Good morning, and welcome to Malibu Boats Conference Call to discuss First Quarter Fiscal Year 2020 Results. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. Please be advised that reproduction of this call in the whole or in part is not permitted without written authorization of Malibu Boats. As a reminder this 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 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 first quarter financials, and outlook for fiscal 2020. I will then hand the call back over to Jack for closing remarks. We will then open the call for questions. A press release covering the company's first quarter fiscal year 2020 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 for joining the call today. The first quarter was another exceptional quarter for Malibu, as we continued to deliver strong results and exceeded expectations. For the quarter, net sales increased 39% to $172.1 million. Adjusted EBITDA increased 24% to $28.4 million, and adjusted fully distributed earnings increased 24% to $0.83 per share. Our industry-leading new product innovation and unwavering commitment to operational excellence continue to set us apart from the competition. Our model year 2020 products have been incredibly well received by both our dealers, and our customers, and are clear – are a clear example of the best-in-class performance and technology that we continue to bring to market through our robust product portfolio. The agility of our business and team has enabled Malibu to mitigate some of the industry noise created by higher channel inventories and a choppy retail environment and a vertical integration strategy strength of our supplier network has enabled us to mobilize quickly well unforeseen events like the UAW strike materialized with GM. I personally could not be proud of our organization and our team as it continues to demonstrate the market leadership that you have come to expect from Malibu. Moving to our results for the quarter. As I mentioned on our last call, the Malibu and Axis brands have brought to market four completely new boats this model year showcasing the innovation of the brand. As you recall, the Malibu Wakesetter 23 MXZ, the perfect mix of luxury and water sports performance, was introduced in July. While a new Malibu Wakesetter 20 VTX the greatest selling crossover boat in water sports history, and the Axis A20 an engineering marvel, which provides an impressive combination of value and performance were announced and introduced in August. In October, we announced…

Thanks Jack. In the first quarter, net sales increased 39.4% to $172.1 million and unit volume increased 13.9% to 1,727 boats. The Malibu and Axis brands represented approximately 58.7% of unit sales or 1,014 boats. Cobalt represented 33% or 570 boats and Pursuit made up remaining 143 boats. Consolidated net sales per unit increased 22.2% to approximately $99,600, driven by the addition of Pursuit models, which carry a higher average selling price compared to our other brands as well as year-over-year price increases and an increased mix of larger boats across our Malibu and Axis brands. Gross profit increased 31.1% to $40 million and gross margin was 23.2%. This compares to a gross margin of 24.7% in the prior year period. The decrease in gross margin is primarily attributable to the inclusion of Pursuit for the quarter. This is the last quarter where we won't have included Pursuit for the prior year period. Next quarter, there will be an additional two weeks included in this fiscal year as compared to last year. Selling and marketing expenses increased 44.8% or $1.6 million in the first quarter. As a percentage of sales, selling and marketing expense increased by about 10 basis points. General and administrative expenses increased to 18.9% or $1.7 million. The increase was predominantly driven by incremental expenses attributable to the addition of Pursuit boats, as a percentage of sales G&A expenses excluding amortization decreased 110 basis points to 6.2%. Net income for the quarter increased 38.8% to $16.7 million. Adjusted EBITDA for the quarter increased 24% to $28.4 million and adjusted EBITDA margin decreased 200 basis points to 16.5% attributable to the inclusion of Pursuit. Non-GAAP adjusted fully distributed net income per share increased 23.9% to $0.83 per share. This is calculated using a normalized C Corp tax rate…

Now that we had yet another strong quarter is off to a great start to the fiscal year, each of our brands are very well positioned to continue to capitalize on our exceptional model year 2020 product portfolio, and we continue to execute very well on our initiatives. I will now open up the call for questions.

[Operator Instructions] Your first question comes from the line of Brett Andress from KeyBanc Capital Markets. Your line is open.

Hey, good morning.

Good morning

Jack I was hoping you could elaborate and put some numbers around your retail trends. Obviously, the industry was coming off of a soft first half. But I guess how did the quarter progress for you? And then building off that, I guess, how much of the retail increase do you think was promotional driven versus pent-up demand from earlier in the year?

