Good afternoon, ladies and gentlemen, and welcome to Malibu Boats conference call to discuss third quarter fiscal 2014 results. [Operator Instructions] 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 conference call is being recorded. From management on the call today are Mr. Jack Springer, Chief Executive Officer; and Mr. Wayne Wilson, Chief Financial Officer. I would now turn the call over to Mr. Wilson. Please go ahead, sir.

Thank you, and good afternoon, everyone. Welcome to Malibu's earnings call covering the fiscal third quarter ended March 31, 2014. Also here with us this afternoon is Ritchie Anderson, the company's Chief Operating Officer. Jack will provide commentary on the business, and I will discuss the fiscal third quarter results in greater detail. We will then open the call to questions. Before we get started, I want to remind everyone that a press release covering the company's fiscal third quarter financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section of the company's website at www.malibuboats.com. 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 and adjusted fully distributed net income. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. Now let me turn the call over to Jack Springer.

Thank you, Wayne. I'd like to welcome everyone to our call. Malibu Boats had another very strong quarter. I will remind you that our third quarter a year ago was also an exceptional quarter, so this was a challenging comparison for us and we're very pleased with the results. Net sales increased 7% and was driven by growth in both unit volume and average selling price. Both our Malibu and Axis brands performed very well in the quarter, and our new product introductions continued to create a lot of excitement with our dealers and our customers. Our margins were also very robust in the quarter with an adjusted EBITDA margin of 20%. Of particular note, this is the highest third quarter margin in the company's history and we continue to drive profitable growth through a balanced approach to managing volume, inventory, productivity and expenses. Our third fiscal quarter runs from January through March, and as you know, that is a boat show season. This is a time where our dealers showcase boats at their shows and ramp up for the peak retail selling season. During the boat shows and the following weeks, our dealers are busy taking orders, getting perspective new buyers into their showrooms, out on the water, and closing new sales. For anyone who wants to have their boat custom-built and on the water by the all-important Memorial holiday, they generally need to place their order by mid-April. So for us, the end of the third quarter and through the fourth quarter is a very busy period fulfilling all of the new boat orders to our dealers. I now want to spend a few minutes on our business model, which may be different than other manufacturers. It's very important that everyone understands Malibu's business model, and I want…

Thanks, Jack. Good afternoon, everyone. As you know, we completed our IPO in our fiscal third quarter and used the proceeds to eliminate our long-term debt and purchase stock from existing owners. The IPO offering transactions created an Up-C structure that consists of the C corporation holding company that sits above and hold the partial ownership interest in the limited liability operating company. Our financial results are consolidated for financial reporting purposes and our GAAP tax expense and share count are lower than they would be as a full C corporation. To help provide clear, consistent and comparable communication around our financials, we supplement our GAAP financials with the presentation of earnings using a non-GAAP metric, adjusted fully distributed net income. Adjusted fully distributed net income is calculated using a normalized tax structure and tax rate. We believe adjusted fully distributed net income will assist our Board of Directors, management and investors in comparing our net income on a consistent basis from period-to-period because it removes noncash and nonrecurring items and eliminates the variability in tax rates and noncontrolling interest as a result of the C structure. In addition, we provide a fully diluted share count that assumes all LLC units are exchanged for Class A common shares to be used in conjunction with the adjusted fully distributed net income. We believe dividing adjusted fully distributed net income by the share count is the most comparable metric to other companies' earnings per share. Turning to our results. We had a very strong fiscal third quarter and we are very pleased with the way the business performed. As Jack discussed, we managed the business around annual production target and delivered on every operating financial metric for the quarter. Net sales in the quarter increased 6.9% to $50.3 million. The increase was…

[Operator Instructions] Our first question comes from the line of Joe Hovorka of Raymond James.

A couple of questions. One, can you give the retail -- your retail growth in the first quarter or rather the March quarter?

