Malibu Boats Inc (MBUU) 2020 Q3 法說會逐字稿

Good morning, and welcome to Malibu Boats conference call to discuss third quarter fiscal year 2020 results. (Operator Instructions) Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats. 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 morning, everyone. On the call, Jack will provide commentary on the business, and I will discuss our third quarter financials. We'll then open the call for questions. A press release covering the company's third quarter fiscal year 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 will now turn the call over to Jack Springer.

Thank you, Wayne, and thank you all for joining the call. As we sit here today, more than 6 weeks into 1 of the biggest health and macroeconomic crises we have seen in our lifetimes, I'm even more proud of the Malibu team and our ability to deliver on our strategy. Regardless of the environment we are facing, this team delivers results. An incredibly strong fiscal third quarter with this year's boat season momentum at -- extending into March radically changed in the last 3 weeks of the quarter. The number of COVID-19 cases skyrocketed, leading many states to invoke shelter-in-place orders. We mobilize quickly to protect our employees, support our dealers and adjust to reduced demand levels by suspending production at all of our manufacturing facilities on March 24.

For the quarter, net sales decreased 8.8% to $182.3 million. Gross margin increased 20 basis points to 25.1%. Adjusted EBITDA decreased 3.7% to $36.4 million and adjusted EBITDA margin increased 110 basis points to 20%. This performance despite an 8.8% decrease in revenue, highlights what an outstanding year we would have had, if we had not removed 7 days of production at the end of the quarter. It is also important to communicate that we are very well capitalized and have over $100 million of cash on hand, more than ample for the current downturn. Once again, our team demonstrated their agility and operational prowess to overcome these substantial headwinds and deliver strong margin performance year-over-year despite the reduced volume.

Before the drop in demand late in the quarter, performance across our brands was very strong. Up until that point, results from the boat shows were excellent with the exceptional performance in technology of our model year 2020 products driving Malibu and Pursuit, up double digits compared to the prior year. And Cobalt was performing well. This momentum was driven by the strength of our portfolio and the innovation our customers expect from us. Importantly, these competitive advantages will be what supports our resurgence as the environment returns to a new normal.

For Malibu, the new 23 MXZ in our latest flagship model, the M240 had been very strong. Both of these new products feature several of our patented technologies, including our Stern Turn technology and proprietary Power Wedge III. Our 20 VTX has again cornered the market as being a true crossover boat performing very well for ski, lake or surf. As you know, all of our models for Malibu and Axis are powered by our Malibu Monsoon engines. This new engine by Malibu has certainly been the differentiator and competitive advantage we thought it would be. It is quiet, easy to maintain, powerful and rock solid.

For Cobalt, our new product innovation is continuing to accelerate. Our Cobalt A29 has been in very high demand with its sleek Cobalt like features. Our one-of-a-kind Splash & Stow feature, the first inflatable management system has been a huge hit with an even bigger take rate. It is a perfect feature to enjoy boat life, keep the kids happy and deploy social distancing. Further, at Cobalt, we have 3 new boats being released this summer beginning in June that we will speak about on our next call. For Pursuit our DC 326, introduced last August was far stronger before the pandemic in sales than we had planned. The new S 378 is just hitting the market, having been introduced at the Miami Boat Show. As a reminder, this boat replaces the contract built S 368, and has been designed with pure Pursuit DNA. We expect it to be a strong driver of margins going forward.

We also introduced the S 268 Sport in April and believe it will be a high demand boat for model year '21. In recent weeks, the full calendar year 2019 market share data was released. As a reminder, we do not focus on the monthly data for market share. It is incomplete and can be skewed based on the states reporting and their timing. While quarterly market share data is more robust, the annual calendar year data is complete and more accurate than any other data provided by SSI. With that in mind, as of the December 31, 2019 numbers, I'm thrilled to say, that at all brands under MBUU had an exceptional year at retail.

