Good morning, everyone. And welcome to Malibu Boats Conference Call to Discuss Fourth Quarter and Full Fiscal Year 2023 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 whole or in part is not permitted without written authorization of Malibu Boats. And as a reminder, today's call is being recorded. On this call today from management are Mr. Jack Springer, Chief Executive Officer; and Mr. David Black, Interim Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I will now turn the call over to Mr. Black 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 fourth quarter and full year 2023 financials. We will then open the call up for questions. A press release covering the Company's fiscal fourth quarter and full year 2023 results was issued today and a copy of that press release can be found on the Investor Relations Web site on our 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 the 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 measures are included in our earnings release. I will now turn the call over to Jack Springer.

Thank you, David. And thank you all for joining the call. Fiscal year 2023 was another impressive year for Malibu, which included fourth quarter and full year results that exceeded expectations despite an increasingly challenging environment. Our unique operating model, vertical integration capabilities and a world-class leadership continue to shine through, allowing us to take a leading position in the marine industry no matter what the market condition we find ourselves in. For fiscal year 2023, net sales increased 14% to a record $1.4 billion, gross margin remained strong at 25% and adjusted EBITDA grew 15% to a record $284 million, while adjusted EBITDA margin increased to 20.5%. ASPs across all brands continue to be extremely strong, driven by Cobalt and Pursuit. During the fiscal year, we made great strides to match wholesale production to retail demand, which we believe is important and responsible for our investors and our dealers. The first three quarters of the year saw us matching our production to a deficient channel inventory environment to reach more normalized channel inventory levels. The normalization occurred faster than anticipated and in the fourth quarter, we took production down in our freshwater brands to match where channel inventories were at that point. We continue to monitor retail sales and channel inventories closely and are prepared to make adjustments quickly. As we have said repeatedly over the last several quarters, we believe the supply chain would normalize by the end of fiscal 2023 or the beginning of fiscal 2024. We can now officially say that these challenges have largely abated. While occasional pockets of weakness still exist as a normal course of doing business, we remain committed to working with our supply chain partners to ensure normalized supply going forward. While the retail environment remains uncertain, we are leveraging our…

Thanks, Jack. In the fourth quarter, net sales increased 5.4% to $372.3 million and unit volumes decreased 1.8% to 2,550 boats. The increase in net sales was driven primarily by increased unit volumes in our saltwater fishing segment and a favorable model mix across all segments, partially offset by lower unit volumes in the Malibu and Cobalt segments and by increased dealer flooring program costs, resulting from higher interest rates and increased inventory levels. The Malibu and Axis brands represented approximately 49.1% of unit sales or 1,253 boats. Cobalt represented 22.4% or 571 boats and saltwater fishing represented the remaining 28.5% or 726 boats. Consolidated net sales per unit increased 7.3% to approximately 146,000, primarily driven by year-over-year price increases and favorable model mix, partially offset by increased dealer flooring costs. Gross profit increased 14.3% to $102.5 million and gross margin was 27.5%. This compares to a gross margin of 25.4% in the prior year. Selling and marketing expenses increased 1.8% to $5.4 million in the fourth quarter. As a percentage of sales, selling and marketing expenses were flat year-over-year at 1.5%. General and administrative expenses increased 587.3% or $100.8 million. The increase was driven primarily by settlement of product liability cases for $100 million. The remaining increase in general and administrative expenses was driven by an increase in compensation and personnel related expenses. As a percentage of sales, G&A expenses excluding amortization was 31.7%. Net income for the quarter decreased 136.3% to a loss of $18 million. Adjusted EBITDA for the quarter increased 21.9% to $90.1 million and adjusted EBITDA margin increased 330 basis points to 24.2%. Non-GAAP adjusted fully distributed net income per share increased 22.6% to $2.98 per share. This is calculated utilizing a C-corp tax rate of 24.3% and a fully distributed weighted average share count…

[Operator Instructions] Our first question today comes from Michael Swartz from Truist Securities.

