Good morning, and welcome to Malibu Boats Conference Call to discuss Third Quarter Fiscal Year 2018 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, this call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; Mr. Wayne Wilson; 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 third quarter financials and outlook for fiscal 2018. We will then open the call for questions. A press release covering the Company's third quarter fiscal year 2018 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, and adjusted fully distributed net income. 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 Springer.

Thank you, Wayne, and thank you for joining the call. Q3 was an outstanding quarter for Malibu. We delivered the best performance in the Company's history was net sales, unit volume, adjusted EBITDA and adjusted fully distributed earnings per share exceeding our internal expectation. Net sales increased 82% to $140.4 million, adjusted EBITDA increased $28.5 million or 70.1%, and adjusted fully distributed earnings increased 81.6% to $0.89 per share. We continue to perform well with strong results each quarter. Now being Cobalt performed extremely well, as we planned the first half of the fiscal year has slower Malibu U.S. unit growth to keep channel inventories healthy, and in the second half that unit growth is increasing. The third fiscal quarter saw exactly that, exactly what we have been telling you would occur. Malibu for the quarter saw 12.6% unit growth increase over Q3 fiscal year 2017, bringing the annual unit growth rate to 7.2%. Based on Boat Show results, warranty registrations and dealer confidence demand supports this growth. I would also point out that we did not have any constraints in supplying demand for the rest of this model year or into the beginning of the new model year. Now let me provide some color on the overall market. The U.S. performance sports boat segment continues to be very robust with more room to run. In calendar 2018, the market is expected be approximately 10,000 units which remain well below our peak volumes. Further, we anticipate retail unit volume growth in 2018 to be a similar levels to the prior year with retail unit growth volumes grow 7%. Turning to Cobalt's addressable markets. As we mentioned on the last call, most of Cobalt's product competes in the 21 to 23 foot range and the 24 to 29 foot range which…

Thanks Jack. As a reminder, our fiscal 2018 consolidated financial results include our Cobalt business and acquisition we completed in early July 2017. In the third quarter net sales increased 82% to $140.4 million and unit volume increased 69.4% to 1,786 boats. A Malibu brand represented approximately 46% of unit sales were 823 boats, access represent approximately 19% or 348 boats, and Cobalt represent approximately 34% or 615 boats. Consolidated net sales per unit increased 7.4% to approximately $78,600. The increase was primarily driven by year-over-year price increases and higher mix of new and larger models and increases in optional features. Gross profit increased 70.2% to $36.4 million, and gross margin decreased from 27.7% to 25.9% due to the acquisition and consolidation of Cobalt. As Jack mentioned, we are making solid progress integrating Cobalt and that has led to improved year-over-year margins in excess of our expectations. We expect favorable operational initiatives at Cobalt and vertical integration initiatives at Malibu and Axis to continue driving better margins over the next two years. Selling and marketing expense increased 82.4% or $1.5 million in the third quarter. The increase was driven by the acquisition of Cobalt. As a percentage of sales, selling and marketing expense was flat. General and administrative expenses, excluding amortization increased 31% or $1.9 million. The increase was driven by acquisition of cobalt, offset by reduce legal expenses. As a percentage of sales, G&A expenses, excluding amortization decreased about 220 basis points to 5.6%. Net income for the quarter increased 89.9% to $16.8 million. Adjusted EBITDA for the quarter increased 70.1% to $28.5 million and adjusted EBITDA margin decreased about 150 basis points to 20.3%. Non-GAAP adjusted fully distributed diluted earnings per share increased 81.6% to $0.89 per share. This is calculated using a normalized C Corp tax rate…

Thank you. [Operator Instructions] And our first question will come from the line of Brett Andress with KeyBanc Capital Markets. Your line is now open.

Hey. Good morning, guys.

Good morning, Brett.

Good morning.

Good morning. I wanted to start on Cobalt. I think your commentary there is consistently been better than originally anticipated, so is there any update you have on that $7.5 million synergy target and the 25% accretion. I guess more specifically what have you realized so far and how do you - how much you expect to realize by the end of the year? I'm really just trying to get a sense of how much of that is you guys actually just running the business better versus the hard synergies that you had in mind going into the transaction?

