Malibu Boats Inc (MBUU) 2019 Q4 法說會逐字稿

Good morning, and welcome to Malibu Boats conference call to discuss fourth quarter fiscal year 2019 results.

(Operator Instructions) Please be advised that reproduction of this call in a 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; Mr. Wayne Wilson, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer.

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

Please go ahead, sir.

Thank you, and good morning, everyone.

On the call, Jack will provide commentary on the business, and I will discuss our fourth quarter and full year 2019 financials, and our initial outlook for fiscal 2020.

I will then hand the call back over to Jack for closing remarks.

We will then open the call for questions.

A press release covering the company's fourth quarter fiscal year 2019 results was issued today, and a copy of that press release can be found in the Investor Relations section of the company's website.

I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking and that actual results could differ materially from those projected on today's call.

You should not place undue reliance on these forward-looking statements, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events.

Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review our SEC filings for a more detailed description of these risk factors.

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

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

I will now turn the call over to Jack Springer.

Thank you, Wayne, and thank you all for joining the call this morning.

We finished fiscal year 2019 strong once again, delivering record results.

Our outstanding financial and operational performance continues to demonstrate strength of our premium portfolio, our commitment to operational excellence and the superior execution of our team.

I want to thank the entire MBUU team for another great year.

For the year, net sales increased 38% to $684 million, adjusted EBITDA increased 36% to $126 million and adjusted fully distributed earnings increased 46% to $82 million or $3.76 per share.

During the fourth quarter, Malibu, Cobalt and Pursuit continued to perform well, maintaining a dominant position in the markets they serve.

Each have strong market share in their respective segments, with Malibu and Cobalt having commanding share leads in their markets.

Malibu is unique to the industry for developing brand-new boats across the entire product line each year and this year is no different.

Our belief is that our exciting model year 2020 product lineup will further support our leadership in the coming year.

We are incredibly excited to introduce 4 completely new boats to the market this model year in the Malibu and Axis brands.

And over the last 6 weeks, we have already announced 3 of the 4 new boats that exemplify our focus on innovation.

In July, we introduced the Malibu Wakesetter 23 MXZ, a brand-new model born out of customer demand in the perfect mix of luxury and watersports performance.

The Wakesetter 23 MXZ builds off our MXZ series of boats and incorporates a wider, pickle-fork bow, maximizes space and innovation only Malibu offers.

Incorporating a number of our patented technologies, the innovation is apparent throughout the 23 MXZ, including our new Stern Turn feature, which allows for amazing control of the boat at the touch of a button.

This feature is integrated with our proprietary Power Wedge III, which in addition to Stern Turn creates remarkable maneuverability in tight spaces and a value proposition that other inboard Cobalt competitors simply cannot offer.

Then in August, we also announced a new Malibu Wakesetter 20 VTX in the Axis A20.

The 20 VTX is in the marine engineering marvel, built for versatility as our engineers spent countless hours designing this boat for the ultimate triathlete, providing tremendous performance for skiing, wakeboarding and wakesurfing.

What makes this boat incredibly unique is its patented hull design, which provides the ability to select a hull for the sport preferred without sacrificing performance over the rest -- for the rest of the crew.

Simply put, this is the greatest crossover boat in watersports history and that has been confirmed by sales of this model over time, making it the best and most successful crossover boat ever built.

Our all-new Axis A20 is designed to provide an impressive combination of value and performance.

Our Axis Wake Research team engineered nearly every component on this boat to achieve uncompromising performance in an impressively compact size, and they truly delivered on this.

This boat, in the wake-making powerhouse that is an absolute breeze-to-dock trailer and garage while still providing seating for 11 people.

The fourth boat is being brought to market in September, and we will have more information on that new boat in our next call.

These new boats further deliver on a customer experience as far ahead of our competition.

Cobalt has also continued its dominant performance driven by our ongoing operational enhancements and product innovation despite contraction in the overall sterndrive market.

Cobalt has continued to outperform the 23-foot to 30-foot segment length, which is the most important length segment of the market.

It also remains the market share leader in the comprehensive 20- to 40-foot sterndrive segment.

This strength reinforces our strategic investments in premium brands where we are either growing or leading the segments.

The product development engine will begin picking up steam in the second half of fiscal year 2020.

And over the coming 24 to 36 months, Cobalt will be bringing a number of new sterndrive, surf and outboard models to the market.

