Malibu Boats Inc (MBUU) 2015 Q1 法說會逐字稿

Good afternoon and welcome to the Malibu Boats Conference Call to Discuss First Quarter of Fiscal 2015 Results.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will follow at that time.

Please be advised that reproduction of this call in whole or in part 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; and Mr. Wayne Wilson, Chief Financial Officer.

I will turn the call over to Mr. Wilson to get started.

Please go ahead, sir.

Thank you and good afternoon everyone.

Ritchie Anderson, the Company's Chief Operating Officer is also on the call today.

Jack will provide commentary on the business and I will discuss the first quarter results.

We will then provide some commentary on Australian acquisition and our outlook fiscal 2015.

Before we get started, I want to remind everyone that a press release covering the Company's first quarter fiscal 2015 financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section of the Company's website at www.malibuboats.com.

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 note that we will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA, adjusted EBITDA margin and adjusted fully distributed net income.

Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release.

Now, let me turn the call over to Jack Springer.

Thank you, Wayne, and welcome everyone to our call.

We had another very solid quarter and this represents the fourth consecutive quarter since our IPO that we have delivered on results in line or better than our plan.

Given the late start to the boating season this year because of weather, we did see an extended selling season which benefited the quarter.

However, this was offset by a couple of global crisis events and weak currency valuations in Canada.

Not all factors were great in the quarter, but Malibu continues to perform at very high levels.

We face another difficult comparison in the first fiscal quarter but our results were right in line with our expectations and our outlook for the full year is unchanged.

We are tracking right in line with our full-year budget and believe we are very well positioned to continue delivering against the annual targets that we've laid out to the investment community.

The first fiscal quarter is always a challenging time of year.

Dealers are focused on moving previous model year inventory and many are not accustomed to looking at new boats and planning for the next model year.

This year, Malibu did an exceptional job of getting dealers acclimated to it and knowledgeable about the new boats and the new features early and this is translated into dealer adoption very quickly.

Initial demand for our new Malibu 22 VLX and the Axis A22 model has been great and we've also seeing continued strength in the out 23 LSV.

There has also been a high level of excitement for our new features including the Power Wedge II and the G4 Tower as well as several other of our new features.

The new Viper 2 technology based dashing controller system with redesigned dash and the 12-inch screen is an absolute home run for us.

Our innovations for model year 2015 have translated into higher than expected ISPs for the first quarter.

As you know, we go through an extensive planning and budgeting process every fiscal year.

We look at the industry trends, inventory in the channel, new models, features, production capacity and a number of other items in setting our annual budget in our operating plan.

As a part of setting our annual budget, we build a quarterly production schedule.

We look at a lot of factors when building each quarterly production schedule for the new fiscal year, which all roll into the annual production schedule.

We look at inventory in this channel, the number of new boats and the number of new features will be rolling out, we look at the timing of when these new boats will be hitting the market.

We look at the seasonality of the industry, planned maintenance downtime within our Malibu plant and the timing of major holidays.

With all of these factors in our annual production target in mind, we didn't lay out our quarterly production schedules.

This is an arduous process, but one that we have optimized and mastered over the years.

This is also how we maximize productivity across our supply chain and deliver industry-leading operating margins.

Since I arrived at Malibu, we have engaged this discipline process and it is a best practice for us.

On our last earnings call, we told you that we'll be launching four new or completely remodeled boats this year; two on the Malibu brand and two on the Axis brand.

The Malibu 22 VLX and the Axis A22 boats went into production in the first quarter and we will begin producing the third and the fourth boats in time for the boat show season which begins in January.

In fact at our national dealer meeting, Sunday night, we unveiled the brand new Axis T23.

Based on this plan, we also told you we were planning our fiscal 2015 production schedule around the mid to high single-digit increase in unit volume.

And we expected unit volume growth to accelerate through the third fiscal quarter peaking in the low to mid-double digits.

This is how we have built our production plan for the year, our internal budgets and our annual guidance.

In accordance with this plan, we set our first quarter production schedule of 14 boats per day and we maintained that schedule throughout the quarter.

Factoring in holidays and annual maintenance downtime just equated to planned shipping of approximately 693 boats in the first quarter and we produced exactly to that amount.

Now, there is always going to be some slippage or overage in deliveries in any given quarter either due to weather, dealer pick-ups or some external factors that are outside of our control.

