into the new 2016 model year on a strong note.

The continued integration and development of Australia, the launch of our four new or remodeled boats, a heavier mix of Malibu products next year, and further development and penetration of our fully integrated platforms should all bode well for our business despite the international environment.

I now turn the call over to Wayne to take you through the quarterly results in more detail..

Thanks, Jack. Net sales in the third quarter increased 29% to $64.8 million. Unit volume increased 24% to 980 units and included 80 units from the Australia acquisition. Both Malibu and Axis performed well in the quarter and the unit breakdown was 269 Axis boats and 711 Malibu boats.

We told you last quarter that we expect that Malibu would represent over 70% of the unit mix in the third quarter and that’s exactly what we saw. Overall, net sales per unit increased 3.5% to $66,084 and was primarily driven by increased prices in the higher mix of Malibu’s units and carry higher average selling prices than our Axis brand.

Excluding Australian units and the incremental sales resulting from our recent acquisition net sales per unit in the U.S. increased 6.7% and was in line with our plan. Gross profit in the quarter increased 33.5% to $17.9 million and gross margin increased approximately 100 basis points to 27.6%.

The increase was driven by higher mix of Malibu sales and lower labor per unit in the quarter. Partially offsetting the increase was $300,000 of integration related expenses in gross profit. When adjusting for the $300,000 of acquisition-related expenses in the quarter, gross margin would have been 28.1% for the 3-month period.

Selling and marketing expense increased 9.6% to $1.7 million in the third quarter. As a percentage of sales, selling and marketing decreased 40 basis points to 2.6%. General and administrative expenses, excluding amortization, decreased 41% to $6.1 million.

The decrease was primarily driven by $4.5 million of management fees paid in the third quarter of last year, excluding non-operating expenses that we add back to adjusted EBITDA from both periods, G&A expenses increased to $6.1 million from $5.1 million in last year.

The increase was primarily driven by the addition of Australia and incremental costs related to being a public company. Adjusted EBITDA for the quarter increased 32% to $13.3 million and adjusted EBITDA margin increased 50 basis points to 20.5%.

This was slightly below our internal forecast due to slightly higher than expected costs associated with being a public company. However, having anniversaried the IPO in the quarter, we believe we have moved substantially at that learning curve with less room for variance going forward.

Third quarter non-GAAP adjusted fully distributed net income totaled $7.7 million or $0.34 per share. This is calculated using a normalized C Corp tax rate of 35.5% and fully distributed diluted share count of approximately 22.7 million shares.

For reconciliation of adjusted EBITDA and adjusted fully distributed net income to GAAP metrics, please see the tables in our earnings release. Our third quarter results were consistent with our expectations and our outlook for the rest of the year is unchanged.

While we do not provide detailed earnings guidance, our fiscal 2015 outlook is based on the following factors, an increase in our U.S. segment unit volume in the mid to high single-digit plus over 180 units for Australia. Excluding Australia we expect unit volume growth to be essentially flat in Q4 given the growth that we have seen through fiscal Q3.

From a mix perspective Axis is still expected to represent a little more than 30% of total unit volume for the full year. For the nine months of the fiscal year, our U.S. net sales per unit is up 5.4%. We expect net sales per unit in the U.S. will be up in the mid single-digits.

For the year net sales per unit on a consolidated basis with Australia is expected to increase at a low single-digit rate. We have seen and continue expect to see a modest improvement in gross margin domestically driven productivity gains in the quarters with the highest year-over-year volume growth.

Consolidated gross margin for Q4 will be challenged by Australia where we will see the impact of currency changes on input costs and where we won’t feel the impact of our price increases until the last month of the quarter. Legal expenses relating to PCMW and Nautique litigation net of settlement income are expected to be about $3 million.

Adjusted EBITDA margin including the impact of Australia is expected to be nearly flat despite the fact this will be our first year with a complete 12 months of public company expenses.

The consolidation of the Australia licensed business is expected to add approximately over 180 units, $8 million in net sales and over $1 million to adjusted EBITDA and $0.01 or $0.02 to fully distributed net income per share.

Finally regarding capital expenditures, we are still budgeting around $6 million which includes a little less than $1 million for trailer business which we recently brought in-house. In April we closed our amended and restated credit facility with a group of banks led by SunTrust.

We drew $80 million on our term loan at closing and left our new $25 million revolver unfunded and available for use. Interest rates on our credit facility range from LIBOR plus 200 basis points to 275 basis points. We plan to fix a portion of that floating rate interest exposure in the near future.

On April 15, we closed on the purchase of 3.3 million shares of Class A common stock to present to our reverse Dutch auction tender. 2.6 million of those shares were tendered from holder’s debt exchanged LLC units in Malibu Boats Holdings LLC at the time of the tender offer.

