Good morning, and welcome to Malibu Boats Conference Call to Discuss Third Quarter Fiscal Year 2022 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 a reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats. As a reminder, today's call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; Mr. Wayne Wilson, Chief Financial Officer; and Mr.

Ritchie Anderson, Chief Operating Officer. I will turn the call over to Mr. Wilson to get it started. Please go ahead, sir..

Thank you, and good morning, everyone. On the call, Jack will provide commentary on the business, and I will discuss our fiscal third quarter 2022 financial results. We will then open the call for questions.

A press release covering the company's fiscal third quarter 2022 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 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, adjusted fully distributed net income and adjusted fully distributed net income per share.

Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. I will now turn the call over to Jack Springer..

Thank you, Wayne, and thank you all for joining the call. We again delivered an exceptional quarter or record setting quarter, which was particularly extraordinary given the supply chain environment, the industry continues to face.

During our record setting quarter, we exceeded nearly all metrics as our demand for large feature rich boats continues at a ramp up pace.

While supply chain challenges persist, limiting our unit growth, we were able to navigate this difficult environment and achieve more volume than we anticipated, led by our unmatched operational prowess and manufacturing capabilities, we continue to provide the most innovative, highest quality boats to our loyal customer base.

For the third fiscal quarter, we posted record net cells increasing 26% to $344 million, record adjusted EBITDA growing 40% to approximately $80 million and record net income growing 56% to nearly $55 million.

Despite the headwinds in the supply chain and the persistent material pricing pressures, our margins displayed incredible strength and resilience. For the third quarter, gross margins increased 180 basis points to 28.2% while adjusted EBITDA margin increased by 230 basis points to 23.2% during the quarter.

Extremely strong ASPs and our approach to operational excellence paved the way for outperformance over the quarter. As we were able to increase volume through our differentiated vertical integration strategy and strategic acquisition of Malibu Electronics to meet the insatiable demand for our boats.

As mentioned earlier, demand for our boats remains incredibly strong across all models and brands. We continue to see a strong backlog as dealers are noting an unwavering appetite for our boats with orders holding up extremely well.

Last week, our largest dealer partner across all of our brands announced a very stout retail sales quarter and same-store sales were up 8% year-over-year.

One of our North Carolina dealers reported that leads have been on pace with 2021, which was a record year and lead conversion to sales has occurred at a much higher than normal rate, with an even greater uptick in the month of April. Elevated demand from first-time boat buyers continues to support this trend.

We recently received the statistics from 2021. Now, the 2020 number of first-time boat buyers totaling 63,000 was viewed as a COVID induced ceiling with 19,000 more first-time boat buyers versus a decade long average of about 44,004 first-time boat buyers each year.

New data for calendar year 2021 remained elevated showing 12,000 or 26% more first-time boat buyers compared to the decade long annual average. Further in 2021, all first-time boat buyers, which would include new and used boat buyers surpassed 415,000 buyers for only the second time in 15 years.

This represents almost 360,000 first-time used boat buyers of which a significant percentage will purchase a new boat as their next boat in the coming years. Our 2022 model year boats are thriving with high ASPs across the board as dealers have seen numerous buyers waiting to get their hands on our boats at boat shows and at their dealerships.

For Malibu and Axis customers continue to seek our larger, more expensive boats. For Axis, our brand-new T250 is doing very well setting a tour in pace for new orders for this newly released model. As a reminder, the T250 is the largest Axis ever built and confirms that customers want bigger boats at every turn.

The brand new 25 LSV is also setting the market with new orders. Sales for Pursuit and Cobia also outperformed as we were well ahead of last year's sales numbers heading into our successful West Palm Boat Show for these brands.

The new R Series in Cobalt consisting of nine new models over the last 18 months has created significant market demand and transformed the R series with the addition of stern, surf and outboard variance offered in three different links.

While our product success continues to be like flapjacks flying off the griddle at an IHOP, supply chain constraints remain our biggest hurdle to ramping production. Even though, we experienced some improvement to the supply chain in the third quarter, we supported more volume out the door. This does not signal in a permanent recovery.