We had a phenomenal quarter from a retail standpoint. We were substantially up and substantially grew our market share during that quarter. It's really difficult Brett to ascertain where how much of that was promotional versus how much of that was new demand. I do think there was pent-up demand just simply from what we saw in that June time frame. But if you look at the entire quarter beginning with July, it started right off the back, offsetting what we saw in June, continued through August and September with our -- being in front of our competition and driving inventories down for our dealers certainly had an impact.

And has that continued into October?

Yes. It has from what we're hearing.

Got it, thank you. And then Wayne can you just elaborate a little more on the GM strike impact? I mean, it sounds like something impacting your second quarter. Is it simply a gross margin impact? Did you have any impact in the first quarter, are you back to a steady supply. Just any -- how to really think about that going forward?

Yeah. On a going-forward basis, it did not impact the first quarter. In terms of -- first quarter came in right on top of where we were expecting the numbers. And it is primarily impacting the second quarter in the sense that it's -- look it's driven by -- look Jack said it, it's a little bit of price premium to acquire that insurance policy and our desire to make sure we move through those as quickly as possible. And so maybe a little bit of discounting a little bit inefficiency around the factory just given the duration of the strike. But I mean it should not impact us. We are getting blocks now. And so we kind of have our arms completely wrapped around it. The things been done and we know what the impact is going to be. And most of that will flow into Q2 there may be a little trail into Q3.

All right. Thank you

Thank you.

Your next question comes from the line of Michael Swartz from SunTrust. Your line is open.

Good morning.

Could you maybe give us, I guess a little more detail or granularity on some of the inventory levels you're seeing out in the retail channel maybe by brand or geography? Just anything that stands out. And then maybe from what you can ascertain the inventory levels of some of competitive brands out there as well that’d be very helpful.

Mike we've been very focused on where we were at. And what we did over call it a three-week period in that August, September time frame is we focused on moving for our dealers model year not to the inventory. Our goal was to be very clean coming into the boat shows, having model year 2020 product primarily for our dealers to sell. We know that there have been other promotions that are out there. But I can't say that I know where competitors are at. I hope that they're down. But I don't know that. I think you still have some segments. And I'll speak to it on a segment level that still are pretty heavy in inventory. I'd point specifically what I'm hearing about pontoons that's still a pretty heavy environment from an inventory standpoint. My overall sense though is that the performance sports boat segment is better at the end of September than it was at the end of June. And I do hope that's the case.

Okay. Thanks for that. Then maybe anything -- we've had some larger boat shows the last month or so. Maybe give us a little bit of color on what you've seen maybe high level? And then also around maybe early orders, retail trends for some of your product coming out of those shows?

I think the best way to word it, it is surprisingly strong. So I'll go back to Atlantic City. Very good boat show ahead of last year. Tampa as you probably know was delayed around one month or so month, month and a half was also another very strong show especially for Pursuit, which we would expect that to be the primary carrier. But they were substantially up in multiples of units over last year. The most recent show, which is a huge Pursuit show and lesser for Cobalt but they also participate in Fort Lauderdale. And Pursuit had the best Fort Lauderdale show I believe that they've ever had, but it was substantially over last year. It blew away what our expectations would be for pursuit. And what is really interesting for us is that there was a lot of concentration on our new product from Pursuit as well as larger boats, which is fantastic. On the Cobalt side, they slightly exceeded what they did at the -- excuse me Fort Lauderdale show last year, so we consider that to be successful as well.

Okay, great. Thanks for the color.

Thank you.

Your next question comes from the line of Tim Conder from Wells Fargo. Your line is open.

Good morning. This is actually Marc Torrente on for Tim. Just a few questions for us. I wanted to dig into the inventory situation a little more. It sounds like you've made some good progress, but there may still be some work to do on the Malibu side. Could you maybe walk through some of the dynamics at play? Shipments were up strong in the quarter while you're still clearing inventory. Retail also continues to be strong. So is it really just a function of needing to clear the model year 2019 product? And I guess what does that imply for production cadence through the rest of the year?