This has reduced amount of non-controlling interests attributable in Malibu Boats Holdings LLC to other unit holders to 22.8% as of April 15. In closing let me reiterate that we are pleased by the third quarter results and underlying trends in the business.

The results were in line with our expectations and our outlook for fiscal 2015 is largely unchanged. With that we would like to open the call for questions.

Operator?.

Thank you. [Operator Instructions] And the first question is from Tim Conder of Wells Fargo Securities. Your line is open..

Thank you, gentlemen and good morning. Jack if you could just clarify all your commentary on the new units, is that existing sell-through or is that sell-in, number one.

And the number two, clearly the Upper Midwest is an important region for you and a year ago you had a lot of snow, a lot of rain and then this year it’s almost been the opposite really dry for them.

Any color how that here in the early season up through this week or so has been healthy or if that much and if you can quantify it in anyway?.

Yes.

To your first question, Tim – by the way, good morning, to your first question, you are asking about wholesale versus retail?.

Yes. In your commentary regarding how you were on the new models and how those were trending versus your plan? I think again most of them you said they were either on plan or in one case on year two and the one model was tracking above plan.

Yes, is that wholesale or retail sell-through?.

That’s going to be wholesale, because retail as we know comes much after and we are measuring ourselves on that wholesale and then balancing that against the inventory levels. The way that I would comment on that is my commentary was around the wholesale numbers what we have sold to our dealers.

At the same time, I will tell you that I am more comfortable with inventory levels this year than I probably was last year at this time. We are in very good shape in that regard and a lot of the GE data that we are seeing is also showing that, and Wayne can discuss that.

To your second question on the Upper Midwest, I think that we have actually seen a benefit from that drier weather. It has not been quite as close as it was last year. So, I can’t quantify it yet in terms of retail sales, but we are seeing an uplift and the deliveries of the boats are going out sooner.

Where we have been hampered somewhat is on the East Coast and there were a couple of snowstorms that it would carry that has slowed that market down a little bit..

Okay.

And any color on the very early uptake or reception to the new models at the retail level?.

Yes, they have been extremely strong. And one of the things we are hearing from our dealers and from our sales people is that the acceptance of those models, the acceptance of the features have been very strong and there they seem to be closing a lot of sales in that March-April timeframe.

If I rated it, I would say that – I would put that 23 LSV, 22 VLX, A 22 and then T 23 kind of in that order, but they are all performing at or above our expectation..

Okay. And then last question gentlemen, in general, we haven’t heard too much fallout from the oil patch, except with the exception of Polaris did allude to it on their conference call in Texas in particular and then Western Canada, but they did bring up Texas.

Any color you can give us on that from what you are seeing early on at the retail level?.

Yes. I have been mildly surprised. I think as we discussed on our last call, it is both a positive and a negative or positive on the retail side for the consumer perhaps a negative on the manufacturing side, but the mild surprise comes from I have really not seen in the impact in Texas other than West Texas and that’s a very small market for us.

And then the other area that you would logically look at would be Canada and I have not heard a lot of noise about Canada at all. Really, the driver in Canada is concentrated around the currency..

Okay, okay. Thank you, gentlemen..

Thank you. And the next question is from Joe Hovorka of Raymond James. Your line is open..

Thanks guys. Couple of quick questions. First, there is $1.6 million of other income.

Can you explain what that is there?.

Yes, there is a couple of things that are flowing into that line item, but it’s the largest portion of that is our settlement of litigation..

The Nautique settlement?.

Yes..

And you are including that in EBITDA?.

No, that gets – the portion of that related to settlement is flowing through the professional fees and litigation settlement add-back of both EBITDA and adjusted fully distributed net income..

Okay, maybe I missed, it looked like it was all being at a backup, but that’s incorrect?.

Yes, that add-back, so the add-back of the litigation expense is reduced by the recognition of that income..

Okay.

So, how much of it is added to the EBITDA then maybe I will ask it that way?.

I think we are flowing that through net and we aren’t going to be talking specifically about what’s disclosed or what’s specifically being recognized on that, because I think there are some competitive reasons that we want to avoid them..

Okay. And then based on the unit sales that you gave for Australia and the revenue numbers, I was surprised to see that the average selling price in Australia is a couple of hundred dollars higher than the U.S., am I doing that right.

And B what’s accounting for that, I thought Australia didn’t sell some of the larger boats or at least in volumes that they do in the U.S.?.