Since we do not book a sale and recognized revenue on a boat until the unit leaves our plant, this can add some minor volatility to our quarterly sales in units.

However, this is merely timing of when we recognize revenue because everyone of the boats that we make are pursuant to a purchase order from a dealer.

We don't build a single boat that doesn't have a firm commitment by one of our dealers and we don't carry any speculative inventory.

In the first fiscal quarter, we built 693 boats according to the plan and we delivered 673 of these boats.

There were 20 boats that slipped into the first or second week of the second quarter due to typical logistical issues like dealer pickups occurring after the quarter.

Now let me explain dealer pickups for just a moment.

Some dealers as far as -- as far away as Arkansas will choose to drive to the plant and pick up one or more boats and transport the boats back to their dealer locations.

This can be a cost savings for some dealers.

In addition, the scheduling of international shipments can contribute to delays.

We may finish international boats the last week or so of the quarter, but the recognition of the sale be depending upon when the next sailing to a particular country will occur, which may be as much as two weeks after the end of the quarter.

The 20 boats will ship and be recognized as revenue in our second quarter.

Early in the second fiscal quarter, our production plan moved to 16 boats per day from 14 and that transition has gone very smoothly.

In the second quarter, we will also be producing boats on a couple of Fridays.

We factor the holidays into the quarter, which includes a plant-wide shutdown for Christmas.

All in all, this equates to a shipping plan in the second fiscal quarter.

As we move closer to the end of the calendar year and with the launch of our third and fourth new boats, we will finalize the production schedule for our third fiscal quarter, which will include additional Fridays as needed for any increased demand that we have confirmed.

We're constantly assessing demand and inventory in the channel and we can flex the production schedule up or down at any given point in the quarter.

Now, we will not adjust our production schedule on a week-to-week basis or even a month-to-month basis, because it impacts the productivity of the supply chain and they can hurt our margins.

Based on the first quarter results and everything that we can see right now, we are tracking exactly in line with our full-year volume target of being up mid to high single-digits and slightly ahead of our net sales per unit target of being up low to mid single-digits.

In addition, demand out of Australia has also been very good.

As you may have seen from our 8-K filing last week, we closed the acquisition of our Australia license business on October 23.

Wayne will speak to you in a little bit about more of the details of this transaction and the consolidated company going forward.

But let me just say that we are very excited about this transition -- the acquisition.

Australia is an important region to the boating industry because of the size of the market and its proximity to Southeast Asia.

Outside of the US and Canada, it is the world's next largest market for our boats.

The acquisition represents an important next step in our international growth strategy by giving us ownership of our brand worldwide at a platform and wish to continue growing our Australian and New Zealand business and build a stronger presence in Asia.

Lastly, I wanted to take a moment to update you on our market share and how we plan to speak to this going forward.

As you know, we are the leading market share player in the performance sport boat category and we believe we are well positioned to continue gaining share over the long term.

This is what we said during the IPO, and this is what we strive to deliver.

Of course, these market share gains will naturally decelerate over time, but nonetheless, this is our goal to grow the business ahead of the market and continue taking share each year.

We look at the retail sales and registration data and calculate our market share on a trailing 12 month basis.

We believe this is the most accurate, consistent and effective way to track this data because it removes the monthly and seasonal volatility from the number and it's based on full actual data.

As many of you know, the retail and registration data reported by SSI on the 15th of every month is preliminary and partial data that only contains a certain number of states.

Depending on the time of the year, this data can also be very small and extremely volatile.

For that reason, we calculate our market share using the full and accurate data for the trailing 12 months and we hold ourselves accountable to this figure every quarter.

In doing this through June 30, our market share is up to 32.8%.

Now you need to keep in mind that the SSI data only tracks registrations in the United States and therefore, this is the US-only market share figure.

We also sell to Canada and the rest of world, which we track separately to the best information that we can receive.

Canada and the international market data is not available monthly and there are some questions around the accuracy of the international data, because it is based upon shipments in the countries rather than retail sold boats.

However, by our analysis, Canada approaches at least a 50% market share from Malibu and the remainder of the approaches a 40% market share.

Like I said earlier, it is our goal to grow our market share over time and we take this objective very seriously.