Maybe just to start on retail demand. Obviously, we've all seen the numbers year-to-date and obviously, the Ski Wake or towboat segment has been one of the softer areas within the industry. So maybe Jack, I guess, what do you attribute that to, is that just the impact of pricing over the past couple of years or is there something something more to that? And I guess any commentary on what you see maybe in the retail trends over the past maybe four to six weeks?

Yes, Mike, I think there are several elements to this. One would be pricing, although, I wouldn't say that pricing in the Ski Wake segment has been outpacing other segments. What I think that we're seeing a little bit more than anything is maybe people are waiting a little bit longer to trade in their boat and buy their boat. Some other factors that I believe certainly exist is you do have some segment of that, especially on the active side. The consumer is dependent upon interest rates and it's become very apparent that interest rates are an issue for our dealers as well as for consumers in certain markets. The third thing I would point to is weather. And although we hate to point to weather, the simple fact of the matter is that in May and June, it was a cooler spring. And then one thing that you haven't heard a lot about and no one has really talked about it, is there is a drought going on in certain sections of Texas and that being the number one Ski Wake segment, I think, is having an impact. In terms of what we've seen over the last six or eight weeks and I alluded to this in the remarks, but a little bit of the concern is always, hey, are we dealing with a scenario where the customer has disappeared. And with the program that we ran over the 4th of July and for the month of July, that showed us that they're not. To have warranty registrations 156 more than 2019 was pretty staggering for us. And so I think more than anything that just showed us we have to figure out the way in all of our brands, not just Ski Wake to reach that consumer and entice them to buy.

And then just on the guidance, the 300 to 400 basis points in EBITDA margin decline year-over-year, I guess, it was a little more than I had anticipated. So maybe walk through that range that you gave us. How much of that is volume related versus maybe dealer support versus presumably, I would anticipate that saltwater outpaces the rest of the business. I guess, how much of a mix drag would that be, is that the correct way of looking at it?

No, you're hitting on the right points. I would tell you that the great majority of it is volume driven. And the volume is going to come out of all the brands, not evenly, but all the brands are going to be down. The supporting of the dealers, I don't think that's going to be a huge marginal item, certainly less than 75 basis points and probably around 50 basis points. So it's not going to have that much of an impact. It's going to be mainly volume related. The thing that I think is important to understand is we've been preaching for five years now that in a down environment, in a 30% down environment, we can still be above 15% of margins. And even though this may look a little bit less than what you had anticipated, looking at 18% to 20% down type of environment and still maintaining an above 17% EBITDA margin, just continues to drive home that we can be extremely profitable even in a prolonged downturn.

Our next question comes from Jamie Katz from Morningstar.

I'm not sure that Jamie Katz has been queued up on the Q&A session.

And Miss Katz, is it possible your phone is on mute? [Operator Instructions]. The next question comes from Jamie Katz from Morningstar.

I think you guys had mentioned the first half revenues were going to be down 20%. So I think that sort of back-end loads 2024. And I'm just curious what gives you guys the confidence to feel like maybe there will be a little bit of bounce back in consumer sentiment at the beginning of next calendar year to support that, given what we're seeing currently?

Obviously, we can't predict the year. We have a really good, I think, vision on what that first quarter is going to look like. And we think that if there is a rebound, we can't promise a rebound in the second half, but we believe that, that could occur in the second half. And so that's why we plan the second half up a little bit. But ultimately, the year is going to pan out and we'll know a lot more each quarter.

Are you guys seeing anything different in how consumers are maybe adding on upgrades? I know the fourth quarter sounded pretty solid, but has that changed at all as we've entered the new year? Is it that consumers are picking and choosing what they're adding just more cautiously to their units?

No, that's an interesting part of the dilemma. We are seeing, obviously, some of the velocity of the volume go down but we're not seeing the ASPs. They continue to order and put the people that are buying boats are putting new features, new options, upgrading the features [notes] that they used to have. So we're not seeing that from a standpoint of the ASPs as strong across the board.

