Q3 2022 Malibu Boats Inc Earnings Call

May 10, 2022

Good morning, and welcome to Malibu boats conference call to discuss third quarter fiscal year 2022.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please be advised that a reproduction of this call in whole or in part is not permitted without written authorization of Malibu boats.

Today's call is being recorded.

On the call today from management are Mr. Jack Springer, Chief Executive Officer, Mr. Wayne Wilson, Chief Financial Officer, and Mr. Ritchie Anderson, Chief operating Officer, I will turn the call over to Mr. Wilson to get started please go ahead Sir.

Okay.

Thank you and good morning, everyone on the call Jack will provide commentary on the business and I will discuss our fiscal third quarter 2022 financial results.

We will then open the call for questions.

A press release covering the Companys fiscal third quarter 2022 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 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. We again delivered an exceptional quarter, a record setting quarter, which was particularly extraordinary given the supply chain environment. The industry continues to face.

During a record setting quarter, we exceeded nearly all metrics as our demand for large feature rich boats continues at a ramp up pace.

While supply chain challenges persist limiting our unit growth, we were able to navigate this difficult environment and achieve more volume than we anticipated.

Led by our unmatched operational prowess and manufacturing capabilities, we continue to provide the most innovative highest quality both through our loyal customer base.

For the third fiscal quarter, we posted record net sales, increasing 26% to $344 million record adjusted EBITDA growing 40% to approximately $80 million and record net income growing 56% to nearly $55 million.

Despite the headwinds in the supply chain and the persistent material pricing pressures are margins displayed incredible strength and resilience for the third quarter gross margins increased 180 basis points to 28, 2%, while adjusted EBITDA margin increased by 230 basis points to 23, 3% during the quarter.

Extremely strong asps in our approach to operational excellence paved the way for outperformance over the quarter as we were able to increase volume through our differentiated vertical integration strategy and strategic acquisition of Malibu electronics to meet the insatiable demand for our boats.

As mentioned earlier demand for our boats remains incredibly strong across all models and brands.

We continue to see a strong backlog as dealers are noting and unwavering appetite for our boats with orders holding up extremely well.

Last week, our largest dealer partner across all of our brands announcer very stout retail sales quarter and same store sales were up 8% year over year.

One of our North Carolina dealers reported that leads have been on pace with 2021, which was a record year and lead conversion to sales has occurred at a much higher than normal rate with an even greater uptick in the month of April .

Elevated demand from first time boat buyers continue to support this trend. We recently received the statistics from 2021 now.

Now the 2020 number of first time boat buyer is totaling 63000 was viewed as a COVID-19 induced ceiling with 19000 more first time boat buyer versus a decade long average of about 44001st time boat buyers each year.

New data for calendar year, 2021 remained elevated showing 12000 or 26% more first time boat buyer as compared to the decade long annual average.

Further in 2021, all first time boat buyers, which will include new and used boat buyers surpassed 415000 buyers for only the second time in 15 years.

This represents almost 360001st time used boat buyers of which a significant percentage will purchase a new boat as our next boat in the coming years.

Our 2022 model year, both a thriving with high high asp's across the board as dealers sustained numerous buyers waiting to get their hands on are both at boat shows and if their dealerships.

For Malibu and axis customers continue to seek our larger more expensive boats for axis, our brand new <unk> hundred 50 is doing very well setting a torrid pace for new orders for this newly released model.

As a reminder, the <unk> hundred 50 is the largest access ever build and confirms that customers want bigger boats at a return.

The brand New 25, <unk> is also setting the market with new orders and sales for pursuit and Kobe also outperformed as we were well ahead of last year's sales numbers heading into our successful West Palm boat show for these brands.

Our series of cobalt consisting of nine new models over the last 18 months has created significant market demand and transform the R series with the addition of stern serve an outboard variance offered in three different links.