Pursuit is also performing very well, capturing additional market share in the 22-foot to 44-foot saltwater outboard segment for model year '19.

Like Cobalt, Pursuit is a premium brand and has outperformed even our initial objectives.

It remains very well-positioned to continue its impressive growth in market share gains.

We believe our dealers and our customers will be very excited to see our new model year 2020 product with one boat coming in the first half of the year and additional boats coming later this year.

We're also growing the Pursuit manufacturing capability as our production capacity expansion remains on schedule.

We have already begun clearing the property and tomorrow, Pursuit will have its official groundbreaking ceremony for the new plant.

This brand-new facility will be a primary driver of value enhancement in Pursuit as it will allow us to nearly double volume over time.

As you know, our unparalleled vertical integration strategy is the primary competitive differentiator for our businesses.

Our team has done an unbelievable job delivering our vertical integration initiatives, generating synergies across our brands and driving growth and profitability in each of the markets that we serve.

That said, we are pleased to announce that our Malibu Monsoon engines are now completely integrated into 100% of our Malibu and Axis boats as of the 1st of July.

The dealer feedback we received on Malibu Monsoon engines have been tremendous as dealers have been eagerly awaiting for them to be incorporated into our entire portfolio of Malibu and Axis boats.

Further, we know that existing Malibu and Axis retail customers are trading in their previous years' models on a Malibu or an Axis to experience our new Malibu engines in model year 2020 boats.

The integrated -- the integration of our patented Swim Step technology at Cobalt into our Malibu model this last year has been incredibly well received by our dealers and customers alike.

This is another example of our proven integration strategy.

In this case, cross-brand vertical integration.

Our ability to generate dynamic opportunities by leveraging our industry-leading technology and capabilities across each of our brands allows us to unlock maximum value out of our powerful product portfolio.

As of July 1, we have brought to market our newest vertical integration initiative, incorporating our own flooring into all of our Malibu and Axis boats.

While not as large a scale, Malibu's engine is the profitability profile of our new flooring vertical integration initiative, it is as strong or stronger than any of our other vertical integration initiatives over the years.

Malibu flooring will eventually make its way into other brands thus expanding that profile.

This is yet another example of our operational prowess and superior execution.

As you can see, we are incredibly proud of the progress we've made in the fourth quarter and in fiscal year 2019.

Now before turning the call over to Wayne, I want to spend a few minutes talking about the amplified concerns surrounding the broader macro environment and, more specifically, the retail landscape and concerns about a cycle downturn.

We are still positive on the broader consumer sentiment as key economic indicators remain strong, and I'll give you an example of a few.

In July, the U.S. economy added 164,000 jobs, in line with average employment growth in the first 6 months of the year.

Unemployment remains unchanged at 3.7%, maintaining the lowest level that has been in the last 49 years.

Consumer confidence rose to 135.7 in July.

This was a surprise, far exceeding the expectations and in line with the consumer demand for our product.

And lastly, GDP is still strong and, more importantly, is positive at the state levels across the board.

That said, we recognize the first half of calendar 2019 has been choppy.

While we were cognizant of that unevenness in the bearish June results from SSI data, we believe we are incredibly well positioned as we move forward into fiscal year 2020.

The softness in June reversed largely in July, with SSI data revealing strong growth with the Performance Sports Boat or towboat segment up 17%, and Malibu and Axis were up substantially more than that 17%.

Demand remains strong across our brands and the introduction of our new model year 2020 products will continue to drive orders.

We had planned for a continued aggressive growth through fiscal 2019 at retail, but a combination of bad weather and what we view as a slightly slower growth environment decreased retail sales at our dealers below the aggressive projections in the highest retail quarter of the year.

Therefore, our inventory levels at Malibu were slightly elevated heading into fiscal 2020.

In addition, and we believe that this is a meaningful challenge, higher-than-normal competitor inventory remains out in the channel today and will likely impact the promotional environment in the near term.

Currently, we expect to see a more moderate growth retail environment that may appear choppy from month-to-month.

Wayne will provide more color when he speaks to our guidance in a few minutes.

We realize there's a lot of noise in the market from the observed retail choppiness to tariffs, to concerns that the cycle downturn is coming.

So let's just address the cycle concerns today.

As we have said and we continue to say, we do not believe the downturn is imminent.

We continue to believe that the 2020 election cycle, plus one year is the next potential cycle change.

However, it is important to address any potential downturn in perspective.

