Malibu Boats Inc (MBUU) 2020 Q4 法說會逐字稿

Good afternoon and welcome to Malibu's Boat conference call to discuss fourth quarter and full fiscal year 2020 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 now turn the call over to Mr. Wilson to get started.

Please go ahead, sir.

Thank you, and good afternoon, everyone.

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

We will then open the call for questions.

A press release covering the company's fiscal fourth quarter and year-end 2020 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'll now turn the call over to Jack.

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

Our fiscal fourth quarter results exceeded expectations, driven by the strength of our brands, industry leading innovation, foresight in dealing with the COVID-19 impacts and our strategic and operational expertise.

Our team was able to immediately and effectively ramp up production to the same pre-shutdown production levels to meet the increased demand seen across the entire marine industry.

This resulted in significant market share improvement, which has yet to be fully realized and outperformance against the broader industry to close out fiscal year 2020 strong.

While revenues during the fourth quarter declined, given the headwinds driven by the pandemic, we were able to deliver results ahead of guidance that we had provided during our last earnings call.

More importantly, our superior execution allowed us to maintain EBITDA margins approaching mid-teens, despite the 39% decline in revenues.

This outperformance in the very volatile operating environment is a testament to the strength of our premium portfolio, agility of our team and variable cost structure.

As a result, we believe we are well positioned and will continue to drive market share gains.

For fiscal year 2020, net sales decreased 4.5% to $653.2 million.

Adjusted EBITDA decreased to 11.9% to $110.9 million and adjusted EBITDA margin decreased 140 basis points to 17%.

Our #1 priority has always been the health and safety of our employees.

Our strong, employee first culture of Malibu is a competitive advantage for us.

As a result, during the shutdown in the fourth quarter, we continued to pay our employees for the first 2 weeks of the shutdown and maintain their regular benefits package throughout the entire period.

This included supplementing our employees' portion of health care contributions.

We are very proud to say that we did not lay off one team member, not one.

We believe this was a key factor in our ability to return to pre-shutdown daily production rates immediately to meet the accelerated demand levels in the marine industry.

Further, unlike many of our competitors, we have not experienced supply chain issues prior to or following the production shutdowns.

This allowed us to maximize cash generation during the quarter, while also setting us up to capitalize on the historically low channel inventories.

Shifting to our new model year 2021 product lineup, we made a strategic decision to move up the model year launch by 1 month to the first of June.

This allowed our brands to have the freshest products on the market in this incredibly hot retail environment, while also reducing 2020 inventory even more quickly.

One of our largest dealers commented that the decision was and I quote, 'genius", on our part and really positioned them extremely well against their competition.

By moving up our model year 2021 product in combination with the white-hot retail environment, I can confidently say MBUU brands are at the very top-tier, if not the top brands that have the freshest, most current product in the marine industry.

This makes Malibu stronger and our dealers stronger.

Our early 2021 model year introduction will support what should be an extraordinary fiscal year as we introduce new innovations and products to strengthen our market leading portfolio.

Discussing Malibu and Axis' new product for a moment, in July, we introduced the all-new Malibu Wakesetter 23 LSV, the best-selling boat in the history of Performance Sports boats.

For 2021, the 23 LSV has the same proven versatility and customer-centric design that customers love, but incorporates a number of our new cutting-edge patented technologies and features.

We're confident the 23 LSV's blend of luxury and enhanced performance will drive the legacy of its predecessors and drive sales volume in FY '21.

Building off our MXZ series of boats, we announced the new Malibu Wakesetter 24 MXZ, the ultimate picklefork boat.

It offers even more space, luxury and superior performance than previous models.

New for 2021 is our new fast fill ballast system, an innovative feature that delivers a fill time improvement of over 150% so that you can spend less time filling up your ballast tanks and more time out on the water.

After generating an overwhelmingly positive response from dealers and consumers in fiscal year 2020 with our new M240, we will be expanding the M-Series model lineup and introducing the brand-new M220 as a new addition to our successful M-Series of Malibu boats.

The new M220 complements our most luxurious feature-rich boat, the M240.