Malibu increased market share by 130 basis points in calendar year 2019, and is almost 1/3 of the entire domestic market. Both the Malibu and Axis brands had significant share increases. Combined, Malibu and Axis is #1 or #2 in market share in 86% of the market served. That's an over 600 basis point increase versus 2018. Cobalt had a staggering 260 basis point increase in market share in 2019. Every segment length was substantially up in the all-important 24- to 29-foot segment is well over 1/3 of the market for Cobalt. In the outboard segment we serve, which is 23 to 30 feet, Cobalt, again grew share in units. This has been a growing market and it will continue to be. As we accelerate new product introduction and Cobalt adds more outboard models over the next year, we will only see that share grow.

Pursuit, despite ongoing capacity constraints in 2019, also continued to grow market share. With our new capacity as of July 2020 and the volume of new product we are bringing to market, we are very excited to see the market share growth that will occur over the next several years. Overall, we are incredibly pleased with our market share domination in calendar 2019. And it is a testament to our team, our strategy and our competitive leadership. As the pandemic swept the country in late March, our employees, dealers and retail customers who have boat on order have been our top priority during this tumultuous time.

During the shutdown period, we continued to pay our employees for the first 2 weeks. After that, as the states and new federal employment kicked in, we implemented temporary furloughs while maintaining the regular benefits package, including health insurance. As the government's relief and recovery package became effective in April, we assisted our furloughed employees in collecting on these benefits. When we resume production at all of our plants, MBUU brought back all of our employees. There were no layoffs or reductions in force. I cannot say enough about our teams at Malibu, Cobalt and Pursuit. They've been very supportive and understanding during an unknown time as they first had to be furloughed and then came back to work. Their attitudes and support have been inspiring. I cannot thank each person adequately. In addition, many of our dealers were forced to shut down or scale back their operations due to state and local shelter-in-place mandates.

Based on our conversations with dealers, the impact of these shutdowns have varied greatly. Some of our dealers continue to sell boats at a steady pace, but dealers in other states were not allowed to receive boats for an extended period of time, even if we had built and shipped them. As a result, those dealers were hardest hit. That said, we were proactive and aggressive in supporting our dealers by educating them on the Payroll Protection Program under the CARES Act. While MBUU was not eligible for this program and took no government funds, it was very important to our dealers, most of whom are small businesses with less than 25 employees. Wayne worked very closely with them, providing resources, step-by-step actions and clarity on the process to apply and ensure they had access to these critical small business forgivable loans.

As a result, we estimate that our dealers, on average, received more than $250,000 per dealer, which has allowed them to maintain their staffs and curb layoffs. This, in addition to the deferral of interest from Wells Fargo and curb curtailments during the April and May period has resulted in no known solvency issues that we are aware of with any of our dealers across the brands. Importantly, the resiliency and strength of our dealer network has been highlighted during this difficult operating environment. While retail sold orders have held up well, stock order confirmations have slowed considerably as can be expected. Those dealers that could continue to operate the service side of their businesses and sell boats, either through prescheduled one-on-one appointments, virtual boat shows are out on the water.

In addition, MBUU has significantly boosted our digital marketing, virtual presentation of product and lead generation to the highest levels we have seen. We resumed production at Malibu on April '21, at Cobalt on April 27 and at Pursuit on May 4. Prior to that, we have prepared our plans for the new environment and implemented many safe workplace practices. I am proud to say that we served on the Governor of Tennessee's force that provided recommendations for reopening manufacturing in the state of Tennessee. That is another example of MBUU leadership at play. It is important to state that we have reopened our plants at the same production levels as when we close each plant. Retail order demand has driven the same production levels. It's simple. Retail customers for Performance Sports boats and recreational cruising boats, specifically want their boats for Memorial Day week.