The supply chain remains volatile, limiting component availability across the brand for all brands, coupled with the ongoing unavailability of outboard and sterndrive engine in parts. Our ability to produce is desired for our Pursuit, Cobalt and Maverick brands and build channel inventory.

Channel inventory will remain impacted for the foreseeable future. While these supply chain issues have been trying, we remain focused on controlling our destiny and executing our strategic initiatives to help combat rising costs and increase our production.

As you have all seen for many years, if we can control it and manage it, MBUU performs exceptionally well. A recent example was our acquisition of Malibu Electronics. We announced the acquisition last quarter and it has proved to be a major win.

We saw an immediate improvement in our ability to produce harnesses and alleviate supply constraints for our Malibu and Cobalt brands. We are encouraged by the long-term potential of vertically integrating Malibu Electronics across all of our brands.

While we cannot predict when the supply chain issues will abate, rest assured we have the pieces in place to combat future bottlenecks and provide operational resiliency across the board. Inflated costs have been another challenge that has led to the need for price increases across the marine industry.

Our approach to price increases through a surcharge has been spot on and has covered the inflationary cost to this point. Looking at channel inventory throughout the marine industry. Weeks on hand inventory continues to be about 13 weeks lower than previous historic lows, which is consistent with what we are seeing with our brands.

While we believe there will be a slide increase to channel inventories for fiscal year 2022, we will largely see supply continue to mirror demand as retail sold orders are immediately captured.

Our expectations remain unchanged as we look ahead the fiscal year 2023, when we will begin to see a build in channel inventory and potentially into fiscal year 2024 before we have normalization of channel inventories. This provides us with a favorable runway to reach further historic levels of performance.

No matter which direction the tide turns, Malibu is perfectly positioned for success with a long runway to ramp up production and reach normalized channel inventories. With demand continuing to run hot in considering our prolific operational capabilities, we take advantage of every opportunity to grow our business and our margin profiles.

Our entire Malibu family is what sets us apart from the competition. Through our unwavering execution on our strategic priorities, our planning, hard work and commitment to quality, we will continue to push the pace as we look ahead. A perfect example is our Maverick plant expansion.

In this environment, riddled with the delayed timeline from the unavailability of materials and labor, it is rare that a project meets expectations to the T.

I am pleased to announce that our plant two expansion, which significantly increases our production square footage at Maverick was squarely on time and we began producing our first boats out of that facility in early April.

Much like pursued a couple of years ago, this will allow Maverick to produce more boats, larger boats and increase the margin profile of the MBG brand. With a quarter left in fiscal year 2022, we are in a great position to deliver a historic and record setting year.

We have reached significant milestones through our cross brand vertical integration efforts, acquisition of Malibu Electronics and the Maverick plant expansion. Each has helped us successfully navigate rough waters in a challenging environment and allowed us to continue our momentum and close out the years strong.

We look forward to releasing our 2023 product lineup in the next quarterly call, which will further showcase our industry leading innovation with compelling new products and features and has always deliver the greatest value for our shareholders. I will now turn the call over to Wayne for further remarks on the quarter..

We anticipate revenue to grow in the 28% to 29% range year-over-year. Consolidated adjusted EBITDA margin is expected to approach 20.5%. While we look forward to closing a successful fiscal year 2022, we also look forward to the future.

We have and will continue to position Malibu for the long-term and believe Malibu’s in a place to continue our strong outperformance across the industry no matter what macro driven headwinds that may come our way.

Our track record of sound decisions to vertically integrate, acquire brands, position for growth, invest in new product and expand capacity where appropriate will prove to be the things that differentiate us.

We believe our team and our strategy set us apart and we are positioned to have industry leading performance that will deliver value for our shareholders, partners and employees through fiscal year 2022 and beyond. With that, I’d like to open the call up for questions..

Thank you. [Operator Instructions] Our first question comes from Mike Swartz with Truist Securities..

Hey guys. Good morning. I just wanted to touch on, I guess, margins for the quarter. I think EBITDA margin might have actually been an all time record for you. So just maybe go through maybe the puts and takes there.

