Good morning, and welcome to Malibu Boats Conference Call to discuss Second Quarter Fiscal Year 2022 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 part is not permitted without written authorization from 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, Mr. Wayne Wilson, Chief Financial Officer, and Mr. Ritchie Anderson, Chief Operating Officer. I will now 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 fiscal second quarter 2022 financials. We will then open the call for questions. A press release covering the company’s fiscal second-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. 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 GAP 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 again delivered a tremendous quarter exceeding expectations across the board, as demand for our boats remained off the charts and showed no signs of slowing. While supply chain pressures have persisted during the quarter, our unmatched operational capabilities, our dedicated team and industry-leading brands continue to pave the way for another history-making year. We pride ourselves on providing the highest quality, most innovative boats to our loyal customer base, and are excited to continue and hopefully increase our pace of production as we push through the second half of FY2022. For the second fiscal quarter, we posted record net sales increasing nearly 35% to $264 million over the prior year with adjusted EBITDA growing 23% to $48 million, and net income growing 40% to $31 million. Our margins during the quarter proved resilient in light of the lingering supply chain issues, associated labor costs and material pricing pressures. For the second quarter, gross margin declined 120 basis points to 24.1% while adjusted EBITDA margin declined by 180 basis points to 18.2% during the quarter. We were able to offset many supply chain, labor, and material pricing headwinds through improved volumes and unpredictably strong ASPs across all of our brands, which is a further testament to the insatiable demand for our boats, helping solidify yet another record-setting quarter. As our pricing surcharge becomes prevalent in all boats in January, margins will be further stabilized for the second half of the year. As I mentioned, demand continued at a prolific pace as the thirst for our feature-rich, larger boats remains incredibly strong, even during what is historically a slower season in October through December. Demand has been broad based across all brands and all models. This has been underscored by…

Thanks, Jack. In the second Quarter, net sales increased 34.9% to $263.9 million and unit volume increased 19% to a record 2,073 boats. The increase in net sales was driven primarily by increased unit volumes due to the acquisition of Maverick Boat Group and a favorable model mix across our brands. The Malibu and Axis brands represented approximately 56.9% of unit sales, or 1179 boats. Saltwater Fishing represented 22.6% or 469 boats. And Cobalt made up the remaining 20.5% or 425 boats. Consolidated net sales per unit increased 13.3% to approximately $127,300 per unit, primarily driven by year-over-year price increases and a greater mix of larger boats for our Malibu and Cobalt segments. Gross profit increased 28.4% to $63.6 million, and gross margin was 24.1%. This compares to a gross margin of 25.3% in the prior year period. The decline in gross margin was driven by the inclusion of Maverick. Selling and marketing expenses increased 41.4% or $1.7 million in the second quarter as a percentage of sales, selling, and marketing expenses increased slightly by 10 basis points over the prior year period. The increase was driven primarily by incremental costs associated with the Maverick acquisition, compensation personnel-related expenses, and promotional events that have since resumed after being suspended due to COVID-19 in prior year period. General and administrative expenses increased 6.3% or 1 million in the second quarter. The increase was driven primarily by an uptick in compensation personnel-related expenses, IT infrastructure expenses, and incremental G&A expenses due to the acquisition of Maverick. As a percentage of sales G&A expenses, excluding amortization, decreased 160 basis points to 6.1%, compared to 7.7% for the prior-year period. Net income for the quarter increased 39.9% to a record $31 million. Adjusted EBITDA for the quarter increased 23% % to a record $48.1…

[Operator Instructions] Please stand by while we compile the Q&A roster. And our first question comes from the line of Joe Altobello with Raymond James. Your line is open. Please go ahead.

Thanks, guys. Good morning. Couple of questions around the guide. I guess starting with the sales guide, it’s largely unchanged. I guess you maybe narrowed it a little bit toward the middle of your prior range, but directionally, how are you guys thinking about units and ASPs going forward in the second half of the year. And I know the last quarter -- last earnings call you talked about potentially approaching, call it, 2500 units per quarter at some point. It sounds like supply chain issues are kind of pushing that back. So maybe help us think about the impact in terms of units and ASPs on that sales number in the second half.