And then lastly, is there any update to the utilization of the new facility. I know you guys had talked about pontoons in the past, but any update there that would be noteworthy?

As we said, we talked about is going to be additional capacity. And so part of what we are doing with that, and we're not utilizing all of the facility for it, but we're going to be moving a part of the cobalt smaller boats to that facility for a couple of reasons. Number one, we, for a number of years, has just been up against the ceiling in the number of boats that we can produce and we think that it's going to be that way again in a relatively short period of time. And Cobalt is one of the strongest brands that we have with all new product. And so as we come out of this, we think Cobalt is going to grow very, very quickly and have the capability or need the capability of producing a lot more units. So that's the first foray that we're going to utilize out of that 260,000 square foot facility, and we'll start that in the second half of this year. We'll continue to build boats in Kansas. Some will be small boats and largely, it will be cruisers, but we'll have two different locations that we're building Cobalt. If we can't make an enviable acquisition of a pontoon company over the next 15 to 18 months, then we would look to greenfield pontoons in the rest of that facility.

The next question comes from Brandon Rolle with D.A. Davidson.

Just briefly on the Ski Wake category. Do you feel like the category is being impacted by potentially other segments that might be able to bring along some of the same features that Ski Wake boats already provide?

That's a great question, Brandon, and I think -- and it's something we've looked at a lot. It’s only in, what I would call that entry level consumer I think you do see a little bit of that. You have a scenario in that sterndrive market where their waves have improved. Are they a 7, 8, 9, 10? No. But for that entry level, customer they don't necessarily need that 7, 8, 9, 10. And so they're looking at maybe other boats that do other things. And I think for the entire ski-wake industry, I think is that really puts us on a market we need to figure out how to combat that if we want that entry level consumer. And we have some plans in place that I'll probably be talking about next quarter that we think that will certainly impact that.

And then just on the promotional support, obviously, great success with that Labor Day event being moved up. Do you feel like that's the right level of promotional activity moving forward, or is there a potential for more support maybe on the wholesale side for dealers moving forward?

It's going to be dictated by the market, really. And we think that we have planned sufficient programs in place and a couple of different brands is probably a little bit more than we've done even prior to COVID. But we think it's the right level. And again, there's no more than a 50, 75 basis point decrease to the EBITDA line. And so we'll monitor it based on how the market goes. We think we have the right level but we'll just see. But we'll also make adjustments if we need to.

And just one last question just on the first quarter guidance for fiscal year '24. I think you had said there was an EBITDA headwind. I missed how much of a headwind there would be in the first quarter, if you could repeat that?

We say about double the annual decrease, so call it, 500 to 700 bps.

The next question comes from Fred Wightman with Wolfe Research.

I just wanted to follow up on the comments about supplier pricing. It sounded like that caught you a little bit flat-footed. Just wondering maybe if you could quantify that and if those discussions are yielding any explanation for the disconnect?

I mean I wouldn't say flat footed. I think we were surprised by it. I would probably prognosticate that all of the OEMs were a little bit surprised at the pricing all the way from engines to smaller parts. They held higher. We felt like we would see more of a decrease or more of a movement back to where it was a couple of years ago and did not see that to the extent that we wanted to, did not necessarily take that in pricing all the way through. We felt like we needed to control pricing from our standpoint and not pass that along to the consumer. To your question, have we been seeing it come down? Yes, we've been working hard and in some cases, frankly, we've changed suppliers. I mean I think that all of us, both dealers and OEMs have to be very careful in this environment, especially with interest rates and our suppliers need to be becoming more logical in their pricing, and we all need to be taking pricing down where we can.

And then just on some of the inventory stats that you guys gave, helpful to have that sort of broken out freshwater versus saltwater but sort of a two part question. One, how do you sort of think those compared to what you're seeing in the rest of the industry? I wasn't sure if those were Malibu only or if that was sort of an industry comment? And then two, if you think that dealer inventory levels, should we be indexing those off of '19, do you think that they sort of need to come down versus '19, how do you sort of think about that?