If you have retail orders as we did at Malibu and Cobalt, you need to build boats to support your dealers and not support -- and not disappoint your retail consumers. Further to that, all of our brands, including Pursuit, have had retail orders remain intact with very few cancellations. That is a great omen for when we come out of this time and indicates a very different environment from the 2008 recession. Today, most of our plants are exclusively fulfilling retail sold orders through May. That is important to understand for a couple of reasons: First, it highlights the strength of our retail order book. We had a significant number of retail orders at all 3 companies in nearly every boat being built is a retail sold order; secondly, this means that we will not resume building stock orders that will go into the channel until June.

As a result, we will go 2.5 months without putting inventory into the channel, while dealers have continued to sell boats. This will greatly help in driving channel inventories down in a post COVID-19 environment. If pent-up demand exists, this will be a strong tailwind for us coming out of the crisis. Our furloughed employees are back at work. As previously mentioned, we brought back all of our team members with no layoffs or reductions in force. We have made a number of decisions to align our cost structure to the current landscape and realize significant reductions in expenses. Despite these measures, we have maintained full production capabilities for each of our brands to ensure we have the capacity and the throughput to deliver retail sold boats already under contract with our dealers. While the complete impact of the state mandated shelter-in-place orders is not entirely known at this point, we expect new orders will pick up as restrictions are lifted, but the timing of when that happens will have a material impact on the summer season. If dealers can get back to business this month or early June, that will be very positive as they will have the summer to sell boats. I will also note that this plays to a captive customer as travel sports, select leagues, camps and other activities that families are normally involved in, in the summer are canceled for the summer of 2020.

From an inventory standpoint, we believe the channel is healthy across our brands prior to the disruption in March. Further, when reviewing externally generated segment data from a premier marine resource, our aged inventory is remarkably better than our competitors by a large margin. This means that our aged channel inventories are minimal, and we pull down the segment averages. As I previously mentioned, from late March until June, dealers will not receive any stock inventory, while they continue to sell boats. We believe this will allow the inventory channel to adjust even further. That said, given the rapidly changing environment today, we are prepared to swiftly adapt to our production that continue to prudently manage our inventory levels.

Further, the foundation of our business, industry leading innovation, vertical integration and operational excellence will continue to propel us forward in the uncharted waters we're in today. Our unparalleled vertical integration strategy allows us to control a greater portion of our supply chain than our competitors and a -- is a true differentiator for Malibu. In addition, our variable cost structure allows us to quickly flex costs in alignment with our top line, allowing us to preserve operating margins in a lower demand environment, evidenced by our performance this quarter. Variable costs make up over 90% of our cost of goods sold, which again is a substantial competitive advantage for our business, especially within the current environment.

We remain on track to complete our production capacity expansion at both Cobalt and Pursuit. The Cobalt plant expansion was nearly finished prior to suspending work at our facilities in March. And are now completed for large cruisers and on schedule in our phased approach for the small boat plant. We are also nearing completion with our Pursuit expansion, which is on track to be completed in June. We will begin building boats in the new Pursuit plant with a new model year, which begins in July. This includes the brand-new S 378, which replaces the low-margin contract built S 368.

Our team's unwavering commitment to operational excellence will enable us to continue progressing on our strategic initiatives through this environment. We have already seen this expertise in play. While we know competitors had issues with their supply chain in receiving sufficient supply parts, our brands did not at all. Further, we were able to ramp up production at the same production volumes without fear of not having sufficient parts. This is demonstrable operational excellence. It is just another example of our operational excellence and being prepared. Since we have started back to building boats, we have had no supply chain issues, and there are none that we are aware of to date that could be an issue for us. I am confident in our team's ability to extend our leadership during this period of uncertainty. Our management team is comprised of exceptional leaders with considerable experience managing companies through various environments. We have navigated through down cycles in 1989, 1994, and after 911 and during the Great Recession in 2009. More specifically, Wayne and I, with other members of the management team successfully navigated Malibu during the most significant downturn of our lifetime, and we emerged as a better and stronger company. We will again this time.

