Q1 2021 Malibu Boats Inc Earnings Call
Discussed first quarter fiscal year 2021 result.
At this time, all participants are listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
Please be advised that reproduction of this call it a whole or in part is not permitted without written authorization.
Malibu boats and as a reminder, the closing recorded.
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 first quarter financials.
Well then open the call for questions a press release covering the Companys fiscal first quarter 2021 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 Sac.
Factors that might affect future results are discussed in our filings with the FCC 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 todays 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 for initial commentary.
Thank you Wayne and thanks to all of you for joining the call.
Our team delivered phenomenal first quarter fiscal results that exceeded expectations. We saw strong market at retail continued as well as a fantastic margin quarter in what is usually our lowest margin quarter of the year.
This was driven by customer desire for larger boats, an insatiable demand for features and options the impact of our vertical integration strategy and flawless execution of our operational excellence initiatives ARPU.
Our performance this quarter underscores the strength of our premium brand lineup and our leadership in the market.
For fiscal Q1, we delivered net sales gross profit and adjusted EBITDA year over year growth.
Net sales increased 5% to $181 million gross margin increased 210 basis points to 25.3%.
Adjusted EBITDA increased 28% over $36 million and adjusted EBITDA margin increased 360 basis points to 20.1%.
This is an achievement in Q1 as we work to meet our long term target of a 20% adjusted EBITDA margin annually never in the history of our company that we achieved a 20% adjusted EBITDA margin in the first quarter.
But its continued outperformance in an incredibly volatile operating environment serves as a testament to our competitive leadership strong and agile team market, leading brands and unmatched vertical integration capabilities. This foundation has enabled us to consistently drive substantial value for our shareholders.
We have pride in being a growth company that masters the top and bottom line last week. It was announced in fortunes ranking of the 100 fastest growing companies that Malibu is now number 12.
Two years ago, we were number 77 in last year Malibu as number 28, we're very proud of this distinctive achievement.
Providing color to the quarter in more detail new consumers and lifelong enthusiasts have continued to discover Malibu is why not the premium brands and the demand continues to be historic levels beyond what we had anticipated for the fall.
All of our brands continue to see strong demand and it is stronger than it normally is this time of year.
Last week I visited dealers in the largest market area and the nation for Malibu and axis as of the 27th of October and I guess the October 2019 unit sales were up over 150% for that either right.
Revenue was up over last October by over 200% in ASP per unit was up by 20%.
But telling comment was this dealer has never seen customers put so many features and upgrades on boats before.
From our view of the retail landscape, we are seeing more retail customer orders than we normally would at this time of year because channel inventories are very low.
In a normal year, we would be seeing approximately 70% of our orders the dealer stocking orders, but the demand has customer orders and dealer stocking orders equal if not slightly weighted to customer orders.
What a retail customer custom orders a boat they invariably select more features and options driving I guess be higher and adding significantly to the margin for both profile reasonably saw exceptional growth and adjusted EBITDA margins for the quarter.
Further discounting has been at a minimum given the historically low inventories well.
Well, we are seeing the strong demand over the last few weeks. We have also seen inventories at our dealers begin to build the.
The trough and available for sale channel inventories was reached the week of September 4th since that weak we have seen channel inventories increase at Malibu.
And that cobalt, but we all must realize that growth is all this growth is off a seasonally low base of channel inventory.
Schumer increases had been seeing the perceived as well now this is good to see higher.
However, the weeks on hand inventory is still significantly down double digit weeks versus what is normal this time of year and our belief is that it will take a model year 2022 to normalize.
In all of our brands, we have not Miss shipping one boat, we had planned to ship this.
This is a function of our planning and operational excellence. It has allowed us to maximize our operations to ramp up production quickly we've increased both count at Malibu and we have added unplanned production Fridays at all of our brands.
Today every brand is ahead of its unit volume plan.
I will do in pursuit or ahead of plan dealers and unit shipments last year Cobalt is ahead of planned units.
Our unit shipments are less than last year. This was intentional due to three reasons first as I will discuss in a moment. We are in the final phase of our three phase expansion and improvement project in COBOL you.
It was during fiscal Q1 that the biggest impact on production would be experience and as we navigated the project and production occurring in the same area of the plan.