It will share some of the same innovative concepts and features that are on the M240, but at a lower price point.

From the Axis point of view, the Axis A24 launched at the end of July has been well received by dealers and customers.

Our team worked hard to design this new model, improving all of the components of the boat from its size, maneuverability, technology and versatile wake and wave to its clean and customizable design, resulting in a 24-foot boat that is far ahead of the competition and offered at tremendous value.

And of course, all of our model year 2021 products at Malibu and Axis are powered by our Malibu Monsoon engines.

The Malibu Monsoon engine boasts direct injection technology and work alongside our latest innovations to make the highest performing, most reliable and cleanest engines in the water sports world.

We gained significant market share with our Malibu and Axis brand in the fourth quarter, driven by our new product.

Numbers are still preliminary, but in June, our unit growth was up 69% over last June, while the total performance sports boat market was up 40%.

We expect this to improve even further because key strong states for us, like California and Minnesota, have not reported June registrations as of yet.

July is currently showing a similar trend, with unit growth up over 70%, and again, without the key states of California, Minnesota, Utah and Tennessee.

Further, the trailing 12-month share is approaching historic highs, up 220 basis points as of July 30, 2020.

We believe this share may be even higher when comprehensive numbers are reported in September, as we have seen our June warranty registrations more than double last year, June over June.

Turning to our other stellar brands.

Cobalt captured 35% share in the critical 24- to 29-foot segment for the trailing 12-month period.

For the full 20- to 40-foot segment, Cobalt, as market share leader, commands a 20% share, and in 2 years since June of 2018, we have grown share by 310 basis points.

In the outboard segment, we continue to gain share in the 23- to 30-foot segment that we compete in.

In 2 years, we have grown our share in the 23- to 30-foot outboard segment by 360 basis points against our direct competition.

As we prepare to bring 7 new boats to market in fiscal year 2021, including 4 new outboard boats over the next 15 months, we expect market share to continue to grow at Cobalt.

To that end, we introduced the R6, the newest model in the R-Series of Cobalt boats.

This boat provides a suite of luxurious and convenient features, including maximum interior space, enhanced audio output and the Cobalt-patented swim step deck technology for easy water access.

Related to this, we are excited that we announced our new automated e-step just 2 days ago on Tuesday of this week.

This takes our patented flip-down swim step and electronically automates it for even easier usage and deployment.

We introduced the brand-new R6 standard with a live reveal in early July.

Leads at Cobalt were up over 1,650% following the R6 reveal, and the R6 live reveal video is now Cobalt's most viewed video of all time.

This showcases the effectiveness of our digital marketing strategies in this more virtual environment.

The next new boat up is the outboard version of the R6 and it will debut in early September.

The expansion of our cruiser plant and small boat plant at Cobalt is complete.

The third and last phase of our planned improvement is now underway.

This third phase is the expansion and modernization of our gel coat elimination departments.

Once complete, this will finalize our capability of building more product with even better quality while improving efficiency.

Pursuit also continues to perform very well, and the product development engine is hitting on all cylinders.

Pursuit introduced 4 new boats in fiscal year 2020, and we will introduce another 4 new boats in fiscal year 2021.

The S 378 was introduced at the Miami Boat Show, and the S 428 will be brought to market in the next few weeks.

As you may recall, their predecessor models were contract-built in Michigan, limiting gross margin and profitability per boat.

These new models are infused with Pursuit DNA and are expected to significantly drive profitability as we successfully double the gross margin profile of both boats by designing and building them at Pursuit.

As of mid-June, the new Pursuit large boat plant is up and running.

This is where we are manufacturing the new S 378 and other larger models over 32 feet.

Again, this greenfield build of a new plant in just 12 months was another confirmation of our capabilities.

Although Pursuit was shut down for 6 weeks, we opened the plant to production 2 weeks early.

That is almost beyond belief but a testament to our planning, execution and relationship with our building partner.

The expansion at Pursuit not only helps us to increase our capacity, but it also enhances our distribution as well, further increasing the value of this already powerful brand.