And as we look at brand by brand, I mean, I guess where did the brand sit in that general vicinity of getting to the 20% plus targets that you’ve outlined in the past?.

Yes. With respect to the performance across the portfolio, I would tell you that the Malibu brand having been here for the longest, has the highest margins on a year-over-year basis. We’re seeing strength across the business.

The one place where there’s a little bit of margin pressure is in Maverick, but that’s because we’ve added a bunch of costs to that business as we position it to grow even further and really fill up that plant two expansion. So with respect to the 20% target the Malibu business is in excess of that 20% target.

And it has been for some period of time and continues to increase as we continue to invest in that business, whether that be through the engine vertical integration, flooring, Malibu Electronics, et cetera. That is closely followed by the Pursuit and Cobalt businesses that are in the higher teams region.

And both are seeing in the quarter meaningful year-over-year improvements. So the one that is the furthest away and part of the Saltwater segment is that Maverick business that we’ve only own for just over a year and where we’re making those investments..

Mike, it’s really pretty predictable and formulaic, to Wayne’s point Malibu very sophisticated business. A lot of our operational capabilities have been fully deployed at a Malibu. We’ve had Cobalt now for over four years. We’ve seen that even though our margin grow and grow I think two years into it, we had doubled EBITDA.

So we’ve continued to see the margin grow with the changes that we make as it becomes more sophisticated. I will say Pursuit had a really, really good quarter from a growth and an EBITDA margin perspective did very, very well. And then – and to Maverick, to the point about Maverick, we’re a year, less than a year and a half into it.

And so you can expect to see the very type – same type of growth over time with Maverick as we you’ve seen with the others..

Okay. That’s great color. And then maybe just a question on the guidance. I mean, I think if I’m doing my math correctly, it would imply that there’s a sequential step down in production in margins. Maybe talk us through that.

Is that just seasonality? Was there something in the third quarter that was a bit of an anomaly and we see kind of a return to more of a baseline or just any color you can provide around that?.

Yes. What I would tell you is Q4 is setting up similar to Q3 and what we said last quarter was with our guidance for Q3 was that, hey, look, there’s some upside here. And we contrasted that to the prior year where we said, look, there’s not a lot of upside. This is what our guide. And we don’t think that there’s a lot of juice like we can squeeze out.

Alternatively last quarter we said, hey, look, here’s the guide, but we’re going to do everything we can to maximize production. And the environment allows us to, will do it. And what I would tell you is with respect to Q4 you have a little bit of a similar setup as to Q3 where you have upside in the quarter relative to that guidance.

But the supply chain continues to rear its head pretty meaningfully. And so I think the element there on volume and margins really has to do with the setup. And could Q4 look a lot like Q3? Yes.

But the amount of uncertainty that we’re dealing, frankly has been increasing over the past three to five weeks as opposed to decreasing as we went into last quarter..

Okay. Very helpful. Thanks guys..

Yes. Thank you..

Thank you. Our next question comes from Rudy Yang with Berenberg..

Hey guys. Thanks for taking my questions.

So just with average unit prices continuing to increase I guess year-over-year sequentially, just hoping you could once again, address the question of how high unit prices can continue to expand at this point without seeing significant demand destruction? I guess what your expectation for prices are once supply kind of normalizes down the line..

Yes. Rudy, I think first of all, I would point out that the ASPs are being driven by what the customer wants. If that larger boat, it’s the boat with more features, more options on it. So that’s the primary driver. And as long as that’s in place, you can continue to see those ASPs grow.

We have been in a scenario that for a dozen years, since 2009, we have continually seen the ASPs grow the size of the boats grow in terms of what the customer is wanting, the amount of features and innovations that are being put on the boats. And it’s had a couple of different aspects to it.

It’s driven ASPs, of course, but it’s also quickened the cycle for when a personal trade in their boat and get another boat. And that’s something that we feel like that we’ve certainly mastered over time of creating that environment where a customer says, hey, I’ve got to have that newest boat because it has more features. It has more options.

