Good morning and welcome to Malibu Boats Conference Call to discuss Fourth Quarter Fiscal Year 2019 Results. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will follow at that time. Please be advised that reproduction of this call in the 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, Chief Financial Officer; and Mr. 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 fourth quarter and full year 2019 financials and our initial outlook for fiscal 2020. I will then hand the call back over to Jack for closing remarks. We will then open the call for questions. A press release covering the company's fourth quarter fiscal year 2019 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, adjusted fully distributed net income and adjusted fully distributed net income per share. 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. We finished fiscal year 2019 strong, once again, delivering record results. Our outstanding financial and operational performance continues to demonstrate strength of our premium portfolio, our commitment to operational excellence and the superior execution of our team. I want to thank the entire MBUU team for another great year. For the year, net sales increased 38% to $684 million, adjusted EBITDA increased 36% to $126 million and adjusted fully distributed earnings increased 46% to $82 million or $3.76 per share. During the fourth quarter, Malibu Cobalt and Pursuit continued to perform well, maintaining a dominant position in the markets they serve. Each have strong market share in their respective segments with Malibu and Cobalt having commanding share leads in their markets. Malibu is unique to the industry for developing brand-new boats across the entire product line each year and this year is no different. Our belief is that our exciting model year 2020 product line will further support our leadership in the coming year. We are incredibly excited to introduce four completely new boats to the market this model year in the Malibu and Axis brands. And over the last six weeks, we have already announced three of the four new boats that exemplify our focus on innovation. In July, we introduced the Malibu Wakesetter 23 MXZ, a brand-new model born out of customer demand in the perfect mix of luxury and watersports performance. The Wakesetter 23 MXZ builds off our MXZ series of boats and incorporates a wider pickle-fork bow, maximizes space and innovation only Malibu offers. Incorporating a number of our patented technologies, the innovation is apparent throughout the 23 MXZ, including our new Stern Turn feature, which allows for amazing control of the boat…

Thanks, Jack. In the fourth quarter, net sales increased 40.5% to $194.8 million and unit volume increased 16.6% to 1,992 boats. The Malibu brand represented approximately 38.7% of unit sales or 771 boats; Axis represented approximately 21.7% or 433 boats; Cobalt represented 31.9% or 636 boats; and Pursuit made up the remaining 152 boats. Consolidated net sales per unit, increased 20.5% to approximately $97,800. The increase was primarily due to the inclusion of Pursuit models, which had a considerably higher average selling price than our other brands, and for our other brands, year-over-year price increases and a greater mix of larger boats. Gross profit increased 42.3% to $47.7 million and gross margin was 24.5%. This compares to a gross margin of 24.2% in the prior-year period. The increase in gross margin is attributable to our operational efficiency initiatives and consistent with our annual guidance and expectations. Our comparable gross margin performance in the combined Malibu and Cobalt business, increased 170 basis points year-over-year in Q4. Selling and marketing expense increased 22.2% or $0.8 million in the fourth quarter. As a percentage of sales, selling and marketing expense decreased by about 40 basis points. General and administrative expenses increased 30.5% or $2.7 million. The increase was predominantly driven by incremental expenses attributable to the addition of Pursuit Boats, including acquisition-related expenses. As a percentage of sales, G&A expenses excluding amortization decreased 50 basis points to 6.0%. Net income for the quarter increased 53.5% to $20.5 million. Adjusted EBITDA for the quarter, increased 38.4% to $35.8 million and adjusted EBITDA margin decreased 30 basis points to 18.4% attributable to the addition of Pursuit. Non-GAAP adjusted fully distributed net income per share, increased 42.1% to $1.08 per share. This is calculated using a normalized C Corp tax rate of 24.1% and a fully…

Thanks Wayne. I'll give you some remarks on what we discussed just now. Our fiscal 2019 was another record setting year for our business, the eighth straight record setting year. Demand for our products continues to be strong and we continue to bring more product than anyone else. Our channel inventory levels will remain within range of where we want them to be for all of our brands. Our unmatched vertical integration strategy continues to repel our company forward and strongly differentiate our business from the competition. It is also a competitive advantage not only now but in any cycle downturn. While our level of uncertainty exists in global economic environment, our views at the strength of U.S. economy and our consumer highlighted by the important metrics that we follow. We believe that our operational prowess and laser focus on superior execution will allow us to successfully navigate recent choppiness in the marine segment. And most importantly Malibu remains incredibly well-positioned going forward to maintain and extend our leading positions and deliver long-term value for our stakeholders. This is the reality whether we return to a consistent bull marine market or enter a bearish market. We are supremely confident in our capabilities. Operator, we will now take questions.