The new plant and additional capacity it creates will allow us to grow Pursuit's market, product and geographic position in the saltwater outboard segment over time.

Turning to our operational excellence initiatives.

Our vertical integration strategy continues to be a competitive differentiator across all of our brands, driving overall growth and profitability.

It provides us with the ability to control a greater portion of our supply chain, quality and input costs.

Like we did with Malibu and Axis, our own flooring will debut at Cobalt in fiscal year 2021.

This will provide an attractive profitability profile and gives the customer greater optionality and flexibility.

There are 2 to 3 other vertical integration projects in work right now, and they will be introduced over the coming quarters.

We will continue to look for competitive cost advantages and new ways to generate synergies across brands and advance our vertical integration initiatives in fiscal year 2021.

While our fiscal fourth quarter ushered in a significant amount of uncertainty, the retail demand we have experienced in the marine space in such a short time period is unprecedented.

This has been a welcome surprise to everyone in the marine industry.

The shift in our culture as a result of the COVID pandemic has fundamentally changed how people are spending their time.

Boating provides a great opportunity for them to still get out and enjoy life, while maintaining social distancing with their inner circles.

I have had many, many parents tell me that after we normalize, that they probably will not get back in to select ball, sending their kids to camps and reverting back to the go-go-go lifestyle.

They have enjoyed the time with their families, and specifically, time with their families on the water.

In fact, many of the dealers that we've spoken to and throughout the country are selling many boats to first-time boaters are those returning to boaters for the first time in 10 to 15 years.

Estimates I have been given are about 30% to 40% are new buyers.

We are proud to say we have successfully captured a large percentage of these first-time boaters due to the strength of our brands, which was a clear contributor to driving market share gains.

The influx of new boaters is favorable to our long-term growth plans as it expands the number of consumers and creates opportunities for more people to become lifelong boaters and recurring customers.

The fourth quarter beginning in mid-April, saw retail accelerate every single week, leading to a June that was insane at retail.

Normally after the July 4 weekend, retail begins to moderate substantially, but July remained strong, as it did in the first half of August.

In the latter half of August, retail began slowing somewhat, but the pace was still more than most years.

Our expectation is that post-Labor Day, it will be normalized and channel inventories will seasonally build from that point forward.

Looking to full fiscal year 2021, we were up a tree and out on a high branch feeling the comfort of the refreshing sales breezes.

Channel inventory levels are at historic lows.

Sales books at all of our brands are completely full through the first half and extending into our fiscal Q3 2021.

It is our belief that channel inventories will likely not be caught up until the end of model year 2021 at the very earliest.

And depending on demand, consistent with historical trends, it may very well extend deep into fiscal 2022 before channel inventories are at normal levels.

Our approach for all of our brands is consistency.

Just as we remain consistent in production after the shutdown, we are following our proven plan.

We will likely increase production somewhat in the first half, but we will limit this for 2 reasons.

First, we are always sensitive to our supply chain partners and what they are capable of delivering.

While internally, we could increase unit production more, our supply chain partners are dealing with the COVID repercussions and cannot produce to the demand that the entire marine industry is placing on them.

Secondly, the worst action in this uncertain environment would be a knee-jerk reaction that builds too much inventory and puts our brands in a bad channel position because of factors that we cannot control.

Let me be clear though, as it relates to our dealers having sufficient inventory, we are in far better position than anyone else because we have been building at the same production capacity as we were building pre-shutdown for 4 months, and we will continue to do so.

Many of our competitors, due to supply chain issues, laying people off during their shutdown and having trouble and scaling back up, are eking out 50% to 70% of the production that they were producing pre-shutdown.

There are a couple of questions that have been asked that I would like to take the time to answer today.

The first question is, can the industry sustain this high-growth environment next year.

What everyone needs to keep in mind is that calendar year 2020 will not be an abnormal sales growth year when the entire year is observed.

Using Performance Sports boats as an example.

As of March, the growth rate was at negative 6.7%.

Preliminary information shows that year-to-date 2020, as of July, is a positive growth rate of 10.9%.