MBUU is extremely well positioned to encounter any cycle downturn and even strengthen during that time and we believe we will get stronger.

First, we have premium brands, which will perform better during a downturn.

Secondly, our variable cost structure is a huge asset for us.

We can quickly adjust, and we expect our margins at the gross and the EBITDA levels to remain remarkably consistent even during a downturn.

Over the last 8 to 10 years, we have applauded every single addition in meeting our growth requirements.

We know every move we've made and we can quickly reverse course.

Thirdly, it's important to realize that the downturn in 2008 is fresh on everyone's minds, but that was an aberration that will not occur in the next downturn.

It was a great recession exacerbated by banking crisis with market participants who are not managing dealer inventories and those factors plunged the marine industry into a 70% decline in units.

We expect the next downturn to be similar to those that we experienced prior to 2008.

Those downturns resulted in a 20% to 30% loss of units that rebounded quickly within 2 to 3 years from the drop.

We are committed to being prudent stewards, monitoring inventory levels and reacting quickly to align wholesale with retail demand.

That will be a difference maker in any cycle downturn.

In a normal downturn, we believe will be able to maintain gross margins in the range of 20% to 24%, and EBITDA margins in the mid-teens with a rapid acceleration to above 24% growth and near 20% EBITDA margins upon recovery from the cycle.

First, our vertical integration advantage, which allows us to manufacture up to 25% more of our boats in-house will be a huge advantage in a cycle downturn.

We will be able to rapidly decelerate our cost profile and that cost advantage will allow us to maintain better margins.

Our competitors, on the other hand, will be solely dependent on a supplier base that will be slow to react and will have to maintain pricing to survive because they are subscale.

This will be passed on to manufacturers giving MBUU a big advantage.

Secondly, our investment profile for new products and features will remain robust.

This will drive market share gains across all of our brands.

Lastly, we know a number of founder base companies will not want to go through another cycle.

This will provide an opportunity to acquire more high-quality brands at low acquisition prices if we choose to deploy capital in that manner.

Frankly, I'm confident that MBUU will be in a great position to maintain a superior margin profile in a down cycle.

And given all these reasons, we also believe we'll be a stronger powerhouse coming out of any downturn.

Turning back to -- current day and given our ongoing confidence in our business, we will be leveraging our recently authorized $35 million share repurchase plan during fiscal 2020 as we believe Malibu stock at current levels represents an incredible investment opportunity.

I will now turn the call over to Wayne, to discuss financial performance in more detail as well as our guidance.

Thanks, Jack.

In the fourth quarter, net sales increased 40.5% to $194.8 million and unit volume increased 16.6% to 1,992 boats.

The Malibu brand represented approximately 38.7% of unit sales or 771 boats; Axis represented approximately 21.7% or 433 boats; Cobalt represented 31.9% or 636 boats; and Pursuit made up the remaining 152 boats.

Consolidated net sales per unit increased 20.5% to approximately $97,800.

The increase was primarily due to the inclusion of Pursuit models, which had a considerably higher average selling price than our other brands.

And for our other brands, year-over-year price increases and a greater mix of larger boats.

Gross profit increased 42.3% to $47.7 million and gross margin was 24.5%.

This compares to a gross margin of 24.2% in the prior-year period.

The increase in gross margin is attributable to our operational efficiency initiatives and consistent with our annual guidance and expectations.

Our comparable gross margin performance in the combined Malibu and Cobalt business increased 170 basis points year-over-year in Q4.

Selling and marketing expense increased 22.2% or $0.8 million in the fourth quarter.

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

General and administrative expenses increased 30.5% or $2.7 million.

The increase was predominantly driven by incremental expenses attributable to the addition of Pursuit Boats, including acquisition-related expenses.

As a percentage of sales, G&A expenses, excluding amortization, decreased 50 basis points to 6.0%.

Net income for the quarter increased 53.5% to $20.5 million.

Adjusted EBITDA for the quarter increased 38.4% to $35.8 million and adjusted EBITDA margin decreased 30 basis points to 18.4%, attributable to the addition of Pursuit.

Non-GAAP adjusted fully distributed net income per share increased 42.1% to $1.08 per share.

This is calculated using a normalized C Corp tax rate of 24.1% and a fully distributed weighted average share count of approximately 21.9 million shares.

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

Looking at full year numbers, net sales increased 37.6% and unit volume increased 17%.

Consolidated net sales per unit increased 17.6% to approximately $92,900 per unit.