It has more length, whatever it may be. So we’re very comfortable at this stage of the game that ASPs can continue to grow because that’s what the customer wants..

And I would just add to that Rudy, that while we’ve taken some price to help offset the inflationary pressures, the reality is that pricing meaningfully moved at retail back in the second half of calendar 2020 when inventory tightened up. And so there’s well over 18 months of acceptance by consumers at elevated pricing levels.

And we’re very cognizant of the element that’s inflation related and we’re going to manage that appropriately and not push that too hard. But to Jack’s point, there’s a lot of elements of mix, both on model and feature set that the consumer’s absolutely driving..

Great, really helpful. And then just secondly, I guess could you just provide some further color on AmTech.

I guess, how quickly you’ve been able to integrate it, how quickly it’s been able to kind of ramp? And just how much it kind of benefited your ability to increase production volumes during this quarter?.

Well, we’ve been benefited by the fact that we were in AmTech and really helping to run it going all the way back to last August. And so we were able to start putting some of our processes in place even back then, as we helped them to become better.

With the acquisition, I think we were very well staged to very quickly take on new product for both Malibu and Cobalt. It is hard to put an exact number on it, but AmTech absolutely drove with more units and a tremendous amount of return on investment. In this quarter, it'll do it again in the fourth quarter.

And then I think over time as we start rolling it out to the other two brands, it's going to have a big impact..

Yes. Just to add a little anecdote there, I would tell you in the quarter, we experienced an acute shortage of a relatively small harness from a different supplier. And having AmTech allowed us to turn around a prototype harness within 24 hours to Cobalt and within 48 hours, having production volumes delivered to the plant.

So it's the type of thing that in this environment and that agility to keep the lines moving. Actually resulting in lower costs and just absolutely maximizing your volume, that is hard to kind of quantify in terms of a return..

Great. Thanks guys. Appreciate it..

Thank you..

Our next question comes from Joe Altobello with Raymond James..

Hi, Joe..

Hey, guys, good morning..

Good morning..

I guess, first question on supply chain, I want to go back to something, you mentioned earlier, Wayne, is that the uncertainty and lack of visibility has increased, I guess, over the last three to five weeks. If we look at your revenue guide, the original guide to the back half was revenue accelerating in Q4, slightly from Q3.

That's no longer, I guess, the case based on today's guidance and our checks indicate that things got a little bit worse in issue wide in April from a supply chain standpoint. It sounded like you sort of confirmed that. So maybe help us understand what you saw in April and what you're seeing in May from a supply chain standpoint. Thanks..

It's really a more of a continuation of the same, Joe. It's been extremely unpredictable. You don't know from a week to week basis, what’s going to be short? One thing that I would point to though is the shutdown in Shanghai has absolutely had an impact.

And I think that if as long as China can continue to remain somewhat stable, that will look a little bit better from the supply chain, but we just simply don't know that..

Okay. That's helpful. And maybe on pricing, obviously ASPs up 21, I know a lot of that was mixed, but maybe help us understand how much of that was base price increases.

And I know you guys put in surcharges a few months ago and I guess, more importantly, what sort of price increases in terms of MSRP should be expect from model year 2023?.

So in terms of the mix, the components of mix, it gets a bit complicated just across the business units, as you mix up with respect to, Malibu and Cobalt, obviously let's use Cobalt example. The new R Series is a meaningfully more expensive model that replaced the R3, R5, R7 with R4, R6, R8.

And so you have a bit of tailwind there around the mix and not dissimilar on the Malibu side, the new models, a bunch of the newer models are larger in size. And so it's probably a little bit higher than 50% of that is in the form of year-over-years, price increases and the rest being a strong mix component..

In terms of model year 2023, how should we think about that from a pricing standpoint?.

We're working through that currently. I think we're focused as we have always been on having a long-term sustainable business model. And I think given the inflationary pressures, I think we feel position like we can increase price to maintain margin. But I don't think that we are inclined to increase price for the sake of increasing price.

So we're going to try and minimize those as best as we possibly can and let the environment it really dictate to us, where that needs to go..

