Good afternoon and welcome to Malibu Boats Conference Call to discuss Fourth Quarter and Full Fiscal Year 2020 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; Mr. Wayne Wilson, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I will now 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 fourth quarter and full year 2020 financials. We will then open the call for questions. A press release covering the company's fiscal fourth quarter and year end 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'll now turn the call over to Jack Springer.

Thank you, Wayne, and thank you all for joining the call. Our fiscal fourth quarter results exceeded expectations driven by the strength of our brands, industry leading innovation, foresight in dealing with the COVID-19 impacts and our strategic and operational expertise. Our team was able to immediately and effectively ramp up production to the same pre-shutdown production levels to meet the increased demand seen across the entire marine industry. This resulted in significant market share improvement which is yet to be fully realized and outperformance against the broader industry to close out fiscal year 2020 strong. While revenues during the fourth quarter declined given the headwinds driven by the pandemic, we were able to deliver results ahead of guidance that we had provided during our last earnings call. More importantly, our superior execution allowed us to maintain the EBITDA margins approaching mid-teens, despite the 39% decline in revenues. This outperformance in a very volatile operating environment is a testament to the strength of our premium portfolio, agility of our team, and variable cost structure. As a result, we believe we are well-positioned and will continue to drive market share gains. For fiscal year 2020, net sales decreased 4.5% to $653.2 million, adjusted EBITDA decreased 11.9% to $110.9 million, and adjusted EBITDA margin decreased 140 basis points to 17%. Our number one priority has always been the health and safety of our employees. Our strong employee-first culture of Malibu is a competitive advantage for us. As a result, during the shutdown in the fourth quarter, we continue to pay our employees for the first two weeks of the shutdown and maintain their regular benefits package throughout the entire period. This included supplementing our employees' portion of healthcare contributions. We were very proud to say that we did not lay off one…

Thanks, Jack. In the fourth quarter, net sales decreased 39.1% to $118.7 million and unit volume decreased 43.9% to 1,117 boats. This decrease was driven by the production shutdowns at the start of the quarter. Malibu and access brands represented approximately 65% of unit sales or 726 boats. Cobalt represented 27.2% or 304 boats and Pursuit made up the remaining 87 boats. Consolidated net sales per unit increased 8.6% to approximately $106,200, primarily driven by a greater mix of larger more expensive boats. Gross profit decreased 50.7% to $23.6 million and gross margin was 19.8% this compares to a gross margin of 24.5% in the prior year period. Selling and marketing expense decreased 21% or $1 million in the fourth quarter as a percentage of sales, selling and marketing expense increase by 70 basis points. General and administrative expenses decreased 18.8% or $2.2 million. The decrease was primarily driven by cost reduction initiatives, we implemented in response to COVID-19 to better align our cost structure to the current operating environment. As a percentage of sales G&A expenses excluding amortization, increased 200 basis points to 8%. Net income for the quarter decreased 68.2% to $6.5 million, adjusted EBITDA for the quarter decreased 56.8% to $15.5 million and adjusted EBIT margin decreased 530 basis points to 13.1%. Non-GAAP adjusted fully distributed net income per share decreased 63% to $0.40 per share. This is calculated using a normalized C Corp tax rate of 23.5%. And a fully distributed weighted average share count of approximately 21.5 million shares. For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the tables in our earnings release. As Jack mentioned earlier, we were extremely proud of how we were able to manage the business through the fourth quarter.…

Thank you. [Operator Instructions] Our first question comes from the line of Brett Andress with KeyBanc Capital. Your line is open.

Hey, good afternoon. So given the -- given the low inventory, we've started hearing in the channel that there's a high level of, pre-sales hit the dealer level right now, for the next few months. Is there any numbers you can share just maybe on what your order book looks like at this point in the season going forward?

Well, the order book going forward, the first half is completely full. And so, if we look at it today from where we're at today in August, all the way through December 31, [is full] [ph] and extend into the third quarter. So it is the strongest order book, that across all the brands that we've probably seen in a number of years.

