Malibu Boats Inc (MBUU) 2015 Q2 法說會逐字稿

Good morning and welcome to Malibu Boats' conference call to discuss second-quarter fiscal 2015 results. (Operator Instructions).

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats. As a reminder, this conference 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 morning, 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 second-quarter financials and our outlook for fiscal 2015. We will then open the call for questions.

A press release covering the Company's second-quarter fiscal 2015 results was issued this morning and a copy of that 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. 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, 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.

I'd like to congratulate the Malibu team as it continues to deliver winning results quarter after quarter, and the second fiscal quarter is no different. We are pleased with the continued positive trends in our business.

Net sales were up over $55 million and were a historical high for Q2. Net sales were also up 26% over last year, driven by strong increases in both unit volume, including the addition of Australia, and the domestic average selling price. As a growth company, it is gratifying to note that we also set new Q2 records with gross profit, EBITDA, and earnings per share.

As you know, we manage the business very effectively, and we take pride on executing against the operating initiatives and growth targets we laid down in the IPO and over the past year. This was our fifth consecutive quarter since our initial public offering that we delivered results that were in line or better than our plan.

Our second fiscal quarter is an important quarter for Malibu. This is when dealers are placing orders for our new models and features, assessing inventory levels, planning their boat shows, and preparing for the peak retail selling season. We work closely with all of our dealers throughout the quarter in planning their business.

As a part of this process, we host our annual North American dealer meeting, which was in San Diego this year. This meeting introduces the new models, educates our dealers on all of our new boats and features, and builds tremendous excitement in the marketplace as we go into that boat show season.

By October, we have taken boat show orders for the new models, and through the end of December, we are fulfilling the demand on these orders, as well as stock commitments made by the dealers at the beginning of the fiscal year. It's an important quarter for Malibu and it really starts to position us for the rest of the boating year.

Now as we've discussed, in fiscal 2015 we have introduced four new or completely remodeled boats and more new features than any time in the Company's history. Our new product and innovation engine continues to drive Malibu forward.

The boats that we've introduced include the Malibu 22 VLX, the Axis A22, the Axis T23, and the just announced Response LXR. The Malibu 22 VLX replaces the 21 VLX, but everything on this boat is brand new, from the hull to the deck to the dashboard and all of the features that we have placed on this boat.

The Axis A22 is our flagship and our best-selling Axis boat model. The Axis T23 is our second traditional bow model, following the T22, which was introduced a year ago.

The Response LXR was announced just a few weeks ago. It is a new ski boat that combines high performance with an open bow and a very attractive price. The LXR is 20 feet in length and it combines features of the four-time [world] breaking Response TXi and the immensely popular Response LX, which the LXR replaces. The new Response LXR gives our customers yet another great option so they can determine what ski boat is perfect for their needs.

Now this will not be a high-volume model, but already orders have exceeded where they thought -- where we thought they would be after only four weeks.

Initial orders for all of the new or remodeled boats were very strong in the second fiscal quarter, and we have also seen continued strong demand for our best-selling Malibu 23 LSV, which was completely remodeled and debuted last year.

We have seen this momentum accelerate into the boating shows, where both traffic and orders are up over last year. Although it's still early in the boat show season, we have seen shows consistently up over last year. For a while now, we had believed that we were in the early innings of a market recovery. The boat shows are supporting that and they are supporting it with high-quality customers and leads with good sellthrough for our dealers.

We have had consistent sellthrough on all of our models, but, as expected, the 23 LSV, the 22 MXZ, the A22, the 22 TLX, and the T series for Axis have all been strong.

Features are another very important part of the performance sports boat segment. As with both models, we are the far and away leader in the volume and the innovation of new features every single year. We already knew it, but the boat shows are confirming our new sports Dash with the 12-inch screen and the Viper II technology is a home run.

Our integrated search system, featuring Surf Gate and the new Power Wedge II, is the overwhelming market leader. And the new G4 Tower is a premium must-have option for our Malibu Wakesetter branded boats. Other popular new features this year include an improved G3 tower, a new tower for Axis, and three new gel coat colors and metallic options for both the Malibu and the Axis brands.

There are so many other new features that improve the convenience and experience for the customer that have been big hits at the boat shows as well. Demand for optional features continues to be very strong, with Surf Gate and the Power Wedge II leading the way.

