Q2 2021 Malibu Boats Inc Earnings Call
[music].
Okay.
And good morning, and welcome to the Malibu boats conference call to discuss second quarter fiscal year, 'twenty 'twenty, one and the results and this time all participants are in listen only mode.
Later, we will conduct the question and answer session and.
Instructions will follow at that time.
Please be advised that the fab production of this call he and the who are in part is not permitted without read and authorization of.
All of the Blue books and.
As a reminder, this call is being recorded.
On the call today from management are and Mr. Jack Springer Chief Executive Officer.
Mr. Wayne Wilson, Chief Financial Officer, and Mr. Ritchie Anderson, Chief operating officer, and I'll turn the call over to Mr. Wilson to get started.
Please go ahead true.
Thank you and good morning, everyone on.
On the call Jack will provide commentary on the business and I will discuss our second quarter financials. We will then open the call for questions.
A press release covering the Companys fiscal second 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 on.
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.
And that actual results could differ materially from those projected on today's call and 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 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.
You Wayne and thank you for joining the call our team posted the incredible fiscal second quarter results once again exceeding expectations and leveraging the strong retail environment and our previous planning and preparation of our COVID-19, we significantly performed ahead of planned sales, we delivered exceptional gross margins and realize historic adjusted EBITDA results.
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Our results and view into the second half supports an increase and our full year fiscal 'twenty, one guidance and we will outline of this on the call cut.
Customer interest and new boats and demand for larger boats with upgraded features and options remains very strong our backlog of orders is historic for all of our brands.
Asps are increasing vertical integration strength is being realized with unparalleled execution and we yielded in the 320 basis point year over year improvement and gross margins for the quarter.
This exemplary performance during the quarter further solidifies our position as the trailblazer and the innovator and the marine space as well as demonstrating our ability to adapt and grow and the current environment.
For the second fiscal quarter, we delivered net sales gross profit and adjusted EBITDA year over year growth net sales increased nearly 9% to $196 million gross margin increased to 25, 3%.
Adjusted EBITDA increased approximately 28% over $39 million and adjusted EBITDA margin increased 300 basis points to 20%.
As you know we've had of long term target of 20% adjusted EBITDA margin annually and as you will see from our revised full fiscal year guidance. We are well ahead of schedule and will be there this year for the full fiscal year.
Our strong employee first culture continues to be of clear competitive advantage and Malibu and I'm very proud to say that in January we hit over 5 million man hours without a lost time accident, a nearly unheard of level that illustrates our commitment to protecting and supporting the wellbeing of our workforce the.
The last lost time accident and we experience was in June of 2016, which means we have experienced over four and the half years without a lost time accident and Malibu.
This is a fantastic achievement for our entire of Malibu team. We also welcomed Maverick boat group as the new acquisition at the end of the fiscal second quarter Maverick brings the complementary lineup of premium brands, which are cobia, Pathfinder Maverick and Hughes to the Malibu family.
And B G has distinguished our reputation and significantly enhances our breath of saltwater outboard offerings of which cobia and pathfinder are highly complementary of the pursuit.
The addition of Maverick allows us to better serve the full saltwater outboard segment with our brands and we now have a full length and price range of product in the center console and dual console segments and we immediately entered the bay boats segment with Pathfinder and the flats boat market with Maverick and Hughes. We believe this provides a tremendous opportunity for <unk>.
Increased growth and profitability.
Turning to the retail landscape the thirst for boats remains very strong even during what is historically of slower season and October through December periods.
Our dealers have remained agile and this more virtual environment and as a result, we are seeing on on an unprecedented increase in customer generated custom orders.
Actually for more than a decade.
Alright annually now for more than a decade, we have conducted the year end sales event in November and December the year himself and provides the best deals of the year, because the customer even better and the boat shows the.
And the strength of this program has steadily grown over the last decade, and it's the premier selling event for the Malibu and axis brands it.
It was very important to continue this event in 'twenty and 'twenty for continuity and the offset lost boat shows due.
