Jack Springer - CEO Wayne Wilson - CFO.

Tim Conder - Wells Fargo Securities.

Good morning and welcome to Malibu Boats Conference Call to discuss Fourth 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 Management are Mr. Jack Springer, Chief Executive Officer and Mr. Wayne Wilson, Chief Financial Officer. I'll 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 then I will discuss our fourth quarter financials and initial outlook for fiscal 2016. We will then open the call for questions.

A press release covering the company’s fourth quarter and fiscal 2015 results was issued this morning 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. I would like to welcome everyone to our call. Thank you for joining. Malibu had a solid quarter and results that were again in line with our overall expectations, which makes it the sixth straight quarter since becoming public that we've met or exceeded the expectation.

The United States, our largest market by far, continues to see a rebound and experienced sustained growth. However, there remains a large degree of upside in growth before we began to reach the peak volume levels of 2006. Continued strength in the U.S.

and Australian markets offset currency related weaknesses in many of our international markets for the quarter. Overall, the U.S. market performed consistent with our expectations, and currency hindered markets such as Canada, South America, and Europe were weak as expected. Australia was slightly stronger than expected.

This makes sense because we sell our product to all international markets in U.S. dollar currency, while Australia receives a benefit of lower cost by manufacturing in-country versus boats that are imported. The strength in Australia led to some upside in unit volume for the quarter and we shipped more boats than we originally projected.

Wayne will go through the numbers in more detail, but the bottom line is we continue to execute very well against our global growth initiatives and delivered another quarter of good results, despite challenges in the global market. Our fiscal fourth quarter is an exciting and very busy period for Malibu.

During this quarter, Malibu fulfilled the last of the boat show season orders as well as early summer demand. This is also the time that we begin to transition the business to the next model year through our strategy and planning processes. Part of our planning process involves rigorously analyzing channel inventories.

We've continued to see our dealers sell through inventory, and we're very pleased with where channel inventories came in at the end of the fiscal quarter. The most exciting aspect of the fourth quarter is new product introductions.

This is when we are in the final stage of bringing new product to market with introductions that began in early July and continue into August and September. I’ll speak more about our new product in a few moments.

Weather can be a factor in the spring and summer seasons, which we saw last year and the year before that, but in general we saw a more normalized seasonal pattern to the business this year.

A couple of exceptions to this were the upper Midwest, which was negatively impacted by very high levels of rain in June and July in Texas, which experienced severe rain and flooding in May.

While the heavy Texas rains may have impacted the early demand trends in the number one volume state for performance sports boats, this should be a positive longer term. Lakes in Texas, some of which had public slips closed for the last couple of years are now open and the drought is viewed as essentially over, when expected far rains are considered.

We believe Texas is set up very well for continued gains towards its peak. We had consistent sell through on all models both in the quarter and the full year, but as expected the 23 LSV, the 22 MXZ and the 22 VLX have all been strong on the Malibu side, while the A22, T22, and T23 have been the top selling boats for Axis.

As you know, we introduced four new boats this year, two in the Axis brand and two in the Malibu brand, which also includes the response LXR ski boat. We also launched more new features and innovations this year than any other time in the company’s history.

The new features have been well accepted and have better than expected adoption rates and continue to build momentum in the market place. Our 12-inch touch screen with Viper II technology, which is a standard feature, has been a highlight with our dealers and customers.

The ease of use and intuitiveness of the system makes it very easy to operate a Malibu Boat versus our competitors who still have very clunky, confusing systems.

The Apple-like open-ended architecture of the system allows us to continuously update and add new features every year versus having a hard coated non-changing dash system like our competitors.

Adoption rates for key new features such as the Power Wedge 2 and the G4 Tower had been above our initial expectations, and we believe the boating consumers are just starting to understand the true performance and capabilities behind these industry leading innovations.

On the last earnings call, we told you that with Axis now being a full brand with five different models and the number four market share position, we will be concentrating our new model development more to the Malibu side of the company. For the 2016 model year, we're launching four new boats with three of them already launched in July and August.