We talk a lot at Malibu about quality, performance on the water, innovations, and features, and this is really what separates us from everyone else in the industry. But it's not just the features themselves that differentiate Malibu from its competitors; it's the way that we integrate these features into a platform that sets us apart.

Every innovation on our boat, from Surf Gate to the Power Wedge to the new Dash to the Viper II system, is seamlessly integrated together to provide the best integrated surfing solution and the wakeboarding solution and the most user-friendly boat on the market.

Our competitors are trying to keep up with us by launching individual features, but these are really commodity items. We bring our platforms and combine all of our features and innovations into one integrated system, unlike anyone else in the performance sports boat segment.

The Viper II platform is exclusive to Malibu this year, and it serves as the central operating system for all of the controls and the features of our boats. This is an open-ended system that can be upgraded and expanded to accommodate new features and innovations for years to come.

In addition to launching new boats and innovations every year, we are always reviewing our supply chain and looking for ways to improve quality and productivity. Last year, we completed the second phase of our planned expansion plans in Loudon, Tennessee, by adding a brand-new distribution center and expanding the footprint to our primary manufacturing plant through the addition of a new mezzanine level that now houses all of our cutting and sewing operations.

The third and final phase will be to enlarge the capacity of our rigging and final detail lines by the end of our fiscal year. This will increase our manufacturing capacity by 1,000 boats per year and take it to 5,000 boats annually.

Ritchie Anderson and his team have done an excellent job in managing this multi-phased expansion.

As we have discussed, a primary reason we have a quality logistics and cost advantage is our strategy of vertical integration. We began our vertical integration strategy in 2009 when we became the only manufacturer producing our own tower, and we are still the only one. It is a cost advantage, a design advantage, a quality advantage, and a supply chain advantage.

Each year, we have expanded our vertical integration and brought more of our parts production in house. In this current fiscal year, we have transitioned many of the parts previously made in Asia to our California facility. This has given us better control over the quality of our parts and the matching of our demand to supply.

For fiscal 2016, I'm very pleased to announce the next phase of our highly successful vertical integration strategy. Beginning with our fiscal 2016 year in July, Malibu will be manufacturing all trailers for Malibu and Axis product. We began acquiring equipment in December and we have been investing CapEx, hiring personnel, and planning our new trailer production lines. This will be a good return on investment, with less than a two-year payback.

As you know, we closed the acquisition of our Australian license business in late October and the initial integration is progressing to plan. We have hired a new general manager, who is now on the ground, to lead that business and we are excited about the growth opportunities, not only in Australia and New Zealand, but also in Asia longer term.

Commenting for a moment on the Nautique litigation, as a reminder the trial is in regards to litigation we filed against Nautique, alleging infringement of three of our patents and seeking monetary and injunctive relief.

I want to make sure that everyone is clear on this -- we are the plaintiffs defending our patents. As such, we are seeking monetary damages and relief of the infringement which we believe has occurred. If we do not prevail, there is no additional monetary risk, other than any appeals. There is no risk to Surf Gate or Malibu's portfolio of products. We are the plaintiff.

Currently, we are in the final stages of preparing for this trial. Recently, the court rescheduled a pretrial conference from February 2 to February 18, and as a result, the trial has also been rescheduled to begin on March 9 now.

Last, let me update you on our market share. As we discussed on our last earnings call, we look at the retail sales and registration data and calculate our market share on a trailing 12-month basis, once the full information for the quarter is released. We believe this is the most accurate, consistent, and effective way to track this data because it removes the monthly and the seasonal volatility from the number and it is based on full, actual data.

Now for the quarter ending September 30, unfortunately, that SSI data was missing three significant states, Georgia, Illinois, and Oregon. These are three big states for both the industry and for Malibu. As a result, we don't have as much information as we would like to have, but based on what we do have and our best projections for calendar-year 2014, we think our market share remains flat when compared to calendar 2013.

The market grew approximately 10% and our wholesale shipments domestically also grew by 10%, so we kept pace with that market. Generally, it takes about six months for a new product to get traction in the marine industry and with boat shows being the primary driver. So we expect that our new boats and our innovative features to begin to drive small, additional market-share gains over the next 12 months.

In closing, let me reiterate that we are pleased with our record-setting second-quarter results. These results were in line with our internal plans and our full-year outlook remains unchanged. The boating industry is continuing to recover and Malibu is performing well at the boat shows.

