Industrial & Com Unsp/Adr

Good morning and welcome to Malibu Boats conference call to discuss fourth quarter and full fiscal year 2025 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, today's call is being recorded. On the call today from management are Mr. Steve Minetto, Chief Executive Officer, and Mr. Bruce Beckman, Chief Financial Officer. I'll now turn the conference call over to Mr. Beckman to get started. Please go ahead, sir.

Thank you, and good morning, everyone. Joining me on today's call is our CEO, Steve Minetto. On the call, Steve will provide commentary on the business and an update on the new model year, and I will then discuss our fourth quarter and full year 2025 financials. We will then open the call for questions. A press release covering the company's fiscal fourth quarter and full year 2025 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 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 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 due to Q4 of fiscal 2025, unless otherwise noted. I will now turn the call over to Steve.

Thanks, Bruce. Morning, everyone. Fiscal year 2025 was a challenging period for the marine industry, shaped by a difficult retail environment and heightened tariff uncertainty. Despite these headwinds, I am proud of our team's ability to navigate the landscape and deliver strong results for our customers and partners. We outpaced the market while remaining disciplined in protecting the health of our dealers, which remains a North Star for our organization. As a reminder, we led the charge. supporting our dealers' efforts to bring their inventory into alignment back in fiscal 2024. This set us up nicely for our outperformance of the market in fiscal year 2025, and we are well positioned to repeat that success in fiscal 2026. The organization is ready to execute despite a softer retail backdrop. At the same time, we continue investing in our people and kept our foot on the gas with innovation. We will be introducing 11 new model year 26 boats while maintaining our industry-leading commitment to quality and safety. I'm excited to share details on some of these new models with you in just a moment. In addition, we generated another strong year of free cash flow, producing $29 million. This consistent generation of free cash flow demonstrates both our discipline and the resilience of our business model, regardless of the market conditions. As anticipated, we also reduced capex spending as we have the capacity in place to support the next upturn in retail demand when the market normalizes. And lastly, we executed on our capital allocation strategy, returning $36 million to shareholders through share repurchases. Turning to our dealers, as we noted in fiscal Q3, we expected dealers to continue trimming inventory. elevated interest rates, ongoing macroeconomic uncertainty, and the timing of trade policy changes weighed on the consumer sentiment, which showed up in the software industry retail data. Initial market data suggests that fiscal Q4 was the weakest quarter of the year, with the broader market down mid-teens percentage points. We remain committed to aligning wholesale with retail. Last year, when dealers faced higher inventory levels, We were one of the first in the industry to adjust production and increase promotional support. These proactive steps helped reduce non-current dealer inventory of our products, which allowed us to lower promotional spending in the back half of fiscal 2025. To be clear, we are still providing promotions to our network. The key distinction is that our promotions are now more normalized to a market consumer incentive rather than an aggressive inventory reduction. At our most dealer meetings, at our recent dealer meetings, we came away energized by the sentiment. Dealers appreciated our customer-first approach, ensuring products aligned with individual needs for a premier boating experience. We shared our new product lineup and the excitement building around it, while also outlining plans to strengthen our role as a trusted dealer partner. This includes new tools to drive retail activity in the local markets and support long-term dealer success in fostering stronger relationships with our customers. We look forward to sharing more about these unique initiatives at our upcoming Investor Day next month. We have also made significant progress upgrading our dealer network. 