Malibu Boats Inc (MBUU) 2017 Q2 法說會逐字稿

Good morning and welcome to Malibu Boats' conference call to discuss second-quarter fiscal year 2017 results.

(Operator Instructions) Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from Malibu Boats.

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 now 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 our second-quarter financials and outlook for fiscal 2017.

We will then open the call for questions.

A press release covering the Company's second quarter fiscal year 2017 results was issued this morning 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, and adjusted fully distributed net income.

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

I will now turn the call over to Jack Springer.

Thank you, Wayne.

Good morning and welcome to our call.

Malibu had an outstanding quarter and we performed better than expectations.

Net sales increased 11.8%, adjusted EBITDA increased $13.6 million and adjusted fully distributed earnings increased 26.7% to $0.38 per share.

All three of these metrics represent new fiscal second quarter highs for Malibu.

Our new product, culture of innovation and strong dealer base has allowed us to continue to grow in a challenging global economy.

The marine industry and the performance sports boat segment has grown consistently since 2011 despite having a national and world economy that was struggling at times.

We believe we are beginning to see a positive change that we can all hope lasts for a long time.

We believe Malibu will benefit, like many businesses, from the end of the uncertainty around -- surrounding the US presidential election.

The stock market has responded and consumer confidence has risen, which should be a tailwind for the domestic markets.

As we talk to customers, many of whom own their businesses, as well as our dealers, there's excitement over several changes they perceive are on the horizon.

First, the hope for tax relief and changes in the tax structure is encouraging to our customers and our dealers.

Many also believe that that the Affordable Care Act has been a costly drain on their business and they look for a change.

Third, the relaxing of environmental regulations is looked at as a potential stimulus for business growth.

The last positive factor I have heard is the potential for the XL and Dakota pipelines being built.

Not only is there belief that this will create jobs, but this could also be very helpful in reversing the negative trends we have seen in Western Canada for over two years.

The US market remains healthy and continues to grow.

As we said on last quarter's call, the growth rate for calendar year 2016 will be greater than 10%.

We continue to be pleased with channel inventories as weeks on hand of inventory at our dealer locations remains lower than last year.

Warm temperatures in the winter and spring of last year resulted in strong comps, but we still expect some level of good growth.

Boat shows are always an area of interest for all of us.

We are still very early in the boat show schedule, so we really do not have any numerical trend indications yet, but in general, activity has been high at the boat shows to date.

The only show that I would classify as weak was Houston, where we lost an entire day because the show was closed on the first Saturday due to the NFL playoff game.

It appears that Minnesota was very strong for Malibu, as were Atlanta, Portland, Los Angeles, and Cincinnati.

A consistent theme that I'm hearing this year is that those attending boat shows are buyers versus just shoppers.

A second consistent theme is that our dealers are exiting shows with more qualified leads than they have in past years.

The boat shows in Canada began with what are smaller shows for us in Vancouver and Toronto.

I would classify the shows to date as slightly stronger than expected, and again, our dealers have good leads that they will be able to follow up on.

Market share data for calendar year 2016 is more than 95% developed at this point.

As we previously stated, the result is more than a 100 basis point share gain for Malibu year over year.

Both the Malibu branded boats and the Axis branded boats have generated sturdy share gains.

This robust growth is a testament of our commitment to a long-term strategy of product development and innovation as well as our strong distribution network.

The market share growth is exciting because our competitors are certainly competing, yet our product and our dealers continue to win the battle for the PSB customer.

Defining it further, Malibu continues to be the leader in market share for the premium segment, the entry segment, and the total performance sports boat segment.

We have grown our share lead in all three areas.

As we normally do, I will speak to regions of interest to you the analysts and investors.

Malibu continues to command the share lead in every region.

And as can be expected with our market share growth this year, we have extended our lead in every region.

The East region is performing well for us, as well as we have seen it in recent years.

The change that we made in sales management a couple of years ago has paid dividends there.

California and the West region have increased unit sales the past year by approximately 25%, and Malibu has grown considerably faster than the market there.

We believe some of the improvement has been a result of better water conditions that began in early 2016.

That has significantly improved even further with rains and snow across the West.

About two weeks ago, it was announced that the majority of California was out of drought.

Since that announcement, Southern California, which was still in drought at the time, has had almost 2 full weeks of rain.