While our product success continues to be like flat Jack flying off the grid 11, IHOP supply chain constraints remain our biggest hurdle to ramping production.

Even though we experienced some improvement in the supply chain in the third quarter, we supported more volume out the door. This does not signal a permanent recovery.

The supply chain remains volatile.

Limiting component availability across the brand for all brands, coupled with the ongoing on availability of outboard and Stern drive engine in part our ability to produce is desired for our pursuit cobalt and Maverick brands and build channel inventory channel inventory will remain impacted for the foreseeable future.

While these supply chain issues have been trying we remain focused on controlling our destiny and executing our strategic initiatives to help combat rising costs and increase our production.

As you have all seen for many years, if we can control it and manage it and B you performed exceptionally well.

A recent example is our acquisition of Malibu Electronics, we announced the acquisition last quarter and it has proved to be a major win with.

An immediate improvement in our ability to produce harnesses and alleviate supply constraints for Malibu and cobalt brands. We are encouraged by the long term potential of vertically integrate immigrating Malibu electronics across all of our brands.

While we cannot predict when the supply chain issues will abate rest assured we have the pieces in place to combat future bottlenecks and provide operational resiliency across the board.

Inflated costs had been another challenge that has led to the need for price increases across the marine industry.

Our approach to price increases through a surcharge has been spot on and has covered the inflationary costs to this point.

Looking at channel inventory throughout the marine industry weeks on hand inventory continues to be about 13 weeks lower than previous historic lows, which is consistent with what we are seeing with our brands.

While we believe there will be a slight increase in channel inventories for fiscal year 2022, we will largely see supply continue to mirror demand as retail sold orders are immediately captured.

Our expectations remain unchanged as we look ahead to fiscal year 2023, when we will begin to see a build in channel inventory and potentially into fiscal year 2024, before we have normalization of channel inventories.

This provides us with a favorable runway runway to reach further historic levels of performance.

No matter, which direction. The tide turns Malibu is perfectly positioned for success with a long runway to ramp up production and reach normalized channel inventories.

With demand continuing to run hot and considering our prolific operational capabilities. We take advantage of every opportunity to grow our business and our margin profiles are.

Our entire Malibu family is what sets us apart from the competition.

Through our unwavering execution on our strategic priorities are planning hard work and commitment to quality, we will continue to push the pace as we look ahead.

A perfect example is our Maverick plant expansion in this environment riddled with delayed timeline from the unavailable Lee on availability of materials and labor. It is rare that a project meets expectations to IP I am pleased to announce that our plant two expansion, which significantly increases our production square footage.

Maverick was squarely on time, and we began producing our first boats out of that facility in early April .

Much like pursued a couple of years ago. This will allow maverick to produce more boats larger boats and increase the margin profile of the <unk> brand.

With a quarter left in fiscal year 2022, we're in a great position to deliberate historic and record setting year.

We have reached significant milestones through our cross brand vertical integration efforts acquisition of Malibu electronics, and the Maverick plant expansion.

Each has helped us successfully navigate rough waters in the challenging environment and allows us to continue our momentum and close out the year strong.

We look forward to releasing our 2023 product lineup in the next quarterly call, which will further showcase our industry, leading innovation with compelling new products and features and as always deliver the greatest value for our shareholders.

I'll now turn the call over to <unk> for further remarks on the quarter.

Thanks Jack.

In the third quarter net sales increased 26% to a record $344 $3 million and unit volume increased four 4% to a record 2562 units the.

The increase in net sales was driven primarily by year over year price increases a favorable model mix and increased unit volumes for our Malibu and cobalt brands, the Malibu and axis brands represented approximately 56, 9% of unit sales or 1457 boats.

Cobalt represented 21, 6%.

554 boats and saltwater fishing made up the remaining 21, 5% or 551 votes.

Consolidated net sales per unit increased 27% to approximately $134400 per unit.

Primarily driven by year over year price increases and a greater mix of larger boats for Malibu and cobalt segments.