Got it. Thank you for that. And then, I'm just trying to reconcile in the slides. And in your comment, ski wake market, it's tracking up, I think, 11% year-to-date. I think you expect it to be up high-singles for calendar 2020. It seems like there was strong demand in August. So I mean -- I guess, what do we kind of expect and really for the last few months? Is there a decel that -- that might hit the industry?

There's a natural seasonal deceleration. The one thing, I would point out Brett is that last year, if you recall, in that May, June timeframe, we had significant weather. And so July, August and even September, were stronger than normal. So I think it could be equivalent to where that's at, if we're -- I think I said we were at 10.9%, you said 11%, right now. It could drop back a little bit, but I don't think it's going to be a huge drawback. We're in our slower selling season anyway, coming up to it.

Got it, okay. And then just the last one, can you remind us of the capacity that you now have online, both at Cobalt and Pursuit, I guess, what percent increase does that represent for your total capacity?

At Cobalt, I’ll word it this way and keep in mind, we run all of our plants on one shift, it keeps quality much better, we're much more efficient that way. And so on a one shift operation at Malibu, we always strive to have that 20% to 25% additional capacity available. At Cobalt with the changes and the additions we've just made were higher than that probably in that 30% range. And in Pursuit, quite honestly, with that brand new plant once we get that up and running, it's going to significantly, and I have to be careful with this because we talked about units in Malibu, but at Pursuit, we need to talk about revenue, because of the size of the boats and the range of the boat sizes. And so what we've said and we still stand by this, that over time we can double that revenue.

All right. Thank you.

Thank you. Our next question comes from the line of Craig Kennison with Baird. Your line is open.

Hey, good afternoon. Thanks for taking my questions. Jack, you took all the good ones. Wanted to ask about the comment you made Wayne about 1,000 units of inventory that may be short in the channel. Could you get to fill in all of those by the end of fiscal 2021, in, let's say, a flat marine environment?

It really depends, right? It's really -- it gets to question of and one of the reasons why you don't have full year guidance, which is the environment’s pretty dynamic. And so, in a perfect world, I'd love to say, we could get it. I think it's a little bit of a stretch. But in a perfect world, it's potentially achievable. In all reality, as you can tell from our comments, we don't think it's going to be a perfect world. Even if that retails flat, that we're going to just be managing through challenges and trying to make sure we do it in a consistent controlled way. So I think it'd be a stretch.

Thanks. And then I had a question on your dealer relationships. I imagine historically, you've been able to add dealers in markets where you lack those dealers. So you've been able to grow the base. Is it more difficult this time around, given you've got dealers, partners today who really don't have enough inventory, it just would limit your ability to, I guess stock a new dealer?

I'll address Pursuit first, Greg, because of the new plant and the additional capacity we have there, I think that's the biggest area of potential dealer additions and we can expand the distribution base, because we have a considerable amount of additional capacity. If we look at Cobalt, they largely have everywhere covered, so that's normally going to be a replacement situation. We have a dealer, that's not operating as well as we would like are not capturing the market share as well as we would like. And it's a situation that can’t be fixed. So we'll make a replacement. So that really doesn't impinge necessarily on our ability to build boats or produce boats. Malibu is very much the same way. Now, I will tell you that what we've seen on the Malibu side, and Cobalt, frankly, is that there are competitors that are struggling and we have converted several dealers that were competitive dealers over to Malibu and over to Cobalt.

Hey, thank you so much.

Thank you.

Thank you. Our next question comes from line of Michael Swartz with Truist Securities. Your line is open.

Hey, good evening guys. Just wanted to touch on the price points in the quarter ASPs were up I think like 9%, pretty strong across Malibu and Cobalt. And I am thinking one of the commentary out there right now with new first time buyers coming in and really driving a lot of what we've seen, I guess, can you kind of link those two? Are we seeing a lot of these new or first time boaters actually going towards more premium brands, I would think that it's more entry level, but maybe give us a little more color there?