This can only be helpful to the marine industry.

Now, Texas is a unique state and its diversity of economy in the areas where we sell the majority of our boats makes it a robust area for Malibu that is growing and shows no signs of reversal.

Malibu is a dominant player in Texas and we expect that to continue.

Internationally the markets remain weak.

We do not see anything on the horizon that will reverse the weakness that almost every international market is showing.

While we do not expect a reversal, we do believe the bottom has been reached in most markets and have projected flat sales in the current economic environment.

The strength of the US dollar continues to have a significant impact on demand in most international markets.

Specifically in Canada, we have been pleasantly surprised by decent boat shows in Vancouver and Toronto.

While the gains were modest, it is the first boat show year in the last three that we have not seen reduced sales.

This is promising and with an eventual decrease in the strength of the US dollar and possible improvement in the oil and gas industry in Western Canada, we feel comfortable that Canada has bottomed out and is positioned for a rebound at some point.

Our order book is strong.

Our third fiscal quarter is full.

This is a positive we did not have last year and it signals strong demand for our product.

All four of our new boat models for model year 2017 are performing well.

In fact, better than we projected.

The first two boats that I will talk about are the Malibu Wakesetter 22 and 24 MXZs.

The demand for both models has been well above expectations.

These two new boats are very hot in the market and being roundly accepted by our customers.

The demand for the new Malibu Wakesetter 21 VLX is also very strong.

As a reminder for this boat, one objective with the 21 VLX was to activate the owner of an aging or lower performance boat.

A second objective was to provide an entry point for that customer who wants to buy their first Malibu.

Demand indicates that the 21 VLX is doing just that.

Establishing a set pricing model was a new concept for Malibu and has been well accepted from the customer base that we were trying to activate.

The all-new Response TXi was our fourth and last boat that was introduced to our dealers in November and to the retail customer in January for boat shows.

This boat comes in both open and closed bow designs and there is a standard edition or a Malibu open addition to make sure that skiers of all types have a boat for them.

What was both interesting and rewarding is that the new Response TXi, along with our athlete Regina Jaquess, set a new world record in slalom skiing two weeks before the official release of the TXi.

In addition to the boats themselves, the Malibu innovations and features are always attractors and instrumental in creating that customer demand for our product.

For this model year, popular features have been the new Axis Dash, which was new to all Axis boats; the new stereo systems for both Malibu and Axis, which added the highly popular zoned volume controls, has been well accepted.

Also popular is the new G3.5 Tower, which includes an easy latching system and newly introduced stainless steel hoops as well as anodized and powder coated components which add to the aesthetic beauty of the tower.

As you might imagine with our very successful quarter, Malibu operations is performing at an optimal level and peak efficiency.

This is a testament to our operations and engineering leadership and manufacturing teams on the floor handcrafting our boats with precision and quality.

We have built an extraordinary team at Malibu, not only in operations but in all functional areas.

This is what enables Malibu quarter after quarter to meet the objectives and improve continually.

Vertical integration remains a key competitive advantage for Malibu.

Our latest vertical integration initiative, the marinization of our engines using GM blocks, is on schedule for model year 2019 and on budget.

I would like to thank GM and our suppliers in this initiative for coming together with Malibu for what will be a great product and another product that we believe will set Malibu and Axis apart.

In summary, Malibu had a superb quarter, exceeding our financial targets.

During calendar year 2016, we believe the unit count increase for the performance sports boat segment will be 10% to 12% and Malibu saw significant growth in market share in total, in every region, and in every product subsegment.

Domestic demand continues to be strong and initial boat show results support our belief that the market will continue to grow reasonably.

It is early, but we believe that domestic changes in tax policy, health insurance, environmental policy, and oil and gas improvement could provide impetus for continued customer confidence and growth in sales.

International markets will continue to be challenged, but we believe they've bottomed out and we believe we are also well-positioned when international markets turn around.

And lastly, new boats and new features are performing well, creating demand and separating Malibu and Axis from its competition.

I will now turn the call over to Wayne to take you through the quarterly results in more detail.

Thanks, Jack.

Net sales in the second quarter increased 11.8% to $67.7 million.

Unit volume increased 6.6% to 924 units, including 83 units from Australia.