We're not changing our production cadence. We think that it will be the same. We had said on our last call that the first quarter would be up slightly. So we executed exactly what we said that we would do. As I look at the inventories, we think we are in very good position. I will tell you that I believe and I think we all believe that our inventories are cleaner by far than any other competitor out there. And so they're set up to -- our dealers are set out to sell model year 2020 inventory, which I would always rather have our dealer selling the current year inventory versus trying to get rid of old inventory. So we think that we're better positioned than any other competitor out there.

Yeah. I mean Marc what I would say is that this has always been the plan. We've always over the years managed our production schedule. The factory is running really smoothly at the throughput that we've been running it at. And so we made the decision as we walked into the year to continue to run it at that high efficiency. And so the plan all along is yeah we've had some growth, but we've had really meaningful growth in retail in Q3 or calendar Q3. And so that has led to some of the inventory. But given the implied guidance that we've for those wholesale shipments and where retail that -- that will just continue to keep it healthier and frankly positions up us if anything for upside.

Okay, okay. Makes sense. And then you repurchased a good amount of shares during the quarter. You saw some availability under your authorization. How are you thinking about deployment of that going forward?

I think we're going to continue to be opportunistic with respect to -- I think we saw a great opportunity to buy stock at $29 a share. And so I think we'll continue to -- look we are focused on deploying capital in opportunities that are unique to us and that mantra has not changed and -- but that was an incredible opportunity to invest in this company and this team that we have here.

Okay. Thanks guys. Great quarter.

Thank you.

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

Thanks. Hi, guys good morning.

Good morning.

So first question I'll stay on the dealer inventory topic for a second. I think last quarter you guys had said that you expected to clear out whatever extra weeks of inventory were in the channel by the end of December at the latest. And this morning, it looks like saying by fiscal year-end, was there a change there? Or am I misreading those statements?

No. I don't think you're misreading those statements. The way we looked at it, we knew at the time what we were going to do in terms of trying to move that model year out of inventory. I think as we continue to move through the rest of the first half of the fiscal year, the inventories will continue to build for boat shows but not in an abnormal fashion. We had -- we did better than we expected with our promotional activity in terms of moving inventory. So, I would tell you that coming into Q2, we are cleaner than we anticipated that we would have been.

Okay, understood. And then secondly on gross margins, obviously, Pursuit skewed the numbers this quarter. And I guess this is probably the last quarter I'll get to ask this, but what was the base Malibu Cobalt gross margin in the quarter or at least the year-over-year change in that gross margin?

It was close to flat in the quarter.

Okay. And just one last one if I could. Wayne I'm not sure you gave us the Malibu access unit breakout.

We did not. We did not. I mean, look I think we've kind of consolidated the segment reporting. But I think for the most part, it's pretty predictable. You guys have seen it over time it really those are in model distinctions. And so it's literally about a 30 -- it always ranges from 30% to 35% range right? So I mean you plug it in the middle and you're going to be right about the number.

Okay. Great. Thank you, guys.

Your next question comes from the line of Eric Wold from B. Riley. Your line is open.

Thank you. Good morning. Kind of going to Pursuit. I guess, now that you have four year under your belt some of the early boat shows now from this year to kind of gauge kind of price appetite. How should we think about where you think on a baseline average selling price for Pursuit is going to kind of trend out? And then what's your ability to think to move that higher over the next call it couple of years?

I think the -- what we're seeing Eric is a very strong ASP average selling price is primarily being driven I think from two factors: one, we continue to see an appetite for larger boats; and then secondly, the features and options that are being put on the boats are driving that ASP. I think that will continue. We've not seen any degradation in terms of the number of features and options being taken in the early part of this year. And I think Fort Lauderdale last week was another example of that. In terms of continuing to drive ASP we have in our new products that are coming out features that our competitors don't have. And so we believe that will continue to drive ASP and then the larger boats that focus on going from a 26 footer to a 29 footer to a 32 footer and so forth. That's not starting to slow down. We think those are the drivers.

So I know the first quarter your gauge was a little wonky after the acquisition given -- or to given kind of what they had over the last three quarters just kind of range from below of $240,000 kind of on the wholesale side to high $255,000. How much higher than that can they go as you move into -- in the larger boats?