As said earlier, we continue to see a growing number of signs that this momentum is continuing in the United States. We have the most compelling lineup of new models and features and we have the best dealers in the world. Together, we are confident in our ability to continue to deliver sustainable and profitable growth.

I will now turn the call back over to Wayne, who will take you through the second-quarter results in more detail.

Thanks, Jack. Net sales in the second quarter increased 26.3% to $55.5 million.

Unit volume increased 27.9% to 847 units and included 60 units from the Australian acquisition. Both Malibu and Axis performed well in the quarter and the unit breakdown was 300 Axis boats and 547 Malibu boats. The heavy mix of the Axis boats is driven by the redesign of the number one selling Axis boat of all time, the A22, and the launch of the new Axis T23.

Net sales per unit decreased 1.3% to $65,500 and the decline was driven by the addition of the Australian units. Excluding the Australian units and the incremental sales, net sales per unit in the US increased 1.6%. This was in line with our plan for the quarter and in spite of the mix shift towards Axis in the quarter. The increase was primarily driven by year-over-year price increases and an increased demand for optional features.

Gross profit in the quarter increased 21.1% to $14.2 million and gross margin declined 110 basis points to 25.5%. When you adjust gross margin for $600,000 of one-time increases in cost of goods sold related to the Australia acquisition, it was 26.6% for the quarter and flat year over year, and more consistent with our expectation.

Selling and marketing expense increased 34.5% to $2 million from $1.5 million last year. As a percentage of sales, selling and marketing increased 20 basis points to 3.7%. The increase was primarily the result of increased sales volume, incremental selling and marketing expenses related to Australia, and the timing of certain expenditures.

General and administrative expenses, excluding amortization, increased $1.5 million to $4.6 million. This included $1.9 million of nonoperating expenses related to litigation, the Australian acquisition, and the follow-on offering. Excluding these nonoperating expenses, G&A expenses increased to $2.7 million from $1.9 million last year. The increase was primarily driven by the addition of Australia and incremental costs related to being a public company, including stock-based comp, directors' and officers' insurance, and additional professional fees.

Adjusted EBITDA for the quarter increased 19.9% to $10.4 million and adjusted EBITDA margin decreased 100 basis points to 18.8%. This result was fairly consistent with our expectations, given our incremental public company expenses and slightly lower margin related to Australia in the quarter. If you adjust for the incremental public company costs, adjusted EBITDA grew about 25%.

Second-quarter non-GAAP adjusted fully distributed net income totaled $5.8 million or $0.26 per share. This is calculated using a normalized C-Corp tax rate of 35.5% and a fully distributed diluted share count of approximately 22.6 million shares. For a reconciliation of adjusted EBITDA and adjusted fully distributed net income to GAAP metrics, please see the tables in our earnings release.

Our second-quarter results were consistent with our internal projections and our outlook for the full year is unchanged. While we do not provide detailed earnings guidance, our fiscal-year outlook is predicated on a number of factors, including the following -- an increase in our US segment unit volume in the mid to high single digits, plus approximately 180 units for Australia. We expect unit volume growth to accelerate sequentially through the third fiscal quarter, peaking in the low to mid double digits.

From a mix perspective, Axis is expected to represent a little more than 30% of total unit volume. For our fiscal Q3 that we are currently in, Axis order mix is currently under 30%.

For the first half of the fiscal year, our US net sales per unit is up 4.6%. We continue to expect net sales per unit in the US will be up in the low to mid single digits for the full fiscal year. Net sales per unit on a consolidated basis, after accounting for Australia, is expected to increase in the low single-digit growth range for the full fiscal year.

We continue to expect to see a modest improvement in gross margin, driven by productivity gains in the back half of the year. Legal expenses relating to PCMW and Nautique litigation are still expected to be in the $3.5 million to $5 million range. Since our IPO occurred in late January 2014, we will not fully anniversary the incremental expenses of being a public company until our fiscal third quarter.

Net net, we expect adjusted EBITDA margin up slightly for the fiscal year. This is despite the fact that this will be our first year with a complete 12 months of public company expenses.

On a first-half/second-half basis, we expect the year-over-year adjusted EBITDA margin to decline slightly in the first half, due to the incremental public company costs, and then increase modestly in the second half. The consolidation of the Australia business is expected to add approximately 180 units, $8 million in net sales and $1 million to adjusted EBITDA, and $0.01 or $0.02 to fully distributed net income per share.