I fully expect that when we reach the December -- when we reach December, the annual 2020 growth rate will be in that 8% to 10% range.

That is not significantly larger than previous years and is less than a few years ago when we were registering growth rates annually of 14% and 16%.

The year will certainly be choppy, but 2020 will not have an outsized unattainable growth rate to meet in 2021.

The second question we have been asked is about the number of new boat buyers we have seen in 2020 and the potential of retaining them as customers.

No doubt, the pie has grown, which is great to see.

We believe the number of new boat buyers are customers that have returned to boating after being away for a number of years is about 30% to 40% of the purchases since April.

There will be some customers that made a decision to buy a boat for any number of reasons who will not remain in boating.

Every recreational industry has customers that try it but don't stick with it.

We will see this in boating, but a large majority of the 30% to 40% of the new and returning buyers have seen the impact on their relationships and with their families.

They have enjoyed it, and they will remain in boating and eventually make their next purchase.

One area that we OEMs have not even realized yet are the number of people who bought used boats in the last 3 to 4 months.

Some percentage of them will buy a new boat over the next couple of years.

I personally think that percentage will be significant.

My complete answer to this question is we will retain a large percentage of these new customers, and used boat customers will also buy new boats.

This is not a short runway.

It is an elongated runway, which is great for our industry.

We believe it could be a prolific year for Malibu as the setup for the full year is extraordinary, with strong wholesale demand for the entire first half, driving a positive outlook for the fiscal year.

However, a lot of uncertainty still exists related to COVID-19 and whether a short shutdown will occur at any point as well as the upcoming U.S. presidential election.

It remains to be seen what percentage of boat shows will take place in fall 2020 and winter 2021, but we are continuing to identify ways to effectively engage with our dealer network and consumer base virtually. .

As a result of the boat show uncertainty, our brands are creating alternative strategies.

We're exploring a number of creative ideas that allow our dealers to engage with customers and sell boats.

Moreover, the strength of our balance sheet, combined with our variable cost structure and current liquidity position ensure that we will be able to continue executing on our long-term growth strategy and effectively navigate through any type of demand environment.

In June, we paid back $110 million on our revolver, over $11 million more than the proceeds we've previously drew down in March.

Today, we have over $40 million of cash on hand and our operating with net debt of roughly $45 million.

Our financial strength and flexibility, along with our new innovative model year and our 2021 product lineup, vertical integration strategy, brand strength and experienced management team have us well positioned heading into fiscal year 2021.

I will now turn the call over to Wayne to take you through our financial performance in more detail.

Thanks, Jack.

In the fourth quarter, net sales decreased 39.1% to $118.7 million and unit volume decreased 43.9% to 1,117 boats.

This decrease was driven by the production shutdowns at the start of the quarter.

The Malibu and Axis brands represented approximately 65% of unit sales or 726 boats.

Cobalt represented 27.2% or 304 boats and Pursuit made up the remaining 87 boats.

Consolidated net sales per unit increased 8.6% to approximately $106,200, primarily driven by a greater mix of larger, more expensive boats.

Gross profit decreased 50.7% to $23.6 million, and gross margin was 19.8%.

This compares to a gross margin of 24.5% in the prior year period.

Selling and marketing expense decreased 21% or $1 million in the fourth quarter.

As a percentage of sales, selling and marketing expense increased by 70 basis points.

General and administrative expenses decreased 18.8% or $2.2 million.

The decrease was primarily driven by cost reduction initiatives we implemented in response to COVID-19 to better align our cost structure to the current operating environment.

As a percentage of sales, G&A expenses, excluding amortization, increased 200 basis points to 8%.

Net income for the quarter decreased 68.2% to $6.5 million.

Adjusted EBITDA for the quarter decreased 56.8% to $15.5 million, and adjusted EBITDA margin decreased 530 basis points to 13.1%.

Non-GAAP adjusted fully distributed net income per share decreased 63% to $0.40 per share.

This is calculated using a normalized C corp tax rate of 23.5% and a fully distributed weighted average share count of approximately 21.5 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.

