Malibu Boats, Inc.

Good morning and welcome to the Malibu Boats conference call to discuss second quarter fiscal year 2021 results. At this time, all participants are in 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. 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. Richie 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 second quarter financials. We will then open the call for questions. A press release covering the company's fiscal second 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 SEC and 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.

Thank you, Wayne, and thank you for joining the call. Our team posted incredible fiscal second quarter results, once again exceeding expectations. Leveraging the strong retail environment in our previous planning and preparation for COVID-19, we significantly performed ahead of planned sales. We delivered exceptional gross margins and realized historic adjusted EBITDA results. Our results in view into the second half supports an increase in our full year fiscal 21 guidance, and we will outline this on the call. Customer interest in new boats and demand for larger boats with upgraded features and options remains very strong. Our backlog of orders is historic for all of our brands. ASPs are increasing, vertical integration strength is being realized with unparalleled execution, and we yielded a 320 basis point year-over-year improvement in gross margins for the quarter. This exemplary performance during the quarter further solidifies our position as a trailblazer and innovator in the marine space, as well as demonstrating our ability to adapt and grow in the current environment. For the second fiscal quarter, we delivered net sales, gross profit, and adjusted EBITDA year-over-year growth. Net sales increased nearly 9 percent to $196 million. Gross margin increased to 25.3 percent. Adjusted EBITDA increased approximately 28 percent to over $39 million, and adjusted EBITDA margin increased 300 basis points to 20%. As you know, we have had a long-term target of 20% adjusted EBITDA margin annually, and as you will see from our revised full fiscal year guidance, we are well ahead of schedule and will be there this year for the full fiscal year. Our strong employee-first culture continues to be a clear competitive advantage. At Malibu, I'm very proud to say that in January, we hit over 5 million man-hours without a lost-time accident. a nearly unheard of level that illustrates our commitment to protecting and supporting the well-being of our workforce. The last lost-time accident we experienced was in June of 2016, which means we have experienced over four and a half years without a lost-time accident at Malibu. This is a fantastic achievement for our entire Malibu team. We also welcome Maverick Boat Group as a new acquisition at the end of the fiscal second quarter. Maverick brings a complimentary lineup of premium brands, which are Cobia, Pathfinder, Maverick, and Hughes to the Malibu family. MBG has distinguished their reputation and significantly enhances our breadth of saltwater outboard offerings, of which Cobia and Pathfinder are highly complimentary to pursue. The addition of Maverick allows us to better serve the full saltwater outboard segment with our brands. We now have a full length and price range of product in the center console and dual console segments, and we immediately enter the bay boat segment with Pathfinder and the flat boat market with Maverick and Hughes. We believe this provides a tremendous opportunity for increased growth and profitability. Turning to the retail landscape, the thirst for boats remains very strong, even during what is historically a slower season in October through December periods. Our dealers have remained agile in this more virtual environment, and as a result, we are seeing an unprecedented increase in customer-generated custom orders. Actually, for more than a decade, or annually now, for more than a decade, we have conducted a year-end sales event in November and December. The year-end sales event provides the best deals of the year to the customer, even better than boat shows. The strength of this program has steadily grown over the last decade, and it's the premier selling event for the Malibu and Axis brands. It was very important to continue this event in 2020 for continuity and to offset lost boat shows. Due to the low aged inventory and lack of discounting, the program was modified this year, and discounting was lower than in previous years. This year, the year-end sales event was an astronomical success. This is hard to believe, but orders for Malibu and Axis boats during the year-end sales event exceeded the number of orders received from last year's year-end sales event and boat shows combined. This fact also applies to the 2018 combination of year-end sales event and boat shows. This is a staggering statistic, seeing as boat shows have historically been viewed as a vital factor to the health of the boating industry. To put this into perspective, over one-third of a full year's worth of unit sales and production was put under contract at retail in just over 30 days. As we anticipated, boat shows will predominantly not occur in winter 2021. Most of the larger shows are canceled. However, due to the strong retail environment and the extremely successful year-end sales event for Malibu and Axis, we see no impact to us in garnering