Good morning, and welcome to Malibu Boats Conference Call to Discuss First Quarter Fiscal Year 2022 results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without reauthorization of Malibu Boats. And as a reminder, today's call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; and 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 first quarter of fiscal year 2022 financials. We will then open the call for questions. A press release covering the company's fiscal first quarter 2022 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. The 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. We once again demonstrated our dominant leadership in the marketplace as we've delivered sustained momentum in the first quarter of fiscal year 2022, supported by continuing strength in retail demand even as we enter the off-season. While inflationary and supply chain pressures intensified, our team's unparalleled commitment and execution, coupled with our industry-leading brands and inherent operational strengths were next to none, driving our outperformance in the quarter. Malibu continues to be a premier force in the marine industry in the entire leisure space, setting the tone for continued growth and agility as we navigate through fiscal year 2022 and beyond. For the fiscal first quarter, we posted strong top line growth as net sales increased nearly 40% to $254 million over the prior year, with adjusted EBITDA growing 23% to $45 million. Adjusted gross margin declined by 170 basis points to 23.6%, and adjusted EBITDA margin declined by 250 basis points to 17.6% during the quarter. The decrease in margins was better than anticipated and was primarily generated from the inclusion of Maverick in fiscal 2022, the restart of Cobalt boats costs and the realization of supply chain issues that increased labor costs. Against consensus, all financial metrics were met or exceeded expectations. In addition, we saw an increase in material pricing pressures that accelerated in the first quarter that impacted margins. During the quarter, we continued to capitalize on very strong retail demand, and in particular, larger, more feature-rich boats with our innovative best-in-class brands. For Malibu, sales for our new 25 LSV and T250 models and our premium M-Series boats are booming, driving enhanced margins for the business despite the negative impact of the supply chain on volumes. Also, our new Cobalt R-Series, consisting of 9…

Thanks, Jack. In the first quarter, net sales increased 40.1% to $253.5 million, and unit volume increased 23.8% to 2,024 boats. The increase in net sales was driven primarily by a favorable model mix in our Malibu and Cobalt segments, year-over-year price increases and increased unit volumes, primarily due to the acquisition of Maverick Boat Group on December 31, 2020. The Malibu and Axis brands represented approximately 52.3% of unit sales or 1,059 boats. Saltwater Fishing represented 24% or 485 boats, and Cobalt made up the remaining 23.7% or 480 boats. Consolidated net sales per unit increased 13.1% and to approximately $125,200 per unit, primarily driven by year-over-year price increases and a greater mix of larger boats for Malibu and Cobalt segments. Gross profit increased 30.6% to $59.8 million, and gross margin was 23.6%. This compares to gross margin of 25.3% in the prior year period. The decline in gross margin was primarily driven by the inclusion of Maverick in the current period. Selling and marketing expense increased 41.7% or $1.5 million in the first quarter. As a percentage of sales, selling and marketing expense remains consistent to the prior year period. General and administrative expenses increased 38.1% or $4.4 million. The increase was driven primarily by an increase in compensation and personnel-related expenses, travel-related expenses, IT infrastructure, other administrative costs and incremental general and administrative expenses due to the acquisition of Maverick Boat Group. As a percentage of sales, G&A expense, excluding amortization, remains consistent to the prior year period. Net income for the quarter increased 26.7% to $27.9 million. Adjusted EBITDA for the quarter increased 23.1% to $44.7 million. And adjusted EBITDA margin decreased 250 basis points to 17.6%. Non-GAAP adjusted fully distributed net income per share increased 21.2% to $1.37 per share. This is calculated using a…

[Operator Instructions] Your first question comes from the line of Mike Swartz from Truist Securities.

Jack, maybe -- and Wayne, maybe touching on some of the comments around, I guess, lower volume expectation, you did roughly 2,000 units in the quarter. And I think you said kind of unconstrained you could do closer to, I think you said, 20%, 25% above that, so roughly 2,500 a quarter, one, I guess, is that correct? And then maybe, two, how do we think about volume dynamic over the next couple of quarters just given some of the manufacturing and supply chain issues we're seeing?