Due to the low aged inventory and lack of discounting. The program was modified this year and discounting was lower than in previous years.
This year the year and sales event was an astronomical success. This is hard to believe but orders for Malibu and axis boats during the year and sales event.
Ceded the number of orders received from last year's year and sales event and boat shows combined.
This back and also applies for the to the 2018 combination of your.
Your year end sales event and boat shows. This is the staggering statistic thing as boat shows the historically been viewed as a vital factor to the health of the boating industry.
To put this into perspective over one third of a full year's worth of unit sales and production was put under contract at retail and just over 30 days.
As we anticipated boat shows will predominantly not occur and winter 2021, most of the larger shows or cancelled however, due to the strong retail environment and the extremely successful union sales event for Malibu and axis, we see no impact to us and garnering orders for 'twenty and 'twenty one.
As I mentioned last quarter all of our brands, we're challenged to replace boat shows and we believe as soon as we believe the most of them will be cancelled or.
Our brands have done a great job and working with dealers and planning on site and other events more progressively Malibu and axis develop the state of the art virtual boat show and dealer solution.
Not only can of customer at the end of the local virtual boat show. It also spotlights the specific the boats at the dealer location and allows the customer and see all of the features and the experience walking through the boat virtually.
This is not of generic boat model on the website. This is the actual boat at the local dealership no. One else has this or even close to it that we know of this should provide and unmatched customer experience.
During the second quarter of large percentage of dealer commitments were filled with retail sold orders compared to the normal environment for this time of year, which is roughly a 50 50 split between retail sold and the inventory restocking orders for.
Further as customers place kind of some orders they are ordering larger boats commanding higher margins and invariably selecting additional features and options driving asp's up and contributing to the margin profile of per boat.
This is a contributor to our fantastic growth and adjusted EBITDA margins for the quarter and we expect this to continue Chad.
Channel inventories are building, but at a slower pace and we had initially anticipated due to the strong retail demand.
As one would expect given the time of year, we did see channel inventories increase and the second quarter.
Based on available day day, though we expect the longer runway to normalized channel inventory and believe it will be into calendar year, 'twenty and 'twenty two before we see channel inventory equilibrium.
We view this as the great opportunity for our brands, which sustains our growth and keeps aged inventory very low, allowing dealers to have only the newest and most advanced models.
Throughout this period of unprecedented demand I am proud to say, we have been able to flow to fulfill every drop of demand with market, leading products, ensuring a long lasting sustainable and loyal consumer base, we have not missed shipping one scheduled both a testament to our operational excellence and strategic vision.
Our unified culture centered and operational excellence has allowed us to maximize our operations and ramp up production that of pay steadily ahead of our competition.
We have increased both counts and the students and the Institute and unplanned production Friday, you said all of our brands. We have built every boat we have planned to build and more.
In fact since the beginning of the fiscal year on July of Malibu has increased daily production rates of about 50% of cobalt has increased daily production rates by almost 20% and for fiscal year 2021 pursuit will produce 20, and 20% more boats and plan.
And the second half Malibu, cobalt and pursuit will ship nearly 20% more boats than in the first half of this year and about 35% more boats than last year.
For full year, 'twenty and 'twenty, one our unit shipments will be up mid to upper single digits for the year.
Specifically by brand Malibu has built and shipped 175 more units than planned this fiscal year and it will be the most and Malibu history, our dealers will be getting more boats and what any of our competitors will be able to deliver.
Of Pasadena sufficient to grow wholesale production and in fiscal year, 'twenty and 'twenty. Two we will have the capability of the build 5000 and boats are more for domestic demand based on our current market share that would project to the domestic market exceeding 15005 hundred units.
During our fiscal third quarter cobalt will see the final phase of our expansion and improvement project completed, allowing further increases in production count. This will enable capacity to increase more beginning in the latter portion of the fiscal Q4. This three phase expansion and improvement initiative will enable of 50% capacity improvement over.
Tom as we need it.
Pursue these are anything of substantial increase and additional boats being delivered on top of our current commitments for the year. We are projecting to deliver approximately 650 boes drastically outperforming our initial commitments and the 30% increase and units built over any other year historically.
