Malibu Boats, Inc.

Good morning and welcome to the Malibu Boats conference call to discuss first quarter fiscal 2026 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 the reproduction of this call in war or in part is not permitted without written authorization of Malibu Boats. And as a reminder, today's call is being recorded. On the call today from management are Mr. Steve Manetto, Chief Executive Officer, and Mr. Bruce Beckman, Chief Financial Officer. I will now turn the call over to Mr. Beckman to get it started. Please go ahead, sir.

Thank you, and good morning, everyone. Joining me on today's call is our CEO, Steve Manetto. On the call, Steve will provide commentary on the business, and I will discuss our first quarter of fiscal year 2026 financials. We will then open the call for questions. A press release covering the company's fiscal first quarter 2026 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, and 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 these 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, and adjusted net income per share. Reconciliations of these GAAP financial measures to non-GAAP financial measures are included in our earnings release. Finally, during today's prepared remarks, comparisons are to Q1 of fiscal 2025, unless otherwise noted. I will now turn the call over to Steve.

Thank you, Bruce, and good morning, everyone. We're excited to be hosting today's call from the Fort Lauderdale International Boat Show as we officially kick off the boat show season. It's always energizing to be here alongside our dealers, customers, and partners showcasing our newest models and celebrating innovation across our brands. Turning to our results for the first quarter, we delivered a solid start to the fiscal year with revenue growth above our expectations despite what remains a soft retail backdrop. Net sales increased approximately 13% year-over-year, and adjusted EBITDA margins were in line with the plan. These results underscore our ability to execute and outperform the market while maintaining discipline around dealer health and channel inventories. As expected, retail activities remained soft, and inventories entering the quarter were slightly elevated. We remain focused on working closely with our dealer partners to support right-sized inventory levels through targeted market-appropriate promotions. These programs are part of our normal seasonal activity and consistent with our approach of maintaining dealer health. That said, we feel very good about where we are positioned today. Our dealers are healthy, our brands are strong, and we have conviction in the mid-cycle outperformance opportunities. At our investor day, we also outlined our strategy to drive growth and long-term value creation through our build, innovate, and grow framework. This strategy builds on the foundation we have created as the leading premium fiberglass boat manufacturer and expands our capabilities beyond boat building into parts and accessories and marine services. Within marine services, we recently launched MBI Acceptance. a new financing partnership that extends our 360-degree marine ecosystem and provides an important tool to help drive retail at the dealer level. Early feedback from our financing partner has been extremely positive, describing MBI acceptance as one of the strongest programs they have seen, noting exceptional dealer engagement and early success in the rollout. Dealer participation continues to build momentum, and we look forward to providing additional updates as we expand the program throughout the year. Turning to product innovation, model year 2026 is off to a great start. Dealer and customer feedback on our newest launches have been extremely encouraging. The new Cobia models continue to generate strong excitement and validate our investments in innovation within the saltwater segment. The Malibu 21LX and the Axis A200 were well received by both dealers and customers, offering accessible performance and versatility. Earlier this month, we introduced the Cobalt R31 Outboard, delivering up to 800 horsepower and coastal-ready luxury. And debuting this week in Fort Lauderdale is the all-new Pathfinder 2600, which delivers both hardcore fishability and family-ready functionality. I'd also like to take a moment to recognize Pursuit for being honored with the National Boating Safety Award in the Marine Manufacturers category from the SeaTow Foundation. Selected out of the hundreds of boat manufacturers across the country, this recognition underscores Pursuit's leadership in our owner education and safety through its Confidence on the Water program, a partnership with the Chapman School of Seamanship. That provides hands-on training for new owners. It's a great example of how our brands not only innovate in design and performance, but also lead the industry in promoting safe, confident boating experiences. Overall, we are encouraged by the excitement surrounding our new model year lineup and the steps we are taking to drive retail activity and improve the customer experience. At our recent dealer meetings, the energy and optimism among our partner is clear. Even as retail remains soft, our dealers are energized by our innovation both in products and in retail tools. They see the strength of our brand, the quality of our products, and the value of our partnership as key advantages that will drive success as market conditions improve. Looking ahead, we will continue to remain realistic about the broader marine environment. While we have yet to see a clear inflection signaling a broader market recovery, our focus remains unchanged. protect dealer health, manage production with precision, and continue to push the pace of innovation and execute on our strategic growth priorities outlined at our investor day last month. We are maintaining our full year guidance and remain confident in our ability to outperform the market while continuing to build for the next up cycle. With that, I'll turn the call over to Bruce for the detailed review of our financial results.