Gross profit increased 34, 8% to a record $97 1 million and gross margin was 28, 2%.

This compares to a gross margin of 26, 4% in the prior year period. The increase in gross margin was driven by volume increases a richer mix of product increased asps and improve vertical integration efforts through our recent acquisition of Malibu electronics.

Selling and marketing expense increased 45, 1% or $2 1 million in the third quarter as a percentage of sales selling and marketing expenses increased by 30 basis points over the prior year period.

The increase was driven primarily by increased event and boat show activities as well as personnel costs.

General and administrative expenses decreased six 9% or $1 3 million in the third quarter. The decrease was driven primarily by a decrease in professional and transaction related fees and a decrease in personnel related expenses, which is largely timing driven.

Offset by an increase in it infrastructure expenses and travel.

Net income for the quarter increased 56, 1% to a record $54 $8 million adjusted EBITDA for the quarter increased 39, 9% to a record $79 8 million and adjusted EBITDA margin increased 230 basis points to 23, 2%.

non-GAAP adjusted fully distributed net income per share increased 43, 4% to a record $2 61 per share. This is calculated using a normalized C Corp tax rate of 23, 8% 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.

Our strong performance.

Driven by increased volume a richer mix of product over the quarter is a testament to our team and how they have continued to persevere in the face of the challenging operating environment. This was supported by smart strategic deployment of capital, including our continued vertical integration efforts across our brands last quarter's acquisition Malibu electronics was a major success and helped us.

Take greater control over our supply chain will driving higher unit volumes despite the environment.

In addition to strong operating performance, we continued to deploy capital in the quarter in the form of share repurchases as we opportunistically repurchased approximately $25 million of the company's shares during the fiscal third quarter under our existing $70 million share repurchase program.

As Jack mentioned earlier.

Supply chain issues and cost inflation continued to drive.

Uncertainty we are in a strong position to continue to maximize our production it's difficult environment and continue our momentum to close out a very successful fiscal year 2022.

We always manage our supply chain aggressively we are optimistic that consumer demand will remain resilient strong pre COVID-19 levels and we know our dealers need for product will continue to drive near to medium term wholesale demand. This setup gives us conviction that we can maintain our strong growth and margin profile as we close out the fiscal year.

In a strong fashion.

<unk> on our current operating plan our expectations for fiscal year 2022 are as follows.

We anticipate revenue to grow in the 28% to 29% range year over year.

<unk> adjusted EBITDA margin is expected to approach 25%.

While we look forward to closing a successful fiscal year 2022, we also look forward to the future we have and will continue to position Malibu for the long term and believe Malibu is in a place to continue our strong outperformance across the industry.

No matter, what macro driven headwinds that may come our way.

Our track record of sound decisions to vertically integrate acquired brands position for growth invest in new products and expand capacity, where appropriate will prove to be the things that differentiate us we believe our team and our strategy set us apart and we are positioned to have industry, leading performance that will deliver value for our shareholders.

<unk> and employees through fiscal year 2022 and beyond.

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

Thank you as a reminder to ask a question you will need to press star one on your Touchtone telephone question has been answered or you wish to withdraw your question. Please press the turnkey please standby, while we compile the Q&A roster.

Our first question comes from Mike Swartz with choice Securities.

Hey, guys good morning.

I just wanted to touch on I guess margins for the quarter I think.

EBITA margin might have actually been an all time record for you said just maybe go through maybe the puts and takes there and then how do we look at brand by brand I mean, I guess, where did the brand sitting that general.

Vicinity of getting getting to the 20 <unk>.

Plus targets that you've outlined.

In the past.

Yes, with respect to the performance across the portfolio.

I would tell you that the the Malibu brand having.

Been here for the longest has the highest margins.

On a year over year basis, we're seeing strength.

Across the business the one place where there's a little bit of margin pressure is in maverick, but that's because we've added a bunch of cost to that business as we position it to grow even further in and really fill up that plant to expansion.