2025 marked a turning point as we reset our Malibu and Access network. With boat liquidations behind us and new dealers in place, We are rebuilding our share in these affected markets and are proud of the quality and speed at which our new dealers have come online. While there is still work to do, onboarding has been smooth. And our new dealers are enthusiastic about providing industry-leading service and support to our customers in these important markets. Customer-centric innovation is central to our mission at MBI. As a market share leader, we are committed to delivering the most advanced boating technology and highest quality products in the industry. Our model year 26 lineup sets a new standard in creativity, craftsmanship, and performance, including 11 new models. Among the highlights are our Covia 245 center console and the 305 center console, which were unveiled at our national dealer meeting three weeks ago. These models are part of our strategy to upgrade the Covia lineup. And we are excited to see that initial orders have exceeded expectations. Next, we have the Malibu 22 LSV, the newest evolution of our best-selling LSV series. Easy to tow, store, and maneuver, the 22 LSV is the most complete compact wake boat ever built. We recently announced the Axis T250, the biggest, boldest, and most powerful Axis in our history. with room for 18 to ride, relax, and repeat. The T250 is an excellent option for value-focused buyers looking for outstanding quality at an affordable price point. And finally, the Pursuit S388, an evolution of one of our most popular models with more storage, premium upgrades, and performance in a smart layout. We plan on unveiling six more new models across our portfolio in the coming months and will continue rolling out the all-new Monsoon engine with enhanced power, torque, and efficiency. In addition to customer-centric innovation, our enterprise commitment to our communities remains paramount. Our mission is to deliver the ultimate on-the-water experience, and in doing so, we remain committed to safe boating and waterway health. We continue to educate customers on responsible voting and push the bounds of innovation with environmental impact in mind. Also, our longstanding history and involvement in MMMA and WSIA exemplifies our leadership role in the industry, and together with our industry advocates, we can take ownership in setting the standard for responsible and safe voting. Looking ahead, We are going to stay grounded in the realities of today's market, which is still feeling the effects of the broader macroeconomic uncertainties. With respect to the trade environment, tariffs will continue to create uncertainty in the general market. However, we anticipate a modest direct impact on our fiscal 2026 cost structure, estimated between 1.5% to 3% cost of sales, assuming current tariff rates. We will remain proactive in mitigating impacts through our strategic supply chain management initiatives and leverage our robust, vertically integrated U.S. manufacturing capabilities, all of which will balance the need for associated price increases. From a retail standpoint, we do expect to see gradual improvement in fiscal year 2026. We have not yet seen a clear inflection point that signals a return to growth for the overall industry. That is why we're going to remain disciplined, keeping our expectations aligned with what the market is telling us real time, and not get ahead of ourselves. Our dealer-first approach will continue to guide us, and our operational discipline will ensure we are in the right position when the market turns. We have the capacity in place, an exceptional team in the driver's seat, and a customer-centered product line that positions us to hit the throttle when the time comes. We are excited about the long-term opportunity ahead for MBI and for our industry. And as I mentioned, we look forward to sharing more at our investor day in September, where you will see how we are building on our strong foundation, innovating for the future, and positioning ourselves to accelerate growth. We hope you can join us. With that, I'll turn it back to Bruce to discuss our financial results in more detail.