As Jack mentioned earlier, we were extremely proud of how we were able to manage the business through the fourth quarter.

As many of you know, we have discussed the variability of our cost structure in the past, and this quarter was an opportunity for us to deliver on what we had described.

Our ability to post an EBITDA margin in the teens in the face of 40% reduction in revenue, further confirms our conviction of how we can operate this business to meaningful profitability in the face of adverse conditions.

While we were happy to demonstrate that capability, we were even happier to see the strength at retail, strong cash flow generation and a robust future demand picture.

These conditions supported our decision to pay back $110 million on our revolver, while maintaining ample liquidity with cash on hand today in excess of $40 million.

This leaves us well positioned to continue pursuing strategic investment opportunities and advance our long-term growth plan in fiscal year 2021 and beyond.

Looking at full year numbers.

Net sales decreased 4.5% and unit volume decreased 12.5%.

Consolidated net sales per unit increased 9.1% to approximately $101,400, largely driven by higher mix of Pursuit sales.

Gross profit decreased 10.2% to $149.3 million.

Net income for the year decreased 7.2% to $64.7 million, and adjusted EBITDA decreased 11.9% to $110.9 million for the full year.

For the year, non-GAAP adjusted fully distributed earnings per share decreased 12.5% to $3.29 per share.

As Jack mentioned, we remain well positioned heading into the first half of fiscal year 2021 and are optimistic that full year fiscal 2021 will be an outstanding year for Malibu.

However, given the uncertainty related to the COVID-19 pandemic and this year's boat shows, we will not be providing full year guidance at this time.

As Jack stated, we are focused on consistent execution across MBUU.

This includes maintaining operational discipline and steadily growing dealer inventories back to appropriate levels.

With our operational shutdown impacting the third and fourth quarters of fiscal 2020, the preponderance of growth in fiscal 2021 will come in the back half of the year.

Based on our current operating plan as we manage through the dynamics of the COVID-19 pandemic, our expectation is for an essentially flat first quarter year-over-year.

As Jack stated, we continue to aggressively manage the business in this changing environment.

At this time, we have the benefit of a seasonally slower retail sales environment to ensure we do not put undue stress on our operations to deliver units that are likely to sit on dealer lots through the winter.

This allows us to apply our disciplined operational approach to increase throughput to meet increased wholesale demand.

To put our position in context, we believe our dealers are under inventory in excess of 1,000 units at this time, with nearly all of that shortfall coming from decreased production driven by COVID-19 during fiscal 2020.

The implication of this is that retail activity hasn't meaningfully changed from our original plan despite volatile changes in monthly growth rates.

Looking through a longer-term lens, industry growth is marginally higher.

That said, we believe there are fundamental shifts in how people are living that will sustain the market at these slightly higher levels and position it for further growth.

Regardless, with the inventory shortage that currently exists, we see a meaningful opportunity to grow our wholesale shipments through fiscal 2021 and into fiscal 2022 through consistent disciplined execution.

In closing, we overcame a volatile operating environment to deliver a solid quarter that demonstrated our variable cost structure, our operational excellence and strong supply chain management, along with the strength of our balance sheet, allowed us to respond quickly and effectively to the rapidly changing environment to meet the heightened demand and deliver superior results.

We continue to see strong demand in our retail markets and are confident that our strategic initiatives, operating plan and robust product portfolio will drive further market share growth and profitability in each of the markets we serve.

With that, I'd like to open the call up for questions.

(Operator Instructions)

Our first question comes from the line of Brett Andress with KeyBanc Capital.

So given the low inventory, we've started hearing in the channel that there's a high level of pre-sales hit the dealer level right now for the next few months.

Is there any numbers you can share, just maybe on what your order book looks like at this point in the season going forward?

Well, the order book going forward, the first half is completely full.

And so if we look at it today from where we're at today in August all the way through December 31, it's full and it extends into the third quarter, so with the strongest order book that across all the brands that we have probably seen in a number of years.

Got it.

And then I'm just trying to reconcile, in the slides and in your comments, the ski wake market.

It's tracking up, I think, 11% year-to-date.