Yeah, Joe look, I think from the guide perspective, we're not really from a unit volume perspective moving much from what we said that 2,500-ish type number that's been thrown around on a quarterly basis, it's still the ballpark for the back-half we talked about a little bit more acceleration on a year-over-year basis in the cadence for the revenue guide. And so what's that mean for you know the net sales per unit. There's not a big move in net sales per unit up that would draw down that volume number that we talked about previously.

Okay. Okay. That's helpful. And maybe on the EBITDA margin line, sounds like things are getting a little bit better. Is that all the surcharge going into effect in the second half or fully into effect in the second half, or are there other items that are helping your margins?

I would tell you, look, we're seeing some flow-through on -- the surcharge comes in slowly, and so there's elements that impact Q3 and it impacts Q4 a little bit more so, but that's also meant to align with those costs coming in. What we're really seeing across our business is that the margins are performing pretty well. It's not meant to be -- the surcharge is not meant to be the margin additive. What you're really seeing there is it is ultimately that the businesses are performing as we are increasing volume on a year-over-year basis, that we are going to have strong performance. So it's not really the surcharge, it's really about just how the businesses are performing sequentially.

Yeah. The point that I'd make Joe is that, the cost increases come first followed by the surcharge. So we're playing catch-up on that. So to Wayne's point is not a margin additive factor is to keep -- if all things being relative, keep the margins where they should be. In the second half, the margin improvement, if any that you see, will come from the operation. It will come from the supply chain improving. And we do see some windows of that supply chain improvement. So our hope is that we'll be able to build a few more boats than what we have predicted last quarter.

Okay. Thank you, guys.

Thank you. Our next question comes from the line of Mike Swartz with Truist Securities. Your line is open. Please go ahead.

Hey, guys. Good morning. I just -- one quick clarification. You are saying a surcharge as went into place in December and I guess you start to see more of the benefit of that going forward, being a surcharge, does that mean that it could and will be rescinded at some point, I'm just trying to understand how that works?

So the way surcharges work Mark, is it to be rescinded, to be maintained and you find its way into a price increase. It could be decreased from whatever it was to a lesser amount, or we could come back and increase the surcharge in the spring. So the reason we went this route was to be very flexible based on the environment. So we've really captured every conceivable event that could occur.

Okay, great. Thanks, Jack. Just a second question on the Cobalt business. Just looking at production volume there. You're still well below where you were I think pre-COVID. So maybe talk about, has anything changed in that business? Or is this just a factor of mixing towards larger lower unit volume boats?

I think you hit the nail on the head based on the environment. Number one; you look at the units, they have been impacted without a doubt by the supply chain. And absent the supply chain issues, there would have been more volume coming out of Cobalt. But secondly, as with ASPs that you've seen, we - the customers are buying larger boats. They are buying the more expensive boats. So that's why we see the revenue offset because of what's happened with the volume of boats at that higher level. And we have some boats that are coming out frankly, in the second-half, I mentioned it that are going to improve that even further.

Okay. Great. Thanks, Jack.

Sure.

Thank you. And our next question comes from the line of Jamie Katz with Morningstar. Your line is open. Please go ahead.

Hi. Good morning. I just wanted to stay on Cobalt for a minute. I think Cobalt was called out as maybe more disproportionately impacted by supply chain issues in the commentary by segment. Is there something different in their supply chain that would impact them differently? And also, was there any impact this year from some of the recent storms across the Midwest or south Midwest, wherever Kansas is, that maybe constrained some production, which I know happened last year? Thanks.

Yeah, there’s - I'll answer the second question first, there really have not been any impact from storms until last week when the storm went through Kansas last week, we did have some impact and a couple of short days, but nothing major. The thing that I would point to a little bit different on Cobalt is all of our brands that will use different products from potentially different suppliers. And in the case of Cobalt, because of different power plants, we buy engines from multiple parties, and those parties have all struggled, frankly. Whether it'd be Yamaha, Mercury, Volvo, they've all struggled in that basis. The other area is Cobalt is pretty dependent on a supplier related to windshields and that windshield supplier has struggled greatly. COVID has impacted them and so our hope is that they begin working out of that in this third quarter and from a supply chain perspective, it will be better. What I'll point to is, and this is probably important to understand. Our acquisition of Amtech will alleviate some of the burden from a wiring harness perspective on the existing suppliers. I think that we'll see very quickly the ability of now Malibu Electronics to begin subsidizing the wiring harnesses for Cobalt so that we expect that supply chain issue for Cobalt to go away.