Three of the four boats are Malibu branded boats. The first introduction of our new boats, which occurred on July 20, is the Malibu Wakesetter 25 LSV. This is an amazing new product that we believe to be one of the most powerful new product introductions in the history of the industry.

Historically, the performance boat segment has struggled with getting great wakes and performance out of the 25 foot and larger boat. This includes every model in the market as of June 30. The compromise has been pervasive.

Either you get a good way and drive a dump truck around the lake or you garner the performance mobility while sacrificing the wake. Malibu has cracked that code and created the best wakes and the greatest performing boat in the 25 foot and larger category our industry has ever experienced.

The 25 LSB combines the power and the versatility of a big boat with the performance and the agility of a smaller boat. This is the first time that a tow boat this big has the performance to match.

Whether it's a huge bare link surf wave through the massive weight per weight boarding and seating for up to 19 people is unquestionably the most versatile, best performing 25-foot boat on the market.

It features a reversible WakeView rear bench, action camera mounts on the transom, a power adjustable helm speed, and an optional rearview camera that allows the driver to easily watch what’s happening behind the boat. Both Wayne and I have one of these boats, and we can honestly tell you there is nothing like it in the market place.

We and our dealers are very excited about the launch of the 25 LSB, which we began producing in early July. The second new Malibu boat this year is the 20 VTX. This is a crossover ski and wake boat that is completely new from the hull up. The unique T-cut diamond hull is specifically engineered to lay down tournament-quality slalom wake.

.However the versatility of this boat also allows stop weight for white boarding and the wafer weight surfing. The 20 VTX is ideal for those who have white boarding and surfing as much and water skiing. It’s one boat for all three sports with zero compromises. Production on the 20 VTX began in August.

The third new boat that we've introduced this year is the Axis A20. Again this is a brand new boat. The new A20 commands a lot of the new features of the A22 and the B22 and puts them into a smaller boat. We've improved the running surface and the ability to surf and lake board in the A20. From [about trends] [ph] this is a completely new boat.

All Axis miles including the new A20 have updated upholstery and a brand new wind shield from earlier 2016. The A20 provides most powerful way of any 20 foot boat on the market at an entry level price. Production on the A20 also began in August.

The fourth big boat this year will be a brand new Malibu model in an existing product aspect, with an approach and performance never before delivered by Malibu. This will be one very special boat built with the same quality and performance characteristic as every Malibu boat.

We will begin the unveiling of this boat to our dealers in the industry in late September or early October culminating the full reveal sometime in November before the start of the boat show season. The other powerful piece to our industry leading innovation strategy is new features and options.

As we've dominated the innovation and product to market with boats, we've also brought more new features and innovations to the performance sports boat segment in the last three years than all of our competitors combined. Again for 2016 we've introduced exciting new features that are exclusive to Malibu.

These are new performance, experience, convenience and safety enhancing features that customers are looking for. The first one I'll mention is surf band, an exclusive patented systems that allows the router to control the wave from a remote risk device. From a simple and intuitive wrist band, the router can control Surf Gate, power wedge and speed.

We can centralize and the develop the idea of an integrated surf band technology along with the Surf Gate system several years ago.

With the launch of the Viper II integrated command system platform last year, we're now able to layer in the Surf Band technology to add another dimension to our total package integrated surf platform, getting what is truly the ultimate lake surf experience to our customers.

Surf Band debuted our dealers in August and will be featured at Malibu's 2015 evolution pro event finale in Houston in early October. Also new for the 2016 model year is the rearview camera option that lets the driver better monitor what is happening behind the boat.

We think this is an important safety and convenient innovation that allows the driver to focus on the front of the boat while knowing what is happening behind the boat. This is a feature everyone has become accustomed to in their cars and Malibu has now brought it in performance sports boat.

Just as with your car, this is a safety feature that helps parents always be aware of what the kids are doing. In addition it adds a functionality that I didn't fully appreciate. I find myself watching the rider with a rearview camera versus the rearview mirror due to the panoramic clarity of the camera. I can see everything going on behind the boat.

Similarly we will also be unveiling another connivance control feature to the steering wheel in Q2. Our dealers at a regional dealer meeting in August saw it and gave it innovation. It is that cool on a boat. For 2016 every Malibu lakes that has new windshield, this is a sleek windshield that is gorgeous but it also enhances the view for the driver.