The Malibu brand represented approximately 72% of unit sales, or 664 boats, and Axis represented approximately 28%, or 260 boats, as both continued to perform well.

Consolidated net sales per unit increased 4.9% to approximately $73,200.

The increase was primarily driven by a higher mix of Malibu models and lower discounting, combined with year-over-year price increases across the line.

Including the impact of $120,000 from our engine vertical integration initiative, gross profit increased 12.2% to $17.8 million and gross margin increased 10 basis points to 26.3%.

Selling and marketing expense was essentially flat at just under $2.2 million in the second quarter.

As a percentage of sales, selling and marketing expense decreased about 40 basis points to 3.2%.

General and administrative expenses, excluding amortization, decreased 17.6% or $0.7 million.

As a percentage of sales, G&A expenses decreased 180 basis points to 5.1%.

The decrease was due to a $1.3 million reduction in the Marine Power judgment made by the court based on post-trial motions filed by Malibu.

Excluding amortization, the change in the Marine Power judgment, MC litigation, and our engine project, general and administrative expenses decreased $600,000.

Adjusted EBITDA for the quarter increased 22% to $13.6 million and adjusted EBITDA margin increased 160 basis points to 20.1%.

Net income for the quarter increased 35.3% to $7.7 million while net income margin increased 190 basis points to 11.4%.

Non-GAAP adjusted fully distributed diluted earnings per share increased 26.7% to $0.38 per share.

This is calculated using a normalized C-Corp tax rate of 35.5% and a fully distributed weighted average share count of approximately 19.3 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 better than our internal goals and our outlook for fiscal 2017 is slightly more positive.

As Jack mentioned, we believe our lower dealer inventory levels and strong retail share trends position us well for the 2017 retail selling season.

We do not provide detailed earnings guidance, but our outlook for fiscal 2017 is based on the following factors.

An increase in unit volume approaching mid-single digits.

With respect to cadence, second half growth will be weighted more to Q3.

From a volume mix perspective, Axis is expected to represent a proportion of unit sales slightly lower than fiscal 2016.

Consolidated net sales per unit is expected to increase in the low to mid single digits for the full year.

Gross margin is expected to be slightly up for the full year.

Year-over-year margin expansion began happening in Q2 and should continue in Q3, where Q4 may see some pressure.

Legal expenses relating to MasterCraft litigation are expected to be about $3 million.

Adjusted EBITDA margin is expected to increase modestly.

Finally, regarding capital expenditures, we are currently planning between $10 million and $11 million in capital expenditures.

That includes expenditures of approximately $5 million related to our engine vertical integration initiative, the largest portion of which is our recent building acquisition for $3 million.

In closing, let me just say that we are very pleased with our second quarter fiscal 2017 results.

They were slightly above our expectations.

We still believe the resilient growth in the US market and our continued strong market share trends have set us up very well for a strong finish to fiscal 2017.

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

Operator?

(Operator Instructions) Tim Conder, Wells Fargo.

Congrats, gentlemen, and good morning.

Just a couple things.

Let's delve into weather here.

Jack, you alluded to that -- had El Nino last year and good rains here over the last couple of months in California.

Things looking much better.

How are units -- if you look at calendar 2016, how are industry units in the region -- California, Arizona, I think maybe part of Nevada, is how you guys look at it -- versus where they were in the prior peak?

For calendar year 2016, the unit increases have been about 25%.

That's primarily out of California.

And we are substantially higher than that, but that's what we've seen in what we call the Western region.

Okay.

And where is that West versus prior peak, if we look at calendar 2016 numbers?

Even with those growth rates, Tim, the Western US, as we had defined it, is going to be substantially below 50% of that peak.

So even with those great growth rates it's still under half.

A lot of room to run.

Okay.

And all been restrained by the drought over the last several years?

Yes.

Okay.

Then, staying on the weather theme here, we've seen some drought conditions developing in parts of the Southeast and Northeast.

How are you seeing from some of the early indications from dealers there?

Is that having any impact at this point or not?

We've heard of no real impact in the Southeast at all, nor the Northeast frankly.

We've had some pretty good sell-through, even since that November-December time frame, and thus far we've not seen any degradation in the boat shows.

Okay.