We hold ourselves accountable to this goal and we will continue to report our market share figures in this manner, so that all of our shareholders can have a clear and accurate picture as well.

Earlier I mentioned our National Dealer Meeting that started Sunday and it will conclude tonight.

It's really one of my favorite times of the year.

We spent three days educating our dealers on product, preparing them for the boat show season, conducting on the water trials with our new product and engaging in detailed competitive analysis.

It will [cognate] tonight with dealer awards banquet.

I've been reminded again this year just how passionate and how fantastic our dealers are and why along with our product, we have over one-third of the North American market and continue to post outstanding results.

In closing, let me just reiterate that we are pleased with our first quarter results and these results were exactly in line with our internal plans and our full year outlook remains unchanged.

We believe we have a very compelling lineup of new models and features to drive the demand in fiscal 2015.

Without a doubt, we have the best dealers in the performance sport boat segment and together we believe we will continue to deliver sustainable profitable growth.

I'll now turn the call over to Wayne to take you through the first quarter results and more detail on the Australia acquisition.

Thanks, Jack.

Net sales in the first quarter increased 10.1% to $47.7 million.

Unit volume increased 1.8% to 673 units and net sales per unit increased 8.1% to $70,815 per unit.

As Jack said, we plan to ship 690 boats in the quarter and there are approximately 20 boats that did not get picked up by the dealer [make] international shipping schedules for the quarter.

And therefore, the sale of these boats moved into the second quarter.

Both Malibu and Axis performed well in the quarter and the unit breakdown was 215 Axis boats and 458 Malibu boats.

Gross profit for the quarter increased 9.7% to $12.1 million and gross margin declined 8 basis points, but remained strong at 25.4%.

This was consistent with our expectation given the modest volume increase and increased depreciation associated with our recent capital investments.

Increased Australian sales and Axis mix were a slight headwind to gross margin in the quarter with higher optional features selection helping to offset that pressure.

We continue to expect slight year-over-year gross margin expansion that will be driven by year-over-year volume gains.

First quarter selling and marketing expenses increased 14.4% to $1.6 million from $1.4 million last year.

As a percentage of sales, selling and marketing expenses increased 10 basis points to 3.4%.

The increase was primarily the result of increased sales volume and the timing of numerous promotional events.

First quarter general and administrative expenses, excluding amortization, were $6.4 million.

However, this included $2.9 million of non-operating expenses related to litigation, the Australian acquisition and the follow-on offering.

Excluding these non-operating expenses, G&A expenses increased to $3.4 million from $2.0 million (technical difficulty) and officers, insurance, and additional professional fees.

First quarter adjusted EBITDA decreased $100,000 to $8.1 million and adjusted EBITDA margin decreased 190 basis points to 16.9%.

This result was consistent with our expectations given the incremental spend associate with being public.

If you adjust for those costs, adjusted EBITDA grew in the mid-single digits on limited volume growth.

We maintain our expectation for modest adjusted EBITDA margin expansion for the full year.

First quarter non-GAAP adjusted fully distributed net income totaled $4.3 million or $0.19 per share.

This is calculated using a normalized C Corp tax rate of 36% and the 30 -- and a fully distributed diluted share count of approximately 22.5 million shares.

For reconciliation of adjusted EBITDA and adjusted fully distributed net income to GAAP metrics, please see the tables in our earnings release.

Our first quarter results were right in line with our internal projections and our outlook for the full year is unchanged.

While we do not provide a detailed earnings guidance, this fiscal year outlook is predicated on a number of factors that we initially laid out on our fourth quarter call and we are reiterating today.

First, an increase in unit volume in the mid to high single-digit range for the full fiscal year.

Secondly, we expect unit volume growth to accelerate sequentially through the third fiscal quarter peaking in the low to mid-double digits.

Jack indicated in his remarks that we produced 14 boats per day in the first quarter and we stepped that up to 16 boats per day in second quarter.

This equates to double-digit volume growth in the second quarter versus the prior year.

We shipped and sold 673 boats in the first quarter, which means the remaining 20 boats will move into the second quarter, all things being equal.

From a mix perspective, the split between Malibu and Axis was expected to be around 70% to 30% Axis in fiscal 2015.

We now expect Axis to be slightly higher than 30% for the year.

This unit mix combined with our standard price increases and increase in the selection of optional features like the G4 Tower should continue to benefit average selling prices.