So with respect to the.

The 20% target the.

The Malibu businesses in excess.

Of that 20% target and it has been for some period of time and continues to.

The increase as we continue to invest in that business, whether that be through the engine vertical integration flooring, Malibu electronics et cetera.

That is closely followed by the pursuit and cobalt businesses that are in the.

The higher teens region.

Both are seeing in the quarter meaningful year over year improvements.

So the one that is the furthest away and part of the saltwater segment is that Maverick business that we only owned for just over a year.

And where we're making those investments.

It's really pretty predictable and formulaic.

Wayne's point, Malibu very sophisticated business a lot of our operational capabilities.

Been fully deployed at our Malibu, we've had cobalt now for over four years, we've seen that EBITDA margin grow and grow I think two years into it we had double EBITDA and so we've continued to see the margin grow with the changes that we make as it becomes more sophisticated.

I'll say pursued had a really really good quarter from a growth and an EBITDA margin perspective did very very well.

And then in Maverick pointed out Maverick, we're a year less than a year and a half into it and so you can expect to see the very top of the same type of growth overtime with Maverick as you've seen with the others.

Okay.

Great color and then maybe just a question on the on the guidance I mean, I think if I'm doing my math correctly. It would imply that there is a sequential step down in production in margin maybe.

Talk us through that is that just seasonality was there something in the third quarter that was a bit of an anomaly and we see kind of a return to more of a baseline or.

Just any color you can provide around that.

Yes, what I would tell you is.

Q4 is setting up similar to Q3, and what we said last quarter was.

Our guidance for Q3 was hey look there is there is some upside here.

And we contrast that to the prior year.

We said look there's not a lot of upside to this as our guide and we don't think that there is a lot of juice.

Can squeeze out of.

Alternatively last quarter, we said, Hey look here's the guide, but yes, we're going to do everything we can to maximize production.

The environment allows us to.

We'll do it and what I would tell you is with respect to Q4.

A little bit of a similar setup as to Q3, where you have upside in the quarter relative to that guidance.

But the supply chain continues to rear its head in pretty pretty meaningfully and so.

I think the element there on volume and margins really has to do with.

The setup and could Q4 look a lot like Q3, yes.

But the amount of uncertainty that we're dealing frankly.

<unk> has been increasing over the past three to five weeks as opposed to decreasing as we went into.

Last quarter.

Okay very helpful. Thanks, guys.

Thank you.

Thank you. Our next question comes from <unk>, Zhang with Bahrenburg.

Hey, guys. Thanks for taking my questions.

Average unit prices continuing to increase I guess year over year and sequentially, hoping you could once again address the question of how high unit prices can continue to expand at this point with that significant demand destruction. That's what your expectation for prices are once supply kind of normalizes down.

Right.

Really I think first of all point out that the asps are being driven by what the customer wants.

Is that larger boat.

If the bow with more features more options on it so thats primary driver and as long as that's in place you can continue to see those asps grow we have been in a scenario that for a dozen years. Since 2009, we've continually seen the asp's grow the size of the.

Both grow in terms of what the customers wanted wanting the amount of features and innovations that are being put on the boats.

And is that a couple of different aspects to it is driven Isps of course, but theres also quicken the cycle for when a person will trade in their boat and get another boat and Thats something that we feel like that we certainly mastered over time of creating that environment, where a customer says I have got to have that newest spoke because.

It has more features that has more options is more linked whatever it may be so we're very comfortable at this stage of the game that asp's can continue to grow because thats, what the customer wants.

And I would just add to that Rudy that.

Okay.

All we have taken some price to help offset the inflationary pressures. The reality is that pricing meaningfully moved at retail back in the second half of calendar 2020, when inventory tightened up and so there is.

Well over 18 months of acceptance by consumers at elevated pricing levels.

And.