Finally, regarding capital expenditures, we are looking to spend a little more than we initially projected because of the incremental investments to produce trailers in house next fiscal year. For fiscal 2015, our CapEx budget is now around $6 million, including less than $1 million in CapEx for the trailer business.

In closing, I just want to reiterate that we were pleased with our second-quarter results. These were in line with our expectations, and our outlook for fiscal 2015 is unchanged. We feel very good about the trends, both across our industry and in our business, and believe we are well positioned heading into the peak retail selling season.

With that, we would like to open the call to your questions. Operator?

(Operator Instructions). Tim Conder, Wells Fargo Securities.

Gentlemen, a couple things here. Jack, you already gave us a little bit of color regarding your market share. But as we look over here throughout the -- or through the upcoming selling season, and granted, maybe last year you were a little more tilted towards newer refresh products with Axis and now it appears a little more balanced, should we anticipate the Malibu brand showing a little bit stronger share momentum?

Then, also, did the geographic -- I guess some of the weather issues enter into the factors on the Malibu brand over the last year?

To answer your first question, Tim, as it relates to Malibu versus Axis, I think that expectation is something that can be considered.

What we saw is in our year-end sales event, we did see a preponderance of Malibu over Axis. As we go forward into the future, we are going to bring it back more in line. We believe that we now have a brand in Axis that is fully developed with its five models, and so it's going to be more even going forward in what we bring out between Malibu and Axis. I think that your supposition would be correct in that regard.

As it relates to weather, I think what we are seeing right now are hopefully very good signs that we are going to have a normal pattern this year and, as a result of that, we will have a normal selling season, versus it all being pushed into a four-month period versus a five- to six-month period.

Okay. As it relates to foreign currency, Wayne, we had anticipated maybe the partial-year impact here of the Australia acquisition would maybe add about $0.03. Now you are saying closer to $0.01. Is that all currency, or it sounded like everything otherwise was going fairly much as planned?

Yes, I think the $0.03 may have been just a hair high. I think the last call we said $0.02, and now we are in a combination of currency, et cetera, saying $0.01 or $0.02. In terms of -- I think we feel like the Australia business is doing well.

Obviously, the natural currency for that entity is the Australian dollar, and so that we do have translation -- a translation issue there that is a small headwind, but thankfully, it's a partial year and the translation issue is the change in the dialogue there.

Okay. Last question, gentlemen. I know you have never had this question before, but if you could just give us a little color on the balancing of the oil economy fallout versus the benefit of lower fuel prices. I know it's a common theme across many areas here in power sports.

Absolutely, we have seen that question. I think overall, domestically, it's going to be a net positive.

If we look at the markets that are impacted, we are primarily looking at Houston, which is a smaller market for us, less than 1.5% of our volume. If we look at the rest of Texas, Dallas and Austin are still going very strong. They are very diversified, and so we feel from that perspective that there will be a downer trend as it relates to Houston and a couple of other areas, but the overwhelming trend of lower gas prices is strong. I think that domestically, we are probably going to see a net uplift.

One way to think about that is when one of our customers goes out and fills up their boat with fuel, they are going to save over $100, basically, on the gas prices, so we think that is going to promote more usage and we also believe that it has the possibility of bringing new customers and first-time buyers into our product.

Jack, along that, any color as far as your exposure to western Canada in particular? That would seem the area that would be the most negatively impacted out of the US and Canada as a whole.

We have not seen the oil impact and I think that they are probably going to be minimal, based on the early returns of what we are seeing. To date, it's been more from a Canadian point of view around the currency.

Okay, great. Thank you, gentlemen.

Joe Hovorka, Raymond James.

A couple quick questions and just want to maybe piggyback off the last one there. If I understand right, all your national sales, except for Australia, are done in US dollars, and so with the weakening currency, you're effectively getting a price increase in those markets and I think that's what you are alluding to in Canada.

A, can you just confirm that? And then, B, maybe talk a bit about what demand looks like now. I know you haven't changed your guidance, but whether or not if you look at your makeup of that guidance versus three months ago, that is, are you expecting international to maybe be slightly weaker, domestic being slightly stronger, and that translates into no change? Or how are you thinking about markets outside the US, ex Australia?