Thanks, Steve. In the fourth quarter, results were generally in line with our expectations. Net sales increased 30.4% to $207 million, and unit volume increased 16.8% to 1,221 votes. The increase in net sales was driven primarily by increased unit volumes in the Malibu segment, a favorable model mix across all segments, and decreased promotional costs from elevated year-ago levels. The Malibu and Access brands represented approximately 46.6% of unit sales, Cobalt represented 26.9%, and Saltwater Fishing represented the remaining 26.5%. Consolidated net sales per unit increased 11.6% to $169,565 per unit. primarily driven by inflation-driven year-over-year price increases, decreased promotional costs, and favorable model mix. Gross profit increased 162.1% to $32.7 million, and gross margin was 15.8%. This compares to a gross margin of 7.9% in the prior year period. The increased gross margin was driven by decreased promotional costs across all segments, and favorable model mix. Selling and marketing expenses increased 10.7% to $5.4 million. The increase was driven primarily by an increase in compensation and higher marketing activity. As a percentage of sales, selling and marketing expenses decreased 50 basis points to 2.6%. General and administrative expenses decreased 12.7% to $18.8 million. The decrease was driven primarily by a decrease in legal and professional fees and a one-time IT item in the comparable period. As a percentage of sales, G&A expenses were 9.1%. Q4 adjusted EBITDA increased to $19.7 million, and Q4 adjusted EBITDA margin increased 1,210 basis points to 9.5%. Q4 gap net income increased to $4.8 million. In an effort to evolve and simplify our financial metrics, we have replaced the adjusted fully distributed net income per share metric with adjusted net income per share. In the fourth quarter, adjusted net income per share increased by 205% to 42 cents per share. This is calculated using a normalized tax rate of 24.5% and a weighted average share count of approximately 19.3 million shares. For a reconciliation of adjusted EBITDA and adjusted earnings per share to GAAP metrics, please see the tables in our earnings release. Turning our attention to cash flow, we generated $14.3 million of free cash flow during Q4, inclusive of $7 million of capital expenditures. We repurchased $5.6 million of stock in the quarter. Now, to recap our results for all of fiscal 2025, net sales decreased 2.6% to $807.6 million, and unit volume decreased 9% to 4,898 votes. Consolidated net sales per unit increased 7.1%, to $164,876 per unit, driven by a favorable model mix and inflation-driven year-over-year price increases. Gross profit decreased 2% to $144.1 million. Gap net income for the year was $15.2 million, compared to a loss of $56.4 million in the prior year. And adjusted EBITDA decreased 9.1% to $74.8 million. Adjusted EBITDA margin decreased by 60 basis points to 9.3%. As you may have noticed, this morning we have provided additional segment level detail in our press release and filings. For context, we have also moved several corporate expenses from the Malibu access segment to the corporate expenses and other line item to better reflect our operating structure. A historical recast was also provided in the 10K and will be filed later today. Adjusted EBITDA margin for the Malibu segment increased to 19.4% for fiscal year 2025 from 15.3% in fiscal 2024. For the same periods, Adjusted EBITDA margin for the saltwater fishing segment decreased to 9.5% from 10.8%, and adjusted EBITDA margin for the cobalt segment decreased to 8.3% from 10.2%. For the year, non-GAAP adjusted earnings per share decreased 21.4% to $1.58 per share. This is calculated using a normalized tax rate of 24.5%, and a weighted average share count of approximately 19.7 million shares. For the year, free cash flow was $28.9 million, inclusive of $27.9 million of CapEx and proactive raw material purchases in advance of increased tariff rates. We executed our capital allocation priorities by returning $35.9 million to shareholders through share repurchases and we finished the year with $19 million of net cash on the balance sheet and over $300 million of untapped liquidity on our credit facility. Our balance sheet's strength and ample liquidity gives us the confidence in our ability to support growth and innovation through every phase of the market cycle. As we enter the new year, as Steve mentioned earlier, we will take a pragmatic approach to our fiscal year 2026 guides. Market softness resulted in modestly higher than anticipated dealer inventory levels at year end, and macro uncertainty remains a key headwind in tempering retail demand. While we envision an improvement from the market declines we experienced in Q4, we have yet to see the likely catalysts for material inflection in the market. As such, our guide today is anchored in the expectation that our markets will decline in the range of mid to high single digits for the year. This will be characterized by continuation of high single digit to low double digit decline through the first half of the year, with some improvement projected towards the back half. If the market proves to be more favorable, we are well positioned to serve stronger demand and exceed our pace of outperformance. Based on our current market outlook and operating plans, our expectations for the fiscal year 2026 are as follows. We anticipate year-over-year net sales to be flat to down mid-single-digit percentage points. For Q1, we expect net sales to be up high single digits. We expect consolidated adjusted EBITDA margins ranging from 8% to 9% for the fiscal year. For Q1, we expect adjusted EBITDA margins between 5% to 6%. This guidance incorporates the expected increased tariff costs and associated mitigations including pricing. To conclude, in fiscal 2025, we executed our strategy, outpaced the market, and delivered strong free cash flow, despite a challenging external environment. We have demonstrated industry leadership in prioritizing the health of our dealer network and are strategically positioned to capitalize on higher demand when the market returns to growth. We expect 2026 to be another year of top-line outperformance against the markets in which we compete, and our resilient business model will again enable us to generate strong free cash flow to fund our capital allocation priorities. We are excited about our company's future and look forward to sharing our plans for growth and value creation at our upcoming Investor Day. And 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 then 1 on your touch-tone telephones. If your question has been answered or you wish to withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Please stand by while we compile the Q&A roster. Our first question today comes from Joe Altabello from Raymond James. Please go ahead with your question.