Thank you. [Operator Instructions] Our first question comes from Michael Swartz of SunTrust. Your line is now open.

Good morning.

Good morning.

Good morning.

I guess starting off just in terms of the outlook for fiscal year 2020 maybe give us a sense of how you're thinking about the overall retail demand for the market and then in some of the various segments that you compete in?

From a -- I'll speak to Malibu and Cobalt together for a minute. I think that we are going to see as we said that it'll be less than it has been in previous years. We do believe there's still a good retail environment, and I think it'll manifest itself over time. On the Pursuit side that is a market that has been pretty resilient through the summer and even through the SSi [dated] [ph] times. And so we think that -- given that we don't have an ability to produce to the capacity or to the need that our dealers have Pursuit is going to be pretty strong for us.

And then just I guess a clarification question with the fiscal 2020 guidance on Pursuit. You said…

Michael -- you cut out Mike.

We'll let him hop back in the queue. I guess, we'll move on if he's dropped.

Thank you. And our next question comes from Brett Andress of KeyBanc Capital Markets. Your line is now open.

Hey, good morning.

Good morning.

Good morning, Brett.

Jack do you have any thoughts on what we saw in the retail data in June that that large decline was followed by the snap back in July. Just any sense of the underlying factors during those months? And I guess it's been hard to figure out any trend line in the industry here lately. But do you have -- have you seen any of that July strength continue into August?

Two pretty good questions there. I think the June, when we look at June without a doubt weather was an impact. Now I'll give you some examples. First example was on that Northeast sector. You had almost three straight months of rain and cooler weather I'll put it that way every single weekend. And Texas you had 10 out of 13 weekends ahead rain during the early part of that March, April time frame when you start delivering boats in Texas. We know, we've heard, we know about all the problems that we've heard in the Midwest. So the weather was absolutely, I believe a factor in the month of June. I think that's why we saw it across every single segment. June was a weird dynamic in terms of the data that was delivered to the market. Number one, it was light. Number two, it did not contain key states. Texas not was not included, California was not included, Utah was not included, and there were about seven states that you typically see as a part of the data that were not included in the June data for whatever reason. Then when we go forward to July, we did see that pick up. And to answer your question, I got on the phone with a number of our dealers. I probably talked to about dealers representing 40% or more of the Malibu units, and the dealers representing 20% or more of the Cobalt units to get some granularity on what we saw in June, what we saw in July, and what their expectations are going forward. And I think across the board, July was a very strong month and a key illustration comes out of Utah. I was told they were skiing on the mountain on July 4, and next week it hit 90, 95 degrees and they started selling boats like crazy frankly this was the terminology that was used. I think from what I have heard and seen that has extended into August and it continues to be fairly good retail. And my view of the world is that, what Wayne said, and what I said regarding the inventories for Malibu and for Cobalt that it's accurate that you have a weather-related environment, a lower retail environment. And we put couple of weeks of inventory into the channel, I fully expected that will be marginalized by the end of the first or the second quarter.

Understood. Thank you for that. And kind of actually following up on what you just said. So, the down low single digit unit guide for the combined Malibu and Cobalt business. I guess, if you dissect that a little bit more, what does that imply for the core Malibu units? Because it seems like is you kind of move to Malibu inventories are a little bit more elevated than it seems like Cobalt at the moment?

Yeah. They're – I think they're pretty close from an inventory standpoint. But Malibu, we believe there's a probably slightly more upside than on the Cobalt, because as we saw in July that's a very strong segment. It has a 17% growth rate and Malibu being even greater than that.

Got it. And then the last one I got here, just the flooring integration. Can you give us historical context around that, I guess is the profitability impact of this initiative similar to I guess trailers which I think had 30 basis points impact. And then also what's the timing of that initiative flowing through to the bottom line?

Yeah. Good question, Brett. Look, I think a reference in terms of the profile and attractiveness of that investment is really a function of a percentage. So when we start measuring things and basis points, specifically relative to trailers as an example. Trailers we did trailers when we did not have Cobalt or Pursuit on board, which increases the denominator when lower that relative to 30 basis points move, one. Two is trailers have a much larger nominal dollar amount in terms of the overall cost. And so this initiative will over time be able to leak in basis points to the improvement, but the economics are extraordinarily attractive. So when we talk about the attractiveness of the initiative, it really has to do with essentially the return on the cash that we're getting and investing not the absolute nominal dollars returned.

Understood. Thank you.

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

Thank you, and good morning.

Good morning, Eric.