So in terms of – partially in the quarter that would have been impacted by in units mix specifically there we just had the price increase for them on a year-over-year basis. So and in general the prices there are going to be a little bit higher than here in the U.S. just given the cost of production etcetera.

So in terms of incremental dollars to us the reason why it’s a drag on the P&L is obviously because we are recognizing revenue previously when we sold them parts. So that’s why it’s a drag on the overall ASP..

Okay, but it looks like it’s the other way actually, it looks like it’s pulling up the ASP?.

No, it’s not, because we have recognized a quarter of that – over a quarter of that revenue previously through selling them parts.

So in terms of the true additive nature of what that new revenue looks like when we consolidate, you are only actually adding to our P&L, you are adding a true unit of volume, but you are reducing, the actual revenue increase is only about $40,000 per unit..

Okay, great. That’s all I had for now. Thanks..

Thank you. And the next question is from Mike Swartz of SunTrust. Your line is open..

Hi, good morning guys..

Good morning..

Just wanted to talk about gross margin and I see you are kind of giving us a little caution for the fourth quarter just giving some of the moving parts, but can you talk about some of the puts and takes to gross margin as we think about going forward, I know that we have got kind of a product mix benefit with Malibu and maybe talk about in terms of production efficiencies, trailer manufacturing some of the uptake rates on the new accessories, just I guess how we think about gross margin over the next maybe three or four quarters?.

Okay. I think largely Mike it’s going to be the same story as what we have lived with historically. We believe that we very well are able to position the features and innovations and the uptake on those have demonstrated that they are much higher.

So as we break down the gross margin, the first one that we will point to is that mix between Malibu and Axis. Over time we suspect that it’s going to moderate, this year it’s been a little bit heavier on the Axis side because of the new models. We expect it will moderate between that 68% and 70% on the Malibu side, that’s number one.

Number two, we – our vertical integration allows us to generate more margins than we believe that our competitors do. We are controlling their design. We are controlling the manufacture. We are controlling the quality. And we are eliminating that middle man which is additional margin. And many of our options and features we make ourselves.

Then as we talk about the features and the options the way that we price those, we want people who if they want our option or a feature they are going to buy that and so we make that available to them. We don’t make it a standard part of the boat. So as a result, we are able to command a little bit higher margin on those items.

As it relates to the trailers going forward once we get into Q1 and Q2, we think there will be some slight up lift there. But we also want to be very, very careful about being competitive. And Wayne you might want to talk a little bit more about trailers..

Yes.

And so in terms of general cadence over the next three or four quarters, next quarter we are talking domestically in the business on a year-over-year basis just given the way our manufacturing we have talked a lot historically about how we plan our year and that’s really driven by what that manufacturing cadence is speaking and it’s going to look like for the volume number we think we need to hit.

And so as you all have seen Q2 and Q3 in the domestic business were very high growth quarters. And so it makes sense for us in Q4 just the way we are running our production facility for it to be more flat. That naturally is more of a headwind from a margin gain perspective.

In terms of where we have seen benefit Ritchie has done a great job on the labor front. We have seen improved warranty expense and there are – those are the two primary areas of benefit.

Heading into next quarter as part of my comments I talked a bit about the challenges with Australia where we had orders on the books before we could push through an incremental price increases, some of those U.S. dollar denominated costs will not as much as our competitors, we still have some U.S. dollar denominated costs there.

There is going to be a little bit headwind in our price increase there given the exchange rate move will come into effect and stick in the beginning of June. And frankly, again, it’s been well received there. So, I think overall Q4, the challenges there are really the year-over-year growth rate and a little bit of Australia.

Heading into the next year, we will talk more about it, when we talk about what our expectations for that year are and it was a little bit depend on what that cadence of manufacturing is, but what I’d say heading into next year is that you have some nice tailwinds.

You are going to have some incremental royalty income that will provide a little bit of a lift to gross margin and a little bit of a lift from the trailer business. And I think we have talked about what that ROI looks like and what that incremental profitability on the per boat basis could be.

And so what – you can calculate what that incremental margin impact is. All that combined the materials environment has improved and that provides us a lot of input for conversations as we head into next year around content increases, pricing increases.

And so we will be balancing the competitive environment versus some of those attractive factors for potential market..

Okay, thanks a lot for the color. And then just kind of sticking on margins and cost did you – maybe I missed it, but I think you said you had about a week of downtime in the March quarter due to some ice and some weather.

Were there any costs associated with that that you weren’t able to kind of recapture then as we think about trailer manufacturing starting up this quarter? Should we be modelling in any incremental costs related to that as well?.

On the former question, Mike that we did lose about a week of production due to the ice and the snow, we made that up. We made that up through working two Saturdays and also adding over time. So, there were some costs involved, which I think pointed the fact that we were able to manage other areas and come out with a very good quarter.