orders for 2021. As I mentioned last quarter, all of our brands were challenged to replace boat shows since we believed that most of them would be canceled. Our brands have done a great job in working with dealers and planning on-site and other events. More progressively, Malibu and Axis developed a state-of-the-art virtual boat show and dealer solution. Not only can a customer attend a local virtual boat show, it also spotlights the specific boats at that dealer location and allows the customer to see all of the features and experience walking through the boat virtually. This is not a generic boat model on a website. This is the actual boat at the local dealership. No one else has this or even close to it that we know of. This should provide an unmatched customer experience. During the second quarter, a large percentage of dealer commitments were filled with retail sold orders compared to the normal environment for this time of year, which is roughly a 50-50 split between retail sold and inventory restocking orders. Further, as customers place custom orders, they are ordering larger boats commanding higher margins and invariably selecting additional features and options driving ASPs up and contributing to the margin profile per boat. This is a contributor to our fantastic gross and adjusted EBITDA margins for the quarter, and we expect this to continue. Channel inventories are building, but at a slower pace than we had initially anticipated due to the strong retail demand. As one would expect, given the time of year, we did see channel inventories increase in the second quarter. Based on available data, we expect a longer runway to normalize channel inventory and believe it will be into calendar year 2022 before we see channel inventory equilibrium. We view this as a great opportunity for our brands, which sustains our growth and keeps aged inventory very low, allowing dealers to have only the newest and most advanced models. Throughout this period of unprecedented demand, I am proud to say we have been able to fulfill every drop of demand with market-leading products, ensuring a long-lasting, sustainable, and loyal consumer base. We have not missed shipping one scheduled boat, a testament to our operational excellence and strategic vision. Our unified culture centered in operational excellence has allowed us to maximize our operations and ramp up production at a pace steadily ahead of our competition. We have increased boat counts and instituted unplanned production Fridays at all of our brands. We have built every boat we have planned to build and more. In fact, since the beginning of the fiscal year in July, Malibu has increased daily production rates by 50%. Cobalt has increased daily production rates by almost 20%. And for fiscal year 2021, Pursuit will produce 20% more boats than planned. In the second half, Malibu, Cobalt, and Pursuit will ship nearly 20% more boats than in the first half of this year, and about 35% more boats than last year. For full year 2021, our unit shipments will be up mid to upper single digits for the year. Specifically by brand, Malibu has built and shipped 175 more units than planned this fiscal year, and it will be the most in Malibu's history. Our dealers will be getting more boats than what any of our competitors will be able to deliver. Capacity is sufficient to grow wholesale production, and in fiscal year 2022, we will have the capability to build 5,000 boats or more for domestic demand. Based on our current market share, that would project to a domestic market exceeding 15,500 units. During our fiscal third quarter, Cobalt will see the final phase of our expansion and improvement project completed, allowing further increases in production counts. This will enable capacity to increase more beginning in the latter portion of fiscal Q4. This three-phase expansion and improvement initiative will enable a 50 percent capacity improvement over time as we need it. Pursuit is already seeing a substantial increase in additional boats being delivered on top of our current commitments. For the year, we are projecting to deliver approximately 650 boats, drastically outperforming our initial commitments and a 30% increase in units built over any other year historically. Further, we will be able to increase production even more in fiscal year 2022. All of the recently introduced model year 2021 products are flying off the shelves like hamburger patties for a cheeseburger picnic. Our boats are resonating with experienced boaters while also attracting new customers into the lifestyle. For Malibu, Leading our model year 2021 new product are the recently introduced M220, 24MXZ, 23LSV, and Axis A24, which are all larger boats that continue to drive new business and higher margins. Additionally, our flagship M240, which is just entering its second year, is outpacing our expectations. For Cobalt, momentum continues to build as we are seeing very strong performance in our brand-new model year 2021 boats, the R6 Standard, the R6 Surf, the R6 Outboard, the R8 Standard, and the R8 Surf, all of which have a higher ASP than predecessor boats and better margin profiles. We have delivered five new boats to the market this year, and the R8 Outboard will debut in the third quarter, making six new boats for fiscal year 2021, or an average of one boat every other month. These new boats drove record retail sales orders for our fiscal second