In summary of the quarter, we delivered strong results despite facing unprecedented headwinds as a result of the ongoing global pandemic. Despite these unforeseen circumstances, our team mobilized quickly to address the situation, took action to protect our employees, support our dealers and we delivered exceptional operating margin performance. Our strategy remains unchanged. We remain laser-focused on delivering industry-leading new product innovation, increasing vertical integration initiatives and leveraging our outstanding operational execution. The impact on Malibu will not be as deep in this pandemic as for others, and our ascension out of the crisis will be faster and more pronounced. As a result, we are well positioned to navigate through this downturn and recover at a quicker pace than our competition.

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

Thanks, Jack. In the third quarter, net sales decreased 8.8% to $182.3 million, and unit volume decreased 14.2% to 1,796 boats. As Jack mentioned, we suspended production in our plants on March 24. This resulted in about a week less of production in the quarter. However, historically, we experienced higher shipment volumes at the end of the quarter, and the shutdown in the last week impacted us in excess of $20 million in sales. The Malibu and Axis brands represented approximately 63.4% of unit sales or 1,139 units. Cobalt represented 29% or 521 boats and Pursuit made up the remaining 136 boats. Consolidated net sales per unit increased 6.3% to approximately $101,500, reflective of a higher mix of Pursuit sales, year-over-year price increases and an increased mix of larger boats across our Malibu and Axis brands.

Gross profit decreased 7.8% to $45.8 million, and gross margin was 25.1%. This compares to a gross margin of 24.9% in the prior year period. This margin included $900,000 of costs related to the UAW strike. Selling and marketing expense decreased 13.3% or $0.7 million in the second quarter. As a percentage of sales, selling and marketing expense decreased by 10 basis points. General and administrative expenses decreased 21.8% or $2.7 million. The decrease was predominantly driven by temporary suspensions at our manufacturing facilities, along with acquisition-related expenses that were attributable to the addition of Pursuit Boats in the prior year period.

As a percentage of sales, G&A expenses, excluding amortization, decreased 90 basis points to 5.3%. In addition to temporarily suspending production, we reacted quickly to take costs out of the business and targeted uncommitted expenses for the fiscal fourth quarter to more closely align or cost structure to lower expected shipments. We are currently in the process of evaluating the expected wholesale shipment needs for fiscal 2021. And accordingly, we'll make appropriate adjustments to our expense structure heading into the year to align our cost structure with expected demand.

Net income for the quarter increased 7.5% to $23.9 million. Adjusted EBITDA for the quarter decreased 3.7% and to $36.4 million, and adjusted EBITDA margin increased 110 basis points to 20.0%. COVID-19 likely impacted our fiscal Q3 adjusted EBITDA negatively by nearly $5 million. Non-GAAP adjusted fully distributed net income per share decreased 1.7% to $1.13 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 21.6 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 in his prepared remarks, we also took aggressive action to make sure we have sufficient liquidity to support our operations and strategic investments. At the end of March, we drew down $98.8 million on our revolver. As of May 5, 2020, we had cash and cash equivalents of approximately $113 million, which reflects a temporary use of cash in working capital that will normalize over the coming weeks following the restarting of production at our facilities. Our robust balance sheet allows us to continue to invest in our business and pursue strategic investment opportunities.

Given the unprecedented uncertainty related to the COVID-19 pandemic as previously disclosed on March 24, we have withdrawn our fiscal year 2020 outlook. As Jack said, while we felt comfortable with inventories prior to the slowdown in late March, short-term retail demand shocks, posed a threat to leave us in an over inventory position. As always, we are focused on keeping channel inventories at appropriate levels. Our lower production forecast for fiscal Q4, combined with the fact that the vast majority of what we are producing today are retail sold units should position our channel inventories well heading into fiscal 2021.