As it relates to the trailer for the Q4, had we planned that?.

Yes, on the trailer business, you will see summer startup costs there.

Some of it – we are going to be able to capitalize some of it, the fact the matter is it will get capitalized into inventory and you will see a little bit of drag from a negative variance as you just startup in relative to what we think our production throughput will be and what our efficiencies will be once it’s fully operational.

So, there will be a little bit of drag there, but I don’t think it’s going to absolutely dry all the way down..

Okay, wonderful. Thanks a lot..

Thank you..

Thank you. And the next question is from Gerrick Johnson of BMO Capital Markets. Your line is open..

Hey, good morning everybody. Maybe you could just recap what retail sales were in the quarter and if you could break that down by geography level of channel inventory and how that’s changed year-over-year and then the FX impact to both the top and bottom lines? Thanks..

Yes.

So, on the retail level, we estimate that retail is up in the mid to high single-digits and registration data from SSI right now is coming in for the industry in the quarter at the mid single-digit, but we are getting a couple of different numbers from both our internal warranty registration data as well as liquidation data from our largest floor financing provider.

That information from GE has shown strong growth. So, our estimate is that it’s up likely mid to high single-digits. What that means though is I can’t break that down for you by geography.

It is such a small quarter and those numbers in SSI aren’t necessarily correlating with what we are seeing both in our internal warranty registration data and the floor financing data. So, I can’t break that specifically down.

What we would note is that April registration data not out yet, but the liquidation data from GE for April was up substantially year-over-year.

And so we feel good about the – what was going on at retail albeit a retail environment that’s up mid to high single-digits is a little bit lower than past three years where you are in the double-digits?.

Gerrick what asked so on I will note on to what Wayne has said is that even though he had mentioned the market as a whole being up mid to high single-digits. What we saw internally through our year end sales has been our boat show promotions that our experience is higher than it was the market was.

So we feel very good about that and that that’s going to translate into the current quarter. And the reason for that translation in the current quarter is we are one of the only ones or so that have an incentive program, free flooring program through April 30.

So there is little incentive for our dealers to take liberty of both and deliver them prior to that time. So we see a very, very heavy delivery period during that April timeframe. To your question on channel inventory, channel inventory this year compared to last year for us is up a little bit.

The terms are still very good about where they were last year. The reason that that channel inventory is going to be up a little is if you think about the new models especially on that Axis side, our dealers are taking those two new models in over 18 months, three new models that they never had before.

So I am perfectly happy with where our inventory levels are as a whole. Every single manufacturer is going to have spots that they are going to have to work with the dealer and that’s going to go on each year. But as on a whole I am more pleased this year probably than last year..

Yes. The other note on channel inventory there is around the cadence of manufacturing for the year. We took the way wanted to schedule our productions to get – production to get the most efficiencies that puts more channel inventory in there but the fact that we are going to be more flattish at wholesales during Q4 will make the inventory faster.

But we are monitoring that, that’s why we have those April statistics at our finger tips and its doing exactly what we expected to do. So and then on FX there are two components to that, right. FX in terms of demand Jack talked a bit about, so not translation but just what is the impact of selling our products in U.S.

dollars to foreign markets and that has been a material headwind. And so I think we feel that the dollar rallied last week a little bit and it makes you feel little about the possibilities there.

But from a translation perspective on FX [Technical Difficulty] that the relative to what we originally expected that that currency conversion has been a little bit more of a headwind for us, but we have been pleasantly surprised by what we have found in the Australian business.

And we made a slight nuance change to the wording there around Australia saying instead being of 180 units saying it’s over 180 units now because of some of those things that we have seen as we have integrated the business..

Okay.

On a transition part though on the top line is there a number so $2 million that impacted the top line or anything like that can at least help us out on the translation part?.

Relative to what, relative to – so there is not a relative to last year comparisons.

So is there relative to our expectation or?.

Well, you were selling internationally last year as well, right?.

Yes. But that’s not a translation issue. We have all – that last year every single one of our sales was in U.S. dollars..

Okay..

So this year every single one of the legacy business of Malibu, its Holdings LLC is still in U.S. dollars. The FX impact there is a demand impact because we are selling in U.S. dollars. The FX impact of translation for the Australian business, don’t have a comparable in the prior year..

Okay, that makes sense. Thank you..

Yes..

Thank you. There are no further questions in queue at this time. I will turn the call back over to management for closing remarks..

We thank you very much for attending. We had a very good quarter. And as always, we appreciate your support and again I congratulate the Malibu team and our dealers. Thank you very much..

Thank you. Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day..