We were still able to ship more than plan secondly, introducing and integrating three brand new boats in the quarter for the very first time and cobalt history wasn't adjustment and we plan for that accordingly.
Lastly, as expected our suppliers continue to ramp production in a post covenant environment to meet unprecedented demand levels, we have navigated well through this and have experienced no shortages that have impacted our production and our plans look.
Looking to the future for cobalt the investment in the project and the new product will pay dividends, while we fully expect to be ahead of plan cobalt volume will not see a year over year gain until the second half of the year as we begin increasing production jobs at that time.
The recently released full year trailing 12 month market share data from ESA has confirmed what we discussed last quarter. We gained significant market share as a reminder, the quarterly data is much more matured and its Indian is as complete as possible, which is why we focus on this data versus the monthly data.
For our Malibu and Axis brands. The June trailing 12 month market share increased 210 basis points to just under 33%.
One of the three performed at one out of every three performance sports boat sold into U.S. in the Malibu and Axis, we took share from almost all of our top five competitors. Additionally, 83.8% of our dealers are number one or number two in market share in their markets and 60% of all of our dealers increased their share.
Marking an extraordinary level of share increase bird dealers.
Cobalt also improved its share during the trailing 12 month period and that Sterndrive market.
In the outboard segments cobalt has continued to gain share as well with our plan to introduce four new outboard boats over the next 15 months, our outboard market share should continue to grow.
We introduced three new boats in the first fiscal quarter and three more boats will be introduced in fiscal Q2.
We firmly believe that all of this new product will continue to drive growth in market share and COBOL for both the sterndrive market and the outboard market.
Finally pursue continues to perform well with a strong market share position in this competitive set of the salt water outboard segment and that is our additional capacity drives further growth, we expect that share to increase over time.
Our product development engine has continued at a fast pace, introducing new both that exemplify innovation and attract new customers into the lifestyle. Our teams are pushing the boundaries everyday bringing luxury and innovation together and groundbreaking new boats.
For Malibu, our flagship M 40, which is just entering its second year is outpacing our expectations.
Leaving our model year 2021, new product is the recently introduced into 2024, MMC 23, LSV and Axis, a 24, which are all larger both to continue to drive new business and higher margins.
All of our models for Malibu and Axis are powered by our best in class Malibu monsoon engines.
Further these new models are equipped with several of our patented technologies, including our integrated surf platform featuring surf gate are starting to turn technology and our proprietary power wedge three.
For cobalt our momentum is carrying into 2021 as we are expanding the product portfolio as well as our production capabilities.
As I mentioned, we have already introduced three new model year 2021 boats. The our six standard the arssix outboard and the our age standard all of which have a higher Hsp, then predecessor, Bose and better margin profiles.
Pursued is on pace to introduce a new boat per quarter throughout the model year pursues new EPS for 28, our largest most luxurious boat yet is already in high demand as this new boat is the epitome of functionality innovation and luxury.
Our new 180000 square foot plan allows us to build this new model that pursuit in Florida and replaces the contract Gulf predecessor, EPS for late model that was built in Michigan.
The margin profile on this boat and the EPS 378 doubles by building these boats in house that per se.
Since June the new pursuit plant has been producing the EPS for 28, and our new S 378, as well as other large boat models as we continue to fine tune the plant operations and prepare for increasing production.
Similarly, cobalt is in its final phase of its three phased capacity expansion and lamination, Joe could optimization project.
The first two phases the expansion of our cruiser plant and the expansion of our small boat plant are complete the third phase the expansion and complete updating of our lamination and Joe code areas will be completed by the end of fiscal third quarter.
We are following the same recipe as we did at Malibu in 2012, it greatly improved efficiency quality and work environment quality.
Cumulatively. These three phases will allow us to increase the production of cruisers and small boats by approximately 40% over what we're building today.
This will set us up to take additional market share.
As we have said before we're infusing our proven Malibu model into our cobalt in pursuit brands and we continue to move the needle as our operational excellence initiatives further permeate all of our brands.
Moving to our operational excellence initiatives, our unparalleled vertical integration strategy continues to be a competitive advantage across all of our brands and the catalyst for driving continued growth and profitability.
Vertical integration strategy allows our teams to control products or features.
All the way from conception through customer delivery.