Based on our current operating plan, we are anticipating fourth quarter revenue to be down approximately 50% on a year-over-year basis. Despite our efforts, given the speed and magnitude of this decrease, we do expect margins to be meaningfully impacted in the quarter. In the event of a prolonged downturn, that brings a 20% to 30% top line decline. We are confident in our ability to maintain EBITDA margins in the mid-teens percentage range. We are constantly evaluating the dynamic environment today, and we'll provide further information when we report our year-end results in August.

In closing, we delivered a solid quarter in light of substantial headwinds imposed on our business. Our experience, operational excellence and variable cost structure allow us to react to the dynamic environment we are in today, and largely preserve our margin structure in the event of continued slowdown. As we navigate through ongoing economic uncertainty, our strong balance sheet and liquidity position enable us to continue to position ourselves to execute on our long-term strategy for growth.

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

(Operator Instructions) And your first question will come from the line of Brett Andress with KeyBanc.

Hoping, can you give us any more detail on April retail trends? And I guess, more importantly, the cadence of April? Is the month progressed? And I think you talked about some geographic disparities as well. So if there's any color on that? And then the last one is just, any comments on May retail?

Yes. We're -- for April and May, Brett, we're hearing a lot of successful retail stories, like I think everybody else has. And we think retail is going up. It's only natural to assume that as states open up and as our dealers can come back and start selling boats that retail will go up. I think one thing that's helping us that we did not have last year from a retail perspective is temperatures are cooperating, and I think they'll continue to cooperate. So we are seeing that uptick in retail, and we -- it's progressive week to week. So if you look at the 1 April, it was lower, but it has progressed through even last week, and we see that retail increase. I think it's too early to talk about what this is going to mean for the quarter or for the next quarter or anything like that because we're all just kind of in a discovery period and not even all the states are open back up yet. As we get into the first quarter of 2020, we're going to be spending the next 5 to 6 weeks talking to dealers and getting a better understanding of what that's going to look like. But I would say that generally is positive.

So when you say retail increase, you mean retail is tracking up year-over-year?

Not only year-over-year, but it's tracking up versus where it was in March or at the 1 April. I'm saying that each week, retail gets a little bit better, but you still have a lot of dealers that are not opened up. As an example, Maryland just opened up this morning.

Understood. Thank you for the clarity there. And then just -- so obviously, impressive margins in the quarter. As we think about the fourth quarter, Wayne, can you walk us through the kind of current fixed, variable structure and how we should model the next few quarters? And was that mid-teens EBITDA margin in reference to 4Q?

The mid-teens EBITDA margin was not in reference to 4Q. That's in for a -- out there for a kind of 20% to 30% down, more prolonged experience where we can make sure we have the appropriate cost structure. The magnitude of the decrease being 50% -- approximately 50% in Q4, obviously, increases the magnitude of that impact on the margin. And frankly speaking, in shorter time frames, there's a little bit more stickiness around some of those costs. So when we reference cost of goods sold as being over 90% variable. I would tell you, it's in the mid-80s, probably or maybe a hair under that in kind of a Q4 scenario where you're dealing with just the speed and the magnitude of that. So does that -- is that helpful?

That is.

And just referencing, I think, one, what you were trying to get at around April and May, I think what we've seen is that retail demand in the April -- late March and April time frame, how to shock down in that 20% to 30% range. And that it really was generally pretty solidified and kind of reached the base there and has climbed back a little bit from there and gotten a little bit more momentum. So it's not like it's accelerating down. And so I think that's where we think the market is today.

And your next question comes from the line of Tim Conder with Wells Fargo Securities.

And first of all, congrats to the whole team, continued a great execution throughout this whole mess. I wanted to just Wayne, just to make sure we heard that last statement that you made in response to Brett's question. So you're saying that you saw the, I guess, second derivative bottom the end of March, early April at retail, was that -- is that the correct way to interpret that?

Yes. I think from what we saw that you saw the deepest part in the kind of first half of -- the first half of April is what we saw. And it kind of held there for a little while, and you've seen it improving in the most recent couple of weeks.

Okay. And so are we yet on a year-over-year weekly basis, are we yet positive? Again, any color on that at retail?