That's a good differentiation, Brett. I think that if you think about it from a synergy standpoint, we've had both synergies that we had isolated and identified and we have some synergies that probably were not - we didn't recognized at the very beginning. In terms of the synergies and the $7.5 million, I think that overall I think we said four years; we're on schedule for that. I think that probably is still a pretty realistic number, might be a little bit higher over that four-year period of time. We're ahead this year and I think that we will probably finish up a little bit ahead over the year because we have some additional synergies to realize. The point I'll make on that is that the synergies that we have manifested today are really around the operational in the back office side of the house. Related to product, related to vertical integration that has not yet kicked in and that's what we'll generate up to that $7.5 million number. The kind of under the discovered synergies that I referred to is the additional throughput that we've been able to put through as a result of the channel inventories. And so that does come back to operating the company better from an operational standpoint and having the opportunity to put inventory into the channel.

Got it. That's helpful. And Jack, I know the preliminary SSI is inherently squishy in the off-season months, but can you help shed a little bit more light on the robust retail demand that you called out? I guess what is your internal point of sales data or internal registration data telling you about your 1Q retail sales versus what we all see in SSI. And then I guess building on that, is there any insight you can give us on the April trends, I know weather has stolen much of the headlines there?

Sure. Squishy is a really good word for that, Brett. There was obviously a lot of consummation about the March SSI data. We have repeatedly cancelled that. The most recent monthly data is now mature is lumpy, and significant belief in that date is unwarranted. So answers the squishy comments you made. So first let's look at the quarter. If you look at the quarter according to the SSI data is up over last year about 6.2%, very close to the 7% that calendar year finished. So through 12/31/2017, we're right on target in the first quarter of 2018. Secondly, when I look internally, our warranty registrations indicate continued growth. For the quarter, our warranty registrations are up well over 10% versus last year. For March, our registrations were significantly higher over last year than for the quarter. What this says, you generally will have the warranty registrations occur first and the retail registrations will occur after that. And I think that's been further identified as an issue because of the late weather that occurred in the Northeast and other parts of the country. So we fully expect that not only for us, but for marine in general that retail registrations will trend up based on what we're seeing internally. So we think that March is truly one-month admiralties skewed by insufficient data and magnified by the late winter season in certain parts of the country. From an insight on April, we really did not have much at this point, it is so early on. It's more anecdotal which is that the lakes are clearing in the last two weeks, the Northern states, the ice has come off the lakes, and so those boat deliveries are now starting to occur.

I appreciate the color. I'll get back in queue. Thank you.

Thank you. And the next question comes from the line of Michael Swartz with SunTrust. Your line is now open.

Hey, guys. Good morning.

Good morning.

Hey, Jack, I think you would touched on in your opening remarks just about capacity and this is something that we continue to hear from dealers that they have an inability to get product now and obviously there are the different take on that. But could you just maybe talk about at - I guess what your capacity is? What utilization is and then maybe what point would you have to think about extending more capital to build your capacity out a little more?

I'm going to go back three or four years back. If you recall, we talked a lot at that point in time even showed a number of the analysts, a three step based approach to building our capacity. And we took our capacity by well over a 1,000 boats and so we today sitting here today feel very confident that at Malibu, we can manufacture 5,000 boats without an issue and per under $1 million they can go to 6,000 boats. So we have no long-term capacity constraints. We also have no long-term or short-term capacity constraints. If dealers come to us for the next month and they say that they need additional boats, we'll be able to get them to them. We are not in a situation where in the first quarter. We're going to have an issue. And I bring that back to our core competency that we have and that's our operational excellence. If you are good from an operational standpoint, you're able to plan and you're able to build that capacity, so that you can meet demand. So we feel that we're well positioned for whatever number of orders might come with us.

Okay, that's very helpful. And then just maybe following up on Brett's commentary around the some of the synergies or cost savings expected from Cobalt, I dig on the - in your remarks Jack, you pointed to some like incremental verticalization opportunities in Cobalt? I'm just wondering if that's right here, are they incremental? And then two, would that it be embedded in that $7 million number that you've outlined for us?

The synergies have been embedded in that $7.5 million number. We really have not started realizing those incremental synergies yet and quite frankly over time as we go out, three, five, seven years or probably be more synergies that come into play over time. So we've feel good about where we're at today. We feel like we're ahead of schedule and we think this $7.5 million is very, very realizable.

Okay, that's helpful. Thank you.

Thank you. The next question comes from the line of Tim Conder with Wells Fargo Securities. Your line is now open.

Thank you, Jack and your team congrats on the ongoing great executions are.

Thank you.