That's really helpful. And then as you think about the new 30-foot boats that are coming out at Miami, is there a new customer segment you might be trying to target with this or is it just sort of a customer led initiative that consumers were looking for something in the size range? Thanks.

It's not a new target. It is customer led. So if we think about the products that exist today, you have an R33, an R35 that are a little bit older. You have an A29 that we came out with a couple of years ago. So there's a propagation that people were continuing to buy larger boats. They want the boats with more features and more ergonomics. And we believe that on this particular boat, both the Stern drive version and the outboard version delivers that for that either next Cobalt customer or the Cobalt customer that's ready to purchase the next boat.

Thank you.

Thank you. And our next question comes from the line of Fred Wightman with Wolfe Research. Your line is open. Please go ahead.

Hey, guys. Good morning. Thanks. For the question, just to follow up on the EBITDA guidance. I think you guys were expecting a 300-basis point decline this quarter and you came in a little bit better than that. Are there some costs that sort of shifted from 2Q into the back half of the year, or is that just sort of lingering uncertainty about the supply chain, just sort of a modest tweak to the outlook there? Is there anything else that we should be expecting?

Yeah. No. Look, it absolutely did come in better. The actual manifestation of the price increases didn't hit as quickly as we had modeled or anticipated, combined with the fact that our team -- there's really three components. Look, the operations team has done an incredible job in a really dynamic environment to run as efficiently as possible. And then 3, there's cost that we've budgeted whether that be they've been deferred or you're trying to hire people and those people are hard to find. Those are the three components of it. I'd put operations as number 1, the price manifestation in the cost line items as number 2, and then some deferral on the G&A side or just delay in the realization of that as number 3 in terms of order of magnitude.

Okay, great. And then just high-level thoughts on the buyback here. I know you guys did 5 million in the quarter; I think that 70 million authorization expires in November of this year. But how are you thinking about leaning into that buyback just given more shares are trading and also the offset there from an M&A perspective if you guys are still buying stuff. So what are the puts and takes?

The puts and takes are that -- look the stock got incredibly weak there in December for a little bit, and has continued to be what we think is attractive valuation. We have not been a -- what I would describe as programmatic repurchaser that just deploys capital regardless, and its valuation agnostic. And I think that's been our MO for a long time and will continue to be our MO. We deployed only $5 million in the quarter. But I think we will continue to look at it in a similar fashion. We're very positive on the direction of our business in terms of the wholesale restocking and the duration of that tailwind, what we're seeing with the margins of our business, and the strength, and its prospects. So you all shouldn't be surprised if that continues to be weak, that if we continue to buy back shares. We think we have plenty of liquidity, plenty of capacity, debt capacity. If we -- there was an incredible M&A deal, we haven't done anything that would preclude us from executing on a transaction -- an attractive transaction if it became available to us.

Great, thanks guys.

Thank you. And our next question comes from the line of Eric Wold with B. Riley Securities. Your line is open. Please go ahead.

Thanks. Good morning. So a couple of questions, follow-up to a prior question, I guess. If you think about the supply chain issues across all three brands, are you seeing a light at the tunnel in certain areas meet the range of uncertainties and [Indiscernible] described previously is that remained as wide as it has been or is it somewhat narrowed in some of the areas that we're uncertain before or not as uncertainty there had been?

No, Eric, I think it has narrowed a little bit. And I think those things I would point out is that -- and Ritchie told me this earlier. Before you had a scenario where the supply chain would -- they couldn't give you any problems. It would be, "We don't know when we're going to be able to get the product, we'll do the best that we can. " And that's become a little bit more of, "We have some coming to you and we'll get back with you as soon as possible. " And so that's why I say that we see a window of improvement, and it's a little bit predictive to what we had said about two quarters ago, that we think in the second half, it will start improving, it will continue that improvement across calendar year 2022. So we are definitely seeing improvement. It gives us some confidence that we'll be able to produce more than what we have maybe originally projected in the second half.