We expect to see some moderation in net sales per unit growth over the coming quarters and we continue to think net sales per unit will likely be up somewhere in the low to mid single-digit range this year.

We've been pleased with the strength on this number and we'll closely monitor this over the coming months.

For the full year, we expect to see a slight improvement gross margin driven by productivity gains in the quarters with the highest year-over-year volume growth.

The sponsorship of the WWA CancunPro Tournament in early October will shift some marketing dollars and G&A expenses to the first and second fiscal quarters versus last year.

Legal expenses relating to the PCMW and Nautique litigation are expected to be in the $3.5 million to $5 million range.

And these fees are expected to be higher in the first and third quarters of the year with the first quarter being peak.

Since our IPO occurred in late January of 2014, we will not fully anniversary the incremental expenses of being a public company until the fiscal third quarter.

Net-net, we expect adjusted EBITDA margins to be up slightly for the fiscal year.

This is despite the fact that this will be the first -- it would be our first year with a complete 12 months of public company costs.

On a quarterly basis, we expect year-over-year adjusted EBITDA margin to decline in Q1 due to the incremental public company costs be relatively flat in the second quarter and then improve sequentially in the third and fourth quarters.

The acquisition of our Australia license business closed on October 23 and the consolidation of this business into our financials is expected to add approximately 180 units, $8 million in net sales, over $1 million to adjusted EBITDA and $0.02 to fully distributed net income per share in fiscal 2015.

In closing, I just want to reiterate that we are pleased with our first quarter results.

These results were in line with our expectations and our outlook for the fiscal 2015 is unchanged.

We feel very good about the trends both across the industry and in our business and we believe we are off to an excellent start to the new fiscal year.

With that, we'd like to open the call to your questions.

Operator?

Thank you.

(Operator Instructions) Tim Conder, Wells Fargo Securities.

Thank you, gentlemen, can you hear me okay?

Yes, hello, Tim.

First of all, thank you for the slide deck, it is helpful answering some of the questions and your explanation also so far has been very good.

A couple of clarifications, if I may.

Regarding as you've pulled in Australia, how does that change the cadence of what you've outlined regarding the sales ramp and then the margin -- the margin commentary that you had there?

The margin commentary, it's not going to change dramatically.

In terms of the sales ramp, the first -- our first fiscal quarter is the largest quarter for the Australian business.

And so that would, that's the quarter ended September.

The rest of the three quarters historically for Australia been pretty consistent.

So they'll be spread pretty evenly across each of those quarters.

And so from a margin perspective, it's not going to play (inaudible) on the guidance that we gave.

The guidance that we gave is more specific to your models of the US business and the other.

The Australian stuff is meant to be added up on top of that.

Okay.

We'll follow up on that.

And then Jack, can you just maybe give us an update on Nautique and the potential for summary judgment versus going to trial?

And then what -- embedded within your legal guidance, any -- you had the settlement clearly on the windshield side, which saved you some trial expenses.

I guess if you do not build a trial, should we anticipate that that $3.5 million to $5 million for fiscal 2015 in legal could be high by $1.5 million or so?

Yes, I'll address your first question, Tim.

As it relates to where we're at with Nautique, our best guess on the summary judgment motions would be that they could occur as early as December.

Currently, we are in the process of depositions that have started in the month of October.

They continue in the month of November and then the trial remains scheduled for February.

So, certainly the summary judgment motions could start [shortly].

Okay.

In terms of spend, yes, there is definitely potential for our guidance to -- for our annual cost to come in inside of what's out there if there were a settlement and that could easily be a 7-figured number.

Okay and then lastly, if I may gentlemen, a lot of consternation given the strength of the US dollar versus other currencies.

Now you've added on a currency here, any color, Wayne, as to how that will be handled and whether we'll see a material increase here in the currency exposure or should we think of you guys as still a fairly pure dollar play?

I think you should think of us still as a fairly curved US dollar play.

There is a little bit of exposure there, but the businesses has dealt with it very well over the years in Australia and we don't see that changing.

Great, thank you, gentlemen.

I Appreciate it.

Thank you.

Joe Hovorka, Raymond James.

Thanks, guys.

Just a couple quick questions.

First, can you talk a bit about what your retail growth was in the September quarter?