The increase was largely driven by the inclusion of Pursuit.

Gross profit increased 38.2% to $166.3 million.

Our comparable Malibu and Cobalt gross margin increased 130 basis points, driven by our operational initiatives, including our engine initiative.

Net income for the year increased 125.1% to $69.7 million and adjusted EBITDA increased 35.8% to $125.9 million for the full year.

For the year, non-GAAP adjusted fully distributed earnings per share increased 44.6% to $3.76 per share.

Our consolidated outlook for fiscal 2020 is as follows.

For Malibu and Cobalt, a low single-digit percentage decrease in unit volumes over last year.

While the market has been resilient and continues to grow, our wholesale shipments outpaced retail demand during fiscal 2019.

Some of that inventory was needed by our dealers, but not all.

And weather, combined with a slower calendar Q2 at retail, has left our dealers with a few extra weeks of inventory that we will be trying to reduce.

Our plan also takes into account a more moderate growth rate at retail.

For Pursuit, unit volume growth should approach 40% for the fiscal year.

Consolidated net sales is expected to grow at a mid- to high single-digit percentage for the full year.

It will be impacted by our volume expectations as I just mentioned as well as positive net sales per unit growth at Malibu and Cobalt, and a decrease in net sales per unit at Pursuit as we increase production in our Florida facility that produces a less rich mix of product.

Once we bring our new plant there online, this will reverse.

Net sales will see the strongest growth in our fiscal first quarter as Pursuit will be included in fiscal 2020's Q1 where it was not in fiscal 2019.

Consolidated gross margin is expected to be up slightly year-over-year.

Consolidated adjusted EBITDA margin is expected to be down slightly year-over-year.

Margins are being impacted by a number of factors, including the lower margin profile impact from the inclusion of Pursuit for the partial year period, anticipation of the impacts of a more competitive pricing environment driven by inventory levels.

From a timing perspective, margins will see meaningful compression year-over-year in the first fiscal quarter because of the inclusion of Pursuit.

Q2 will be impacted as well by this, but we should see a positive trend on a year-over-year basis as we go through the quarters.

Consolidated capital expenditures are expected to be between $40 million and $45 million.

This is driven by our expansion of our facilities at Pursuit and Cobalt.

Before turning the call back over to Jack, I wanted to briefly reiterate our view on the current market.

Our lowered Malibu, Cobalt wholesale shipment targets are an attempt to prudently manage dealer inventories in an environment that has lower but still positive retail growth rates.

We continue to see growth in our retail markets and registrations.

We believe we are positioned extraordinarily well within the marine market because we have the best brands and meaningful exposure to the most attractive segments.

Our strategy to innovate and invest in those brands remain strong.

And we are in the early stages of Pursuit and Cobalt of accelerating that investment.

In closing, Malibu's fiscal year 2019 was another record-breaking year, and we are set up to perform regardless of the economic con.

With that, I'd like to hand the call back over to Jack for some remarks.

Thanks, Wayne.

I'll give you some remarks on what we discussed just now.

Our fiscal 2019 was another record-setting year for our business, the eighth straight record-setting year.

Demand for our products continues to be strong, and we continue to bring more product than anyone else.

Our channel inventory levels will remain within range of where we want them to be for all of our brands.

Our unmatched vertical integration strategy continues to repel our company forward and strongly differentiate our business from the competition.

It is also a competitive advantage, not only now, but in any cycle downturn.

While our level of uncertainty exists in the global economic environment, our views of the strength of the U.S. economy and our consumer are highlighted by the important metrics that we follow.

We believe that our operational prowess and laser focus on superior execution will allow us to successfully navigate recent choppiness in the marine segment.

And most importantly, Malibu remains incredibly well positioned going forward to maintain and extend our leading positions and deliver long-term value for our stakeholders.

This is the reality whether we return to a consistent bull marine market or enter a bearish market.

We are supremely confident in our capabilities.

Operator, we will now take questions.

(Operator Instructions) Our first question comes from Mike Swartz of SunTrust.

I guess starting off just in terms of the outlook for fiscal year '20, maybe give us a sense of how you're thinking about the overall retail demand for the market and then in some of the various segments that you compete in?

I think from a -- I'll speak of Malibu and Cobalt together for a minute.

I think that we are going to see as we said that it'll be less than it has been in previous years.

We do believe there's still a good retail environment and I think it'll manifest itself over time.

On the Pursuit side, that is a market that has been pretty resilient through the summer and even through the SSI data times.