In fact, our team controls up to 25000 more of our material costs in a malibu or axis boat than our competitors in.
In a normal environment. This provides control of the entire supply chain better efficiency, better quality and lower cost through the elimination of middleman margin.
In the end the cobot environment. This spring it is because of vertical integration that we successfully executed as we went from full shutdown mode to unprecedented demand levels without skipping a beat while at the same time delivering record fiscal first quarter adjusted EBITDA margins.
Investment in our vertical integration initiatives, not only drives profitability been unlocked maximum value from our product portfolio.
Our patented swim step features that originated with cobalt is now being utilized throughout the Malibu models and Malibu is flooring in vertical integration initiative has been expanded to cobalt and will eventually be provided to pursue.
Developing our cross brand integration, we are confident in our ability to generate new synergies across the brands in fiscal year 2021, and beyond as we also continue to identify and bring external products and processes in house from external suppliers.
We remain committed to our growth strategy and our four platforms first we will continue to drive innovation and be the first to market with compelling new products and features second we remain relentless in our pursuit of product and distribution white spaces as we aim to expand our distribution footprint in those areas, where we do not currently have a presence.
Our vertical integration strategy will continue to be a strong competitive advantage for Malibu.
And finally, the strategic acquisition strategy, a premium companies that we know that we can improve remains a focus.
For us it is all about the asset not the cycle. We're in when the next great asset comes to market, we're going to be there to acquire and integrated into Malibu and grow it even further.
Looking ahead to full fiscal year 2021, we're positioned as if we are the first in line at an all you need buffet.
2021 should be a fantastic year and well ahead of our expectations that said, we are watching a couple of fronts that could inhibit us from realizing the full opportunity for fiscal 2021.
I want to make this very clear that outside of the big impact we do not foresee we have built these potential headwinds into our outlook that Wayne will discuss.
To be more specific we don't know what coven environment will be.
But we do not expect an impact near the magnitude of spring 2020.
We are also much better prepared today than in March when everyone was blindsided by the pandemic.
All of our plants are essential businesses in their states, we have CBC processes and protocols in place and functioning at our plants and we are in a constant state of monitoring and risk mitigation.
Secondly in the last few weeks, we have seen some tightening within our supply chain.
It is important to understand what this means.
We have not missed building and shipping one boat.
Being operationally excellent we know that our mission is to build Bose and not being able to build both hurts our margins and profitability much much more than saying, we kept our inventory low.
This practice of investing in inventory ensure that we had parts and supplies in April and May build both at the same daily rate of what we were building in March when we shut our plants no. Other manufacturer, we know is able to do that.
Here is the impact of a tightening supply chain as we see it today Im Malibu.
We could build more boats today, but we are seeing suppliers small and large pressing to supply component parts.
This is a function of their own tobin impacts and the unprecedented demand they are facing.
We must modulate our pace of what they can sustain this.
This is the bottleneck of building more boasts today however.
However, we also expect this constriction to mitigate over the next few months like us our suppliers now recognize the incredible demand and are making plans and taking action to supply that demand rugs.
Regardless of these two dynamics, we are watching we believe the outlook. We will share with you is eminently attainable because we have built in potential negative impacts.
At the problems in the supply chain resolve we remain uniquely positioned in the marketplace given our strategic investment in our operational excellence initiatives, our strategic planning capabilities and our vertical integration strategy.
This has enabled us to remain resilient quickly overcoming many of the issues. Our competitors are facing due to those operational issues out of their control or as a result of their lack of planning and excellence.
Given our incredibly strong start to fiscal year 2021, we believe we will deliver strong full year revenue growth and adjusted EBITDA margins margins.
I am incredibly proud of our team as we continue to navigate through one of the most volatile periods in history.
Our teams enduring commitment to being the best through operational excellence, the best products and the best distribution will enable us to continue to deliver on our strategic vision.
We have positioned ourselves to sustain long term competitive advantages that will result in market share gains and increased profitability and we are confident in our ability to deliver value to our shareholders well outperforming our peers to remain a leader in the industry.
I will now turn the call over to Wayne to take you through our financial performance in more detail.
Yes.
Thanks, Jack in the first quarter net sales increased 5.2% to $181 million and unit volume decreased 5.3% to 1635 boats.