Hey, good morning. This is Martin on for Joe. I wanted to quickly touch on sort of inventory levels, which I believe you said were elevated at year end. Just trying to get an idea of how much is that we expect further destocking this year and sort of is it across the board or is it mostly in the saltwater and cobalt segments?

Yeah, what I would say is it's across the board. It's not in any one given segment. I think all the segments were affected by the macroeconomic uncertainty that we experienced. And it's not, I would say, a large amount of excess inventory. It's more modest. It's in the one to two weeks range. But certainly something, as we maintain our focus on dealer health and dealer inventories, is something that we are going to address in our fiscal 26 guidance.

Great. Thank you. And I just want to really quickly touch on tariffs and how that might affect pricing. Will that just go directly into MSRP, or could you be looking at a surcharge?

We haven't necessarily, you know, decided on exactly which mitigation and how exactly we're going to mitigate it. We're looking at multiple forms of mitigation from supply chain strategies, changing sourcing patterns, and a number of potential mitigations in an attempt to minimize the need for price increases. But we have incorporated that increase in cost into our guidance.

Thank you and good luck.

All right. Thank you. Our next question comes from Eric Wold from Texas Capital Securities. Please go ahead with your question.

Thanks. Good morning, guys. Good morning. One quick kind of just clarification question around the guidance and then kind of a follow-up on that. I guess one, does your guidance assume any interest rate cuts during the fiscal year and then Should we start to see some interest rate relief this fall as is now kind of more widely anticipated? You mentioned that your promotional and kind of discounting, you're kind of leaning back on it a little bit. If we start to see some promotional or some interest rate relief around the boat show, would you expect to kind of lean more or do you think there's a lean more into promotions to kind of jumpstart demand during that important kind of boat show season and to get people into boats to kind of maybe not, you know, quote unquote, miss a boat show season before next year. And then kind of, you know, how much, you know, rate from talking to your dealers, how much rate relief do you think those payment buyers really need at this point to kind of drive affordability into your key segments?

Thanks for the question. No, our guidance did not include any rate cuts. You know, that was your first question. Your second question around where are the dealers failing, how are the dealers failing, what's our promo, and so forth. Like we said, we're kind of in that normalized consumer discount versus an inventory reduction phase, right? So with our dealers... You know, we're working to make sure that we can capture every sale, that we can drive market share. We have the new models. Like I said, we've only introduced, you know, about five of the 11 new models. We have new models coming out that will help us through the boat show season as well as, you know, if there are, you know, rate cuts to happen, you know, that could provide some wind to our back as we go through the boat show season.

Yeah, I think that's well said, Steve. There will probably be some lag between when a Fed rate cut happens and when that transitions into consumer financing rates. We'll get the benefit right away from a floor plan financing standpoint. That'll be helpful to our dealers and to us, but it'll likely take a little bit of while to trickle through. We do think that's an important, will be an important factor of getting this industry back to growth, is getting those consumer rates to come down. We have seen the payment buyers pull back and we've not seen them come back to the market as of yet. So looking forward to that future point when those buyers are back in the market and that will likely help the industry get back to growth. Got it. Thank you, guys.

And our next question comes from Craig Kennison from Baird. Please go ahead with your question.

Yeah, good morning, Steve and Bruce. Thanks for taking my question. Wanted to understand the retail outlook that is embedded in your fiscal 26 guidance.

I think the easiest way, Craig, is to think about it is at this point, we're kind of seeing more of the same. There's nothing that says, you know, there's going to be this you know, wild ride up yet, you know, that we're at the beginning of the next up cycle. So we've kind of looked at it and positioned it as more of the same, you know, so it's still the focus on how do we gain share in a, you know, mid-single to upper single digit down market. So we're going to be focused on the new products. How do we, you know, work with our dealers to be better retailers and, what we can do to support that. So that's kind of where we continue to see the market until we see some point that says, hey, this thing's going to turn for the better.

Thank you, Steve. If you were to summarize it, Craig, we're kind of expecting next year to play out very similarly to the way this year played out. And if there is an inflection change in the market, we'll be ready to capitalize on that inflection change. But as of right now, it's probably more prudent to assume it's going to be similar to last year.

That's helpful. And so fiscal 25 included retail being down, but then also some destocking activity. Would you say you would also expect, again, you made the comment on retail, but then you would also reduce inventory in the channel?

Exactly, yeah. And it would likely be a little bit more destocking than we had this year because, again, we've got a little bit heavier coming into the year than we would have anticipated three months ago just because of how soft retail was in Q4.

Got it. That's helpful. And then just thinking about your dealer network, you've made some changes and upgrades there. Does that have any impact on your stocking plans or is it fairly immaterial given the size of your whole network?

I would say it's fairly immaterial, Craig.

Okay. Thank you.

All right. Thank you.

Our next question comes from Noah Zatskin from KeyBank Capital Markets. Please go ahead with your question.

All right. Thanks for taking my questions. I guess first, just hoping you could kind of comment on the health of the dealer base, both for you guys and for the broader industry. And then in terms of inventory levels, what's your sense of, from an industry perspective, how inventory levels are? Thanks.