Just a couple here to follow on, certainly Cobalt team first. How do you see at this point given were things are tracking there with the integration, the throughput? How do you see any change I guess and looking to expand the dealer network with Cobalt, number one. I know again you were looking for specific areas there, rather than just a mass expansion. And then from the engine perspective, you gave us a little bit of color there. Any opportunities, incremental opportunities, I know you get a walk before you run, but that that you're seeing, hearing, develop your old last 90 days on the engine side? And then for Wayne, don't want to recollect the question to Wayne here. Anything related to steel or aluminum and transport cost, Wayne, any issues there, pass through and impact the margins that you see here - the next day here?

Right, so I'll start and then turn that last question over to Wayne. We realize at the very beginning that Cobalt had a great dealer network, very much like Malibu. And I think if a time, it was 70% of Cobalt dealers were either number one or number two in market share. That said, there are always opportunities and we've just recently engaged to sell some and we've identified some of those opportunities. And so we think that there are some wide spaces that we can certainly develop at Cobalt that we do not have a dealer within that particular territory today. But I think that there are some other things that we can do in terms of sales training with our dealers at Cobalt and also really as you know, I am big on exclusivity and so that is an area that I think that we need to improve on a Cobalt and make sure that our dealers are fully devoted to Cobalt to the extent that they can base. So I do see dealer or distribution opportunity at Cobalt. The engines side, as I said has gone very well. And I wouldn't really identify anything incremental there that I would point out; we firmly believe that three-year payback is going to happen. We think that we will be delivering an extremely robust quality driven engine that is easier to service for our customer and ultimately it will prove to be a competitive advantage for us.

Okay.

And on the third question, the steel aluminum and transportation yes, look we're seeing and some cost pressures there. Do you get to tariff talk you have electronic logs on the transportation side and capacity issues I think more broadly in that industry. There's a little bit of pressure I think our market has been a very stable and rational pricing environment and so while there is a little bit of cost pressure we're always dealing with some type of cost pressure. This is just a little bit more of a headline. In terms of its overall size in terms of our cost infrastructure it's not overly large. We think that one will be able to take pricing to offset it and frankly we're doing all these things at Cobalt we're talking about synergies, we're doing the engine vertical integration initiatives and always other things to help drive margin as well. So I think we're consistent - and have been consistent and will continue to be consistent in terms of the future margin profile of the businesses it is positive.

Okay. Thank you, gentlemen.

Thank you. And the next question comes from the line of Gerrick Johnson with BMO Capital. Your line is now open.

Hey, good morning, folks. I have three questions. First, can you provide gross margins for the legacy Malibu business what is that look like year-over-year if you exclude Cobalt? Two, the Hurricane affected areas of Houston and Florida hurt or help in a quarter. And lastly, the self Sea Ray and the uncertainty there with dealers does that help you gain some dealer share with Cobalt? Thank you.

Thanks Gerrick. All very, very good questions, Wayne do you have the first question.

Yes, so we don't provide that specific number, but I'd tell you is it was up high - not triple digits basis points but approaching in triple digit basis points. So call it meaningfully up.

So on the Hurricane question, in Huston is a smaller market being a Gulf Coast state in that performance Sports Boats segment. And so I would say it was meaningfully impacting us I think the total market is about 50%. So if you're up 10% that's only 5% above this. So we saw couple of sales boats shows these but nothing of huge magnitude. On the Sea Ray that's been a very interesting dynamic going on. I think that there probably are some distributions opportunities, a dealer network cannot help. But be at the very least concerned. And then secondly, given that Sea Ray is a competitor with Cobalt I think that over time that will prove to be an advantage for Cobalt.

Great. Thank you, guys.

Thank you. And the next question comes from the line of Joe Altobello with Raymond James. Your line is now open.

Thanks guys, good morning. First question I wanted to go back to ASP for a second. So curious how the $78,600 number compared to what you guys are expecting internally?

It was a little bit higher Joe. I think what we're saying as I mentioned it in my remarks A24 so that's the largest link both in the Axis brand has performed extremely well. And generally speaking when you're going to have better ASPs when you're selling the larger boats, so that A24 has driven it. Secondly, we have seen strength in the MXZ series of Wakesetters. As you recall but they were new last year and so this is their second year but they have remained very, very strong and so that has been somewhat of a positive surprise to us. Thirdly, take rate on a lot of our new features and options have been very high in some cases higher than what we had anticipated and you combine all of those factors and that's what's driven the ASP growth.

Okay.

And I would just add to Jack's commentary there. In terms of the increase in the mix on the Cobalt side, it had a slightly higher ASP and that ASP also had been stronger than we anticipated, so that layered on top of what his commentary on the Malibu side is that shift in ASP.