This decrease was primarily driven by the decrease in unit volume in our cobalt segment, which Jack discussed offset by increases in our other brands the.
The Malibu and Axis brands represented approximately 63.1% of unit sales or 1031 boats cobalt represented 28% or 458 votes and pursuit made up the remaining 146 boats concern.
Consolidated net sales per unit increased 11.1% to approximately $110700, primarily driven by a favorable mix within all brands a higher mix of pursuit sales and an increase in optional features in our Malibu segment.
Gross profit increased 14.3% to $45.7 million and gross margin was 25.3%. This compares to a gross margin of 23.2% in the prior year period.
Selling and marketing expense decreased $1.5 million were 28.7% to $3.6 million in the first quarter 2021 compared to the 2022 period.
As a percentage of sales selling and marketing expense decreased 90 basis points.
General and administrative expenses increased 9.2% or $1 million.
The increase was primarily driven by higher legal expenses related to intellectual property litigation.
As a percentage of sales GNS expenses, excluding amortization increased 30 basis points to 6.5%.
Net income for the quarter increased 32.1% to $22 million adjusted EBITDA for the quarter increased 28.0% to $36.3 million and adjusted EBITDA margin increased 360 basis points to 20.1%.
Non-GAAP adjusted fully distributed net income per share increased 36.1% to $1.13 cents per share. This.
This is calculated using a normalized C corp tax rate of 23.6% any fully distributed weighted average share count of approximately 21.5 million shares.
For reconciliation.
Of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics. Please see the tables in our earnings release.
Our operating cash flow in the quarter approached $33 million and we used a portion of this cash to repay all outstanding amounts under our revolving credit facility.
At quarter end, we continued to maintain a $75 million term loan and over $52 million in cash positioning us well to continue to deploy capital in high return strategic investments.
Like our successful vertical integration initiatives and strategic accretive acquisitions.
As Jack mentioned, we are anticipating a strong year for fiscal 2021 that said, we remain acutely aware of the uncertainty related to the COVID-19, pandemic and have factored potential downside risks, including in the supply chain into our outlook. Despite this we believe.
We will deliver strong full year revenue growth of approximately 20% driven.
Driven by robust mid to high single digit percentage growth in net revenue per unit.
Vietnam for the risks associated with managing through a pandemic, our volume expectations would be meaningfully higher we.
We continue to work plans to produce more volume, giving upside potential to this outlook and we will work diligently to execute if the opportunity presents.
We believe full year fiscal 2021, adjusted EBITDA margins will approach, 20% we.
We have highlighted in the past our investments and efforts to achieve 20% adjusted EBITDA margins and believe we are nearly there specifically we continue to see positive impacts from our engine vertical integration initiative that Malibu and more recently the startup of our new pursuit factory.
With respect to cadence for fiscal year 2021, we believe our fiscal second quarter, we'll have some similarity to our first quarter performance, specifically, we expect volume to be down modestly as we manage supply chain risks.
We believe margin improvement in Q2 year over year will be strong, but meaningfully less than in Q1, where we saw the benefit of specific seasonal event driven cost reductions.
Additionally, we have begun again to invest in the business to support continued rapid growth and expansion.
What's that had been previously put on hold and are now restart.
In closing our team continues to deliver strong results and exceed expectations. Despite the volatile operating environment by.
By relying on our operational excellence improve and vertical integration strategy, we experienced increased market share gains and profitability further securing our position as leaders in the industry. We remain optimistic as we successfully navigate the uncertain economic environment and are confident that we're in an excellent position to maintain our momentum going forward.
With that I'd like to open the call for questions.
Ladies and gentlemen, if you have a question at this time Please press star.
On the one key on the telephone.
Again Thats star one.
Ask your question.
Your first question comes from Craig Kennison with Baird. Your line is open.
Hey, good morning, Thanks for taking my question Wayne just risk with respect to your guidance you just made the comment on Q2, which is really helpful. In terms of cadence I'm wondering from from a full year standpoint, when we think about 20% revenue growth.
Can you give us a rough approximation of the ASP and volume contribution there.
Yeah, I mean it was.
It was a mid to high single digit percentage growth rate on SP.
Got it thank you and then.
With respect to your supply chain issue that you mentioned just give us a feel for how many different vendors you work with to build the boat I'm sure. It's a large number but to an approximate that.