Yes. We are seeing a growth in Axis without a doubt. And so we've seen that newer customer come in and look at that Axis and first that Axis. But we are also seeing consumers that are taking the opportunity, and they're saying I have whether it be Axis or Malibu, we have a 22 foot boat, and we're going to go to the 24 foot boat. So we're seeing a little bit of a mix in both realms. On the Pursuit side, we've seen the swing to larger boats, and that's part of the reason you're seeing that ASP pretty high, higher than what we would normally have projected on the Pursuit side. And then Cobalt there it's across the board, we're having very good sales out of our TM series, which are our smaller, less expensive boats, but we're also having very good sales out of the R series, the A series, and even up to that A36.

Okay, that's helpful. And I think, Jack, just in terms of August trends, I think you said that you saw a lot of strength in July carryover to mid-August. And then I think you said in mid-August, things soften. But I'm trying to understand is that -- are you saying that you're seeing retail decline or are you just saying the rate of growth has slowed a bit?

Rate of growth is slow. Again, normally you get to a July 4, after July 4, and you're going to have a seasonal slowdown. We did not see that in July. And so I think we're just now beginning to start seeing that seasonal slowdown, but it is not a scenario in which it has slowed down far more than normal. It's getting back to normality in my opinion.

Okay. That's helpful. And just want one final question for me, just so that you resolve some litigation recently. Just remind us, is there any more outstanding litigation regarding your -- any of your surf patents?

There is litigation on one of our competitors with Malibu, and that's advancing. We feel very good. We had a really strong victory earlier this week as it related to the court. So we feel very good about that. We have recently signed a another licensee that they actually furnish to multiple brands. And so they have come online and I think that puts us up close to 25 different licensees at this point. And there's someone else that we do expect to convert in the next month or so.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Joe Altobello with Raymond James. Your line is open.

Thanks. Hey, guys. Good afternoon. Just a couple quick ones for me. I guess first on channel inventories, you mentioned you have 1,000 boats shortfall here and the fact that you may not get caught up until fiscal 2022. Does that assume dealer churns are unchanged, or do you expect churns to go up, because dealers that we speak with seem to tend to hold less inventory than normal going forward?

Yes, I think the implicit question or the question that was asked was, hey, in a consistent environment there's a lot of variables that obviously go into that. And so well, dealers may expect to hold less like I mean, not that much less right. And generally speaking, when we come out with guidance or numbers they're pretty conservative. So, embedded in that thousand number, you could probably imagine there's a little bit of a reduction in turns imbedded in that. And so in a flat environment and the reason why I would say that it's tough to make up that thousand is we also under produce last year. So really, the growth rate that you're talking about at wholesale, would imply that thousand plus, whatever the shortfall that we produce this year, right. So then you're talking up like 30%-plus on volume, and that's why it becomes more of a stretch.

Got it. Okay. And secondly, in terms of boat shows, you mentioned a couple times today, the uncertainty there. If we weren't to have any in-person Boats Shows this year, is that is that good or bad?

I think naturally I was worried this way Joe, if you have a norm, you have a standard that people are used to. And so we did have some impact. Yes, I think that it would. I don't think that we're not going to have any Boat Shows. Fort Lauderdale is still on schedule. Fort Lauderdale has said they're going. We haven't heard anything about Miami, not going. So I think there will be shows that absolutely go. What I believe how you accommodate that or how you attack that is you have alternative strategies. Right now we're developing strategies on a brand-by-brand basis that we believe will actually get customers to the dealers, or get them to a virtual boat show top of side. And we will have success with that. So I think, by virtue of the fact of not having both shows is out of the norm. It's not what you regularly do, but beyond that, it's up to us to come up with new ways to entice that customer.

Got it. Okay. Thank you guys.

Thank you.

Thank you. Our next question comes from the line of Alex Maroccia with Berenberg. Your line is open.

Good afternoon guys. Thanks for taking my questions. If I heard correctly earlier, you mentioned that the new Pursuit plant can double margins on those larger boats. Are you able to discuss the size mix at all, so we can get a sense on the longer run margin expansion opportunity there?

Can you clarify the question in terms of the size mix?

Yes, just the Pursuit, because if you got double margins on the larger boats and trying to get a sense around what the impact of that would be in terms of the total business?