Yes. I think you're pretty well on target. I mean right now, we could easily get, if we had a supply chain that was cooperating, get to that 2,500 number. We can take it up even higher. I'll give you an example of what we've done. We focus very strongly on vertical integration. And we continue the vertical integration. We have several initiatives in place. But one of the things that we did is we shifted our focus, Mike, and moved -- we slowed down on the vertical integration side and we devoted some CapEx and devoted some attention to our final finish area, expanding that. And so we believe that, that positions the Malibu and Axis brands to even do more than that 25% once the supply chain starts supporting us. So what we're investing in and focusing on is when the supply chain corrects that we are able to take accounts up as quickly as we possibly can because as you heard, when you have nearly $0.5 billion of back channel inventory backlog, we want to be in a position to recover that as quickly as possible. So you're right on that quantity. I think from a going forward, it's going to morph and it's going to change. And we may see our ability to take accounts up in the second quarter be better than what we thought, but we also may see it stay the same. So with the supply chain the way it is and the changes that are occurring on a week-to-week basis, it's just very hard to predict. I don't think that we see it versus what Wayne said it going down any further.

Adding some color to that, Mike, in terms of cadence, what I would tell you is Q2 looks a lot more like Q1. And we've seen this in past years, if you think about last fiscal year. And frankly, with just the way holidays line up and seasonality and how we manage the supply chain last year, we think this year sets up very similarly. The cadence that we provided, I think will -- as you work through those numbers will translate into something very similar. And ultimately, what you're going to see is volumes that are more towards that 2,500 unit range in Q3 and Q4 of this year. And ultimately, I think we have capacity on top of that, if that's available as the supply chain loosens up.

Okay. That's very helpful. And then just on your pricing commentary and understanding, I think, most of the price increases were taken in October, so they weren't reflected in the first quarter. But maybe help us understand the magnitude of the price increases you did take and then maybe how your policy on the price protection has changed later in recent months.

Well, from a standpoint, the way that we did it, Mike, is we did a surcharge. You have a couple of opportunities. One, you can increase prices systematically, which is more complex. Or you can look at it from a surcharge basis, which allows you some flexibility to take it down, take it up, whatever you need to do. So we went with a surcharge format. And our strategy or our focus was to not only try and compensate for the cost increases that we were seeing, but anticipate a few of them that may be coming based on conversations that we've had with our suppliers. Our strategy was to remain margin neutral. So look at that price increase, make sure we're capturing all the costs and keep our margins where they need to be versus what we have predicted before.

And Mike, just to add one piece of color. Those will actually start impacting our P&L in the month of December. So that's part of the temporary disconnect between price increases and cost input increases. So that leads a little bit to the pressure on that [19.5%] guide versus the [20%] for the year.

Your next question comes from the line of Joe Altobello with Raymond James.

I guess first on the component shortages, it seems like it changes by the week and sometimes by this day. Is it concentrated in any particular brand or facility at this point?

No. I mean it's across all of marine. If you're a manufacturer in OEM, you're seeing these impacts across the board. And it's not really focused in one brand. You have certain things that are pertinent to a brand or a segment. For example, you have the outboard engines that will affect the Maverick brand and the Pursuit brands. We don't have the engine issues as it relates to Malibu and an Axis. But there are some components that extend all the way across, some electronics components. Petroleum-related products still are an issue and plastics, and so that extends across all the brands.

Got it. Okay. And in terms of the surcharges you mentioned going in place in December, how does that position you from a pricing standpoint vis-a-vis the competition? Are you seeing others take pricing up in a similar magnitude?

Every single manufacturer I know is doing it and some even higher. Some have also talked about the fact that they may take another price increase after the first of the calendar year. So we feel like that from our increase -- we're not -- we're trying to protect the Malibu P&L and balance sheet in a gauge. So we feel like that we are very much right in the middle part of where people are raising prices.