Each windshield is also bagged with a model of the boat backed with LED lightings that delivers an ecstatic no one else has, but it is likely to become another industry standard set by Malibu. In addition to cool tech and performance features Malibu is equally focused on practical innovation as a key customer safe and protector investment.

Every year we hear about customers or dealers that have accidently left out their drain plug when the boat is in the water. This causes the boat fill up with water relatively quickly and can create significant damage or even sink the boat if not dropped quickly.

Malibu this year has added an automatic drain plug sensor, which alters the owner through that if the plug is left out. This should help the customers prevent water damage or a complete loss of a boat in such instances. It’s a simple, preventative thing that happens multiple times every year.

It also cause out the details that we at Malibu drive into when designing new boats and features. Another feature Malibu has delivered this year is hydraulic surf gate. This follows a hydraulic power wedge we added in 2015.

We’re the only performance sports boat manufacture offering hydraulic activators, which greatly improve the quality and the reliability of the system over electronic activators. We're very excited to power Malibu lakes that are modeled with the [Ford] [ph] engine under our Monsoon Engine Brands for 2016.

We've worked very closely within [Mar] [ph] our engine partner and we are very, very pleased with the results and the performance of this engine. The integration of our Australian business continues to be nicely accretive and this business is performing better than our original plan. This is due to two reasons.

First since we build in Australia, the strong U.S. dollar certainly helps us to keep our cost lower than our competitor through export to Australia. Secondly, we have instituted many of the same processes, metrics and aggressive sales and operating approaches in Australia that has made us successful in America.

In the fourth quarter Australia delivered 85 boats and demand out of the region remains strong. As we've discussed before, manufacturing in Australia gives us the strategic advantage over our U.S.

export competitors by begin three to four times faster to market, building boats for the Australian environment, building boats for the Australian customer and less of a currency impact. We like the way that we're positioned in Australia and remain excited about the longer term growth opportunities in this market.

Our vertical integration strategy remains on track as well. Last quarter we begin manufacturing trailers in-house and this conversion has went very, very smoothly. I want to congratulate our trailer team for a very nice start up and transition. They did an exception job under the leadership of Donna Tallent.

We're delivering better innovation and value to our dealers through the manufacturing of trailers in house. In the fourth fiscal quarter, we completed the last phase of our capital expansion project. We added another 28,000 square feet of operating space and doubled our rigging and final detail line.

In addition we relocated our warehouse to the landside which further improves efficiently. The old warehouse space is now available to expand lamination should we need to in a future capital expansion project. This project would further expand our capacity from 5,000 boats a year to 6,000 boats through a year for a little less than a $1 million.

As you know we filed a patent infringement claim against one of our largest competitors. We're limited on what we can say about the claim, but can tell you that we take the time, effort and cost of our IP very seriously.

Prior to beginning this litigation, we took several months and engaged several law firms and spent several thousands of dollars evaluating the case from every angle. We feel very strongly about our IP and are prepared to vigorously defend any infringements to the Yen as we've already demonstrated with an IP.

While it's still very early in the process, we're prepared for this to be a long and drawn out case, which could potentially take several years to win their verdict should the litigation take a full path through trial. Given our experience here, we've take steps to limit our legal expenditures should this go through Jury trial.

As we’ve said in the past we think it's premature to think about the monthly non-mature and incomplete registration data and we will speak to the domestic market share data on a full-quarter basis.

However, given what has transpired in our market and to provide clarity from the noise that is out there, we think it is best to provide some color as to what we are seeing happening in the marketplace.

First we believe that the performance sports boat segment continue to grow faster than the rest of the marine industry, albeit at a slightly slower pace than the last three years. Domestic registration data for the first half of the year is showing a market that is growing about 10% on a year-over-year basis.

Secondly, the performance sports boat segment is seeing a shift to the more value oriented unit. We believe that the premium product of each of the three largest players in the performance sports boat segment lost share in the first half of the year.

Some people will try to compare apples and oranges, but for those of you focused on this, we encourage you to dig into the numbers to understand what is happening by premium versus entry level category and by modeling by length.