Thanks, Steve. Our results in the first quarter were modestly above our expectations. Net sales increased 13.5% to $194.7 million, and unit volume increased 10.3% to 1,129 units. The increase in net sales was driven primarily by increased unit volumes in the Malibu segment, a favorable model mix in our Cobalt segment, and inflation-driven year-over-year price increases, partially offset by decreased unit volumes in the cobalt and saltwater fishing segments and an unfavorable segment mix. The Malibu and Axis brands represented approximately 47.7% of unit sales, saltwater fishing represented 25.5%, and cobalt made up the remaining 26.8%. Consolidated net sales per unit increased 2.9% to $172,500 per unit, primarily driven by a favorable model mix in our cobalt and saltwater fishing segments and inflation-driven year-over-year price increases, partially offset by an unfavorable segment mix and increased dealer incentive costs in the Malibu segment. Gross profit decreased 1% to $27.9 million in And gross margin as a percent of sales was 14.3%. This represents a decrease of 210 basis points compared to the prior year period. The decrease in gross margin was driven primarily by higher unit labor and material costs and increased dealer incentive costs in the Malibu segment. Selling and marketing expenses increased $1.4 million in the first quarter. The increase was driven primarily by an increase in marketing event costs. As a percentage of sales, selling and marketing expenses increased 40 basis points to 3.2%. General and administrative expenses decreased 23.8%, or $6.5 million. The decrease was driven primarily by a more favorable year-over-year comparison due to a $3.5 million legal settlement in the prior year. along with good corporate expense management. As a percentage of sales, G&A expenses were 10.7%. GAAP net loss for the quarter decreased 86.2% versus the prior year to a loss of $700,000. Adjusted EBITDA for the quarter increased 19.1% to $11.8 million. and adjusted EBITDA margin increased to 6.1% from 5.8% in the prior year. Q1 non-GAAP adjusted net income per share was 15 cents, up 8 cents from prior year. This is calculated using a normalized C-Corp tax rate of 24.5% and a basic distributed weighted average share count of approximately 19.3 million shares. For a reconciliation of gap metrics to adjusted EBITDA and adjusted net income per share, please see the tables in our earnings release. Turning our attention to cash flow, we generated $2.5 million of free cash flow during Q1, inclusive of $4.3 million of capital expenditures. It is worth noting that Q1 is typically a challenging cash flow quarter, and we are encouraged by the positive start to the year. As stated at our investor day last month, we look to maintain a prudent approach to our capital deployment. And with our capacity expansions behind us, we anticipate strong free cash flow generation as the industry returns to mid-cycle levels. Turning our attention to the full year, our view of the market has not changed. We continue to anchor our outlook with the expectation that our markets will decline in the range of mid to high single digits for the year. with a continuation of the high single digit to low double digit decline through the second quarter. With that said, we are keeping our fiscal year 2026 outlook unchanged. For the full fiscal year, we continue to expect sales to be flat to down mid single digit percentage points. For Q2, we expect sales between $175 to $185 million. We anticipate consolidated adjusted EBITDA margin for the full year ranging from 8% to 9%. For Q2, we expect adjusted EBITDA margins ranging from 3% to 5%. This guidance incorporates a modest direct impact to our fiscal year 2026 cost structure due to tariffs, which we continue to estimate between 1.5% to 3%, of cost of sales, assuming current tariff rates. We will continue to proactively mitigate impacts through our strategic supply chain management initiatives and vertical integration capabilities, which will help us minimize associated price increases. To close, we are off to a solid start with results that modestly exceeded expectations, reflecting disciplined execution and operating focus. Our strong balance sheet, operational excellence, and resilient business model give us the flexibility to scale production with retail and leverage our capacity we have put in place. Looking ahead, we are confident in our ability to deliver on our strategic objectives, outpace the market, and deploy capital prudently to drive long-term value. With that, I'd like to open up the call for questions.