The next question comes from Craig Kennison with Baird.

Just following up, with respect to your pipeline, your order backlog, as you push through price increases, have there been any cancellations as people push back against a higher price than, maybe, they expected?

No, Craig, it's been interesting. We've been watching it very closely. Clearly, we're in a world that most of us have never experienced before. And there's really not been a blip on the price increase. And I believe that there are a couple of things factoring into it. There's still a lot of money out there. And our demographic has a lot of money, and they have a lot of money to go out and buy things with. Secondly, there -- I think it's dawning on customers from an early on aspect that if I want a boat, I need to get in line because there is a line. We have -- some of our models, depending upon the brand, that are already sold-out for 2022 and well into 2023. And so I think that there is a consumer dynamic at play that there's a recognition that if I sell my boat and I want to buy a boat, I've got to get on a list, I've got it get that slot in place to keep it, and we've not seen those cancellations. I think the other thing I'd point to, we watch very closely the Fort Lauderdale Boat Show because that was our first entree or our first boat show after price increase went into affect. And we saw 4x the volume for Cobia. We saw huge volume for Pursuit over last year. And so there was literally no impact in terms of pricing on what the Fort Lauderdale Boat Show did, which tells us along with the other ancillary data that we're getting that people are just going to buy boats right now.

And it's such an ideal environment in some way. I know it's difficult on the supply chain. But in terms of taking orders, your dealers have to be delighted to get full MSRP. Is there anything you can do to kind of preserve some of the best elements of this current environment in terms maintaining the right stocking level and maybe creating a process where you can take orders and more or less sell slot as opposed to boats in the channel?

Yes. You mean going forward on a more permanent basis?

Yes. Once we get out of the crisis, there are attributes that are beneficial here in terms of margin and just selling these production slots. I'm wondering if you can find a way to preserve some of that.

Well, I think that it is function of the environment we're in. And the environment will switch. We are -- unlike what some people in our Federal Government would like to have, we are a capitalistic environment. And it's going to return back to more of a near-normal situation. And dealers are going to have to carry stock because people will want to come in. We'll get back to that mix, in a given year, 50% sold or stock boats and 50% of retail sold boats. And so there is going to be that customer that comes back, and they're going to want to buy that stock boat. Will it go all the way back? I don't know that it will. But I don't think that we've created or we will see a dynamic in which people are going to continue to buy slots. I think we will return to that 50% buying slots or retail sale boat.

Your next question comes from Fred Wightman with Wolfe Research.

There was a comment that you're carrying more labor today than you need just given current run rates. And I totally get why you would do that given the expectation that volumes will ramp as we move through the year. But can you quantify the drag in the quarter, either for the first quarter or how to think about that into the second quarter and the balance of the year?

Yes. What I would tell you is that you're going to measure it in a dozen or two, call it, 10 to 20-ish basis points is probably the appropriate number from that drag. I think we're hopeful that drag will persist a little bit into Q2. And I think we're hopeful that the supply chain recovers and a little bit from where it's at today, and we're able to minimize that drag in the back half of the year.

Okay. Great. And then could you just maybe touch on some of the higher-level industry data from SSI. I mean 2-year trend slowed a bit. Ski Wake goes down, call it, mid-single digits year-to-date. Are you seeing a big disconnect from some of your internal registration data versus what some of the industry sources are saying? And how do you sort of see the retail dynamic shaking out going forward?

Yes. We're not really seeing -- I mean we think that our internal data on registration is marrying up for the most part to what SSI data is showing. The big dynamic, we have talked about this the last couple of quarters, is you had that huge outperformance, that insatiable demand last -- in the first quarter of last year. And so there's got to be a flat line. You can continue that pace with the inventory levels where they are. I believe that we'll probably, for the next quarter or two, continue to see the SSI data come in against the previous year lower. But then we're going to be going against comps that are more normalized. And so I would expect it to start picking up again. And then if we get inventory into the channel, that will also cause SSI data or retail registrations to pick up.