And so we think that -- given that we don't have an ability to produce to the capacity or the need that our dealers have, Pursuit is going to be pretty strong for us.

And then just I guess a clarification question with the fiscal '20 guidance on Pursuit.

You said

(technical difficulty)

Michael -- you cut out, Mike.

We'll let him hop back in the queue.

I guess we'll move on if he's dropped.

And our next question comes from Brett Andress of KeyBanc Capital Market.

Jack, do you have any thoughts on what we saw in the retail data in June that, that large decline was followed by a snap back in July?

Just any sense of the underlying factors during those months.

And I guess it's been hard to figure out any trend line in the industry here lately.

But do you have -- have you seen any of that July strength continue into August?

Two pretty good questions there.

I think the June, when we look at June, without a doubt, weather was an impact.

Now I'll give you some examples.

First example is on that -- kind of that Northeast sector.

You had almost 3 straight months of rain and cooler weather, I'll put it that way, every single weekend.

In Texas, you had 10 out of 13 weekends that had rain during that early part of that March/April time frame when you start delivering boats in Texas.

We know, we've heard, we know about all the problems that we've heard in the Midwest.

So the weather was absolutely, I believe, a factor in the month of June.

I think that's why we saw it across every single segment.

June was a weird dynamic in terms of the data that was delivered to the market.

Number 1, it was light.

Number 2, it did not contain key states.

Texas not was not included, California was not included, Utah was not included, there were about 7 states that you typically see as a part of the data that were not included in the June data for whatever reason.

Then when the row forward to July, we did see that pick up.

And to answer your question, I got on the phone with a number of our dealers.

I probably talked to about dealers representing 40% or more of the Malibu units and dealers representing 20% or more of the Cobalt units to get some granularity on what we saw in June, what we saw in July and what their expectations are going forward.

And I think across the Board, July was a very strong month and a key illustration comes out of Utah.

I was told they were skiing on the mountain on July 4, and next week it hit 90, 95 degrees and they started selling boats like crazy, frankly.

This was the terminology that was used.

I think from what I have heard and seen, that has expanded into August, and it continues to be fairly good retail.

And my view of the world is that what Wayne said and what I said regarding the inventories for Malibu and for Cobalt, it's accurate.

You have a weather-related environment, a lower retail environment.

And we put a couple of weeks of inventory into the channel.

I fully expected that will be marginalized by the end of the first or the second quarter.

Understood.

And kind of actually following up on what you just said.

So the down low single-digit unit guide for the combined Malibu and Cobalt business.

I guess if you dissect that a little bit more, what does that imply for the core Malibu units because it seems like, as you kind of alluded to Malibu inventories are a little bit more elevated than it seems like Cobalt at the moment?

Yes.

They're -- I think they're pretty close from an inventory standpoint.

But Malibu, we believe, there's probably slightly more upside than on the Cobalt because as we saw in July, that's a very strong segment.

It has a 17% growth rate, Malibu being even greater than that.

Got it.

And then the last one I got here, just the flooring integration.

Can you give us some historical context around that, I guess, is the profitability impact of this initiatives similar to, I guess, trailers, which I think had a 30 basis point impact?

And then also what's the timing of that initiative flowing through to the bottom line?

Yes.

Good question, Brett.

Look I think a reference in terms of the profile and attractiveness of that investment is really a function of a percentage.

So when we start measuring things and basis points specifically relative to trailers as an example, trailers, we did trailers when we did not have Cobalt or Pursuit on board, which increases the denominator when lower that relative 30 basis point move, one.

Two is, trailers have a much larger nominal dollar amount in terms of the overall cost.

And so this initiative will, over time, be able to leak in (inaudible) basis points to the improvement, but the economics are extraordinarily attractive.

So when we talk about the attractiveness of the initiative, it really has to do with, essentially, the return on the cash that we're getting and investing, not the absolute nominal dollars returned.

And our next question comes from Eric Wold of B. Riley.

A couple of questions following up on kind of your comments around potential cycle downturn.

I guess one, I appreciate the comments around where you could see gross margins and EBITDA margins in a cycle downturn.

Maybe just taking a step further, I mean, how far would your level have to decline across all your brands before you kind of get to breakeven EBITDA kind of -- can you maybe stress that sort of a step further?

Yes.

And again, I think, I point out that we go back to a breakeven scenario when you have a 70% down market back in 2008.