In terms of the number of park, yes, I mean, there's thousands of parts that go into about now in terms of cross vendors.
We can go to a lot more in terms of the parts said as the number as opposed to the vendors, but I mean, you're talking about hundreds of vendors again that are going into each boat.
Thanks, and then lastly, just.
You guys have been able to gain share very nicely I know you've also been able to add dealers over time is it a difficult time to add dealers given the challenges you face stocking your existing dealer base.
Yes, that's one area and pursued is a great example of that Craig where.
We were in a different environment, we'd be adding dealers more quickly on pursuit.
We're very focused on doing everything that we can to get adequate inventory as soon as possible through our existing dealers and then after that adding dealers. So.
Going back to pursue for second we would be adding dealers more with more velocity today. If we were not in this environment, but I do expect that to see that as we get more toward the end of model year 21.
The 22.
Great. Thank you.
Thank you and our next question comes from the line of Brett Andress.
With Keybanc your line is open.
Hi, good morning.
Just a little more color on the supply chain. So clearly some things popping up the last few weeks, but but where specifically are you seeing the pressure and you mentioned this lasting the next.
[music] month, but is this a situation that.
Maybe gets worse before it gets better or are we actually rounding the corner on this.
In my opinion, we're rounding the corner.
And I do want to differentiate our messaging from maybe some of the other messaging that will come out across apparel sports industry.
And I reiterate that we have not lost one planned unit that we would plan to ship and.
We do not expect that to occur.
So more than anything what Wayne is telegraphing here is that we're going to see some impact in the second quarter from the standpoint of we might go up in Cal.
All of the plans, but but were limited to that until the third quarter, but it is getting better.
They are looking at it this way there six months out of the cobot environment, So they're able to react they know what the demand is now and we are slowly starting to see it get better and we expect that to continue.
Yeah and.
Thing that I'd add is.
Brett in terms of how we just manage the business and production. The what we don't want to be doing is making step function moves in throughput that are putting too much stress because if something rears. Its head unit. That's the type of thing that wreaks havoc on your production in boats that slows. The line down boats are set off to the side those types of things and.
And Thats, what we from an operational excellence perspective, one of the boys and so we give it a little bit of time to make sure that we can do it as effectively and efficiently as possible.
Got it Okay, and then Wayne just on the EBITDA margins in the path to 20%. This year can you help bridge us to maybe how much is falling.
Volume driven how much is a SP option uptake how much its fixed cost leverage because I'm, assuming it's a mixture of all that.
But but how much maybe have the supply chain pressures how much of that holding back on the 20% also.
Yeah, I don't think that supply chain is holding that back I. What I would say is yes look the Q1 was a little bit higher than than we had anticipated.
And that's a positive.
But but ultimately I think it's really meet the vast majority of it is us harvesting.
Thats events that we've made over the past couple of years and so you obviously have a little bit of leverage in there, but Andrew I think the good in the bad of the variable cost structure is you get less of that leverage on the way up and benefited and.
The way down it behaves in a similar manner like we saw in our fiscal.
Q4.
So a lot less of that a lot more of harvesting ended the rewards and the returns on our investments and then you've got a little bit of impact coming from additional option it take but but but I think the primary driver is kind of our prior investments.
All right. Thank you.
Thank you and our next.
Question comes from Joe Altobello with Raymond James Your line is open.
Hey, guys good morning.
First question. Good morning, obviously, we're certainly not going to know what retail looks like next year until next year, but.
Well your dealers feeling about potential growth in cash.
Alan for 21 off of a pretty pretty strong calendar 20 are they gearing up for another strong year from an inventory standpoint.
Yes, they are and talking to dealers. They very much are there their focus right now is they would love to have more inventory.
And as I mentioned in October what we're seeing is that the that demand continues to be very strong from the retail consumer. So I think the majority of our dealers absolutely feel like the 2021 is going to be very strong and 2022 will be very strong as well.
Got it and just just a follow up.
The other question.
Likely to administration.
Demand next year in terms of tax rate.
Okay. Thanks.
No you know where were at today, we still have an election has been called so we don't know for sure know what the executive branch will hold but to me that's not as important as as having a scenario where you the legislative branch and the executive branch maybe in different parties. So what what we see today.