I think you expect it to be up high singles for calendar 2020.

It seems like there was strong demand in August.

So I mean -- I guess what are we kind of expecting really for the last few months?

Is there a decel that might hit the industry?

There's a natural seasonal deceleration.

The one thing I would point out, Brett, is that last year, if you recall in that May, June time frame, we have had significant weather.

And so July, August and even September, were stronger than normal.

So I think it could be equivalent to where that's at.

If we're at -- I think I said we were at 10.9%, you said 11% right now.

It could drop back a little bit, but I don't think it's going to be a huge drawback.

We're in our slower selling season anyway, coming up to it.

Got it.

Okay.

And then just the last one, can you remind us of the capacity that you now have online, both at Cobalt and Pursuit?

I guess what percent increase does that represent for your total capacity?

At Cobalt -- I'll word it this way.

Keep in mind, we run all of our plants on one ship.

It keeps quality much better.

We're much more efficient that way.

And so on a one-ship operation at Malibu, we always strive to have that 20% to 25% additional capacity available.

At Cobalt, with the changes and the additions we've just made, we're higher than that, probably in that 30% range.

And then in Pursuit, quite honestly, with that brand new plant, once we get that up and running, it's going to significantly -- and I have to be careful with this because we talk about units in -- at Malibu, but at Pursuit, we need to talk about revenue because of the size of the boats and the range of the boat sizes.

And so what we've said, and we still stand by this, that over time, we can double that revenue.

Our next question comes from the line of Craig Kennison with Baird.

Jack, you took all the good ones.

I wanted to ask about the comment you made, Wayne, about 1,000 units of inventory that may be short in the channel.

Could you get to filling all of those by the end of fiscal 2021 in, let's say, a flat marine environment?

I -- could -- right -- it really depends, right?

It's really -- it gets to the question of -- and one of the reasons why you don't have full year guidance, which is the environment is pretty dynamic.

And so in a perfect world, I'd love to say we can -- we could get it.

Yes, I think it's a little bit of a stretch.

But in a perfect world, it's potentially achievable.

In all reality, as you can tell from our comments, we don't think it's going to be a perfect world.

Even if that retail is flat that we're going to just be managing through challenges and trying to make sure we do it in a consistent, controlled way.

So I think it'd be a stretch.

And then I had a question on your dealer relationships.

I imagine, historically, you've been able to add dealers in markets where you lack those dealers.

So you've been able to grow the base.

Is it more difficult this time around given you've got dealers, partners today who really don't have enough inventory, it just would limit your ability to, I guess, stock a new dealer?

On the -- I'll address Pursuit first, Craig.

Because of the new plant and the additional capacity we have there, I think that's the biggest area of potential dealer additions, and we can expand that distribution base because we have a considerable amount of additional capacity.

If we look at Cobalt, they largely have everywhere covered.

So that's normally going to be a replacement situation.

We have a dealer that's not operating as well as we would like or not capturing the market share as well as we would like, and it's a situation that can be fixed.

So we would make a replacement.

So that really doesn't impinge necessarily on our ability to build boats or produce boats.

Malibu is very much the same way.

Now I will tell you that what we've seen on the Malibu side and Cobalt, frankly, is that there are competitors that are struggling, and we have converted several dealers that were competitive dealers over to Malibu and over to Cobalt.

Our next question comes from the line of Mike Swartz with Truist Securities.

Just wanted to touch on the price points in the quarter.

ASPs were up, I think, like 9%, pretty strong across Malibu and Cobalt.

And I'm thinking a lot of the commentary out there right now is with new first-time buyers coming in and really driving a lot of what we've seen.

I guess can you kind of link those 2?

Are we seeing a lot of these new or first-time boaters actually going towards more premium brands?

I would think that's more entry level, but maybe give us a little more color there.

Yes.

We are seeing a growth in Axis, without a doubt.

And so we've seen that newer customer come in and look at that Axis and purchase that Axis, but we are also seeing consumers that are taking the opportunity and they're saying I have -- whether it be access or Malibu, we have a 22-foot boat, and we're going to go through a 24-foot boat.