And then gentlemen, if you would on the engine integration, just remind us where you believe you'll see the primary benefit on the margin pick up there?

And then you said, again, it will be ready to go for model year 2019 and it's on budget.

So we should start seeing in -- where we should start seeing in the calendar there, I think probably the middle of calendar 2018, I would think, we should start seeing some of those benefits flow into the P&L?

In terms of timing, it's going to come online sometime during fiscal -- in fiscal 2019.

So they might not flow immediately at the beginning of that fiscal year.

In terms of what those benefits will look like, what we've put out there as our target return profile is about 200 basis points of adjusted EBITDA margin expansion in a full operational year.

So if that's coming online a little bit later in fiscal 2019 you would get some portion of that, but in a full-year impact it would be a couple of hundred basis points of EBITDA margin.

Okay.

And then lastly, gentlemen, just to clarify here, no timing benefits or anything here in the quarter just reported, just a good, solid, little bit better than expected.

Is that the way we should perceive it?

I think there's a little bit of timing in terms of just the way our new dealer program works, where you're probably going to see -- and we alluded to this in the commentary around gross profit margin profile -- where we are probably going to see a little bit more margin pick up here and maybe a little bit more pressure in Q4 on a year-over-year basis.

So there's a little bit, but in general I think it's mostly a nice quarter.

I guess another way to ask it, Wayne, would be versus 90 days ago for your full-year outlook, what you saw in the current quarter here was just good, solid performance; we should kind of view that as modest upside rather than timing?

Correct.

Okay, great.

Thank you.

Mike Swartz, SunTrust.

Just following up on Tim's last question about the incentive programming -- or sorry, the new incentive program and just the timing of maybe unit volume and inventory and gross margin.

How do we think about that playing out for the year?

Is it material enough versus this legacy incentive programs to really change the cadence or the shape of the year?

It has just a little bit of an impact in terms of how that margin plays out throughout the year.

And that's going to be a little bit more pressure in Q4.

So where we would've expected that some healthier gross margin expansion, right -- if you, for this quarter, adjust for the engine initiative it's a 30 basis point year-over-year expansion of gross margin.

And Q3 will have -- will be an attractive gross margin expansion as well.

And Q4 will be just a little bit more pressure and you won't see -- that's what brings us down to the slight for the year.

So just that's the cadence and how it plays out with the new program.

Okay.

That's fine.

And then next question, I think on the prior call you had expected mid-single-digit volume growth in the second quarter.

But you are maintaining -- and you end up doing around 7%, but who are maintaining your full-year outlook.

So is there just something that was pulled forward into the second quarter?

Just any thoughts on that.

I think there's a few more shipments, right.

So a small number of shipments, Ritchie, getting some more boats out can move those numbers around a little bit.

But I think for the full year, is there any potential for a little bit more volume?

Yes.

But not -- we're not moving it massively.

I think we like where inventory levels are at and would like to keep them low and margins strong and discounting low.

So, Mike, to answer your question a little bit more specifically, no sales or no units from the third quarter were pulled into the second quarter.

We expect a third quarter commensurate with what we've communicated.

Okay, that's helpful.

Thanks, Jack.

And just final question.

This year you are looking -- or expecting, embedding in your guidance, a flat international market.

Can you just give us some context of maybe what the international markets did the past two or three years for you, I guess from a wholesale maybe unit volume perspective, if you have maybe just a rule of thumb or an easy range?

Yes, at wholesale the primary driver is Canada, and it was down 20% at wholesale last year.

And the year before that would of been something somewhere similar.

We saw both the retail market decreasing and the de-inventorying that needed to occur that drove those numbers down.

So, safe to say the international markets the last two years, given the -- how big Canada is for you, would've been down likely in the double digits, and this year you are saying more flattish?

Is that --?

That's correct.

Okay.

That's helpful.

Thanks, guys.

Joe Altobello, Raymond James.

First question is on the industry.

Obviously you guys mentioned a very good performance in 2016.

Units up low doubles, it looks like.

And Jack, you talked about tax and regulatory relief and what you are hearing from not only your dealers but customers as well.

So how should we think about 2017 in terms of overall unit growth for the industry?

Could we see another year of low double digits given that plus the better weather you are seeing in the last --?

I would counsel that low double digits right now, as I look at it, is probably aggressive.