No. No. Go ahead. No.

No. We're not seeing positive comps. I mean it's a -- look you have a small percentage of the dealers that are not open. You have a small -- you have some percentage of the dealers that have limited operations. So it is not positive at this time.

Okay. And on that front, any color, Jack or Wayne, whoever wants to take this, on what dealers are fully open, what dealers are partially open of the collective network of all the brands?

It's pretty intuitive. It's a state-by-state situation. You still have the dealers in California that -- in California, I would say, in Michigan are the least amount open. But then when you get in some of the southern states, other states, they're much more open. You had a scenario in Utah for a period of time, in which the dealerships could be open, but all the lakes were closed. So that didn't make a whole lot of sense. But you had a lot of different variables that were impacting the dealers. But I would say that probably today, they're still in that neighborhood of 20% to 25% that have some constraints on being open.

Okay. And then along that line, Jack, it sounds like it's probably going to go this way geographically. The dealers were they may be light or heavy on inventory? And then, I guess, in relation to that oil patch, can you comment on how the oil patch is doing from what you're seeing so far in the U.S. and then in Western Canada?

Yes. Tim, as you know, I grew up in the oil patch. I spent the first 24 years of my life in Odessa. So I'm very well versed in that. We have to drive 3 hours to get to a lake in West Texas. So I think the number of customers that are being impacted in the oil patch, except for Canada, I will note that, pretty minimal. But at the same time, when you have a negative you always have a positive. So you have dealers across the rest of the nation that are being able to stay in to those potential boat buyers that your fuel costs are going to be less than half they were if you would have bought a boat last summer. So I look at things that, yes, you have some negative impacts maybe as it relates to the economy in the oil patches, but you have some very positive economic draws that are affecting a lot of other parts of the country.

So specifically, Texas, how is that doing, Jack? And...

And yes. Texas is very diverse. Texas is easily, probably the most prolific economic engine in the nation because of their diversity. So when you get into the Dallas, San Antonio, Austin, Houston, Marcus, they're not nearly impacted with oil and gas prices in Houston a little bit more so. But even through previous crisis -- crises rather, Texas has been a tower. We saw during the great recession that as we were coming out of that, Texas actually went from #3 to #1. And you have some oil and gas phenomenons going on at that time. So what we're seeing is that Texas continues to be very strong, and our dealers continue to be very strong in terms of our overall dealer base.

And your next question comes from the line of Mike Swartz with SunTrust.

Just to start, Wayne, with your commentary on fourth quarter revenue down 50%. I'm just trying to foot that with your commentary on production rates coming back to pre COVID levels when you've restarted. If I just do the straight math, it seems like that would inclined more down in the 30s, maybe even low 40s. But is I guess is April that much more of a production base than May, June? Is that why it does skew a little down a little further?

No. It -- look, it can be a little bit, but really, you got to go back to some of the comments that Jack was making about retail demand and boats that are needing to be delivered before Memorial Day. So we came back and we may be running Fridays to get those boats out to make sure those folks have their boat before Memorial Day and frankly, we may idle a factory after Memorial Day week or for Memorial Day week because we're going to run it hard to make sure we deliver to those customers and we typically bleed down that number or that throughput in the latter part of June or in the June time frame. So ultimately, it's really the combination of those types of factors. If you look at when Pursuit started up as opposed to Malibu that's a couple of week difference. You look at how we're managing the factory dynamically to make sure we're delivering and converting those contracted sales into earnings for us and our dealers. We're just trying to optimize that, and that's why you see a little bit of a difference in those numbers.

And then Just comments -- just sticking with some of your comments on meeting the retail sold inventory and really, for the time being, not really putting anything into dealers' inventory, I guess, you've likely done the analysis. What level of demand would you start to have more concern that maybe you're under inventory going into maybe June or July.