The world has changed a lot since then and the capabilities have changed.

I mean you had a brand-new management team that, at that point in time, was inheriting the recessionary environment.

I don't think breakeven -- you're looking at 80%, 90% drop off before you ever hit breakeven.

We are so variable, 90% variability.

We can control that EBITDA and that margin line greatly, much more so than, call it, in the mid-2000.

That's perfect.

And then on the acquisition strategy maybe explain a little bit on how exactly does your strategy would change, if at all, during a cycle downturn versus kind of what you pursued over the past couple of years?

How would you differently, if at all, judge brands, boat types valuation multiples?

Yes.

That's a really good question.

I don't think it, marginally in terms of what our strategy is, changes.

We believe that winning strategy is to buy the best brands.

Cobalt was the best brand out there.

Pursuit is one of the best brands out there.

You know I've said in the past and I will continue to say whether we're in a bull or bear market, we're not going to buy dogs, dogs take you down.

So we believe firmly that if we have a premium brand that comes to market, it will actually -- whether we're in a downturn or not, it will improve and put us into more of that, what I call, a powerhouse capability.

So there will be I think -- if there is a downturn, there will be a lot of potential companies coming to market and kicking the tires.

We will continue to be very selective, and we will look for those best brands so they're going to be top tier brands in terms of quality, perception in the market and also in that top-tier from a market share standpoint.

And that's what we would potentially look at.

I think that right now, we're not quite there yet.

There's still a lot of noise out there.

And so we're looking more on the repurchase at this point in time.

Perfect.

And just last quick one for Wayne.

How much of the $40 million to $45 million of CapEx is from the facility expansion?

And kind of what would be kind of a more normalized kind of maintenance CapEx after those are completed?

Yes.

So great question.

I mean you're looking at about half of that being true high-growth CapEx.

You're going to be more in the $20 million range on a normalized basis, given the size of the business these days.

And our next question comes from Tim Conder, Wells Fargo Securities.

Jack, just a little bit more color on a couple of things here.

First, on retail.

A question was asked earlier.

But what at this point are your expectations for the core ski-wake-surf part of your business for the industry as you look into the '20 season as a whole as far as retail?

I know it's a hard question at this point, there's a lot of weather variability that will be likely next year.

And more so I guess from the perspective of just what you see on the channel inventory, clearance also, how do you see the rest of the industry's channel relative to where you all are?

But to fold all that into to get a percentage of what you're thinking for the next season on retail.

Yes.

So, Tim, I'll take the kind of retail profile.

So in the core ski-wake segment over the -- on an LTM basis, we're seeing a number for that market that's in mid-single digits, right?

So whether that's 5% or 6%, the numbers aren't fully developed.

But the reality of the situation is, you had some more recent choppiness in that data, you've also had impacts of weather.

So I think we feel like there's a couple potential competing factors, increased choppiness, some of it may not be weather-related and potentially some negative impacts from weather.

So our kind of base-case assumption, our dealers feel good and, ultimately, we see that being kind of the new status quo.

We spent a number of years at really high single-digit or double-digit growth rates.

And it feels like that a more moderate growth rate in that mid-single digits is probably where it's at.

As far as inventories, I'll talk about that, Tim.

I can't tell you anything more in terms of the broader landscape and competitors and their channel inventories than you already know.

We all know where others are.

So I'm going to talk about Malibu.

We're in a better position than any other competitor out there as it relates to channel inventory.

And our focus is on making sure that our dealers are moving through that inventory.

If we think about floor plan financing every model year '19 boat that the dealers has today, they're paying interest on it up to $3,000 a month of interest.

And so I want to make absolutely sure that our dealers are very comfortable and very healthy.

And as I said earlier, I think they will have our inventories in very, very good shape within the first 6 months.

Okay.

Are you planning to offer any incentives or any assistance in any way to the dealers here, Jack, over the next 6 months or here, especially, during the off-season?

Yes.

You may have seen this out in the market now.

We're giving the dealers some help today moving model year '19 inventory.

My view of the world is that it's absolutely asinine to start discounting model year '20 inventory.

So we focus on that older-age inventory.

And our goal is to get our dealers in that position where they're very comfortable and they're looking forward to selling model year '20.

So we're really at this early date, I suspect that we will pretty well be completed in terms of the help that we'll need to be giving by the end of this first quarter.

Okay.

And lastly, gentlemen, you talked about obviously, the Pursuit plant ramp-up weighing on margins a little bit.