What we've seen -- so retail for the September quarter, the numbers that are available from SSI are obviously the September number that's been flashed out.

There is a really attractive high number that's easy to member in the 30% range.

The July and August numbers came in the single digits.

So, when you blend those out, because of the July and August growth rates were in the single digits, and those months are a lot more valuable, we expect that quarter to come in at the very low-double digits just north of 10% and so, for us, we think that our retail registration growth was matching the market there in that low double-digit range.

Okay.

And on the last call, you had talked about your EBITDA margins potentially being down slightly in this quarter.

And you ended up down a bit more than 190 basis points, what's the delta between down slightly and down 190 basis points?

Is there something that you didn't contemplate, because I wouldn't think down 190 basis points was down slightly?

Yeah, I think there were some more -- there were definitely incremental costs that going through our reporting cycle with the 10-K and the proxy and all of those items, especially with what we went through after the last earnings call in revamping the 10-K at that point.

Those probably were a little bit higher and negatively impacted that adjusted EBITDA margin.

Okay.

And it sounds like, I would just come out of some -- it would have been a timing cause and it haven't changed the overall kind of thoughts from a guidance standpoint from an EBITDA margins?

That's correct.

Okay.

And then on your guidance, you talked about your mid to high single-digit unit volume for the full year.

What kind of industry unit volume that retail is implied in that number?

I think what we're hearing and seeing is there's still going to be somewhere around 10% or so.

And I think it's important to look at -- so, if our expectation for that September quarter is that it's in the -- I mean, just given that the mathematical waiting we've done so far to put it in that 11%-ish range, I think we need to keep in mind that that's the domestic market and when you look at what's going on in Canada and rest of the world that that's a drag on that domestic growth rate.

So I think, when we try and paint the full picture, we're not trying to be heroes and say, the US markets going to do to accelerate or we aren't trying to say it's going to massively decelerate, but we also are not making huge assumptions around the growth rate outside the United States either.

Okay.

I guess, I'll try to get it, so if I take your mid to high-single as just 6% to 8%, right, that's kind of mid to high-single and so would that imply taking what you just said, saying okay, US is going to grow maybe 10%, Canada maybe grow something slower and the other international numbers maybe slower than that, what would your blended kind of retail number like?

What I am trying to say is that if you think you're going to be up to 6% to 8%, you think the market is up 5% to 7% and so you're growing a little bit of percent -- a little bit of market share and if the market only grows for that number, comes down a little bit off the market actually grows blended 9% or 10% that your mid to high goes up.

I think we're looking at the market as a whole.

And I think the projection that we have out there is likely really close to what we expect the market to do and incremental moves in market share are only going to move that growth rate and adjust to ever so slightest because what the markets doing is just so much more impactful in that overall growth rate, relative to smaller market share moves that we're expecting.

Right.

So your mid to high-single digit volume would anticipate an industry that was at mid-to-high?

Yes.

It's like pretty much mid-to-high, maybe just a slight discount to that.

Great.

Okay.

That's all I have for now.

Thanks, guys.

Thank you.

(Operator Instructions) Mike Swartz, SunTrust.

Hello, Mike.

Could you maybe provide some more context around the commentary in your prepared remarks -- Canada, Europe, and in what you're seeing there, are you seeing the markets decelerate?

Is it more of the currency issue or macroeconomic?

For Canada, it is a currency issue.

We've seen a little bit of deceleration; nothing alarming.

But I think that currency is [under 90 to the dollar] now, and so we've seen a little bit although the Canadian dealers do not seem to be that affected by it.

So that's a positive.

On the European side, it really comes back to a lot of the news coming out of Europe and it continues to be what we have heard over the last 12 to 18 months.

So we're not seeing growth out of Europe, but we are seeing it for the most part remaining flat.

Okay.

That's helpful and can you remind us just what percentage of your business or unit volumes done in Canada and then are you selling those boats into that market in US dollars?

Yes, we are.

It is in US dollars and that Canadian market for us is somewhere in the 12% to 15% range.

Okay, great, that's helpful.

Thanks, guys.

Thank you.

Thank you.

And at this time, I'm not showing any further questions and would like to turn the call back over to Jack Springer for any closing remarks.

Great, thank you very much.

I want to thank everyone again on behalf of the management team for joining the Malibu earnings call today and we wish you a very good evening.

Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Everyone have a great day.