Yes. It really -- that's why I say that we're a little bit of an unknown territory market. It depends on what we see the rest of May in June. As states open back up, could that happen as we get into a model year '21 depending on hard this comes back, absolutely. If you think about it in terms of the amount of time that -- and I just speak of Malibu and you can extrapolate it to the other companies, the amount of time that Malibu is shut down, and we're coming back and we're building retail sold boats almost exclusively. What that's going to do with the retail sales that are going to happen for the 6-week period of time, there's going to be well over 1,000 boats taken out of the channel. So we think that we were in pretty good shape from an inventory standpoint before the shutdown. And when you take that into account as well, we feel pretty good if we have any level of comeback.

Yes. And Mike, we've modeled an immense array of potential outcomes here. And ultimately, I think what you hear from us and what our plan for Q4 is primarily focused on is making sure that the balance -- we think we're striking the right balance in terms of the balance of factors of -- if this were to go at different direction and a little bit further south. And so I think we are monitoring very aggressively what's happening at -- in that in terms of that true retail activity, not just the delivery of the boats that are under contract, but the new conversions to give us as much information as possible to react. There's plenty of inventory, right? We are a seasonal business, our dealers were prepared heading into the season for a larger year. And so we believe that we're striking that balance correctly and the chances that they're going to be meaningfully under inventoried or probably pretty low, and it's a little bit of defense to make sure if it goes other direction, you're not just chasing it for a longer period of time.

(Operator Instructions)

And your next question will come from the line of Joe Altobello with Raymond James.

Hopefully, you're all. Wanted to kind of follow-up on Mike's question regarding manufacturing. With you guys resuming production in April and now into May, what kind of capacity utilization are you guys operating at in May and June?

Well, at least through Memorial Day week, where operating at the same capacity utilization we were in March and February, we came back at the same production rates.

Okay. Okay. But no shipments until June, you mentioned, right?

Well, retail shipments, I mean, we are shipping to dealers today. If we're building 22 boats a day, then 22 boats, we'll go out to dealers, but they are retail sold boats. So the way to think about that is that all of the boats that we're building have a customer name on them. So we're not putting -- we're putting relatively few or no boats in the channel inventory for dealers to hold this stock.

Okay. That's helpful. And then just to follow-up on that. You mentioned earlier some 3 votes coming out on the Malibu side in June and obviously, the new Pursuit boat coming out. It doesn't sound like this is impacting your plans for model year '21 at all. So I'm curious, have you heard any pushback from dealers yet? Or it sounds like it's full speed ahead for model year '21?

The dealers want new boats. And just a minor correction, the 3 new boats are coming out in Cobalt. So Cobalt will have 3 new boats coming out this summer, Malibu will have 4 new boats. We are on an aggressive plan with Pursuit, and that will all continue. But in terms of -- dealers are always anxious to have new product, especially for a new model year, and so we'll continue to give them that.

And there are no further questions.

Okay. Thank you very much. In summary of our quarter, we delivered strong operating margin performance despite experiencing unforeseen and unprecedented headwinds as a result of the COVID-19 pandemic. It's impressive and should inspire investor confidence that we were able to close production for 7 days in the quarter, continue to pay employees and benefits, and still generate a 20% EBITDA margin in Q3. We talk a lot about our people being our number 1 asset, and we demonstrated it by taking care of them, paying them, continuing to cover their benefits and bringing 100% of them back to work when it was prudent. We assisted our dealers. We believe better than any other marine manufacturer in getting educated and receiving the limited PPP funds. We have restarted production and are focused on prudently managing our production and delivering outstanding boats to our customers.

Our core business strategy remains unchanged as we focus on enhancing our brands and market share during this period. Our vertical integration strategy and variable cost structure is a differentiator in this environment. We have taken swift action and enhance to -- to enhance our financial flexibility and liquidity, and our balance sheet is strong enough to weather any storm. And finally, the experience of our leadership team, combined with our industry-leading operational execution will enable Malibu to emerge as a stronger company. 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 fantastic day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.