It's probably going to approach the double digit but low -- I'm not quite willing to go there yet.

It depends on how many more executive orders we get, probably.

But I think that there are some positive factors that we have not historically had the benefit of for the last two or three years.

We also have some very strong comps, and so we've got to mitigate that growth with those comps that we are looking at in that 10% to 12% growth.

Got it, okay.

And then in terms of the more pro-growth environment post-election, have you guys seen any notable change in terms of purchasing activity post-election?

Or is it more just sentiment at this point?

No.

What I would point to, Joe, is the comment that I made in terms of how the boat shows seem to be a little bit different this year.

And the two comments that I made -- and this is coming to us from just about every show.

One is that historically, over the last two or three years, there have been a lot of shoppers but not necessarily buyers.

And we are seeing in the shows more buyers as a higher percentage.

Secondly, is our dealers are ecstatic with the fact that they are walking out of the shows with what they consider to be very well-qualified leads.

And those leads are a little bit higher than what they've been in past years.

So I think that comes back to just how people are feeling, the consumer confidence.

We need certainly I would say to see some of these factors that we think are going to happen or that people are positive about, actually be put into place.

But generally speaking, our demographic is that customer that's going to be most affected by the four things that I mentioned.

,

Okay, great.

That's helpful.

And just one last one.

ASPs, I guess your outlook for this year is a little bit better than it was three months ago; up low to mid versus up low.

And again, I apologize if I missed this, but what was driving the -- or is driving the improved ASP outlook?

It's a combination.

We have a little bit of a tailwind in Australia with respect to translation there.

We also are seeing -- as we discussed before, we've kind of pulled back on trying to support that international market from a discounting perspective a bit.

And that's helped support it and that impact or that pullback has been a little bit more -- larger than we expected.

And frankly, the mix of MXZs has impacted it.

So those are the three components that have driven up our expectation from low to low-mid-single digits.

Perfect.

Okay.

Thanks, guys.

Jimmy Baker, B. Riley & Company.

Congrats on the quarter.

Most of my questions have actually been addressed at this point, but I was just hoping you could -- in just trying to understand some of the offsets to the Q2 upside that maybe kept you from raising the full-year guide a little bit more.

Can you just elaborate on the Q4 dealer incentives that you talked about or the Q4 dealer plan and how that impacts the quarter?

And if we should think about that continuing into the next fiscal year at all?

Yes, no, it's pretty simple.

There's a component this year that is tied to some retail activity that impacts it.

So it's really -- and that's the quarter where you see registration data come in.

So there's going to be a small component on a per-unit basis that will end up manifesting itself in the P&L.

That's it.

Okay, got it.

And just maybe one for you, Wayne, on the capital structure and uses of cash.

So, looks like you had another solid quarter of cash generation, but this time stockpiled more of that cash on the balance sheet rather than paying down a portion of your debt.

How are you thinking about leverage during this period of heavier spending on the engine integration?

I think in terms of capital allocation we are still focused on finding those unique opportunities, those opportunities that are unique to us to put capital to work.

And so we'll continue to source those and work those opportunities, not dissimilar to trailers and engines and the Australia tuck-in M&A.

So, we continue to do that.

In the near-term I think our plan would be to focus on that and look at investing in the engines and paying down a little bit of debt here in the near-term.

And come next year, there might be a different conversation based off of where leverage levels are and where the season comes in.

Okay.

And then lastly just on the international front, can you just speak to -- and you talked about feeling like we are at a bottom here in most of those markets.

Can you just talk about dealer inventory positions and at what point you might expect to see some restocking out there?

Yes, dealer inventory internationally is pretty lean.

The most significantly -- Canada is the biggest driver of that.

And as we talked about last year, it's been down 50 units and 50 units on a consecutive year-over-year basis.

So I think we feel comfortable with that in terms of what we are seeing at retail and the behavior of our dealers in Canada.

And that's the primary place where there is a meaningful amount of inventory.

And in the rest of the world, it's not a concern for us at all and I think, frankly, as those pick up those reorder and restocking and potentially adding to inventory is the potential upside.

Understood.

Thanks very much for the color.

Rommel Dionisio, Wunderlich.

I know there have been a few questions on Canada already, but just to maybe add two more if I could.