Couple of questions following-up on kind of your comments around potential cycle downturn, I guess, one, I appreciate the comments around where you could see gross margins and EBITDA margins in a cycle downturn. Maybe just taking that a step further I mean, how far would your level have to decline across all your brands, before you kind of get to breakeven EBITDA kind of can you maybe stress that a step further?

Yeah. And again, I think I'll point out that, we go back to a breakeven scenario when you have a 70% down market back in 2008. The world has changed a lot since then and the capabilities have changed. I mean, you had a brand-new management team that at that point in time was inheriting, the recessionary environment. I don't think breakeven – you're looking at 80%, 90% drop-off before you ever hit breakeven. We are still variable at 90% of variability. We can control that EBITDA and that margin line greatly much more so than call it in the mid-2000.

That's perfect. Thank you. And then on the acquisition strategy, maybe explain a little bit on how exactly does your strategy would change, if at all during a cycle downturn versus kind of what you pursued or passed up couple of years? How would you differently if at all judge brands both types valuation multiples?

Yeah. That's a really good question. I don't think it marginally in terms of what our strategy is changes. We believe that winning strategy is to buy the best brands. Cobalt was the best brand out there. Pursuit is one of the best brands out there. You know, I've said that in the past, and I will continue to say this whether we're in a bull or bear market we're not going to buy dogs, dogs take you down. So we believe firmly that, if we have a premium brand that comes to market, it will actually – whether we're in a downturn or not, it will improve and put us into more of that what I call a powerhouse capability. So there will be, I think – if there is our downturn, there will be a lot of potential company's coming to market and kicking the tires. We will continue to be very selective, and we will look for those best brands, so they're going to be top tier brands in terms of quality, perception in the market and also in that top-tier from a market share standpoint. And that's what we would potentially look at. I think that right now we're not quite there yet, there's still a lot of noise out there. And so we're looking more on the repurchase at this point in time.

Perfect. And then just last quick one for, Wayne. How much of the $40 million to $45 million of CapEx is from the facility expansion? And kind of what would be kind of a more normalized kind of maintenance CapEx after those are completed?

Yeah. So, great question. I mean, you're looking at about half of that being true high-growth CapEx. You're going to be more in the $20 million range on a normalized basis given the size of the business these days.

Perfect. Thanks guys.

Thank you.

Thank you. And our next question comes from Tim Conder, Wells Fargo Securities. Your line is now open.

Thank you. Gentlemen. Jack just a little bit more color on a couple of things here. First on retail. A question was asked earlier, but what at this point are your expectations for the core ski-wake-surf part of your business for the industry as you look into the 2020 season as a whole as far as retail. I know it's a hard question at this point. There's a lot of weather variability that will be likely next year. And more so I guess from the perspective of just what you see on the channel inventory clearance also how do you see as rest of the industries channel relative to where you all are. But I know that the full roll out that ended be it a percentage of what you're thinking for the next season on retail.

Yeah. So Tim I'll take the kind of retail profile. So in the core ski-wake segment over the -- on LTM basis, we're seeing a number for that market that's in mid single-digits right? So whether that's 5% or 6% the numbers aren't fully developed. But the reality of the situation is you had some more recent choppiness in that data you've also had impacts of weather. So I think we feel like there's a couple potential competing factors, increased choppiness some of it may not be weather-related and potentially some negative impacts from weather. So our kind of base case assumption, our dealers feel good and ultimately we see that being kind of the new status quote. We spent a number of years at really high single-digit or double-digit growth rates. And it feels like that a more moderate growth rate in that mid single-digits is probably where it's at.

Yeah. As far as the inventories, I'll talk about that Tim. I can't tell you anything more in terms of the broader landscape and competitors and their channel inventories then you already know. We all know where others are. So I'm going to talk about Malibu. We're in a better position than any other competitor out there, as it relates to channel inventory. And our focus is on making sure that our dealers are moving through that inventory. If we think about floor plan financing every model year 2019 boat that the dealers has today, they're paying interest on it up to $3,000 a month of interest. And so I want to make absolutely sure that our dealers are very comfortable and very healthy. And as I said earlier, I think they will have our inventories in very, very good shape within the first six months.

Okay. Are you planning to offer any incentives or any assistance in anyway to the dealers here Jack over the next six months or here especially during the off-season?

Yeah. You may have seen this out in the market now. We're giving the dealers some help today moving model year 2019 inventory. My view of the world is that it's absolutely asinine to start discounting model year 2020 inventory. So we focus on that older-age inventory. And our goal is to get our dealers in that position where they're very comfortable and they're looking forward to selling model year 2020. So we're ready at this early day. I suspect that we will pretty well be completed in terms of the health that we'll need to be giving by the end of this first quarter.