Our retail growth in the March quarter for about 20 -- 20 states reporting was about flat, but that's because we see a lot of volatility in the reporting on both calendar Q4 and calendar Q1 numbers. If you look at the historical volatility for those early reporting states, that's where you see all the volatility. When we look at April, which is an even bigger month, we have a few -- 5 of the largest states that we've gotten information for were mid teens year-over-year in April.

And just a little bit further commentary. That first quarter was only about 600 boats, so well less than 10% of the overall year. The latest numbers that we had for the quarter, of course, February and March, we're a little bit more -- or excuse me, January and February were a little bit more complete. But March had only about 25 states reporting. We had a couple of larger states who were not reporting. Kind of in contrast to that, in the month of April, in looking at our registrations, we had a little bit over 200 boats that were registered, which is 1/3 of the entire first quarter. So we believe that, that second quarter for us, the way that we operate the business, is going to be very strong from a retail point of view.

Okay. So delayed sales, basically, given the weather?

Delayed registrations.

Right, right. And...

Our market size, Joe, is pretty small, so you'd see a lot of lumpiness in the numbers from month-to-month, that's why we've gone out and pulled any of the April data, because 16% of year-over-year on the 5 largest reporting states that are available to me right now is pretty large.

And how do you put that -- I think the SSI data was up 9-ish percent for the month of March -- I'm sorry not for the month, for the quarter of March. How do you flip the 2 numbers, your flat number versus the 9%?

Well, we will get it -- I mean, we've looked at it on an annualized basis to try and see what that meant from a market share perspective. And really, when you're talking -- the small numbers that we're talking about, it's literally less than 2 dozen boats. And so on an annualized basis, from a market share perspective, we look at it and say 35 basis points. And that's why we go up and look at April and say, "Are we seeing a trend here or are we -- or is this just the small sample sizes that we're seeing with discrete date cutoffs?" And we think that's what we're seeing.

Our next question comes from the line of Tim Conder of Wells Fargo Security (sic) [Securities].

We'll continue along the retail line, but maybe look at it a little bit differently. Where you are, Jack or Wayne, at this point in the fiscal year, the channel inventories versus your expectations, how are those? And then, let's just fast forward? You're saying the timing difference should be a little bit between third and fourth quarter on your shipments. What you basically overshipped a little in the third, you'll undership in the fourth. I guess, is that much of a change from what you thought 90 days ago? And if so, why? Why would that be a change there?

To answer the latter question, no, it's not a change from 90 days ago. It's -- as we go back to our discussions, it's really timing differences and how we put our loads together. So as we're talking about 10 boats that could be a couple of different dealers that we're shipping boats too early. I think a more important stat to look at is from that wholesale side. We are -- we continue to meet or exceed what we said we're going to do from that wholesale, or from our standpoint, on a unit revenue EBITDA basis. And on the channel inventory question, we believe that, that channel inventory is exactly where it should be. And as we go towards that end of modeling year, we're positioned very well to have that channel inventory exactly where it needs to be to receive the model year 2015 product.

If you overlay, Tim, our estimates of that channel inventories relative to historical years, it's right on top of the prior couple years.

Okay, great. That's very helpful, gentlemen. And one other question then. Any update on where you are internationally versus domestic on the mix here in the quarter? And then, maybe any developments or changes that we've seen regarding your distribution looking out here in the new model year in fiscal year at this point in converting to more direct or any other changes you've made here in the last couple of months.

Yes. As we've described before, the international front and our attack of that market is more of a longer-term objective. Based on the export data that we have, we've held #1 market share in that international theater. And I'm excepting North America from that for 7 out of the last 8 quarters. Worldwide with North America we have a significant #1 position. So what we've seen since our last call in the last quarter is Europe continues to be slow, somewhat depressed. It's not begun to come back yet, although we're seeing a couple of countries that are improving. And then, some of the strategic decisions and strides that we've made in our emerging markets are starting to be executed, and we believe that they'll pay intermediate and long-term dividends, and then those are in the primary markets of Asia and South America.