When are you targeting that to be complete?

And we should start to see that reversal in the margins that you mentioned?

So the reversal that I was speaking of was specific to the ASP trend there.

So we -- that facility has not been the one producing the S 408 and S 368 center console models, which are some of the highest-priced models for the brand.

And so as we expand and try and increase production in the existing Florida facility before the new one comes online, the incremental volume that we're getting out of those operating efficiencies is going to come in the form of a less rich mix and negatively impacting the ASP.

So that ASP reversal will occur once that plant comes online and that plant will come online, we plan in the very early part of fiscal '21.

And our next question comes from Joe Altobello of Raymond James.

Just sticking with the inventory discussion for a second, Wayne, earlier you mentioned that your dealers are feeling good, but has the volatility for month-to-month caused your dealers to want to take a more conservative view when it comes to inventory, maybe hold generally less inventory on an apples-to-apples basis for model year '20?

That's fair question, Joe.

I think that, that's the impact on anybody.

You're always dealing with the short term.

So without a doubt, our dealers were not feeling as good after that June SSI data came out and what they experienced from a weather standpoint.

July, they felt a lot better.

And I think even that extends into August.

I would say that I even had that same impact, that's the reason I started calling dealers.

We wanted to really know what they were thinking about.

So as we see this, what we've called choppiness, I don't think that in the dealer's mind there it can help, but be a little bit of an impact.

But at the end of the day, the dealer is going to look at their world based on the number of 2019 models they have on their parking lot.

And so to the extent that they're moving inventory and they're selling inventory and they're getting the help to do that so that they can bring in more current inventory, that's probably more appealing to the consumer, they are -- they will feel better.

Okay.

That's helpful.

And just secondly on the promo environment you did allude this morning to potential increase in promotional activity in the industry.

You said the same thing 3 months ago.

Have we seen that yet?

Or is it still sort of on the come here?

I think that we've seen some of it.

There has been some -- in some cases, there's been more spotting market-by-market by market.

But I think time will tell whether we see more of a pervasive canvas of discounting.

And we do have a follow-up question from Mike Swartz of SunTrust.

The question I was in the middle of was, Wayne, on the guidance for fiscal '20 on Pursuit unit volume, I think you set up approaching 40%.

I guess what would that be on a pro forma basis assuming you owned it for all of '19?

Yes.

I mean it's going to be up meaningfully in terms of a double-digit percentage.

And that's really driven by the operations' team ability to get more out of that factory.

Okay.

And then just one more from me.

With regards to the '20 guidance, gross margin was up or is up slightly in your guidance, but it looks like, I guess, the biggest offset to that would be operating deleverage.

So maybe you can go through some of the factors there.

I know you've talked about maybe some higher sales and marketing expenses with the competitive environment.

But just, I guess, help us understand why you would see that level of deleveraging in '20?

Yes.

Well, so what you really -- the inclusion of Pursuit is a 40 or almost 50 basis point headwind just to start with.

And so we're still contract manufacturing boats in from the seller S2 of the big boats and those big boats come in at a fixed lower margin as well.

So you start with that being the most meaningful component, combine that with the anticipation of increased promotional environment and that's really going to be the primary -- the couple primary drivers.

Okay.

But even with the sales and marketing piece or higher promotion costs, most of that you're anticipating would be in the first half of fiscal year?

Look, I think that's probably -- you're fair, and I think that's our expectation.

Could it leak a little bit into the second half?

Yes, I think it could.

But obviously, boat show season is really fiscal Q3.

And so if that is where that needs to happen to be competitive, then it may leak into that fiscal Q3 as well.

And ladies and gentlemen, this does conclude our question-and-answer session.

I would now like to turn the call back over to Jack Springer for any closing remarks.

Thank you.

Malibu had another great quarter in a fiscal year that was great as well.

Each of our brands continue to perform well, and our dealer inventory levels remain at appropriate levels, although we're going to take them down a little to support the strong demand for our products.

As we look to fiscal year 2020, we are well-positioned to deliver solid performance and continue to unlock value for our shareholders.

While we still believe in the economic metrics and the economy, we recognize the choppiness that we've recently seen, and we've prepared for a cycle downturn whenever it comes, knowing that we will be stronger and more powerful upon exit of any cycle.

I want to thank everybody for your continued support of Malibu, and I thank you for being on the call today.

Have a fantastic day.

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

This concludes today's program.

You may all disconnect.