Joe, to your first question, I can confirm that geo that -- is that correct. As it relates to the markets themselves, we expect, because of the dollar, the strength of the dollar, I should say, that our international is going to be affected somewhat. But what we're seeing and what we believe is that domestically, that strength is going to be able to compensate for it, which gives us a lot of confidence that certainly we can hold our numbers where they are at.

We're early in the boat show season and it will prove itself out, but right now, the boat shows are going very well and the domestic market seems to be very strong, and one of the feedback points that I am getting from our dealers is that the leads are higher-quality leads, perhaps, than in past years.

Do you have any idea of what the elasticity of those international demands are in what we are seeing? If you get a 10% price increase, should we translate that into a 5% decline in units or something different?

It's hard to guess upon that because it affects so many different areas. For example, in Asia, despite everything going on, we are seeing tremendous progress there --

Okay.

-- on a small scale.

In the case of Australia, we believe that we are much better advantaged than our competition because they are making boats and shipping them over to Australia, so the impact from that Australian to the dollar is much more significant on them than it is on us.

Okay, and just because you mentioned Asia, that's still being manufactured here and shipped there, correct? That's not being done in Australia?

(multiple speakers). We will begin looking at later this year building in Australia and shipping into Asia, but right now, it's built in the US.

Okay, and do you have the units that Australia did last year in this quarter? If we did 60 this year?

I'm sorry, would you repeat that?

What were the units shipped out of Australia last year in this quarter?

We don't have that number because it's also a stub. It's obviously a stub period, too, so I don't have a comparable number for you.

Okay, and then on your trailer investment, is that -- will you be producing all trailers for yourself by 2016 or will you still be sourcing stuff -- outsourcing stuff?

No, we will be manufacturing 100% of our trailers for both Malibu and Axis.

Okay, and that was in -- are you doing that in Tennessee or California?

Yes, in Tennessee. In the new distribution center that we built, we built out room for other vertical integrations, so our trailers will be in that facility.

Okay, and then last question, you talked about your share through September, and I know the December quarter is small from a retail sales standpoint, but any commentary on where your retail sales were in the December quarter?

Yes (multiple speakers), as I mentioned in my comments that I think the retail market approximately was up about 10%, we also from a unit standpoint were up about 10%, so we kept pace with that market. And we believe for that quarter that the market share, once Georgia and Illinois and Oregon report, is going to be flat.

Oh, okay, I'm sorry. So that plus 10 for industry and yourself was for the December quarter?

Yes, yes.

Okay, I had thought you said it was through September. Okay. That's all I needed, then. Thanks, guys.

(Operator Instructions). Gerrick Johnson, BMO Capital.

In your release, you mentioned that net sales from Australia were $4.4 million. I was wondering if that contribution, does that net out the royalty you were getting, as well as the revenue you were getting from part sales, and excluding that, what was, I guess, the net net contribution from Australia?

In terms of the Australian entity itself, the $4.4 million is a number that is -- what they have recorded. That is not the total net contribution to the business.

If you take the $4.4 million that we quoted and you divide it by the 60 units, you get about $73,000, and really what you're getting is in the $40,000s -- $40,000 on an incremental basis. So it does not calculate or remove eliminations from that number.

Okay, okay. On the trailer business, what makes building trailers in house more economical than outsourcing?

As with any vertical integration, what we are doing is we are eliminating another layer of cost.

So as we go back and we talk a lot about the towers that we began in 2009, what that did for us and what we believe it does for us on trailers as well is we're going to be able to control that design. We are going to be able to control the quality, the matching of the demand to the supply, which are all areas of efficiency for us.

Our goal is to deliver to our dealers the best trailer that we possibly can and we will be looking at ways to innovate things over time. I think that along with the efficiencies, the additional impact on our probability, it will be the ability to control something as large as a trailer is a definite benefit for Malibu.

From an economics perspective, obviously in the scenario that we have today, there is two layers of margin embedded in that.

What we will be doing is a balancing act here of being able to deliver a high-quality trailer to our dealers at a better price and be able to make a little bit more money on a per-trailer basis. We are trying to make sure that all constituencies here come out better off in terms of our dealers, our retail customers, and the Company as a whole.

Great, thank you for the detail, and perhaps I can sneak one more in there. Inventory and the factory looked up about 34%-ish. Can you just talk about the inventory there and then perhaps the inventory in the channel as well? Thank you.