Got it. And then I know that the price surcharges increases are kind of, you talked about the hope it's going to maintain margins given supply chain and efficiencies and input costs increase and whatnot. But assuming that the current trend towards larger, higher, more feature-rich, higher ASP boats moving into the order book continues. And some of those production and efficiencies, Wayne, in the coming quarters or so, if we think about that mix in the order, but holding at those higher levels, how would that translate into gross margins on the other side versus historical levels? If I asked that in a coherent way.

Yes. Look, I think if I understand your question correctly, look, is there a potential tailwind to the margin profile of the business if and what's that potentially look like if you can release one incremental volume, but also to the mix that you're seeing. Is that the question?

Yes. Yes. Yes, Wayne.

Yes. Look, hey, I think it's a really good question. The reality is that versus our last year when we were talking about our guidance and there was limited upside. I think we do feel like this year from guidance, there is incremental upside versus being in an environment where it's potentially more constrained in terms of what that upside is. And so I -- look, if those scenarios come to fruition, you're probably looking, a lot more like what we thought at the beginning of the year, which was kind of in the -- kind of a low 20s type number. You have the mix impact, and you have some incremental volume beyond what's embedded in the guide. You're probably stepping up in terms of the adjusted EBITDA margins into the low 20's, probably not getting all the way back to last year was 20.5 because of the inclusion of Maverick. But on a apples-to-apples basis, up year-over-year.

Helpful. Thanks, guys.

Thank you. [Operator Instructions] And our next question comes from the line of Rudy Yang with Berenberg. Your line is open. Please go ahead.

Hey guys, thanks for taking my questions. Just wanted that clarification for me on the price surcharge, I guess, can you just clarify the expectation of when that will fully take effect, and just regarding the continued roll out of new models? Are there going to be planned price increases for those models, or is the surcharge you've announced going to represent all the price increases over the medium-term?

Your last question first, the surcharge that's in place has already been planned for the new model, so there's not going to be a separate surcharge for them. We -- it was a limited basis December. I think your question was, when does it become fully baked? We'll start seeing the fully baked part of that probably this month in February, a little bit less so in January, but largely the full price increase is in effect now.

Great. That's really helpful. And secondly, can you just comment to any stops on rising rates and any effect it could potentially have on your business this upcoming year? And I guess just as well as how you believe the industry as a whole has historically performed in a rising rate environment?

Yes. In terms of this fiscal year, I think rising rates will have probably no impact to the -- the wholesale restocking need is immense, and that combined with the strength that we're seeing at retail, look the Fed rates as the quarter point in March I mean that flow through to the retail consumer probably isn't actually impacting retail this year. In my opinion, our belief is that the financing sources have a reasonable about of NIM; of net interest margin, when it comes to the products to finance at retail here, and may absorb some of that, first. And secondly, there is other elements of that distribution of that retail financing products that have the potential to absorb the initial rate increases. And those are likely to occur before there's really any meaningful impact when it comes to the interest rate that people are paying at retail for boats. And so we don't foresee that impacting us this fiscal year, at least and maybe even this calendar year because of those factors

Thank so much.

Thank you.

I'm showing no further questions at this time, and I would like to turn the conference back to Jack Springer for any further remarks.

Thank you very much. We continue to capitalize on scorching retail environment and unprecedented backlog, and we don't see any signs of it slowing. While we are limited in increasing production counts right now, every brand is well positioned to wrap -- ramp-up production once parts and systems are available from our suppliers. In the meantime, we're taking matters into our own hands to control what we can, which we highlight by our acquisition of Amtech. This acquisition further enhances our vertical integration strategy in the long term and addresses a supply chain challenge in the short term. Our strategic planning, operational excellence, and supply chain management continues to support our outperformance. 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. Historically low channel inventories, unprecedented demand, and rising ASPs, create a near-perfect setup that positions Malibu extremely well for multiple years of growth and increasing profitability. Our first-half results, yet again, demonstrate the inherent strength and capabilities of Malibu's brands. We remain confident in our ability to deliver value to our shareholders, and we are increasing 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 2020. Have a fantastic day.

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