While our focus on developing Axis as brand may have been strategically forward looking, given what we're seeing in the market the premium segment is still the largest segment and can have outsized the impact on share. Hence we're excited to pivot back in that direction.

Thankfully our model year 2016 product plan seem to have laid out where the Malibu brand was most impacted in the first half of calendar 2015 registrations in the 20 to 21 foot segment and in the larger super premium segment.

In the past few months, we introduced the 20 VTX and the 25 LSV targeted at these segments and our product plans are focused on continuing to hit these segments in the near term as well.

Thirdly, we believe that the June quarter numbers will reveal that the top two players in the market for performance sports boat of which Malibu is the far and away number one have gained share. This is coming at the expense of other competitors. Malibu has always been the industry leader when it comes to new products and innovations.

We believe our top competitors and others have been more aggressive in this area of late. There is more new product being introduced today in the industry than has been seen in many, many years. This will make for an exciting competitive landscape and can lead to further consolidation at the top.

Malibu leads the industry in innovation and product development and our commitment to this position will continue. Malibu continues to hold the number one market share position with nearly a 1,000 point -- basis point lead and we believe we are well positioned to continue gaining share over time.

It takes time for new products innovations to really take root in the marketplace. We've launched a number of incredible innovations over the past few years, but more importantly, we've fully integrated these 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 that our industry has never seen before and we’re setting the standard here.

We believe this is a very powerful differentiator over our competitors, but the industry remains highly competitive and those who are committed to new product innovations are in a better position to continue gaining share over time. I'll now turn the call over to Wayne to take you through the quarterly results in more detail..

Thanks Jack. Net sales in the fourth quarter increased 13.7% to $60.7 million. Unit volume increased 13.1% to 904 units and included 85 units from Australia. The majority of our unit upside in the quarter came from Australia in the sale of used demo boats.

Both Malibu and Axis performed well in the quarter and the mix between the two was in line with expectations at 295 Axis boats and 609 Malibu Boats. This put the full-year Malibu mix at just over 68% in line with our expectations. Consolidated net sales per unit increased 0.5% to $67,164 and was driven by year-over-year growth in prices at our U.S.

business. This was partially offset by the inclusion of Australia in the quarter, which contributes a lower average selling price because of the elimination of previously recognized revenue in our U.S. segment. In our U.S. business net seals per unit increased 4.3% to $69,700 per unit and was in line with our plan.

Gross profit in the quarter increased 10.9% to $16.3 million and gross margin decreased 70 basis points to 26.8%. The decrease in gross margin was driven by the inclusion of our Australian business, which saw temporary margin pressure from the timing mismatch of our price increases versus U.S. dollar denominated input cost and our U.S.

business gross margin expanded 28 basis points in the quarter on a year-over-year basis. Selling and marketing expense increased 2.3% to $1.7 million in the fourth quarter. As a percentage of sales, selling and marketing decreased 30 basis points to 2.8%. General and administrative expenses, excluding amortization, decreased 89%.

The decrease was primarily attributable to a $22 million change in non-operating charges related to litigation and operating related expenses. Excluding the non-operating charges, G&A expenses increased 2.6% to $3.7 million.

The increase was primarily driven by the addition of the Australian business, which was partially offset by lower stock compensation year-over-year. Adjusted EBITDA for the quarter increased 14.8% to $11.8 million and adjusted EBITDA margin increased 20 basis points to 19.6%. This was in line with our expectation.

Fourth quarter non-GAAP adjusted fully distributed net income increased 17.3% to $6.5 million or $0.32 per diluted share. This is calculated using a normalized C Corp tax rate of 35.5% and a fully distributed weighted average share count of approximately 19.9 million shares.

Just touching on the full year numbers quickly, unit volume increased 17% and net sales increased 20%. Net sales per unit increased 2.4% on a consolidated basis and 5.1% in the U.S. Gross profit increased 19% to $60.4 million and adjusted EBITDA increased 17% to $43.6 million for the year.