You look it looks like that the Senate will continue to be held by the Republicans. They have also picked up congressional seats and everything that I'm hearing even people that I'm talking to that we're planning to sell a business or they have some sort of a tax scenario that they've got to look at they don't believe that the tax impact will be.
His nearly as likely to occur so I think from that standpoint, we all feel better.
Okay, great. Thank you guys.
Thank you and our next question comes from Mike Swartz with Securities. Your line is open.
Yeah, Hey, good morning, guys.
Just wanted to talk about the inventory situation out there and I think.
I mean on the last call you indicated that you were about 1000 unit shorts, where you wanted to be with field inventory could you maybe provide us an update of where you are today and maybe how that's how that's changed your thinking about when you'll actually be able to get back to equal out.
Yeah equilibrium in the in the retail channel.
Yeah.
You really you that's strength at retail has has really continued and so given what we did get wholesale from a volume perspective.
Jack quoted some percentages in terms of what those are you in.
Inventories are up since the trough, but but but really thats a seasonably weak the percentages overstate because the denominator is actually really low and and ultimately I don't think weve made a dent into that thousand you in in any way shape or form.
There might be a little noise around that number but it but the short of it is.
Yes, we don't expect to have that an equilibrium out until.
Into fiscal 2022.
Okay. Okay. That's helpful. And then just in terms of Jakone, you've talked about the longer range EBITDA targets.
20%.
And I think even 20% in each brand I guess your guidance is now implying you're getting back close to that.
Presumably if you don't have any more supply chain challenges, maybe even upside to that this year. So I guess, how how do you reassess that that target over the long term and maybe how do you balance that with your your obvious.
It's interesting in growing market share.
We're ahead of the we're ahead of the curve. So what we've said is that within the next three years or so we will be at that 20% cumulative MB EBITDA margin and so were ahead of that clearly if we if we achieve the 20%.
EBITDA margin in the first quarter. We are ahead of that so.
So I think that it's going to come quicker bar.
Barring any unforeseen scenario.
[music].
For me the decision is not around do you get to that.
With that margin level, and you lose market share increase market share there, they're not necessarily tied to each other because of the way that we go about it.
If you're dealing with a scenario where the only way you can generate the EBITDA margin is to raise your prices then you're going to impact market share we have the best value proposition.
Any of the competitors that we compete with almost across all of our brands. So it's not a price increase that gets us to the EBITDA margin.
What we've talked about a lot, which is vertical integration operational excellence the way that we plan.
I'll give you a perfect example of co that Mark you know, we telegraph and have conversations with our suppliers well well in advance. So that's part of the reason why we continue to invest in the inventory and in April and May when we open back up our plans our suppliers knew what our needs is going to be and we were able to open up.
Building the same number of both is when we closed our plans.
No other company that I know it was able to do that we're communicating and have been communicating with our suppliers for months and advanced where we plan to take production increases up can you support us in that and that's why we're supremely confident that if were modulating our production and we're working with our suppliers.
We can give the unit count increases we can get the EBITDA margins, we can get the gross margins that we expect to achieve this year, because we just simply plan strategically and tactically better than anyone else.
Okay, great. Thank you.
Thank you. Our next question is on more more than.
Ben.
Local.
Good morning, guys.
One question on the expense profile your sales and marketing was a bit lower year over year, which I'm assuming is driven by less shows another branding event. So how much marketing necessary. This year since demand remains strong and how will ramp once the event environment gets back to normal.
Well I think it's a redeployment of those dollars. We what we're hearing is more and more of the boat shows are not going to go forward and I expect that by the time, It's all said and done it will be somewhere between 10, and 50% actually occur we're redeploying those dollars and we're putting it into more debt.
Total.
Virtual boat show concepts a lot of events at dealers and so I don't see a great decrease, but it's going to be a redeployment I also think that our.
Environment around boat shows and what generally would go on in the spring is in the process of changing and I'm not saying that boat shows are going to go away, but I do think that what is occurring is what we're going to see a hybrid model in coming years, and it's going to be a little bit different we've seen the impact of boat shows.
Over the last call. It five to 10 years dissipate slightly and there are other venues and I think that the culture is changing so it becomes more of how are we going to use those marketing dollars versus plowing them all into one or two.
Particular event.