Okay. And lastly gentlemen, you talked about obviously the Pursuit plant ramp-up weighing on margins a little bit. When are you targeting that to be complete? And we should start to see that reversal in the margins that you mentioned?

So the reversal that I was speaking of was specific to the ASP trend there. So, we -- that facility has not being the one producing the S 408 and S 368 center console models which are some of the highest priced models for the brand. And so as we expand and try and increase production in the existing Florida facility before the new one comes online, the incremental volume that we're getting out of those operating efficiencies is going to come in the form of a less rich mix and negatively impacting the ASP. So that ASP reversal will occur once that plant comes online and that plant will come online we plan in the very early part of fiscal 2021.

Okay. Okay. Thank you.

Thank you.

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

Thanks. Hey guys, good morning.

Good morning.

Just sticking with the inventory discussion for a second. Wayne earlier you mentioned that your dealers are feeling good, but has the volatility for month-to-month caused your dealers to want to take a more conservative view when it comes to inventory maybe hold generally less inventory on an apples-to-apples basis for model year 2020?

That's fair question Joe. I think that that's the impact on anybody. You're always dealing with the short-term. So without a doubt our dealers were not feeling as good after that June SSI data came out and what they experienced from a weather standpoint. July they felt a lot better. And I think even that extends into August. I would say that I even had that same impact that's the reason I started calling dealers. I wanted to really know what they were thinking about. So as we see this -- what we call choppiness, I don't think that in the dealers' mind there can help, but be little bit of an impact. But at the end of the day the dealer is going to look at their world based on the number of 2019 models we have on their parking lot. And so to the extent that they're moving inventories and they're selling inventory and they're getting the help to do that so that they can bring in more current inventory, that's probably more appealing to the consumer they are -- they will feel better.

Okay, that's helpful. And just secondly on the promo environment you did allude this morning to potential increase in promotion activities in the industry. You said the same thing three months ago. Have we seen that yet or is it still sort of on the come here?

Yes, I think that we've seen some of it. There has been some -- in some cases there's been more spotting market-by-market-by-market. But I think time will tell whether we see more of a pervasive canvas of discounting.

Okay, great. Thank you, guys.

Thank you

Thank you. And we do have a follow-up question from Mike Swartz of SunTrust. Your line is now open.

Welcome back.

Yes, thanks. The question I was in the middle of was Wayne on the guidance for fiscal 2020 on Pursuit unit volume I think you said approaching 40%. I just -- what would that be on a pro forma basis assuming you owned it for all of 2019?

Yes, I mean it's going to be meaningfully in terms of a double-digit percentage. And that's really driven by the operations team ability to get more out of that factory.

Okay. And then just one more from me. With regards to the 2020 guidance, gross margin was up or is up slightly in your guidance, but it looks like I guess the biggest offset to that would be operating deleveragement, you can go through some of the factors that I know you talked about maybe some higher sales and marketing expenses and the competitive environment. But just I guess help us understand why you would see that level of deleveraging in 2020?

Yes. Well, so what you really -- the inclusion of Pursuit is a 40 or almost 50 basis point headwind just to start with. And so we're still contract manufacturing boats in from the seller S2 of the big boats and those big boats come in at a fixed lower margin as well. So, you start with that being the most meaningful component, combine that with the anticipation of increased promotional environment, and that's really going to be the primary -- the couple primary drivers.

Okay. But even with the sales and marketing piece there are higher promotion costs most of that you're anticipating would be in the first half of fiscal year?

Look I think that's probably if there and I think that's -- our expectation could leak a little bit into the second half. Yes, I think it could. But obviously, boat show season is really fiscal Q3. And so if that is where that needs to happen be competitive then it may leak into that fiscal Q3 as well.

Okay, great. Thanks a lot.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Jack Springer for any closing remarks.

Thank you. Malibu had another great quarter and a fiscal year that was great as well. Each of our brands continue to perform well and our dealer inventory levels remain at appropriate levels, although we're going to take them down a little to support the strong demand for our products. As we look to fiscal year 2020 we are well-positioned to deliver solid performance and continue to unlock value for our shareholders. While we still believe in the economic metrics and the economy, we recognize the choppiness that we've recently seen and we've prepared for a cycle downturn whenever it comes knowing that we will be stronger and more powerful upon exit of any cycle. I want to thank everybody for your continued support of Malibu and I thank you for being on the call today. Have a fantastic day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.