Yes. So, I mean, it's only on the two boats that were contract manufactured, which you're measuring in the $20 million to $30 million range.

Got you. That's helpful.

Yes.

Okay. And secondly, given the financial position currently versus where we were on your last earnings call, have you changed your thinking at all around capital allocation in the coming quarters, especially as it pertains to the acquisition strategy?

No. From an acquisition standpoint, we're pretty consistent in that, it's about the brand that comes to market or that their premium brand that fits into our portfolio. So the -- where we're at from an individual cycle standpoint really doesn't affect us. If that next great asset comes, we will be all over them.

Thanks, guys.

Thank you. Our next question comes from the line of Eric Wold with B. Riley. Your line is open.

Thank you. Good afternoon guys. A couple of questions, I guess, one you knowing your restarted production with a focus on the boats that are already been sold. And you talked about obviously a backlog into fiscal Q3, is that indicated as someone came into a dealer now and want to buy a new custom boat and an order it, you’re looking out to that Q3 period or is there something else there?

No. How soon do you want it? The situation that we take -- we take a stock slot, so a dealer will come in and they'll say I'm going to order this stock boat and let's just use 23 LSV. And what would happen in that point is that customer would say, I'd really like to have this by mid-September or end of September. And so that dealer and us would convert that stock order to a retail sold boat.

Got it. Okay. And then obviously, you’re not giving guidance in the year, you obviously you got some, you notice some hesitancy around uncertainties and COVID and election, all that. And then you kind of comments are the dealers possibly look into whole less inventory? Is that solely that dealers possibly a little more conservative kind of given what happened last year, with your inventory didn't drive in the first half of the year is along with the uncertainties that you share or is it something else there is a symbol of the first two?

I'm going to tell you straight up the commitment that we have from our dealers this year are not -- they're not scaling back on the inventory. They have given us the commitments that we've asked for.

Perfect. And then final question on Pursuit. What is the timeframe to get to a potential doubling of revenue at a facility and have everything going well, and what would that do kind of contribution margin out of that brand segment?

We think it's probably, I'll say, 36 months to get that doubling of the revenue scenario in terms of margin.

In terms of the contribution margin, we talked a little bit about just what I think of as the fundamental shift from the contract build to the in-house build of the boats that were being produced in Holland, Michigan. And so, absent that impact, I think, it's still a little bit TBD, but you're going to end up with a profile. It's a little less vertically integrated business than the Malibu access businesses. So the contribution margin will be a little bit less than that, but not it to a great degree.

Perfect. Thanks guys.

Thank you.

Thank you. I'm sure no further questions in the queue. I will now like to turn the call over to Jack Springer for closing remarks.

Thank you very much. In summary of our quarter and full fiscal year 2020, despite this COVID-19 impacts in the plant shutdowns, our fourth quarter was a good one. And it exceeded our initial projections handily; very strong market share gains have been driven by our capability to resume post shutdown production at the same levels as before the shutdown. This allowed us to build, deliver and sell more boats than our competitors. In addition, our culture of innovation continues to drive consumers to our brands. Our strategic planning, operational excellence and supply chain management supported our outperformance of the broader industry, and will continue to be a differentiator in this environment going forward. All brands immediately returned to pre-shutdown production levels to deliver better than expected fourth quarter performance and the EBITDA margins in the mid-teens. Production capacity, expansion initiatives in Cobalt and Pursuit facilities are up and running, providing opportunities for increased distribution and capacity. Our financial position is very strong. We have limited debt in over $150 million of liquidity. The first half of fiscal year 2021 looks to be very promising with the introduction of our new model year 2021 products, historically low dealer inventories, and strong wholesale demand throughout the first half and into Q3. While a lot of uncertainty remains, we are confident that the areas of the business we can control our vertical integration strategy, our production, innovation initiatives, premium product portfolio, and operational expertise will continue to drive growth and deliver long-term value to our shareholders. I want to thank each of you for your continued support of Malibu and for joining our call today. I hope you and those around you are all staying safe and healthy. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.