Good morning, and welcome to Malibu Boats Conference Call to discuss first quarter fiscal year 2021 results. [Operator Instructions]. 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. We will then open the call for questions. A press release covering the company's fiscal first quarter 2021 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 for initial commentary.

Thank you, Wayne, and thanks to all of you for joining the call. Our team delivered phenomenal first quarter fiscal results that exceeded expectations. We saw a strong market and retail continued as well as the fantastic margin quarter and what is usually our lowest margin quarter of the year. This was driven by customer desire for larger boats and insatiable demand for features and options, the impact of our vertical integration strategy and flawless execution of our operational excellence initiatives. Our performance this quarter underscores the strength of our premium brand lineup and our leadership in the market. For fiscal Q1, we delivered net sales, gross profit and adjusted EBITDA year-over-year growth. Net sales increased 5% to $181 million. Gross margin increased 210 basis points to 25.3%. Adjusted EBITDA increased 28% to over $36 million and adjusted EBITDA margin increased 360 basis points to 20.1%. This is an achievement in Q1 as we work to meet our long-term target of a 20% adjusted EBITDA margin annually. Never in the history of our company have we achieved a 20% adjusted EBITDA margin in the first quarter. Malibu's continued outperformance in an incredibly volatile operating environment serves as a testament to our competitive leadership, strong and agile team, market-leading brand and unmatched vertical integration capabilities. This foundation has enabled us to consistently drive substantial value for our shareholders. We have pride in being a growth company that masters the top and bottom line. Last week, it was announced in Fortune's ranking of the 100 fastest-growing companies that Malibu is now #12. 2 years ago, we were #77. And last year, Malibu was #28. We are very proud of this distinctive achievement. Providing color to the quarter in more detail, new consumers and lifelong enthusiasts have continued to discover Malibu's lineup of…

Thanks, Jack. In the first quarter, net sales increased 5.2% to $181 million and unit volume decreased 5.3% to 1,635 boats. This decrease was primarily driven by the decrease in unit volume in our Cobalt segment, which Jack discussed, offset by increases in our other brands. The Malibu and Axis brands represented approximately 63.1% of unit sales or 1,031 boats. Cobalt represented 28% or 458 boats and Pursuit made up the remaining 146 boats. Consolidated net sales per unit increased 11.1% to approximately $110,700, primarily driven by a favorable mix within all brands, a higher mix of Pursuit sales and an increase in optional features in our Malibu segment. Gross profit increased 14.3% to $45.7 million and gross margin was 25.3%. This compares to a gross margin of 23.2% in the prior year period. Selling and marketing expense decreased $1.5 million or 28.7% to $3.6 million in the first quarter of 2021 compared to the 2022 period. As a percentage of sales, selling and marketing expense decreased 90 basis points. General and administrative expenses increased 9.2% or $1 million. The increase was primarily driven by higher legal expenses related to intellectual property litigation. As a percentage of sales, G&A expenses, excluding amortization, increased 30 basis points to 6.5%. Net income for the quarter increased 32.1% to $22 million. Adjusted EBITDA for the quarter increased 28.0% to $36.3 million and adjusted EBITDA margin increased 360 basis points to 20.1%. Non-GAAP adjusted fully distributed net income per share increased 36.1% to $1.13 per share. This is calculated using a normalized C Corp tax rate of 23.6% and a fully distributed weighted average share count of approximately 21.5 million shares. For reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the tables in our earnings…

[Operator Instructions]. Your first question comes from Craig Kennison with Baird.

Wayne, just with respect to your guidance, you just made the comment on Q2, which is really helpful in terms of cadence. I'm wondering from a full year standpoint, when we think about 20% revenue growth, can you give us a rough approximation of the ASP and volume contribution there?

Yes. I mean, it was a mid-to-high single-digit percentage growth rate on ASP.

Got it. And then with respect to your supply chain issue that you have mentioned, just give us a feel for how many different vendors you work with to build a boat? I'm sure it's a large number, but trying to approximate that.