For reconciliation of adjusted EBITDA and adjusted fully distributed net income to GAAP metrics, please see the tables in our earnings release. Our fourth quarter and full year results were in line with our expectations and our outlook for the new year is cautiously optimistic. As Jack mentioned, we expect favorable secular trends in the U.S.

market to continue in fiscal 2016. We cannot predict movements in currency, but at current rate, this is expected to be a continued headwind to several international markets including Canada, Europe, South America, and South Africa.

While we do not provide detailed earnings guidance, our initial outlook for fiscal 2016 is based on the following factors.

An increase in unit volume in the mid-to-high single digit, unit volume growth to be largest in Q1 as we comp lower daily unit volume throughputs in the prior year and at Australia, with the remainder of the growth coming in the back half of the fiscal year specifically Q3.

From a volume perspective, Axis is expected to represent a proportion of unit sales similar to fiscal 2015. Consolidated net sales per unit is expected to increase in the low single-digits for the full year.

The first quarter will be negatively impacted by the lack of Australia units in the prior year and could be down in the low-to-mid single-digits percent range. We’ve seen and continue to expect to see a modest improvement in gross margin domestically and throughout the business.

Q1 expansion will be limited by the impact of including Australia, but we’ll see sequential improvement in Australia versus our fiscal fourth quarter as our price increases have a full quarter impact.

Margin should be helped by the inclusion of royalty income from our litigation settlement in Nautique as well as the in-house manufacturing of our trailers. Legal expenses relating our competitor's litigation are expected to be $1 million to $1.5 million for the year.

Adjusted EBITDA margin is expected to grow modestly with the majority of the growth coming in the back half of the fiscal year. Finally regarding capital expenditures, we're budgeting under $6 million, which includes some residual spend from our plant expansion project that was initiated in fiscal 2015.

In closing, let me reiterate how pleased we were with our fourth quarter results and underlying trends in the business heading into fiscal 2016. With that we’d like to open the call to your questions.

Operator?.

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

Thank you. And John I apologize in advance for the background noise on the road here, but -- and I apologize if you addressed this Jack, in your preamble, but any color that you can give us on the royalty income that you are currently receiving one. And then any color that you can give us as far as geographic areas in the U.S.

where you’ve seen some regained strength where you're maybe seeing still a little bit of pressure as it relates to year-to-date rains or lack thereof and then just in general some of the -- may be a timing of seasonality in the various geographic markets. Thank you..

This is Wayne. On the royalty side, we aren’t disclosing what that stream looks like. It has the potential to impact margin on year-over-year basis in the low-double digits from a margin perspective, but we aren’t giving specifics as to what that settlement looks like or the royalty stream..

Tim, this is Jack. On your geographic question, I think it’s pretty consistent with what we have seen. All of the geographies are performing about where they have. There has been a little bit of softness in the East.

One thing I did mention that we did see, call it in the upper Midwest as they had a very heavy rain season, and so I think that diminished a little bit of demand in the June timeframe. From a West perspective that is a market that is coming back toward its peak and it is slow, but it is coming back in the spot.

All that we hear about droughts we have not seen the impact on sales at retail nor wholesale. I believe that over the timeframe of the next few months, certainly with all the rains that Texas has received in May, it was a little bit of a problem to begin with because of the flooding.

But with the fall rains, we think that Texas is going to be very well set up to continue to grow, and then California the second largest state is also potentially set up to grow if the El Niño rains come through, but we've not really seen a big impact in California or the Western State..

Okay. Thank you gentleman..

Thank you. [Operator Instructions] And I am showing no further questions. I’d like to turn the call back to Jack Springer for closing remarks..

Thank you very much. In closing I want to thank you again for joining our call. Obviously, we're very excited about the new models and the features from the 2016 boating season. As the best operators in the performance sports boat business by far, we believe we're very well positioned to continue our trajectory of profitable growth.

Despite the currency headwinds in the international markets, we think the continued integration and development of Australia, the launch of four new boats, and the heavier mix of Malibu product will further develop -- and the further development of our vertically integrated platforms will bode well for the business going forward as long as our domestic U.S.

market does not impact it in some way. Again, we thank you for joining the call. Good day..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today's program. You may all disconnect. Everyone have a great day..