So we're seeing a little bit of a mix in both realms.

On the Pursuit side, we've seen a swing to larger boats, and that's part of the reason you're seeing that ASP pretty high, higher than what we would normally have projected on the Pursuit side.

And then Cobalt, there -- it's across the board.

We're having very good sales out of our 10 Series, which are our smaller, less expensive boats, but we're also having very good sales out of the R Series, the A Series and even up to that A36.

Okay.

That's helpful.

And I think, Jack, just in terms of August trends, I think you said that you saw a lot of the strength in July carry over to mid-August.

And then I think you said in mid-August, things soften.

But I'm trying to understand, is that -- are you saying that you're seeing retail decline?

Or are you just saying the rate of growth has slowed a bit?

Rate of growth has slowed.

Again, normally, you get to a July 4 -- after July 4, and you're going to have a seasonal slowdown.

We did not see that in July.

And so I think we're just now beginning to start seeing that seasonal slowdown, but it is not a scenario in which it has slowed down far more than normal.

It's getting back to normality, in my opinion.

Okay.

That's helpful.

And maybe just one final question for me.

Just -- I saw that you resolved some litigation recently.

Just remind us, is there any more outstanding litigation regarding your -- any of your Surf patents?

There is litigation on one of our competitors with Malibu and that's advancing.

We feel very good.

We had a really strong victory earlier this week and as it related to the court.

So we feel very good about that.

We have recently signed another licensee that carry -- that they actually furnish to multiple brands, and so they have come online, and I think that puts us up close to 25 different licensees at this point.

And there's someone else that we do expect to convert in the next month or so.

Our next question comes from the line of Joe Altobello with Raymond James.

Just a couple of quick ones for me.

I guess first on channel inventories, you mentioned you have 1,000-boat shortfall here and the fact that you may not get caught up until fiscal 2022.

Does that assume dealer turns are unchanged?

Or do you expect turns to go up?

Because dealers that we speak, seem to intend to hold less inventory than normal going forward.

Yes.

I think it's a -- the implicit question -- or the question that was asked was hey, in a consistent environment, there's a lot of variables that obviously go into that.

And so while dealers may expect to hold less, I -- like I mean, not that much less, right?

And generally speaking, when we come out with guidance or numbers, they're pretty conservative.

So embedded in that 1,000 number, you could probably imagine there's a little bit of a reduction in turns embedded in that and so in a flat environment.

And the reason why I would say that it's tough to make up that 1,000 is we also underproduced last year.

So really, the growth rate that you're talking about at wholesale would imply that 1,000-plus whatever the shortfall that we produced this year, right?

So then you're talking up like 30-plus percent on volume, and that's why it becomes more of a stretch.

Got it.

Okay.

And secondly, on -- in terms of boat shows, you mentioned a couple of times today the uncertainty there.

If we weren't to have any in-person boat shows this year, is that good or bad?

Well, I think naturally -- I would word it this way, Joe.

If you have a norm, you have a standard that people are used to.

And so would it have some impact?

Yes, I think that it would.

I don't think that we're not going to have any boat show.

Fort Lauderdale is still on schedule, Fort Lauderdale has said they're going.

We'll -- we haven't heard anything about Miami not going.

So I think there will be shows that absolutely go.

What I believe how you accommodate that or how you attack that is you have alternative strategies.

Right now, we are developing strategies on a brand-by-brand basis that we believe will actually get customers to the dealers or get them to a virtual boat show type of site, and we will have success with that.

So I think by virtue of the fact that not having boat shows, it's out of the north.

It's not what you regularly do.

But beyond that, it's up to us to come up with new ways to entice that customer.

Our next question comes from the line of Alex Maroccia with Berenberg.

If I heard correctly earlier, you mentioned that the new Pursuit plant can double margins on those larger boats.

Are you able to discuss the size mix at all, so we can get a sense around the longer run margin expansion opportunity there?

Can you clarify the question in terms of the size mix?

Just at Pursuit, because if you got double margins on the larger boats, I'm trying to get a sense around what the impact of that would be in terms of the total business.