Yeah, from the health of our dealer network, and I think we've said this on an ongoing basis, we check in with our floor plan supplier every month. We have our fingers on the pulse of what's going on. They're pretty healthy. No big issues. However, as Bruce stated, with the softer Q4, maybe one or two weeks heavier in inventory than we wanted. And as we kind of look at 26, we want to be prudent in making sure we continue to stay disciplined to watching our dealer health. So I think our MBI dealers are in good shape. Like any other manufacturer, we'll have a pocket here or there that we're always cleaning up regionally or so forth. So always got our eye on that. Industry-wise, I think the overall industry got better in inventory. I know some of our competitors are still working through. We were the first ones to kind of go. So there's still some folks working through their inventory challenges. But we're going to remain disciplined and continue to have that finger on the pulse to really support our dealers.

The other thing I would add to that is just the level of non-currents in the system for us is in a healthy spot and better than what we understand the industry to be. So we feel good about that, and again, that's, I think, a result of the focus that we've put on dealer health. Got it.

Very helpful. And maybe just one more, again, on kind of how you're thinking about pricing. I think you made the comment, and correct me if I'm wrong, but the tariffs would represent about a point and a half to three points of additional COGS. So in terms of the guide, how are you thinking about what kind of offsets are embedded, if any, versus those kind of additional costs, and then just any mitigation efforts or opportunities that you could kind of expand on would be great. Thanks.

So maybe the first thing I'll say is that some of the mitigation activity took place in last fiscal year where we did some advanced purchases. We had roughly $10 million of additional working capital on the balance sheet at the end of the year that we wouldn't have had had it not been for those advanced purchases. So that was, I would say, mitigation number one. And then we have a number of supply chain efficiency initiatives underway. We always do, and those we expect to help us. And then we likely will have some price increases that will be necessitated by these additional costs, and those have been factored into the guidance that we have provided.

Very helpful. Thank you.

And our next question comes from Jamie Katz from Morningstar. Please go ahead with your question.

Hey, good morning, guys. I did notice there was some long-term debt on the balance sheet this morning. I'm not sure if that is a change in, you know, how you guys are thinking about capitalizing the balance sheet or if there was something else I missed. But can you talk to that first?

No, there's no long-term change, Jamie. I mean, we have a credit facility, and from time to time, we pull on that credit facility to be able to ensure that we have the working capital to run our business. We ended up in a good spot from a net cash position. I mean, we have $19 billion of net cash, so strong positive cash, and that's after you know, returning $36 million to shareholders in the form of share repurchases. So no change in the strategy there.

Okay. And then, you know, I understand we're in this really difficult period, but could you give us or walk us through maybe a sensitivity analysis on how we get back to a double-digit EBITDA margin? What sort of sales growth would we need to get there? and has the promotional cadence changed as we have gone through the last two months, I guess, or does that give us some hope that maybe there is some upside to the initial EBITDA margin we're looking at for the year ahead? Thanks.

Well, maybe the first thing I'll say, Jamie, is that if we can get the market to stabilize, then we no longer have to destock to keep the dealers healthy from a weeks-on-hand standpoint. So we've been in the process of destocking now for the last two fiscal years. It would be great if we could get that in the rearview mirror, and that alone would allow us to post a revenue unit, stabilize our units, and allow us to drive revenue and profit growth. So that would be the the first thing. We have seen promotions, I would say, normalize. You know, where you see the spike in promotional activity is when there's a high level of dealer inventories, non-currents, and there's problems to be cleaned up. And that's not just for us, it's for the industry. And as Steve mentioned, the industry is getting healthier, so I think that will help the industry normalize those promotions going forward. And then, of course, I mean, we are, you know, under shipping as an industry, kind of the long-term, you know, kind of replacement level of units for the industry. So, you know, this industry will bounce back. And when it does, you know, we have the capacity and the team in place to be able to support that next upturn in the market. Steve?

Go ahead.

No, go ahead, Neeraj.

I was curious, too, like as you go through this, I don't think there was anything mentioned about like CapEx spend this year and whether you guys are still constraining that or maybe constraining it more, given where we are.

Well, I mean, I think last year we gave guidance of $30 to $35 million, and we finished below that level in fiscal, you know, 25. So we have been very disciplined and prudent in those capital investment levels. And again, that's, you know, well below where we were in the prior year because, you know, we've completed our capacity expansions, and we have, you know, have that capacity in place. So I would say this year we're expecting similar levels to what we had last year, which is, again, a more normalized post-capacity expansion level of CapEx.

Thanks. And, ladies and gentlemen, with that being our final question, I would like to conclude today's conference call. Thank you for participating. You may now disconnect your lines.