Good morning, and welcome to the Malibu Boats’ Conference Call to discuss Fourth 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 are 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, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I’d like to 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 fourth quarter and full-year 2018 financials and our initial outlook for fiscal 2019. We will then open the call for questions. A press release covering the Company's fourth 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 all for joining the call this morning. Fiscal year 2018 was a record year for Malibu, and our fiscal fourth quarter was a record quarter as well. We delivered outstanding financial and operational performance exceeding our own expectations. This does not just happened because the economy is very good. This is a direct result of the Malibu and Cobalt team of people. From product development, to human resources, to sales and marketing, to operations, to engineering, to finance, the passion, skill, and desire to be the best is what generates record results quarter-after-quarter. Thank you to the Malibu team. Net sales for the quarter increased 84.6% to $138.7 million. Adjusted EBITDA increased to $25.9 million or 67.5%, and adjusted fully distributed earnings increased 76.7% to $0.76 per share. We continue to perform exceptionally well with strong results each quarter driven by both Malibu and Cobalt. In August, we announced that we entered into a definitive agreement to purchase Pursuit Boats, subject to certain closing conditions. It is expected to be accretive immediately. We expect this transaction to close in the second quarter of fiscal year 2019, but our planning for this premium brand began in earnest during the due diligence process. Pursuit builds high-quality products in the large and fast growing saltwater outboard fishing boat category. The saltwater outboard fishing boat segment is a passioned segment just like Performance Sports Boats. This is exciting to us because the customer is passionate and they use their boats extensively. Given that this customer is a different customer, this provides Malibu with a whole new base of consumers. The acquisition further diversifies our product portfolio and puts us in a position to capitalize on the strength of Malibu that have allowed us to capture leadership positions in…

Thanks, Jack. As a reminder, our fiscal year 2018 consolidated financial results include Cobalt, an acquisition we closed in early July 2017. In the fourth quarter, net sales increased 84.6% to $138.7 million and unit volume increased 70.1% to 1,708 boats. The Malibu brand represented approximately 42% of unit sales or 723 boats. Axis represented approximately 20% or 347 boats, and Cobalt represented the remaining 638 boats. Consolidated net sales per unit increased 8.5% to approximately $81,200. The increase was primarily driven by the inclusion of Cobalt, year-over-year price increases and higher mix of larger models and optional features. Gross profit increased 67.4% to $33.5 million, and gross margin decreased from 26.7% to 24.2% 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 coming years. Selling and marketing expense increased 65.9% or $1.5 million in the fourth quarter. The increase was driven by the acquisition of Cobalt. As a percentage of sales, selling and marketing expense decreased about 30 basis points year-over-year. General and administrative expenses decreased 3% or $300,000. The decrease was driven by lower litigation and acquisition and integration related expenses offset by the inclusion of Cobalt. As a percentage of sales, G&A expenses decreased about 580 basis points to 6.5%. Excluding litigation expenses, engine vertical integration expenses and acquisition related expenses, general and administrative expenses increased approximately $1 million primarily driven by the inclusion of Cobalt. Net income for the quarter increased 30% to $13.3 million. Adjusted EBITDA for the quarter increased 67.5% to $25.9 million and adjusted EBITDA margin decreased about 150…

[Operator Instructions] And our first question comes from the line of Joe Altobello from Raymond James. You may begin.

Hi, guys. Good morning.

Good morning.

So I guess, first a couple of questions on Pursuit. I know you guys have mentioned when you announced the acquisition, including this morning, that you expect a Q2 – fiscal Q2 closing. Any sense for – is that going to be early in the quarter or late in the quarter at this point?

Our hope is going to be earlier in the quarter rather than later. But obviously, we can't wholly predict it. But for modeling purposes, I think you’re probably – best assumption is conservative and say middle of the quarter.

Okay, great. And then in terms of capacity today at Pursuit, could you remind us where they are at or where you guys are at in terms of manufacturing capacity?

From a manufacturing capacity standpoint, they do work in one shift. They’re at pretty much full capacity today, and over the next 12 to 18 months, I believe is what I've said previously, we're going to expand that footprint. And so we’ll be able to build that capacity and then over time, probably build a distribution network to accumulate to that capacity that we're going to build.