Okay. That's helpful and then second despite the stock being cheap you've got high cash generation and there's still availability under the buyback off we didn't see any repurchases in Q1. So I guess a couple of points on that why not buyback more stock are you seeing more accretive M&A opportunities out there and can you discuss that pipeline at all.
Yes, I think with coming out of Kogan, there is more activity it really hit tap down from an M&A point of view during the current crisis and I think just people trying to figure out where they are going to get their footing.
We are starting to hear a little bit more out there and right now I'd put it this way no one we have.
It's a low stock price, but is still you know in the fiftys or so so we're looking at that and we're looking at the best time to potentially make a repurchase but secondly, and more importantly, I think is we want to be very very prepared when the next great asset comes to market and we've said this before but we've looked at over 30 companies since 2004.
And when we did our IPO and two companies have made the cup kobalt in pursuit.
And so we want to continue to be very very focused on getting the right assets, but when it comes to market, we want to be ready at that point in time to do that so as the market begins to heat up we're going to be on the standby ready to make that acquisition. If the right one comes along.
Understood. Thank you guys.
Thank you and our next question comes from Gary Johnson with BMO capital markets. Your line is open.
Hey, good morning. Thank you I have two here first if we could go a little bit more deeply into the advantage of vertical integration.
And then sticking with you we're towboat business.
How many fewer suppliers can rely on compared to say your nearest competitor.
The first one and then second Wayne if you could just go through the components of gross margin 200 basis point increase.
What are the good guys and bad guys. If you could discuss you know scale free promos input labor costs warranty things like that thank you.
So on your first question when can take the second question, but on the first question. You know again, we don't really look at a number of suppliers. We looked at a number of parts and I would say that this is a pure guess because we've not looked at it. This way I would say easily there's 50 more than 100 part.
Think about stainless and bill and items like that.
We have brought in house over the point in time versus our competition. The way we look at and I think this is an important way to look at it is that we control 25% more of the cost of our both Malibu and axis than do our competition because of our vertical integration. So we control the concept we control the design.
Slot chain the pricing that comes within the supply chain and then ultimately the production of the components that allow us to make both and that's what gives us an incredible advantage.
Awesome.
Yes.
So with with respect to gross margin the number one driver of that expansion is what we.
We have achieved pursuit.
Yeah. So we do the new plant coming online.
And and getting rid of contract build and producing more stuff ourselves is the number one driver that expansion.
I would then you to point to a couple of things that are.
Yes benefits one is that we had higher part sales so boat usage, which is a good profit, which is a strong predictors of future boat sales.
I would point out, but but boat usage has been off the charts and so part sales.
They had had a little bit of an impact. There you also if you recall last year in our first fiscal quarter. We had a labor day sales event that was kind of abnormal that yet that's a little bit of a.
Drug that margin down a little bit all of these components that opinion and you also have a little bit of benefit on the engine vertical integration initiative at Malibu and those are all kind of about equal, but less than what we've achieved a pursuit that all is a little bit offset we'd be at the competitive.
Labor environment, where we've we've raised some wages to make sure that.
We can meet demand.
Probably offset that a little bit, but those are the primary components and kind of order of magnitude.
Great. Thank you Wayne Thanks, Jack.
Thank you Yep. Thanks, Gary.
Ladies and gentlemen, I'm not showing any further questions at this time I would like to turn the call back to Jack Springer for any closing remarks.
Thank you very much in.
In summary of the quarter, we entered 2021 delivering unparalleled results for the first fiscal quarter.
We continue to extend our leadership position with strong market share gains our teams continue to push boundaries through the introduction of new product models that exemplify innovation in luxury and draws customers into the Malibu cobalt and pursue lifestyle.
Our strategic planning operational excellence and supply chain management continues to support our outperformance of the broader industry.
Our vertical integration has enabled us to remain resilient quickly dodging and overcoming many of the issues at our competitors the phase.
We are managing through modest headwinds for the fiscal year and expect to deliver strong earnings and adjusted EBITDA growth.
And given our extraordinary start to the year, we remain confident in our ability to deliver value to our shareholders well outperforming peers to solidifying our dominant industry position.
As always we thank you for your continued support and for joining us in our journey towards growth and continued excellence I Hope you and those around you were all staying safe and healthy have a fantastic.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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