Further we will be able to increase production, even more and fiscal year 'twenty and 'twenty two.
All of the recently introduced model year, 'twenty and 'twenty, one products are flying off the shelves lock Hamburger patties for of Cheeseburger picnic.
Our boats of resonated with the resonating with the experienced boaters, while also attracting new customers into the lifestyle for Malibu, leaving on model year, 'twenty and 'twenty, one new product or the recently introduced <unk> 'twenty 'twenty, four and <unk> Z twenty-three L. S V and the Axis, a 24, which are all larger boats and continue to drive new business and.
Higher margins.
Additionally, our flagship and do 40, which is just entering its second year is outpacing our expectations.
For cobalt momentum continues to build as we are seeing very strong performance and our brand new model year, 'twenty and 'twenty one boats. The arsenic standard the arsenic serve the Ars six outboard the R. Eight standard and the R. Eight serve all of which have a higher ASP and.
And then predecessor boats and better margin profiles.
We have delivered five new boats of the market this year and the R. Eight outboard will debut in the third quarter, making six new both from fiscal year, 'twenty and 'twenty, one or an average of one boat every other month.
These new boats drove record retail sales of orders for our fiscal second quarter at cobalt we.
We continue to see higher than projected demand for the new pursuit of <unk> 28, the largest pursuit boat that we have ever built.
As strong as we expected this boat to be is its acceptance has been surprising and the words are pacing about 50% higher than we thought they would be at this time.
The <unk> 78 is another large both of that has done extremely well since its introduction in the fourth quarter of fiscal year 'twenty and 'twenty.
As we have previously said the margin profile on both of these boats has doubled versus their predecessors, which were contract built and Michigan all production for the S 428, and the S. 378 has been and Florida for the full fiscal year and we are beginning to see the impact on pursuits of financials. We continue to also see a shift of.
Larger boats and the premium outboard segment and we have led this trend and our new pursuit product.
We just completed the first month since we closed the acquisition of Maverick boat group we.
We have spent significant time there in January and are even more excited about the opportunities. There are operational improvements that we can make rapidly that will allow us to increase boat count and the real production driver will be the phase III edition of the plant too, which will double of that plant square footage.
Very much like the pursuit of game plan. Once this expansion is completed it will mean, a significantly increased the weekly production capability.
We expect to break ground on this expansion later this calendar year and have the plant up and running as soon as possible.
We're always focusing on creating sustainable improvements over the long term and our plan for every brand includes building more boats in the second half of fiscal year 'twenty, One and then in the first half and more boats and fiscal year 'twenty two than in fiscal year 2021.
Moving to our operational excellence initiatives, we continue to see the gross margin benefit from of vertical integration strategy, which remains a key competitive advantage across our brands. Our vertical integration strategy allows our brands to control products or features from conception through customer delivery.
This helped drive strong fiscal second quarter adjusted EBITDA margins. It also reinforces repeated statements that investments and our vertical integration initiatives drives profitability and unlock maximum value from our product portfolio.
And as you know all of our Malibu and Axis models of our powered by our best in class Malibu monsoon engines. Further these new models are equipped with several of our patented technologies, including our including our integrated surf platform, featuring surf gate and our start and turn technology.
Our patented swim step feature that originated with cobalt is being utilized and Malibu models as well and Malibu flooring vertical integration has expanded the cobalt and will eventually expand to pursue.
By developing our cross brand vertical integration, we remain confident and our ability to generate new synergies across brands and fiscal year, 'twenty and 'twenty, one and beyond.
Looking ahead, we remain committed to our growth strategy and growing our marine platforms. We will continue to drive innovation and be the first to market with compelling new products and features. Additionally, our strategic acquisition strategy of acquiring premium companies with improvement of opportunities remains a focus.
Fiscal year 2021 is positioned to be a master of a year and well ahead of our initial expectations. Despite the noise around supply chain constraints as we have discussed today, we have increased production significantly since the beginning of the fiscal year.