Okay. And I guess one last one. You're obviously expecting another good year on the U.S. Performance Sports Boat market. What about next year? Is there any meaningful change in terms of the outlook? How are dealers and consumers feeling about 2019 with tax reform behind us, midterm elections coming up? Is there any concern that some of the optimism we’ve seen in the last few years including this year kind of dissipates next year?

No, Joe, I remain very positive that we're not approaching anywhere at the end of the cycle. If you look at what's going on and our government doesn't screw it up, frankly we are at a position where I think that this can continue into the future. GDP, they're talking about 4.1%. Employment is at a great state at this point in time. If you look at the state GDPs, all 50 states are up over the previous year. So I think all of the factors that are really going to continue to drive growth are there and will continue to do so. I'm not concerned about the midterm elections at all. So I think we still have a good runway.

Okay, great. Thank you, guys.

Thank you

Thanks.

And our next question comes from the line of Michael Swartz from SunTrust. You may begin.

Hey. Good morning, everyone.

Good morning.

Just wanted to touch on, I guess Cobalt and how we should think about that business for the upcoming year. If I’m doing my math correctly, it looks like Cobalt unit volumes were up about 24% year-over-year, I guess versus when you acquired it. Obviously, that's outstripping the pace of market growth pretty considerably. So just trying to understand how to think about that going forward? And then as we try to lay some, maybe parameters around Pursuit, we know there's some capacity constraints there. Is that a similar rate of growth we should be thinking about for that brand going forward?

Yes, I'd like to address Cobalt first. What we discovered as we got into the Cobalt situation is the operations and the ability to improve operations was greater than we thought it was. You combine that with the scenario in which channel inventories were significantly below historical trends. We felt like, and it's been proven correct, that we needed to build that operation arm more quickly than what we had initially anticipated. And so we did that and the result is the 24% that you see. What I will tell you is we expect to have growth in 2019 from Cobalt, certainly not at the 24% because we were making up for a decreased channel inventory situation with the dealers, but we do expect it to continue to grow both on the stern side, and of course, mentioning the 244% increase on outboard. We think outboard will continue to grow as well. On Pursuit, we have to put a little bit shade of color on that and that is we do have that opportunity for growth by – and it's more of an expansion of the footprint of the plant, but that's going to take a longer period of time than it did at Cobalt. So again, I think that's going to come back to a 12-month to 18-month time frame.

And just following-up there, Mike, that 24% is a little bit high relative to the actual numbers. I think you're doing a good job of estimating. It's just a touch higher, one. Two, on the 2019 growth, in terms of how we're thinking about that, what the growth rate that we're seeing and what we would identify as, Cobalt’s addressable market is kind of mid – is essentially mid single-digits and they are growing faster than its addressable market at retail. So we had a little bit of that channel loading. We still believe that there's some nice attractive volume growth to be had there.

Okay. That's extremely helpful. And maybe just give us an update of where we ended, I think, the first 12 months since acquisition on the Cobalt synergy front. I think when you had acquired it, you had laid out kind of $7.5 million, I believe, was the number. $7.5 million in synergies by, I think, it was fiscal year 2021. So maybe where are we at the one-year anniversary?

Yes, the $7.5 million was over a four-year period of time and we ended up the first year slightly ahead of our projections.

Yes. And from a quantification perspective just to make sure everybody is clear on that. It's not a pure cost synergy number. In terms of that $7.5 million, some of that is driven by synergies related to our ability to generate additional sales. And so on the cost synergy side, we're seeing a number that's on the annualized basis in a low seven figure number already. Not to mention – we think that a lot of those revenue synergies are a little bit longer in terms of coming because of the nature of our product development cycle and our ability to speed that up. We have been able to invest more money and get more resources in place to speed up the introduction of new product to drive those revenue synergies as well.

Okay, great. Thanks for the color.

Thank you. End of Q&A

Thank you. [Operator Instructions] And I'm showing no further questions at this time.

All right. I will conclude. MBUU remains well positioned to take advantage of the growing marine market and product trends. Malibu and Cobalt are performing on all cylinders in a very robust economic environment. Soon, we will add another premium company in Pursuit to the Malibu portfolio and plan again to add value for shareholders. I want to thank you for joining the call today and thank you for your support. Have a fantastic day.

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