[Operator Instructions] Our next question comes from the line of Michael Swartz of SunTrust.

I wanted to touch on just the margins in the quarter. I guess I was impressed with the growth you posted despite some of the tough comps year-over-year but understanding that a good portion of that is just due to the timing of shipments. But I guess going forward and just longer term, how do you think about or how should we think about the incremental flow through of margins maybe not on a quarter-to-quarter basis, but maybe how you think about it on a 12-month basis?

So in terms of the incremental flow-through, we think that incremental volume flows through pretty well the high variable rate of the cost of goods sold, call it 90% variable rate of cost of goods sold. Below that, you get pretty good flow-through. We have been obviously investing in the current year for public company expenses, as well as investing in some sales and marketing that have, at some level, variability. But you're going to get a bunch of leverage out of the G&A expenses. And so in that mid-20s range, you're going to see that incremental flow-through on the incremental sale.

Okay, that's helpful. And then just in terms of the timing of shipments, I guess, impact -- or for the pull forward to third quarter from fourth quarter. I mean, it looks like you'd probably be around $1 million. Is that the way to think about it?

If it's -- yes, I mean, if it's 20 units, it's going to be 20 units times the ASP, so it's going to be pretty close.

$1 million to $2 million, maybe? Okay.

[Operator Instructions] And our next question comes from the line of Jimmy Baker of B. Riley & Co.

Just as a follow-up to the retail sales commentary on the March quarter. Understanding that the March quarter is so small. In terms of retail deliveries, it's just a very small sample size. Maybe it'd be better if you could speak to boat show order activity in the March quarter and how that metric compared to, let's say, last year.

The -- our overall boat shows were up about -- if we compare our programs and boat shows for that season, we were up about 22%. So we had very, very strong growth in that first quarter, extending all the way into March. Some shows were just over the top in terms of number of orders, and others were in that 5% growth category. But we're very pleased with that boat show season.

Great. So then just regarding your annual production plan. Can you give us some context what would you say has been, let's say, the average variance from your initial annual plan in terms of what you've actually produced in recent years?

That's a great question. I would have to say that, that production variance, we -- I'd have to get back to you on that. We have been actually pretty good at targeting that, taking it up -- I think to Jack's point that he was making earlier on the call. We set a plan and we work that plan, and we -- it takes really meaningful deviations in the underlying retail demand market or inventory levels for us to vary from that plan because we have a production team that's planning for certain amount of units on certain number of days. And so if you look historically, you've probably seen a range of variations where in the past couple of years, we moved that production plan up 100 units and it's always been up because we plan for a more conservative. We plan relatively conservatively.

Okay, that's helpful. And then lastly, for me, maybe you could just speak to -- within your annual production plan, how granular you plan in terms of mix or maybe how flexible you can be in terms of mix and in terms of what retail demand or what dealer demand actually comes through from a mix standpoint relative to that initial plan, even if it doesn't require absolute number adjustments.

That's a good question. We're very flexible in that regard. We'll go into that year with our production plan. We break that down to the model level. So one of the things that we try to do is to make certain that based upon our plan, we have the adequate level of tooling going into it. In the case of the 23 LSV that I was talking about earlier, we -- that being that brand-new boat, we saw a spike in demand over and above what we had anticipated. So we added that, I think, it was a sixth set of tooling into the program in February, which would allow us to build more of that 23. So within our daily production schedule, what we will typically do is slot the number of models that we're going to spray and start on the build processes. But that's very adjustable and very flexible based upon our tooling and what our dealers actually need.

[Operator Instructions] And it appears we have no further questions in the queue. I would like to turn the call back to Mr. Jack Springer for closing remarks.

We're very pleased with this quarter. We're hitting or exceeding our numbers, and we are not moving what the performance that we expect to have in the future quarters. I appreciate and Wayne appreciates everybody who is on the call today. We look forward to a very good fourth quarter and being on the call with you again in 3 months. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.