In terms of the number of parts, I mean, there's thousands of parts that go into a boat. Now in terms of cross vendors, we think of a lot more in terms of the parts as a - number - as opposed to the vendors. But I mean, you're talking about hundreds of vendors, again, that are going into each boat.

And then lastly, just you guys have been able to gain share very nicely. I know you've also been able to add dealers over time. Is it a difficult time to add dealers given the challenges you face stocking your existing dealer base?

Yes. That's one area. And Pursuit is a great example of that, Craig, where if we were in a different environment, we'd be adding dealers more quickly on Pursuit, but we're very focused on doing everything that we can to get adequate inventory as soon as possible to our existing dealers. And then after that adding dealers. So going back to pursuit for a second, we would be adding dealers more with more velocity today if we were not in this environment. But I do expect to see that as we get more toward the end of model year '21 and end of '22.

And our next question comes from the line of Brett Andress with KeyBanc.

So just a little more color on the supply chain. So clearly, some things popping up the last few weeks, but where specifically are you seeing the pressure? And you mentioned this lasting the next few months. But is this a situation that maybe gets worse before it gets better? Or are we actually rounding the corner on this?

No. In my opinion, we're rounding the corner. And I do want to differentiate our messaging from maybe some of the other messaging that will come out across the power sports industry. And I reiterate that we have not lost 1 planned unit that we had planned to ship. And we do not expect that to occur. So more than anything, and what Wayne is telegraphing here is that we're going to see some impact in that second quarter from the standpoint of we might go up and count at all of the plants, but we're limited to that until the third quarter. But it is getting better. They are - look at it this way, they're 6 months out of the COVID environment, so they're able to react. They know what the demand is now, and we're slowly starting to see it get better and we expect that to continue.

Yes. And the thing that I'd add is, Brett, in terms of how we just manage the business and production, what we don't want to be doing is making step function moves and throughput that are putting too much stress because if something rears its head, that's the type of thing that wreaks havoc on your production and boats - that slows the line down, boats are sitting off to the side, those types of things and that's what we - from an operational excellence perspective, want to avoid. And so we give it a little bit of time to make sure that we can do it as effectively and efficiently as possible.

Got it. Okay. And then, Wayne, just on the EBITDA margins in the path to 20% this year, can you help adjust to maybe how much is volume-driven? How much is ASP option uptake? How much is fixed cost leverage? Because I'm assuming it's a mixture of all that. But how much maybe have the supply chain pressures? How much of that holding back on the 20% also?

Yes. I don't think the supply chain is holding that back. What I would say is look, the Q1 was a little bit higher than we had anticipated, and that's a positive. But ultimately, I think it's really - the vast majority of it is us harvesting the investments that we've made over the past couple of years. And so you obviously have a little bit of leverage in there. But I think the good and the bad of the variable cost structure is you get less of that leverage all the way up. And the benefit is on the way down, it behaves in a similar manner like we saw in our fiscal Q4. So a lot less of that, a lot more of harvesting the rewards and the returns on our investments. And then you got a little bit of the impact coming from additional option take - but I think the primary driver is kind of our prior investments.

And our next question comes from Joe Altobello with Raymond James.

The first question, obviously, we're certainly not going to know what retail looks like next year until next year, but how are your dealers feeling about potential growth in calendar '21 off of a pretty strong calendar '20? Are they going up for another strong year from an inventory standpoint?

Yes, they are. And talking about the dealer, they very much are. Their focus right now is they love to have more inventory. And as I mentioned in October, what we're seeing is that, that demand continues to be very strong from the retail consumer. So I think the majority of our dealers absolutely feel like that 2021 is going to be very strong and 2022 will be very strong as well.

Got it. And just a follow-up that with another question. Do you see a likely change in administrations impacting demand next year in terms of tax rates on retail consumers?

No. Where we're at today, we still don't have an election that's been called. So we don't know for sure know what the executive branch will hold. But to me, that's not as important as having a scenario where the legislative branch and the executive branch may be in different parties. So what we see today, you look - it looks like that the Senate will continue to be held by the Republicans. They have also picked up Congressional seats. And everything that I'm hearing, even people that I'm talking to that we're planning to sell a business or they have some sort of a tax scenario that they've got to look at, they don't believe that the tax impact will be as nearly as likely to occur. So I think from that standpoint, we all feel better.