Yes. Look I think that's been a strong outperformance. That number is going to fluctuate a bit just given the mix because the -- with the breadth of the offering when you start flexing mix around. If we start getting a whole bunch more volume as we bring this plant online if that mix shifts down a little bit you could actually see a little pressure on that ASP, but you're going to be getting a lot more volume. So I think you really -- I think one when you think about modeling that business I really think you need to think about the revenue opportunity as opposed to trying to isolate that ASP because you may have some impacts of mix and don't want to disappoint folks on the ASP side, right? The reality is we're trying to make as much money as possible. And if that brings down that ASP or pressures that ASP growth a little bit because there's earnings to be harvested with a little bit smaller mix than we're probably going to think about.

Okay. That's helpful. And then last question. I'm assuming it's still relatively early coming out of the June call and boats you're just beginning. But kind of where do you think kind of dealer sentiment is right now given now they've got a few months four months or so plus of better volume patterns inventory is coming down. Where -- is there a sentiment level from what you've heard kind of with their desire as you move into next year to hold inventory on the lots versus where you may have thought earlier this year?

No. I'm fortunate to be able to answer that question after having our dealer meeting last week and spending the entire week with our dealers. There has -- are in a fantastic position. And going through that late August early September promotional period and helping them move that 2019 inventory has put them in a very, very optimistic pattern and thought process. So I think they're looking at the boat show season welcoming it believing that they have the right product from model year 2020 standpoint without a model year 2019 overhang. And so I would say I would say -- I would typically say rather that they are more optimistic than they have been in quite a while just from that standpoint.

Perfect. Thanks, guys.

Your next question comes from the line of Gerrick Johnson from BMO Capital Markets. Your line is open.

Hey. Good morning. I'm just going to go back and clarify a few things if you don't mind. First on the Q2 impact from UAW. To be clear you won't be seeing a slowdown to deliveries just the $3 million impact? Or will you be shipping more slowly than you previously thought?

We indicated that -- so 5% to 10% decrease on the Cobalt Malibu combined volume for the quarter. So that is a little bit slower than what we had anticipated. The operations team is working hard to make that up relatively quickly. And but that is we are saying a little bit lower volume in Q2.

Yes. And Gerrick, I think, it's probably pretty safe to assume that that lower volume in Q2 will be made up in Q3, but it's absolutely safe to assume and I think I said it on the call today that our production plan will be hit for the year.

Okay. So it's not necessarily that you can't get the engines. It's just that it caused a little bit of disruption in your process?

Exactly.

Okay. And then getting back to Joe's question on the disconnect between your verbal comments on channel inventory what we see on page 6 in the marketing pack. Maybe we need to know or maybe you can define what healthy means that might be helpful.

Yes. So I think that there's a big disconnect, right? The reality is that they're a little bit higher than they've been in years past. But if you look at what we've said and been consistent about is that their wholesale shipments would be strong and get stronger in Q1. But for Malibu and Cobalt the answer is they'd be down low single-digit volumes year-over-year which would imply that in Q2, Q3, Q4 that there's pressure on those volumes for the remaining portion of the year. That in a growing market if you have a negative year-over-year comps the reality of the situation and you're taking it down the reality is you're deinventoring even more right? It's relatively big math. So I think the issue is there not really a disconnect. It's been the plan all along and the answer is I don't know – saying, hey look we're going to be in a position by December. I think the thing that's probably being misunderstood is that by December we would be in a position to feel like that plan was going to work out. And what Jack's comments were along the lines of hey look we got that cleaned up faster than we even thought, right? But the plan all along if you go back and look at the call was a little bit strong in Q1 because how we're running the plant and let it naturally bleed down over the course of the year with lower shipment growth in a growing market. So does that make sense?

Well, kind of. It's just -- I think it's just a surprise for everyone. Well at least for me, I won't speak for everyone. But for me to see that you're expecting healthy channel inventory by the end of the fiscal year it just seems like that's longer than we anticipated that to be.

I mean we could have cut volumes a whole bunch and got even cleaner and then sat there and started growing more wholesale in the back half of the year and run the plant more inefficiently, but I don't think people want that.

Okay. Understood. Thank you.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Jack Springer.

Thank you. Malibu performed very well and we executed despite surprises like the UAW strike in the quarter. For now though we expect our performance to continue as guided on our last call. I want to thank you for your continued support of Malibu and for being on the call today. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.