As a reminder, to ask a question, you will need to press star and 1 on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, press star then 2. Please stand by while we compile the Q&A roster. The first question from Joe Altobello, Raymond James. Please go ahead.

Hey, good morning. This is Martin for Joe. Congrats on the quarter. I just want to really quickly touch on interest rates. Have you seen them sort of come down from consumers? And is this having an effect, whether it's getting people to go ahead and buy or is it affecting mix in any way?

Well, when you look at the rate cut of yesterday, I think where we see it show up is a few places. One is first consumer sentiment, right? I think it's just better for consumers to see those rates come down. They're still, you know, they're down about 100 basis points from the peak COVID, but they're not down to where they used to be, you know, prior. So that helps consumer sentiment. Where we see it show up, though, the dealer floor plan costs will come down because it's tied to SOFR. So they'll see an immediate cost there. So the consumer gets encouraged, the dealer gets encouraged, but when you're looking at what will it do to retail finance rates, that will take a little bit of time to you know, manifest itself into the marketplace.

Got it. Thank you. And just quickly touching on higher dealer incentives, you mentioned it for Malibu brand. Is this just a clear inventory and is this something that we can expect to kind of continue for the next couple of quarters?

I guess what I would say there is some of that is relating to the comparison period. So, you know, last year in the first quarter was a year of relatively light promotional activity in the Malibu segment. We were just coming off a very heavy promotional period in Q4 of 2024. And then, yes, you know, the overall industry, as you know, had a soft Q4, and we were no exception to that. So we started the year with a little bit higher inventory, and we did some promotional activity to help our dealers work through that in the first quarter. Going forward, we expect it to be a competitive promotional environment, but not anything like we've seen here recently.

Great. Thank you, and good luck. All right. Thank you.

Hi, guys.

This is Kevin on for Craig. Thanks for taking our question. I wanted to follow up on inventory a little bit just in terms of how you're thinking about that going forward. I think now is normally a seasonal low point. So just as you think about building into next year given your outlook, are there weeks on hand metrics or turns metrics that you target and then any insight across your segments about, is it healthy everywhere? Are there areas where you see more potential to stock dealers into next year?

Yeah, so we're constantly in contact with our floor plan finance providers, monitoring inventory levels and overall dealer health. And like I mentioned there a moment ago, I mean, the industry came into the year with a little bit heavier dealer inventory, but it's not very far out of line. So we would expect that that will continue to work itself down here as we go through the first half. As we think about our production levels and managing dealer inventory, we're really trying to align that with our expectations for the market. So in the second quarter and the second half, we're expecting the markets to be down and we're going to pace our production kind of in line with those expectations.

So just, I mean, maybe to follow up on the retail expectation, is it fair to say that that rate of decline is fairly consistent through the year? I know it's such a seasonal business. but would you expect retail to be down, I guess, each quarter consistently, or is it like a bigger front half weighted down, but then Q4 up? Just any help on the shape of the year.

Sure, yeah. What we said in the last call is what we still are expecting today, which is the first half to be down more than the second half of the year. So for the full year, we've said, you know, that their expectations market will be down mid to high single digits, and that the first half of the year will be down high single digit, low double digit, with the second half, you know, a lesser rate of decline. And that is essentially, that's exactly what we're seeing so far this year. And so the year is playing out in line with that expectation thus far.