And our next question comes from Mike Swartz with Truist Securities.

Just wanted to talk about the inventory situation out there. And I think Wayne, on the last call, you indicated that you're about 1,000 units short of where you wanted to be with field inventory. Could you maybe provide us an update of where you are today? And maybe how that's changed your thinking about when you'll actually be able to get back to equilibrium in the retail channel?

Yes. Really - the strength at retail has really continued. And so given what we did wholesale from a volume perspective, Jack quoted some percentages in terms of what those inventories are up since the trough. But really, that's a seasonal - the percentage is overstated because the denominator is actually really low. And ultimately, I don't think we've made a dent into that 1,000 in any way, shape or form. There might be a little noise around that number. But the short of it is we don't expect to have inequilibrium out until - into fiscal 2022.

Okay. Okay. That's helpful. And then just in terms of - Jack, you've talked about the longer-range EBITDA targets of 20%, and I think even 20% in each brand. I guess your guidance is now in fine, you're getting back close to that. And presumably, if you don't have any more supply chain challenges, maybe there's even upside to that this year. So I guess, how do you reassess that target over the long term? And then maybe how do you balance that with your obvious interest in growing market share?

We're ahead of the curve. So what we've said is that within the next 3 years or so, we will be at that 20% cumulative MBUU EBITDA margin. And so we're ahead of that. Clearly, if we've achieved that 20% EBITDA margin in the first quarter, we are ahead of that. So I think that it's going to come quicker, barring any unforeseen scenario. For me, the decision is not around - get to that EBITDA margin level and you lose market share or increase market share. They're not necessarily tied to each other because of the way that we go about it. If you're dealing with a scenario where the only way you can generate the EBITDA margin is to raise your prices, then you're going to impact market share. We have the best value proposition of any of the competitors that we compete with almost across all of our brands. So it's not a price increase that gets us to the EBITDA margin, it's what we've talked about a lot, which is vertical integration, operational excellence, the way that we plan. And I'll give you a perfect example out of COVID, Mike, we telegraph and have conversations with our suppliers well, well in advance. So that's part of the reasons why we continue to invest in inventory. And in April and May, when we opened back up our plant, our suppliers knew what our need was going to be, and we were able to open up building the same number of boats as when we closed our plants. No other company that I know of was able to do that. We're communicating and have been communicating with our suppliers for months in advance, where we plan to take production increases up, can you support us in that? And that's why we're supremely confident that if we're modulating our production and we're working with our suppliers, we can get the unit cat increases, we can get the EBITDA margins, we can get the gross margins that we expect to achieve this year because we just simply plan strategically and tactically better than anyone else.

Our next question is from Alex Maroccia with Berenberg.

One question on the expense profile. Your sales and marketing was a bit lower year-over-year, which I'm assuming it's driven by less shows and other branding events. So how much marketing is necessary this year since demand remains so strong? And how will it ramp once the event environment gets back to normal?

Well, I think it's a redeployment of those dollars. We - what we're hearing is more and more of the boat shows are not going to go forward. And I expect that by the time it's all said and done, it will something be somewhere between 10% and 50% actually occur. So we're redeploying those dollars, and we're putting it into more digital, virtual boat show concepts, a lot of events at dealers. And so I don't see a great decrease, but it's going to be a redeployment. I also think that our environment around boat shows and what generally would go on in the spring is in the process of changing. And I'm not saying that boat shows are going to go away. But I do think that what is occurring is we're going to see a hybrid model in coming years. And it's going to be a little bit different. We've seen the impact of boat shows over the last, call it, 5 to 10 years, dissipate slightly. And there are other venues, and I think that the culture is changing. And so it becomes more of how are we going to use those marketing dollars versus plowing them all into 1 or 2 particular events.