First, Jack, in your comments it was very encouraging what you said about these early boat shows like Toronto there, but two things.

One, do you get a sense that there's a lot of pent-up demand in that market given some of the sluggishness we've seen industrywide for the last couple of years?

And second, could you also talk about dealer health?

Obviously it has been a challenging couple of years and are the dealers in financial shape well enough to take advantage of this potential reversal, or at least the stabilization of that market?

Thanks.

Thank you.

On your first question, I think that there is pent-up demand but we've not yet reached a point where we can see that unleashed.

I think that if we can get some help as it relates to the currencies and that currency can drop to -- I don't know what the right number is, but I will say CAD1.25 or below, along with the Western Canada, the oil and gas situation strengthening, that will release that pent-up demand.

And I think that there may be a little bit that we are seeing, but I would probably classify it somewhat as more of a new norm.

The Canadian population has experienced this now for two years, and so I think the hopefulness of it going away is not as strong as it was two years ago or even a year ago.

And they face that new norm and so as time -- as each year goes by, of course, the boats get a little bit older.

I think that's what we're seeing versus the true release of pent-up demand, which I think will be very strong when the time comes.

The second question, remind me of that, please?

It was just the dealer health check.

It's obviously been a tough, lean couple of years for them.

And just are they in a financial position to take on inventory, or just -- with specific regards to your dealer network there.

Thank you.

No, that's a great question.

We have a very strong dealer network that is very strong financially, both in the United States and in Canada.

One of the things that, when we went through the recession that we did, is as we added or as we supported dealers we made sure that they had that financial capability to withstand whatever might come their way.

So I would portray our dealer base in Canada as very strong financially, not anything that we are worried about, and they've been thus far able to weather every storm.

Okay, great.

Thanks, Jack.

Congrats on the quarter, by the way.

Thanks.

Gerrick Johnson, BMO Capital Markets.

Your prior CapEx guidance was formulated before you announced the engine initiative.

And so you've lifted that by $2 million, but you did say earlier that the initiative adds $5 million.

So where do we get $3 million of savings in CapEx?

So the $3 million -- we had, prior to our announcement of the engine initiative, discussed purchasing a facility adjacent to our Tennessee manufacturing facility.

And so that has rolled into the engine initiative $5 million at this point.

So we were purchasing that building regardless, but we knew that the engine initiative was -- had a high likelihood of occurring.

And so really it's an incremental to -- related to modifications to that building, equipment, etc.

as we set it up.

Okay, got it.

You've got quite a few licensing arrangements now with your IP.

Can you talk about the contribution from that high-margin royalty income into your gross margin and your P&L?

In terms of the gross margin impact it's going to be less than half on a year-over-year basis.

Less than half of that improvement is coming in the form of licensing.

And how about from a revenue sizing standpoint?

It's not significant.

Okay.

And my last question -- at the last boat show, that joystick control and bow thrusters from some competitors were kind of the hot new innovation, that at least they were pushing.

Is this a viable differentiator, a competitive advantage for these guys?

And do you guys have anything like that in your portfolio?

I think as I said earlier, I think our competitors are going to compete, and they've brought out product.

I wouldn't call that at all a viable differentiator.

My understanding of the take rates are that they are not that high.

But they are going to compete, all of our competitors are.

What we believe is that Surf Gate and our ISP platform continues to dominate the market.

It continues to bring customers into the market.

And then what -- to take it a step further, one of our beliefs is that, as it relates to innovations, it's very important for us to bring a number of innovations each year that will generate the type of demand, along with our new boats.

And I think it's working.

Quite frankly it's working well, when you consider the fact that we've gained well over 100 basis points of market share.

Clearly Malibu is winning.

Great.

Thank you, Jack.

(Operator Instructions) No other questioners in the queue at this time, so I'd like to turn the call back over to management for closing comments.

Thank you very much.

We are very excited about the quarter that Malibu experienced.

It was an excellent quarter and we believe that most factors, certainly domestically, are positive right now and should lead to continued reasonable growth.

The performance sports boat segment is performing well and Malibu is performing better than the segment.

We want to thank you for your time this morning and for joining this call.

Have a great day.

Ladies and gentlemen, thank you again for your participation in today's conference.

This now concludes the program and you may all disconnect at this time.

Everyone have a great day.