So on the first question, Fred, the comments that we made were relative to Malibu. So about weeks on hand being about what they were pre-COVID or maybe a little bit more in the Malibu case or our company case MBI and then saltwater being three to five weeks down overall. What I would tell you is that our benchmarking against the rest of the segmentation, we have been at the lower end of the spectrum for every single brand. So the inventory on hand with our dealers is less than other dealers with competitors. And so we do feel good about that. Moving to your second question. I think you get into a dilemma here and I understand where the dealers are coming from and I understand the cost that are being driven. But the bottom line to the equation is 50% or more of the boats are bought at the dealer lot. And if you don't have the inventory, you're not going to sell the boat. So there's a happy medium that we can't go too far and push inventories too high. Conversely, we can't go too far and not have enough inventory at dealer size, because that's a guaranteed proposition for losing. So we have to work with the dealers and we have to look at things. I think to benchmark your 2019 comment, channel inventories probably need to be just slightly a tad a little bit lower than what they were weeks on hand in 2019.

The next question comes from Kevin Condon with Baird.

I wanted to ask a bit about the balance sheet. You guys didn't report any debt for the quarter. And I think in association with that settlement you announced earlier this summer that you'd be using a revolver to fund some of that. But just bigger, how do you feel about your capital structure and the need for any new debt to fit in there?

Yes, I think when you look at our balance sheet, even taking into account drawing on the revolver of $75 million to address the litigation settlements, we feel like we're in a very healthy position. I think as we look at it over time that's something that we'll consider from a capital allocation perspective. And one of those things that we'll always be considering is what that means from a share repurchase perspective. But overall, we feel like we're very healthy on the balance sheet side.

Does that comment extend some of these initiatives on the new capacity you have there, as well on that tooling center, do you feel like you can cover that or…

So in terms of the tooling center, that's really already been covered. A great portion of the facility here in the North City has already been covered as a part of this. And I think a bigger question that most people are going to be asking is what does this do from an M&A standpoint. And we still -- given the facility that we have, we're very comfortable that we have the facility to pull off a pretty nice M&A transaction if it comes to market. I think the other power of this, when David talks about the borrowings of the last quarter is the rapidity because we're a 90% variable business and the rapidity with which we're going to pay it off. So we'll be back in that leverage position pretty quickly.

The next question comes from Joe Altobello with Raymond James.

This is Martin Mitela on for Joe Cabello. Just a quick question about the guide. You did mention the sales decline to mid to high teens. Just trying to get a breakout between volume and pricing and how those two may play off each other?

We don't typically provide guidance on the volume side, but I think you can back into it with the implied guidance that we gave around revenue. So depending on what your ASP assumption is, I'd say on the volume side, you're probably looking at a 15% to 20% down.

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, our fourth quarter and fiscal year results demonstrate the unbeatable strength and capabilities of our business model, led by our unmatched operational and manufacturing capabilities, we consistently provide the most innovative, highest quality boats to our loyal customer base. We continue to extend our strong track record of performance, delivering another record year for sales and EBITDA despite margin pressures as volumes and inventories normalize. While the economic environment continues to evolve, we remain very confident in our ability to execute on our strategy and match wholesale to retail demand. In every brand, we've increased market share and in some cases, the market share increases have been in the hundreds of basis points in gains. Our strategic planning, operational excellence and supply chain management further supports our outperformance of the marine industry and will remain a key differentiator in this environment going forward, while at the same time, continuing to drive profitability for Malibu's product portfolio. Our culture of innovation continues to attract consumers to our premium suite of large feature rich MBI brands from Malibu and Axis to Cobalt to Pursuit and Maverick. We are pushing the limits on innovation and quality with our model year '24 lineup. A lot of uncertainty remains but we are confident that in the areas of the business that we can control, which are our leading vertical integration strategies, production capabilities, our premium product portfolio and our industry leading operational execution that we will drive further growth and deliver long term value to our shareholders. I want to thank everybody for being on the call this morning and for your continued support. Have a great day.

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