Okay. That's helpful. And then second, despite the stock being achieved, you've got high cash generation and there's still availability under the buyback of. We didn't see any repurchases in Q1. So I guess a couple of points on that. Why not buy back more stock? Are you seeing more accretive M&A opportunities out there? And can you discuss that pipeline at all?

Yes. I think with coming out of COVID, there is more activity. It really had tamped down from an M&A point of view during the COVID crisis. And I think just people trying to figure out where they're going to get their footing. We are starting to hear a little bit more out there. And right now, I'd put it this way. One, we have - it's a low stock price, but it's still in the 50s or so. So we're looking at that and we're looking at the best time to potentially make a repurchase. But secondly and more importantly, I think, is we want to be very, very prepared when that next great asset comes to market. And we've said this before, but we've looked at over 30 companies since 2014 when we did our IPO, and 2 companies have made the cut, Cobalt and Pursuit. And so we want to continue to be very, very focused on getting the right assets. But when it comes to market, we want to be ready at that point in time to do that. So as the market begins to heat up, we're going to be on the standby ready to make that acquisition if the right one comes along.

And our next question comes from Gerrick Johnson with BMO Capital Markets.

I have two here. First, if we could go a little bit more deeply into the advantage to vertical integration in this kind of environment, sticking with your core tow boat business. How many fewer suppliers do you rely on compared to, say, your nearest competitor? That's the first one. And then second, Wayne, if you just go through the components of gross margin, 200 basis point increase. What are the good guys and bad guys? If you could discuss the scale freight promos, input, labor cost warranty, things like that?

Okay. So on your first question, Wayne can take the second question. But on the first question, again, we don't really look at it in a number of suppliers. We look at it in a number of parts. And I would say that and this is a pure guess because we've not looked at it this way. I would say, easily, there's 50 - more than 100 parts when I think about stainless and billet, items like that, that we have brought in-house over the point in time versus our competition. The way we look at it, and I think this is an important way to look at it is that we control 25% more of the cost of our boats for Malibu and Axis than do our competition because of our vertical integration. So we control the concept, we control the design, the supply chain, the pricing that comes within that supply chain. And then ultimately, the production of the components that allow us to make boats. And that's what gives us an incredible advantage. Wayne?

Yes. So with respect to gross margin, the #1 driver of that expansion is what we have achieved at Pursuit. So we - the new plant coming online, and getting rid of contract build and producing more stuff ourselves is the #1 driver of that expansion. I would then point to a couple of things that are benefits. One is that we had higher part sales. So boat usage, which is a good - which is a strong predictor of future boat sales, I would point out. But boat usage has been off the charts. And so part sales had a little bit of an impact there. You also, if you recall, last year, in our first fiscal quarter, we had a Labor Day sales event that was kind of abnormal, that's a little bit of a - dragged that margin down a little bit. All of these components that - and you also have a little bit of benefit on the engine vertical integration initiative at Malibu, and those are all kind of about equal, but less than what we've achieved at Pursuit. That all is a little bit offset in the competitive labor environment, where we've raised some wages to make sure that we can meet demand, probably offset that a little but, but those are the primary components in kind of order of magnitude.

Ladies and gentlemen, I'm not showing any further questions at this time. I'd like to turn the call back to Jack Springer for any closing remarks.

Thank you very much. In summary of the quarter, we entered 2021 delivering unparalleled results for the first fiscal quarter. We continue to extend our leadership position with strong market share gains. Our teams continue to push boundaries through the introduction of new product models that exemplify innovation and luxury and draws customers into the Malibu, Cobalt and Pursuit lifestyles. Our strategic planning, operational excellence and supply chain management continues to support our outperformance of the broader industry. Our vertical integration has enabled us to remain resilient, quickly dodging and overcoming many of the issues that our competitors have faced. We are managing through modest headwinds for the fiscal year and expect to deliver strong earnings and adjusted EBITDA growth. And given our extraordinary start to the year, we remain confident in our ability to deliver value to our shareholders while outperforming peers to solidifying our dominant industry position. As always, we thank you for your continued support and for joining us in our journey towards growth and continued excellence. I hope you and those around you are all staying safe and healthy. Have a fantastic day.

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