I want to specifically recognize our suppliers who've done a magnificent job of giving us the product and parts, we need to accommodate this growth and a tough environment. They have excelled across our brands. We have continued to outperform our competitors and everyone's expectations. The last three quarters have been consistent with our very strong historical operate.
And on performance.
Going forward nothing changes.
And in an environment, where channel inventories are at historical lows and aged inventories at a minimum there isn't the overriding factor that determines who wins who gains market share and who is most successful the companies that produce the most of those will come out on top.
We are producing at least the third more boats and our closest competitor and the performance sports boats segment that is one third more to ship to the retail customer and the build back channel inventories quicker.
As we have for over a decade, Malibu and in and that will carry two of our other brands further the accomplishments we have seen amid a volatile market again illustrate the benefits of our vertical integration strategy, which provide the level of insulation against supply chain constraints by building up to 25% more of our boats and house.
We are incredibly optimistic for the second half of fiscal year 2021. As a result, we have increased our full year fiscal 'twenty and 'twenty one guidance Wayne will take you through the specifics in a moment.
I remain incredibly proud of our team and their enduring commitment to lead the boating industry continues to shine, we are achieving long term sustainable success, and I am and I am confident and our ability to deliver value to our shareholders, while outperforming peers to remain the leader within the industry I will now turn the call over to <unk>.
Wayne to take you through our financial performance in more detail.
Thank you Jack.
And the second quarter net sales increased eight 6% to $195 $6 million and unit volume decreased three 4% to 1000 and 742 boats.
This decrease was primarily driven by lower production levels and our cobalt segment, but as Jack mentioned, we expect cobalt production to ramp up during the second half following the completion of its expansion and improvement project.
Malibu and axis brands represented approximately 63% of unit sales or 1101 boats cobalt represented 28% of 489 boats and pursuit made up the remaining 152 boats.
Consolidated net sales per unit increased 12, 5% to approximately $112000, primarily driven by a favorable mix across all of our brands.
And an increase and options and features and our Malibu segment.
Gross profit increased 24, 1% to $49 $5 million and gross margin was 25, 3% and increase of 320 basis points from the prior year period.
Yes.
Selling and marketing expense decreased zero point $7 million or 14, 3% to $4 million and the second quarter of 2021 compared to the 'twenty and 'twenty period, as a percentage of sales selling and marketing expense decreased 60 basis points.
General and administrative expenses increased 49, 2% or $5 million. The increase was primarily driven by acquisition related costs as a percentage of sales G&A expenses, excluding amortization increased 210 basis points to seven 7%.
Net income for the quarter increased 25, 8% to $22 $1 million adjusted EBITDA for the quarter increased 27, 5% to $39 $1 million and adjusted EBITDA margin increased 300 basis points to 20%.
Non-GAAP adjusted fully distributed net income per share increased 31, 2% to one dollar and 22 cents per share. This is calculated using a normalized C Corp tax rate of 23, 6% and of 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 and our earnings release.
Our healthy balance sheet supported our continue disciplined deployment of capital through the acquisition of Maverick boat group during the quarter and.
And acquisition that we think fit our playbook of aggressive investment operational enhancement and robust growth on the top and bottom lines at.
And at the same time, we continued to invest and our current brands, where we are focused on setting up for substantial retail demand driven organic growth and continued margin expansion.
As Jack mentioned, we expect a robust second half of the year for fiscal 'twenty and 'twenty. One that said, we will remain attentive to the retail marketplace and nimble on the face of the ongoing global pandemic to quickly address any potential volatility that manifests as a result, Nonetheless, we expect strong demand to continue for a premium.
Brands and now expect full year revenue growth of greater than 35% year over year and.
And adjusted EBITDA margins of approximately 25%.
In terms of cadence for the remainder of the year.
We believe revenue will be generally consistent throughout the second half and margins will slightly increase as the second half progresses.
These estimates include the impact of our acquisition of Maverick boat group for the second half of the fiscal year and continue to include a modest amount of cushion given pandemic related uncertainty.