Got it. Thanks Wayne. And secondly on the gross margin, obviously a little bit more constructive this morning, despite the fact, Cobalt is going to be a little bit more of your unit production this year. What's driving that? Is that more on the Malibu side or more on the Cobalt side?

Yes, it's both. Yes, it's been driven across the board that the Malibu business is very strong as well as Cobalt is significantly outperforming the operational initiatives that we put in place. To Jack's point earlier, the team out there, Ritchie and the folks here working together with them has been a very powerful factor in terms of improving the margins there as well.

Okay. Just one last one on international, why hasn't Canada and Australia improved as much as that Europe and Asia has you think?

Europe is a longer term market. I mean it's been around for a number of years. It's still very heavily ski weighted, so you have that wakesurfing phenomenon that's just now hitting Europe and wakeboarding is also pretty popular. When you look at Australia, you have a very confined country of 25 million people. And so the growth dynamics that can occur in Australia are not that large. And so largely regardless of the economies, I think that we're going to see Australia be very consistent year-over-year-over-year. Canada, we're still dealing with the currency that as of this morning was $1.28. And we have seen some movement and some confidence and getting used to that new economy as I put it earlier, but currently continues to be somewhat of a headwind. On the positive side, the oil and gas prices which are the barrel of oil price frankly that's going up. It's not paid any dividends yet. So if that hold, we believe that western Canada will see optimism be influenced in terms of additional boat sales.

Got it. Okay. Thank you, guys. Appreciated.

Thank you.

Thank you. The next question will come from the line of Rommel Dionisio with Aegis. Your line is now open.

Yes. Thanks very much. Just to follow-up on the earlier question about ASPs. Just from a bigger picture perspective, obviously you had some successful product launches on the Malibu both side on the premium that's helping drive product mix, but you kind of get the sense that the market overall is seeing a better performance on the premium, and for some years been the entry-level growing so quickly. So I wonder if you could just comment on that please. Thanks.

It's pretty consistent across the board. We're seeing new customers into that entry-level and I think that tax cuts have helped drive that certainly. The general overall economy and the employment rate have driven that. But to your point, I think that we are seeing that premium side being driven as well, but I want to point to a little bit different factor there, and that comes back to the link. What we largely have seen over the last three or four years is that people are buying boats that are larger. That in turn will kind of drive that premium concept and drive the ASP, and we think that the market will continue to go larger.

Yes, and I also think that the optional feature selection is a meaningful number and really what you're seeing is across the board whether it be on access or the Malibu side. There's more optional features being selected. So I think that's a sign of a positive market more broadly.

Great. Thanks guys. Congrats on the quarter.

Thanks.

Thank you.

Thank you. And our next question comes from the line Eric Wold with B. Riley FBR. Your line is now open.

Thanks. Good morning, guys. Couple questions following up on what you're seeing kind of an underlying trends of consumers, I guess at and kind of since the boat shows, obviously nice move up in ASPs both from mix in price decreases and kind of willingness to kind of move up in technology and features. How would you characterize outside of Malibu? How would you characterize, what you're seeing in the competitive front around promotional activities, remaining relatively came around the industry or you're seeing anything creep up around there? And then the second question is, where your thoughts - you're seeing on a trade-in kind of trade-up market evolving now that we're kind of 10 years plus the recession, any noticeable change in those trends kind of a pent-up demand possibly those people start to look to trade in?

I think Eric that ultimately demand is strong and so that in turn has put an environment in place, in which we're not seeing any abnormalities in the promotional environment. I think that ultimately that is good for all of Marine and certainly the competitive spaces that we deal in both on the Malibu and the Cobalt side. We think that our competitors are behaving rationally at this point. And hopefully they don't do anything like put too much inventory into the channel. Yes, it relates to the trade in and trade up. What I would say on that is if you think about how far it went down, 70% and we were two years late and two years later and I'll put it that way in the trough. So we're still in a dynamic in which that use both inventory is significantly low and our belief is that we're going to stay in this current cycle from a used versus new inventory level until 2021, 2022, 2023 somewhere in that timeframe - to never catch up. And so to that end, we think that cycle of trading up into a newer boat is a very positive dynamic for us.

Perfect. Thank you, guys.

Thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Jack Springer for any closing remarks.

Thank you. Malibu had a great quarter and we're encouraged about our continued growth for Malibu and also for the marine industry. We will continue to leverage our competitive advantages and operational efficiencies for premium performance. I want to thank you for joining today's call. Have a fantastic day.

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