Yes.

So I mean it's only on the 2 boats that were contract manufactured, which you're measuring in the $20 million to $30 million range.

Got you.

That's helpful.

(inaudible) yes.

Okay.

And secondly, given the financial position currently versus where we were on your last earnings call, have you changed your thinking at all around capital allocation in the coming quarters, especially as it pertains to the acquisition strategy?

No.

From an acquisition standpoint, we're pretty consistent in that.

It's about the brand that comes to market or are they that premium brand that fits into our portfolio.

So the -- where we're at from an individual cycle standpoint really doesn't affect us.

If that next great asset comes, we will be all over them.

Our next question comes from the line of Eric Wold with B. Riley.

A couple of questions.

I guess one, you knowing you restarted production with a focus on the boats that had already been sold, and you talked about, obviously, a backlog into fiscal Q3.

Is that -- does that indicate that if someone came into a dealer now and want to buy a new custom boat and order it, they're looking out to that Q3 period?

Or is there something else there?

Well, how soon do you want it?

The situation is we take a stock slot.

So a dealer will commit, and they'll say, "I'm going to order this stock boat," and let's just use 23 LSV.

And what would happen in that point is that customer would say, "I'd really like to have this by mid-September or end of September." And so that dealer and us would convert that stock order to a retail-sold boat.

Got it.

Okay.

And then, obviously, without giving guidance for the year, you obviously, you've got some -- you noted some hesitancy around uncertainties in COVID and the election and all that.

And then your kind of comments around the dealers possibly looking to hold less inventory.

Is that, in some way, the dealers possibly being a little more conservative kind of given what happened last year with the inventory getting too high in the first half of the year, along with the uncertainty that you share?

Or is there something else there?

Or is it as simple as the first 2?

I'm going to tell you straight up.

The commitments that we have from our dealers this year are not -- they're not scaling back on inventory.

They have given us the commitments that we've asked for.

Perfect.

And then final question on Pursuit.

What is the time frame to get to a potential doubling of revenue at a facility kind of everything going well?

And what would that do to kind of the contribution margin out of that brand segment?

We think it's probably -- I'll say, 36 months to get that doubling of the revenue scenario.

And in terms of the margin?

In terms of the contribution margin, we talked a little bit about just what I think of as the fundamental shift from the contract build to the in-house build of the boats that were being produced in Holland, Michigan.

And so absent that impact, I think it's still a little bit TBD.

But I -- you're going to end up with a profile, it's a little less vertically integrated business than Malibu Axis businesses.

So the contribution margin will be a little bit less than that, but not to a great degree.

I'm showing no further questions in the queue.

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

Thank you very much.

In summary of our quarter and full fiscal year 2020, despite the COVID-19 impacts and the plant shutdowns, our fourth quarter was a good one, and it exceeded our initial projections handily.

Very strong market share gains have been driven by our capability to resume post shutdown production at the same levels as before the shutdown.

This allowed us to build, deliver and sell more boats in our competitors.

In addition, our culture of innovation continues to drive consumers to our brands.

Our strategic planning, operational excellence and supply chain management supported our outperformance of the broader industry and will continue to be a differentiator in this environment going forward.

All brands immediately returned to pre-shutdown production levels to deliver better-than-expected fourth quarter performance and EBITDA margins in the mid-teens.

Production capacity expansion initiatives at Cobalt and Pursuit facilities are up and running, providing opportunities for increased distribution and capacity.

Our financial position is very strong.

We have limited debt and over $150 million of liquidity.

The first half of fiscal year 2021 looks to be very promising with the introduction of our new model year 2021 products, historically low dealer inventories and strong wholesale demand throughout the first half and into Q3.

While a lot of uncertainty remains, we are confident that the areas of the business that we can control: our vertical integration strategy, our production, innovation initiatives, premium product portfolio and operational expertise, will continue to drive growth and deliver long-term value to our shareholders.

I want to thank each of you for your continued support of Malibu and for joining our call today.

I hope you and those around you are all staying safe and healthy.

Have a great day.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may now disconnect.