Okay. Thanks, guys..

Thank you..

Our next question comes from Jaime Katz with Morningstar..

Hi, good morning and nice quarter. Thank you for taking my question.

I guess, I'm mostly curious to hear what didn't go as expected this quarter, because it looks like things really turned out quite a bit better than was anticipated?.

No, I think you captured it well, it was a blowout quarter. It’s hard to imagine why our stocks were set..

Okay.

Is there any insight that you have to like the surcharges and maybe how those are being absorbed and how you think about whether to increase them or prune them back over time?.

Yes. It's been pretty remarkable. We've not seen any pushback at all on the surcharges. And I think that we thought long and hard about do we do a price increase? Do we do a surcharge? What are the benefits of each of those? And I think that from a surcharge standpoint, as well as the amount, we struck a great balance.

We tried to not only cover the costs that we had incurred to that point, but also anticipate the costs that were going to come for the rest of the year. And I think our margins demonstrated, it's been very resilient, we've been able to hold them. And so I think we've done an exceptional job with that surcharge.

I would expect that, I mean, we're not seeing costs go down. So that surcharge is going to remain in place. It will probably roll over into the pricing of the product for next year, but that's what people have been dealing with for seven months. But we think that that will cover, the remaining costs or the visibility that we see going forward.

And as I say, we've not seen any impact on the desire for both..

Thanks. Thank you so much..

Thank you..

Our next question comes from Tristan Thomas-Martin with BMO Capital Markets..

Hey, good morning..

Good morning..

Good morning..

First question, Brunswick, they called out some weather impacts in the quarter.

Did you see anything similar to that? And then what was your retail performance in the quarter?.

Yes, we did. We heard it from our northern dealers and it's been, I think a colder weather environment up north and similar to a lot of other years like this, we see it go from south to north. So there was some – I think there was some impact on the retail side in the north that seems to have turned that first week of April, North Carolina.

I mentioned the North Carolina dealer, that's a prime example. They saw a lot more activity in the month of April. So we've seen it from a retail standpoint, I think Wayne I'll let you touch on that, but I think it's about what we would've expected..

Yes. I do think that there was some weather impact in terms of the deliveries if you're looking at registration data, either in SSI or warranty registrations. But from a retail activity with our dealers, I think it's really on par with what we had expected..

What did you expect, just to kind of give us some numbers?.

Well, I think it's going to be a little bit down year-over-year versus 2021 because 2021 was so robust if you recall the kind of big jump in orders for the LTM period, call it ended May or June of 2021 was incredibly high. And so you have a little bit of decrease on a year-over-year basis because of just the strength in Q1 2021..

Okay. Got it.

And then given the capacity expansion of Maverick, Malibu Electronics coming online, what could your annual production run rate look like?.

We've talked about it in the past a little bit without the supply chain, it can easily run. We feel like 10,000 to 12,000..

Awesome. Thank you..

Thank you..

I'm not showing any further questions at this time. I'd now like to turn the call back to Jack Springer for any further remarks..

All right. Thank you very much. In summary, we achieved an outstanding record setting quarter, despite a consistently difficult supply chain environment. Our dealer backlog remains very strong, supported by unprecedented retail demand for larger innovative boats, driving ASP growth across the board.

The supply chain continues to be very unpredictable, limiting production and now we are seeing new issues emerged with the recent shutdowns in Shanghai. Our recent acquisition of Malibu Electronics is already generating a significant return on investment and has enabled us to increase volumes at Malibu and Cobalt.

Like Pursuit before it, the Maverick Plant 2 expansion will deliver more volume, larger boats and improve margin profiles for the Cobia and Pathfinder brands and Maverick Boat Group as a whole. Our approach to price increases through surcharges was very prudent and has covered inflationary costs at this point.

And lastly, channel inventory continues to be at historic close, setting us up for a two to three year runway to ramp up production as the supply chain improves over time. I want to thank you today for joining us and we thank you for your continued support. Have a fantastic day..

This concludes today's conference call. Thank you for participating. You may now disconnect..