Inventory in the factory up 34% is a not comparable number. Australia carries a bit of inventory, so obviously Australia is getting consolidated into that number and they carry a heavier stock of inventory because of, A, their distance from us, and B, they also are owning the inventory that's sitting on the water, so there is -- that's a big driver of that inventory increase. That's one.

Then, two, in terms of inventory in the channel we internally track that on a monthly basis and build that up and look at the weeks of inventory, and we are currently sitting right on top of the historical years, the number of weeks of inventory at this point in time in the year.

More from talking to dealers and getting ready for the boat show season, I can tell you that our dealers were more positive about inventory levels than they have been in the last few years. They felt very well positioned going into the boat shows with the right amount of stock.

Great. Thank you, guys.

Mike Swartz, SunTrust.

Just a quick question in regards to guidance. Wayne, I think you gave some granularity in terms of just the cadence of unit volume throughout the year, and I think you said that unit volume should peak in the third quarter a low to mid double-digit unit level. Is that what I heard (multiple speakers) on growth rate?

Could you give maybe a little more color around low to mid double digits, just given that you came off a quarter where you did 28% unit volume. Does that mean if we're peaking in the third quarter, it's going to be closer to 30%, 40%, or am I thinking about that wrong?

That unit volume cadence discussion is specific to the US volume, and so when we look at what happened with respect to volume in the current quarter, you're going to see 787 units or thereabouts domestically.

Okay.

Right, and that's the current quarter, and I think you're going to see a nice growth in Q3 domestically, as well, and then -- and you add Australia, a full quarter of Australia, on top of that.

Okay, so in terms of -- I think the US volume was up, what, mid-teens or so in the second quarter?

Yes, and what I would say is you're going to see the US be up about the same in Q3, and then add on top of that the Australia.

Australia, okay. That's perfect.

Then I just wanted to touch -- follow up on some of the trailer conversation. If I go back years ago, I think it was 2009 when you guys started in-sourcing your tower production or you acquired your tower manufacturer out in California. A big part of what that did for you, aside from controlling the production and some of the innovation behind it, was there was a pretty big margin gain on that as well, and I don't remember what the exact number was. I think it was maybe over $1,000 a unit.

But when we look at the trailer opportunity two, three years out, is there a similar margin story or margin play behind that as well?

It won't be that big. It won't be the 1,000 units that you talk about. There will be some uplift over the next two to three years. It could be 300 to 400 or 500 units, somewhere in that neighborhood, but we certainly would not have gone about diversifying and bringing trailers in house if we didn't think that it was going to return our investment very quickly and be accretive to Malibu.

Okay, that's great. Finally on the trailers, how do you manage that relationship with your current third party on the trailer side, knowing that you're moving to do this yourself in house over the next 24 months or so? How do you view that relationship, at least in the near term?

That's great question. I will comment, and then I will ask Ritchie Anderson to also comment.

It has gone extremely well. We have always had a very good relationship with our trailer manufacturer and they are aware of this, and when we talked to them about it, it was a very good conversation. They were highly supportive. They understood the reason and the rationality for it, and we have worked together very well since that point in time. But I will ask Ritchie to comment as well.

We've stayed very close to them, and we told them upfront when we started this very early on what our intentions were and in no way do we want to impact their business negatively. We've given them time to pick up business, and we are staying very close with them on our timing and working close with them overall. So, don't have any negative impact to them or us.

Okay, great. Thanks for the color, guys.

Gerrick Johnson, BMO Capital.

Just a question on Correct Craft and PCM engines. They bought that business late last year and they're a competitor and also defendant. Any worry about disruption of the flow from those guys?

No, we have had discussions with PCM and we have also had roundabout discussions with Nautique as well. We are not concerned about that. PCM is being left as an entity that is operating. They are expected to be profitable. They are very plugged in to what we are doing and trying to support us in every way possible, so we're not concerned about that.

Great, thank you.

Thank you. There are no further questions in queue at this time. I will turn the call back over for closing remarks.

Again, we had a very, very successful quarter, a record quarter that we are very pleased with. I want to thank the Malibu team, I want to thank the dealers, I want to thank all the employees, because without those three constituencies, Malibu couldn't do what it does. We are very pleased with where we are at and we are very excited about where we are going and where the marine industry is today.

I want to thank each one of you for being on the call and wish you a very good day. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference; you may now disconnect. Good day.