In closing.
Our team continues to post incredible results and surpass expectations, we believe and our ability to continue to deliver strong returns on our investments, both organic and inorganic or prior investments industry positioning and record momentum provide an attractive set up to drive significant.
Revenue and profitability gains through fiscal 'twenty 'twenty, two further solidifying Malibu as the industry leader.
With that I'd like to open the call up for questions.
As a reminder, you asked the question. Please press star one on your telephone keypad.
Again, Thats star one to ask your questions. Please.
Please standby on while we compile the Q&A roster.
Your first question comes from Mike Swartz French Elyse your line is open.
Hey, guys good morning.
Good morning.
Maybe just wanted to touch on your your and your new guidance here and obviously this is the first time, you formally incorporated maverick and that guidance.
And I guess, we were under the assumption that Mavericks margins were and the mid teens that you are taking your.
Consolidated EBITDA margin guidance up so maybe help us think about the puts and takes there and and maybe if you can back out the contribution from Maverick specifically.
Yeah.
I think youre thinking about it correctly debt at that and ultimately the implied.
Guide, excluding Maverick is meaningfully up from a margin perspective.
And so we continue to see.
Really strong margins, we talked about it in fiscal Q1.
And that is just the strength of the margin business. We continue to see that we see that continuing through the year I mean in terms of what we're seeing both from a volume perspective, and and margin performance and the cost profile and the business on.
And that that embed some headwinds that you see in terms of some inflationary cost pressures all of those things.
But we.
We're not going to give specific guidance debt excludes.
And that excludes Maverick, but I think your math and and the way Youre looking at is correct. So it's the underlying margin performance and it's really driven by pursuit and and the Malibu business I would tell you all three of the preexisting.
Businesses are outperforming margin expectations. The most meaningfully it would be on the pursuit side with the addition of and the new factory and Malibu, where we're seeing the benefit of the engine business.
Okay. That's helpful and then just.
Given the strength of retail demand and what Youre seeing and your order, but can you talk about maybe how much flexibility you have and the year to take on new orders and in your businesses and Theres been talk about.
Competitors and and other players and the industry moving their model years forward and doing some different things of the timing therein.
Have you given any thought to that or how youre going to proceed going into model year 'twenty two.
No I mean, it will we'll keep the model year is the historically has been and last year as you recall, we did move the model Europe, one month and that was based on a scenario, where we thought they were going to need to increase demand and good newer products out there quicker.
And it flipped on us here and that did not materialize, but it certainly did not hurt.
But going back to a more recognizable cadence and I think it's the right thing to do so throughout the end of the year in terms of ratcheting up we've done that all year long, whereas you know we.
And we take commitments from our dealers before the beginning of the fiscal year and we are going to surpassed by a large margin for all of the brands. The commitments that we took in at the beginning of the fiscal year and and as I've talked about and the in the call. We have taken production counts were up substantially and will continue to do that on an as needed basis as we can.
Yeah.
Okay, great. Thank you.
Sure.
Yes.
Your next question comes from Joe <unk>.
The <unk> from Raymond James Your line is open.
Hey, guys good morning.
Morning.
On the guidance on the EBITDA margin guidance for a second obviously, if you look at fiscal 'twenty one.
And you're benefiting from a lack of discounting and very strong uptake of the number of other items, but is this the new base of 25 percentage that you think you can pay the debt.
We grow off of next year or are there some headwinds that come back into play and fiscal 'twenty two.
Good yeah.
Arithmetic Lee you you obviously in fiscal 'twenty to have the inclusion of Maverick for additional six months and and so you know that that creates a natural.
And natural headwind.
I would still be I think it's a little early to go out there and give 'twenty two guidance, but I think he and Jack can affirm this which is I see it as the new base now growing off of it I think everybody needs to keep in mind that youre going to have the six months and the.
Six months of.
Of Maverick added to fiscal 'twenty, two and that's going to be a headwind and that's going to be measured in probably 50 basis points or so.
So so.
That exactly the baseline I mean the.