Yes. And I think importantly, from our perspective, the retail is just -- typically a lot of people use that as a proxy for demand. And the reality is in the environment that we're in today, it's not a great proxy for demand because the reality is that there's just not that inventory. And if you look at the underlying data, let's call Ski Wake out as example, and you look at actually what happened in September, the reality is you were down on a 2-year basis, call it, mid-single digits versus 25% in August and September. And that's -- the function there is simply that there's no inventory. So -- but that's going to ultimately correct itself. And I think we feel really comfortable that retail demand remains robust. And frankly, that registration data is really difficult to put any weight in as a proxy because of the lack of inventory.

The next question comes from Gerrick Johnson with BMO.

One for Wayne, one for Jack here. Wayne, you mentioned gross margin was primarily impacted by Maverick. Can you talk about what that would have looked like, excluding the impact of Maverick, and then a follow-up for Jack.

I don't know if I have that number directly in front of me just given the way we report out. But I would tell you that the business is performing pretty well. Obviously, some of the labor that we're carrying is a drag. And so that would have impacted the gross margin on a year-over-year basis relative to -- excluding Maverick. But I don't have that number right in front of me. We've quantified that as probably 150, and even on the gross side, it's more than that, probably about a 50 basis points for the year for EBITDA, 50 to 60 basis points for the year for EBITDA. But in the individual quarters that are not comparable, it's going to be approaching a couple of hundred basis points.

Okay. All right. And then, Jack, we always love when you play economist. The cheeseburger picnic continues, I'd say at Fort Lauderdale, it looks more like an all-you-can-eat steak dinner. So how are you feeling about the U.S. consumer right here of all that's going on in the world? What's your outlook for the consumer in the next 6 months to next 12 months?

I feel good about the outlook right now. I think that our consumer, our demographic is in a very good place in life with a lot of capital at their disposal. The metrics that I look at have changed and the environment has caused them to change. Right now, I will tell you the primary metric I look at is the stock market. And I think as long as the stock market performs, our demographic is going to continue to be there. They have shown absolutely no reticence in buying a boat regardless of the price, which has been -- I would have never expected this. So for the next 6 months, I feel very good. And if we can get that supply chain to start cooperating with us and we can start building more boats, it should be fantastic. By the way, do you want strawberry, vanila or chocolate?

I guess right now, all of the above.

All right.

I'm not showing any further questions at this time. I would now like to turn the call back to Jack Springer for any further remarks.

Thank you very much. In summary of our quarter, while inflationary concerns and ongoing supply chain constraints that put significant pressure on our industry and the global economy, our first quarter results yet again demonstrate the inherent strength and capabilities of Malibu brands. Our strategic planning, operational excellence and supply chain management continues to support our outperformance. Our vertical integration strategy remains second to none and a competitive differentiator, driving profitability and unlocking maximum value from our innovative product portfolio. We also continue to capitalize on higher -- on the hotter-than-ever retail environment and unprecedented backlog, which will support further growth and strong earnings. We remain optimistic, these tailwinds will remain elevated for some time. While we are limiting in increasing production accounts, every brand is well positioned, and we are prepared to increase production quickly and with substantial volume, once parts and systems are available from our suppliers. Our teams continue to push boundaries through the introduction of new product models that exemplify innovation and luxury and draw customers into the Malibu, Cobalt, Pursuit and Maverick lifestyles. As price increases help counter short-term volume declines and the supply chain issues moderate, we look forward to advancing our industry-leading position and outperforming our peers. Given our excellent start to the year, we remain confident in our ability to deliver value to our shareholders while maintaining our guidance for fiscal year 2022. As always, we thank you for your continued support and for joining us in our journey towards growth and continued excellence in fiscal year 2022. I hope you and those around you are saying safe and healthy. Have a fantastic day.

This concludes today's conference call. Thank you for participating. You may now disconnect.