quarter at Cobalt. We continue to see higher-than-projected demand for the new Pursuit S-428, the largest Pursuit boat that we have ever built. As strong as we expected this boat to be, its acceptance has been surprising, and orders are pacing about 50 percent higher than we thought they would be at this time. The S-378 is another large boat that has done extremely well since its introduction in the fourth quarter of fiscal year 2020. As we have previously said, the margin profile on both of these boats has doubled versus their predecessors, which were contract-built in Michigan. All production for the S-428 and the S-378 has been in Florida for the full fiscal year, and we are beginning to see the impact on Pursuits Financials. We continue to also see a shift to larger boats in the premium outboard segment, and we have led this trend in our new Pursuit products. We just completed the first month since we closed the acquisition of Maverick Boat Group. We have spent significant time there in January and are even more excited about the opportunities. There are operational improvements that we can make rapidly that will allow us to increase boat count. The real production driver will be the phase two addition to plant two, which will double that plant square footage. Very much like the pursuit game plan, once this expansion is completed, it will mean a significant increase to weekly production capability. We expect to break ground on this expansion later this calendar year and have the plant up and running as soon as possible. We are always focusing on creating sustainable improvements over the long term, and our plan for every brand includes building more boats in the second half of fiscal year 21 than in the first half, and more boats in fiscal year 22 than in fiscal year 2021. Moving to our operational excellence initiatives, we continue to see the gross margin benefit from our vertical integration strategy, which remains a key competitive advantage across our brands. Our vertical integration strategy allows our brands to control products or features from conception through customer delivery. This helped drive strong fiscal second quarter adjusted EBITDA margins. It also reinforces repeated statements that investments in our vertical integration initiatives drives profitability and unlocks maximum value from our product portfolio. As you know, all of our Malibu and Axis models are powered by our best-in-class Malibu monsoon engines. Further, these new models are equipped with several of our patented technologies, including our integrated surf platform featuring SurfGate and our SternTurn technology. Our patented SwimStep feature that originated with Cobalt is being utilized in Malibu models as well, and Malibu's flooring vertical integration has expanded to cobalt and will eventually expand to Pursuit. By developing our cross-brand vertical integration, we remain confident in our ability to generate new synergies across brands in fiscal year 2021 and beyond. Looking ahead, we remain committed to our growth strategy and growing our marine platforms. We will continue to drive innovation and be the first to market with compelling new products and features. Additionally, our strategic acquisition strategy of acquiring premium companies with improvement opportunities remains a focus. Fiscal year 2021 is positioned to be a monster of a year and well ahead of our initial expectations. Despite the noise around supply chain constraints, as we have discussed today, we have increased production significantly since the beginning of the fiscal year. I want to specifically recognize our suppliers who have done a magnificent job of getting us the product and parts we need to accommodate this growth. In a tough environment, they have excelled. Across our brands, we have continued to outperform our competitors and everyone's expectations. The last three quarters have been consistent with our very strong historical operational performance. Going forward, nothing changes. In an environment where channel inventories are at historical lows and aged inventory is at a minimum, there is an overriding factor that determines who wins. who gains market share, and who is most successful. The companies that produce the most boats will come out on top. We are producing at least a third more boats than our closest competitor in the performance sports boat segment. That is one-third more to ship to the retail customer and to build back channel inventories quicker. As we have for over a decade, Malibu will win, and that will carry to our other brands. Further, the accomplishments we have seen amid a volatile market again illustrate the benefits of our vertical integration strategy, which provide a level of installation against supply chain constraints by building up to 25% more of our boats in-house. We are incredibly optimistic for the second half of fiscal year 2021. As a result, we have increased our full year fiscal 2021 guidance. Wayne will take you through the specifics in a moment. I remain incredibly proud of our team and their enduring commitment to lead the boating industry continues to shine. We are achieving long-term sustainable success, and I am confident in our ability to deliver value to our shareholders while outperforming peers to remain a leader within the industry. I will now turn the call over to Wayne to take you through our financial performance in more detail.