The 20% 20 day, 5% would be kind of my baseline prospectively, Jack I agree I think is sustainable I think the everything that we model says it is even with the maverick coming into play.
That's helpful. Thank you and just the second question and if you look at your production capacity.
You guys have increased significantly across the portfolio. If we would of index, where your capacity will be in 'twenty, two let's call of X Maverick versus the 19.
How much of an increase have we seen over the last three years.
Over the last three years from from physical 19 of the base.
Oh.
The quick math here Joe.
And you see the 15%, 20% somewhere in the neighborhood.
And that is going to be 30, and 40% over a three year period.
We've put it on a lot of improvements in place expansions and plays and so the result, if you look at it cumulatively for all of the brands it will easily be and that 30% to 40% range.
Okay, great. Thank you guys.
Your next question comes from Jamie Katz from Morningstar. Your line is open.
Hi, good morning.
The dice Jack.
On the some of the cobalt information a little bit more and I think what.
Within the Prince with that.
Units would be increasing and the second half of the fiscal year, but I think what I heard and the commentary was that that might not happen.
The end of the fourth quarter and so we may not see actual positive unit volume growth and cost fiscal 'twenty 'twenty, two on that and I thinking about that the right way.
No. We will have the unit growth increase in Q3 and Q4 My point, Jamie was that with this expansion and improvement coming into place that's going to allow that process to increase our production even more up to 50% over time.
Okay, and then given there were so many positive.
Commentary factors coming out of the quarter can you guys sort of give us the.
Inverse perspective, what what do you see as the biggest risk that would really derail the company's ability to outpace the market at this point.
We will outpace the market.
No question.
Okay. So nothing keeps you up at night.
No I mean other than politics.
Okay and then.
One on one last thing on in the slide deck there was.
The point on question boats of becoming a bigger percentage of sales and I'm curious, whether that's something and sort of secular that you've seen over the last few years and what was that maybe you know in 2018, and what do you expect that to the in 'twenty and 'twenty, one because it seems like that could.
B a potential.
Shift to maintain higher gross margin performance over time.
Yeah, I think the big driver has been over the last year and the spin the COVID-19 pandemic and seeing the inventories dropped to the low channel inventory levels. We are if you think about it normally and just to break it up a little bit in the course of the normal year from July to June the first half of the year is typically 60% 65%.
The and I'm speaking of retail now our dealer sales, 60% to 65% stock boats, and then 30%, 35% custom ordered boats with the lack of inventory and with the Covid pandemic and people just buying both the we've not seen and a number of years or they're new to the market that channel inventory of call. It the swing the.
The way and I'll give you. An example of spoke to of our year end sales event last year and our year end sales of the 44% of the both of our sole where channel inventory both of our stock both of the dealer this year its 18% and so you have these customers that are coming in and they are buying boats because they don't see what they want on the floor of the deal.
Or are there they want more features more options larger boats and so I think ultimately that's driving it I do think it sticks, even after we get past the pandemic of little bit.
But I think it will revert more to a normal 50 50 split over the course of the year.
Thank you that's really helpful.
Yeah.
Your next question comes from Alex <unk> from there and Greg.
Your line is open.
Good morning, guys. Thanks for taking my questions. It looks like one of the biggest drivers of margin expansion at least this year and probably into next year of little bit is the reduction in the sales and marketing expenses, primarily driven by this lack of boat shows are you thinking about 'twenty two and are there any cost reductions you can think can repeat when.
On a boat shows do return and I know you gave some good information about that year and of that new held so is that more and your plans going forward.
Alex I would say that of all of the factors that are generating the margins that are the discounting is probably one of the smallest if not the smallest and if you look at the larger boats and the features and the options.
On the new product and cobalt and pursuit of Malibu being a higher margin profile all of those I think are bigger drivers.
I do think that once we get back to a more normalized basis next year, we will see it.
And it ticked back up a little bit, but if this demand continues.