Yeah, Mark, it allows us to, as we shared with everyone on Investor Day, it allows us to keep focusing on, you know, driving our lean manufacturing, our quality, all the things we talked about in MBI Advantage, you know, our central sourcing category management, our go-to-market capabilities. So we're, as Bruce outlined where retail is, we're taking full advantage of of this time to continue to work on our business and make those improvements as those volumes return, we'll be pretty excited and firing on all cylinders to keep moving forward.

Gotcha, that all makes sense. Thank you so much for taking the question.

Yep, thank you.

The next question is from Anna Bleaskins. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. I'd like to turn to the commentary on the second quarter margin. I'm just wondering that the cost impacts being contemplated there and anything to note, maybe, you know, show costs or things like that that are being contemplated. Thanks.

Yeah, I mean, what I would say is the the midpoint of that guidance is below where our revenue was in Q1, so there's a modest amount of deleverage that you can expect, and that's embedded in that guidance. And then we're seeing normal expense phasing throughout the year. We are starting the boat show season, and some of those expenses do ramp up as we get into season.

Got it. And then

On the saltwater fish and cobalt, can you touch on dealer inventories in those segments and if we should start to see more in line retail and wholesale balance throughout the year?

What I would say is overall, we still expect this to be a year of reduction in dealer inventories. Just overall, we don't really see a massive difference, I would say, between our segments in terms of the market environment. We're expecting that our dealer inventories will come down in all segments.

Great. Thanks, guys.

All right. Thank you.

The next question from Eric Walt, Texas Capital. Please go ahead.

Thanks. Good morning, guys. A couple questions. I want to get back to the MBI acceptance and maybe see if you could dig in a little bit more on that. I know it's been only about a month or a little less than a month since you launched that with the Malibu brand, but maybe some initial read in terms of how fast that was able to be rolled out across the Dito network, maybe kind of how penetrative it is so far, any additional... thoughts in terms of, you know, maybe what you've seen has worked versus hasn't worked. Maybe any additional detail would be helpful.

All right. A lot there, Eric. So we're excited about how it rolled out. If you recall, we said it was going to pilot in Malibu Access first, and that's where we're seeing that work. We are getting a lot of our dealers signed up. We're excited about that. Actually, our partners have said, like we said in our remarks, we're pretty excited about the overall adoption from our dealer base. They're seeing that as the strength to help retail boats. We're excited about that. Anecdotally, we're early in. We've seen, as you know, we've done some promotional 499 financing. There are some dormant customers that came back because our dealers had reached out to them and said we have a new offer, and they actually bought boats. So we're still in the anecdotal phase, to be honest. We have to let this thing start to incubate, go through its pilot. Then we'll start looking at the data. But everything is, from launch to where we are today, pretty exciting and energizing for our dealer base.

And the plan for the other brands is still unchanged or the timeframe of when that would roll out?

Correct. We'll continue to, you know, our Q1 plan to roll it to our other brands still remains intact.

Perfect. And then just the last question, because Doug Taylor and Doug's discounting in general, just give us a sense of the level of discounting that's still out there that you're seeing both, I guess, with both with your brands and maybe you're seeing with competitor brands and kind of when you feel that may start to cool off in the market vis-a-vis kind of, you know, channel inventories declining, rates declining. Wouldn't be smart to see that kind of normal discounting kind of, I don't want to get back to normal, but maybe kind of cool off from core levels.

Yeah, I guess what I would say, Eric, is, you know, certainly it has cooled off from the period where, you know, there was, you know, considerable excess inventory, you know, in the industry. And so it has cooled off from that, but it remains competitive. I mean, it is still a soft retail environment, and, you know, the brands and our dealers have to, you know, compete for deals. So, you know, as long as consumer sentiment is what it is, it probably will be a competitive environment, but not what it was.

Got it. Thank you, guys.