And right now there's no reason to expect that it won't I think discounting will continue to be in the low going forward. Yes, I would also envision that there is an element of that right. So youre talking about less than 20% of the margin pick up and I would tell you that probably half of that.
The fundamental shift and a and a permanent variance and the lower travel and go on about business of different way.
Okay, Great and and the second question is just a bit more forward looking but how are you thinking about the next capital initiatives once of the Maverick projects complete as Malibu on deck for another expansion and is there another vertical integration opportunity or is there something else out there that we're not thinking about.
No. That's a very good question and I think afterwards, we're looking at our Malibu of the pace continues and we go the 14 15 and 16000 over the next couple of years and the performance Sports boats segment, we already have and plan plans in place and all startup process of the small expansion project that will effectively give us about <unk>.
20% more boats.
Okay. That's great. Thank you guys.
Your next question comes from Brad and grants from Keybanc capital markets. Your line is open.
Hey, good morning, sorry, if I missed this.
But do you have any channel inventory stats for us just maybe weeks on hand year over year inventory declines.
Yeah, So what I would tell you I would frame it the same way we framed it in the past which is.
The size of the hole.
And so obviously.
With the addition of Maverick.
They have a whole as well so that that number that we quoted that was north of 1000 and August is up.
Ultimately yes.
We've grown channel inventories in the last three months since we last communicated with folks, but that's generally a seasonal increase and so the the the good news. The bad news is that there is still a really big hole relative to the seasonally adjusted appropriate level.
The good news is that's being driven by a white hot retail environment. So.
The short takeaway is that for the full year. If it continues to go like it is at retail I don't think we're making up any of that hole and.
And but that means retailers just absolutely on fire.
Got it Okay and then so when you think about.
When retail starts the seasonally ramp up here right into the spring into summer and given where inventories are at I mean.
Are you and your dealers can have the operate differently.
So how are you preparing for that and it's like everything just going to be.
The deposit based and pre sales as we get into the selling season here.
I think certainly by the time, we get to the end of this fiscal year and the post Memorial day timeframe it will be deposit base.
Share what Wayne said, he's going to be very difficult to make up of channel inventory. This year as hard as hard as it is but with the volume that we're putting out and we will be putting out and model year 'twenty. Two I think that will grow those channel inventories over the course of that model year.
Alright, thank you.
Your next question comes from Eric Wold from B Riley.
Your line of children.
Thank you and good morning.
Couple of questions I guess one.
On the on the Cobalt improvement program, you talked about getting to 50% capacity improvement overtime should you need it.
Is that solely through process improvements and higher staffing or would there be and kind of another kind of on capital spending need to get there and then.
If you looked at and kind of where cobalt will be.
Most of this expansion program and prior to it and the efficiency improvements and what have you seen interest of margin expansion between the two.
Okay.
Of the three phases of the improvements that we've done and we're concluding the third one this quarter, Eric that's what allows and 50%. So there is no further expansion projects that are needed at that point is simply becomes a matter of getting the people and plays as we go up and count and we will add people.
And so it's just a function of people at that point in time.
The second question and I am sorry, say that again.
What could be the margin benefit our expansion kind of prior to this and posters.
And cobalt.
Let me I guess I'm struggling with the prior I mean, the post look the there's a lot of the capital that's been spent there relates to.
Optimizing the flow in and.
And reducing rework and improving quality and so.
On the prior portion of the question I don't necessarily understand but the.
On a prospective basis, what I would tell you is within that business itself. There is.
There's hundreds of basis points of margin expansion opportunity related to.
<unk> improvements.
As that volume goes up.
No that's perfect and I was looking for I guess and then second question.
Obviously.
Tons of demand still coming and four new boats.
Backlog historic highs.
How do you think about kind of of the puts and takes of trying to do kind of all you can to ramp production and pushed out order boats as fast as possible, including production price all of that.
And <unk>.
And particularly straining the manufacturing system or the labor force and the process of doing so.
We think that we are better suited to engage that than almost anybody else out there and I think that one of the things you have to be very careful about and we always are and we've done this and a very measured basis. This year.
Is to do it and at the pace that you can accommodate it that you can hire the people that you can train the people because I can tell you what's going on out there right. Now is there a lot of people that are rushing the of boats out there and the quality is horrible and.
So we worked very hard to bring production up and a measured basis with people that are very well trained and we can keep our quality, while also accelerating the increase and the number of boats.
Yeah.
Perfect. Thank you both.
Thank you.
Okay.
As a reminder to ask the question. Please press star one on your and California Keybanc.
Your next question comes from Gary Johnson from BMO capital markets. Your line is open.
Hey, good morning.
You have some time to analyze the Kobe of dealer network of your identified any expansion opportunities and I'm not sure. If that's your primary focus at this point, but further down the road.
How much larger can that network b and and looking at the overlap between it and pursuit of maybe there are opportunities for consolidation as well. So if you could just talk about Colombia and then also I'm just wondering your thinking on the bay and flat boats and how they fit in your portfolio.
So I'll answer the last question first from the flats boats, it's a new segment.
We're not in that segment sort of puts us into an immediate category, that's a smaller outboard boat.
It's small and I think it will continue to be smaller somewhat youre dealing with the different competitive set there that are smaller builders are building one at a time, so I think it fits.
But it's not anything that we would see as the big growth item.
As it relates to Colby Gary the answered the both of those questions are yes, there are absolute opportunities with the pursuit and that's one of the attractive for us when you look at the pursuit. It out index is about three or four feet. It is a premium higher price model now we have of cobia that.
Index is below pursue at a price point, that's a little bit different and to the point that we've been making it gives us a full gamut of the product we have the entire product range from a link and from a price point of view now and both the center console and the dual console segments on the distribution side, there are opportunities, but our bid.
Biggest.
Challenge right now is to start building more and more and more boats very similar to what we entered when we acquired pursuit, we have of shortfall and we need to get our current dealers as much inventory as we possibly can and that's where while we're gonna add of plant and our expand the plan on phase II.
And the increase substantially the number of boats that were getting out until we do that I don't think it's prudent for us and it's not fair frankly, the the other dealers for us to go out and sign on other distribution and I don't see necessarily consolidation and all.
I'll go back to when we acquired cobalt, we will always have the best dealer and the market. We want the best either for every individual market and if they happen to be.
And on existing dealer, they're going to continue to be our dealer and if theres an opportunity to improve at some point because of the market share is low and the service of the consumer is not as good as we would want it to be that's when we would look to make a change.
Okay and on the band flat boats wondering if theres an opportunity there to maybe I dunno exit that business and and move that production and capacity too.
The bigger more feature rich boats like Youre pursuits are you koby is or something like that.
No plans to do that now and when we look at Maverick, we saw all four segments, there's an opportunity for us and on the Bay boats frankly, we've been thinking about getting into bay boats from a build scenario. So what that does for us is that puts us into that segment right now right away.
Okay, Alright, great. Thank you Jack.
There is no fault of great question at this time and I'll turn the call and we're back to Jack Springer.
Thank you very much.
In summary of our quarter, leveraging our premium product lineup and our industry, leading operational excellence, we capitalize on the strong retail demand to deliver revenue ahead of plan access the gross margins and historic adjusted EBITDA results from the second quarter and we do believe that this will be sustainable we expanded.
Of our brand family with the acquisition of Maverick boat group and is complimentary lineup of brands further adding to our diversification strategy and brand variability.
Our strategic planning and operational excellence and supply chain management continues to support our outperformance of the broader market.
We have the capability and capacity to deliver more boats than competitors selling more to retail customers and increasing the inventory at our dealers more quickly.
Vertical integration continues to drive higher margins and overcome many of the issues our competitor space, who do not vertically integrate and.
And given our extraordinary first half of the year, we remain confident and our ability to deliver value to our shareholders, while outperforming our peers to solidify our dominant industry position and.
As always we want to thank you for your continued support and we want to thank you for joining our call today and our journey towards growth and continued excellence I Hope you and those around you are all safe and healthy and hope you have a fantastic day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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