The next question from Noah Zakskin, KeyBank Capital Markets. Please go ahead.

Hi. Thanks for taking my questions. I guess first, could you give any color on how you're thinking about ASPs across segments, maybe how model year 26 pricing plays into that as well as mix would be helpful? Thanks.

Yeah, what I would say is modest year-over-year price increases, and then I would say the trend towards larger, more feature-rich boats will continue, maybe not at the pace that they have the last couple years, but that macro trend is likely going to continue for the foreseeable future.

Thanks. And maybe just kind of any updates on how you're thinking about M&A or greenfielding would be helpful. Thanks.

Yeah, as we said, M&A and greenfielding, of course, is part of our capital deployment strategy. No changes on that front to announce there. We're still looking at opportunities. As we say, we're We're open for business, and we'll continue to consider opportunities that make sense and create value for our shareholders.

The next question from Jamie Katz, Morningstar. Please go ahead.

Good morning, guys. I'm hoping you guys can... could help us think about what sort of top line growth or perhaps declines we need to see to start to get a little bit of expense leverage to surface here given, you know, that absorption should improve as improvements have been made to the manufacturing process. So, you know, do we need to just get to like low single digit declines to start to see a little bit of improvement or does that have to turn positive again?

Well, I mean, we focus on maintaining good expense control and really focus on keeping our cost structure highly variable to enable us to adjust to the market conditions that we find ourselves in. I think having the you know, the market declines, you know, shallow out will certainly be helpful. And, but obviously, to get real leverage, you have to see, you know, the markets, you know, turn. So, you know, we're prepared, you know, we're driving our innovation, we're driving our outperformance initiatives. We are not waiting for the market to return to growth, but But I think to see large-scale volume leverage, you probably will need to see the market return to growth.

Okay. And then as we look at the back half of this fiscal year, I'm trying to think of whether there might be a little bit of resilience in the gross margin line, given that I think we saw some tariffs already in the final quarter of fiscal 2025. So maybe a little bit of a discussion between the benefits or the lack of input or lack of impact to gross profit at sort of the end of the year, this year versus last year. And then were there any like one-time items at the end of the year in GNA that might make the GNA ratio a little bit more competitive this year in the back half?

I don't remember if there were any comparison items in last year, so that's probably not the case. I mean, I think we expect the tariff kind of headwinds to build, but as well as our tariff mitigations to take hold as the year plays out. And then, of course, we're always working initiatives to drive margin performance. You know, we are expecting, you know, higher margins in the second half embedded in our guidance, and certainly gross margin is a part of that overall equation.

Thanks.

The next question from Mike Albanese, Benchmark. Please go ahead.

Mike?

Mr. Albanese, your line is open.

Sorry, guys. Can you hear me?

Good morning. Thanks for taking my question. I just want to dive into the consumer a little bit more. I'm curious if you're seeing any updates to consumer behaviors that relate to payment buyer, cash buyer, what that mix has looked like. And then I know it's early, but I'm assuming NBI acceptance will give you or does it give you a little bit more visibility into that?

I think two things, Mike, on that one. No change from what we were talking about earlier about where that cash buyer, payment buyer dynamic has landed over the last few quarters and still seems to be persisting through this quarter. The NBI acceptance... From a data point, it's early on. We're trying to see where that starts to feed us more information and to be smarter about how we go to market with some of our tools. We're just getting into mining some of the opportunities there. Nothing really to share yet, but we will have a look into what the consumer's purchasing habits are and some of the data around that. I think that will be later down the road. Once you can get enough data in to create some trends, we'll get the advantage of that.

I would just add, Mike, as you know, the consumer finance rates tend to be tied to longer-term treasury markets, so not really the short-term interest rates. Well, you know, it'll take a little while, I think, for the short-term cuts to work their way through to the consumer finance rates. And that's really probably what's going to be required to see a shift in that cash buyer to payment buyer ratio.

Thanks, guys.

I'm not showing any further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Goodbye.