Very cognizant of.

The element, that's inflation related and we're going to manage that appropriately.

And not and not push that too hard but to Jack's point, there's a lot of elements of mix Bolton model and feature set to consumers absolutely driving.

Okay really helpful and then just.

Secondly, I guess.

Could you just provide some further color on amtech I guess.

I'll quickly been able to integrate it how quickly spending, let's say kind of ramping and just how much. It benefited your ability to increase production volumes during this quarter.

Well, we've been benefited by the fact that we were in amtech and really helping to run it going all the way back to last August and so we were able to start putting some of our processes in place even back then as we help them to become better.

With the acquisition that I think we're very well staged to very quickly take on new product for both Malibu and cobalt.

It's hard to put an exact number on it but it amtech absolutely drove more units and a tremendous amount of return on investment in this quarter.

Again in the fourth quarter, and then I think over time as we start rolling it out to the other two brands.

It's going to have a big impact yes, just.

To add a little anecdote there I would tell you in the quarter.

We experienced a acute shortage of a relatively small harness from a different supplier and having amtech allowed us to turnaround.

Prototype harness within 24 hours.

To cobalt and within 48 hours, having production volumes.

Levered to the plant so its the type of thing that in this environment and that agility to keep the lines moving.

Yeah, actually resulting in lower costs and.

And just absolutely maximizing your volume that is hard to quantify in terms of the return.

Okay. Thanks, guys appreciate it.

Thank you.

Our next question comes from Joe <unk> with Raymond James.

Hi, guys. Good morning, good morning, good morning.

Just a question on supply chain I wanted to back to something you mentioned earlier when does that.

Certainty and lack of visibility has increased I guess over the last three years to five weeks. If you look at your revenue guide the original guidance for the back half was run.

The accelerating in Q4 slightly from Q3.

That's no longer I guess the case based on today's guidance.

And our checks indicate that things got a little bit worse than a few wide in April from a supply chain standpoint, it sounded like you sort of confirm that so maybe help us understand what you saw in April and what you're seeing in may from a supply chain standpoint.

It's really a more of a continuation of the same Joe it's been extremely unpredictable you don't know from a week to week basis, what you're going to be short one thing that I would point to though is the shutdown in Shanghai has absolutely had an impact and I think that.

As long as China can continue.

Similar stable that will look a little bit better from a supply chain, but we just simply don't know that.

Okay, that's helpful and maybe on pricing.

Honestly asp's up 'twenty, one I know a lot of that was mix, but maybe help us understand how much of that was with these price increases and then I know you guys put in surcharges a few months ago.

Importantly, what sort of price increases.

So the MSR piece should we expect for model year 'twenty right.

So in terms of the mix components of mix it gets a bit complicated just across the business units as you as you mix up.

With respect to Malibu cobalt, obviously, let's use cobalt for example, the new R series is a meaningfully more expensive.

Model that replaced our three year five year, seven with our four or six or eight and so you have.

A bit of a tailwind there around the mix.

And it's not dissimilar on the Malibu side.

The new models, a bunch of the newer models are larger in size and so it's probably a little bit higher than 50% of that is in the form of year over years.

Price increases and the rest being a strong mix component.

So in terms of module 23, how should we think about that.

Look we're.

We're working through that currently.

I think we're focused as we have always been on having a long term sustainable business model and I think given the inflationary pressures I think we feel position like we can.

Increased price to maintain margin, but I don't think that we are inclined to increase price for the sake of increasing price. So we're going to try and minimize those as best as we possibly can.

And let the environment.

It really dictate to us.

Where that needs to go.

Okay. Thanks, guys.

Thank you.

Our next question comes from Jamie Katz with Morningstar.

Hi, good morning, nice quarter. Thank you for taking my question.

I'm, mostly curious to hear what Didnt go as expected this quarter, because it looks like things really turned out quite a bit better than what they anticipated.

And I think you've captured it well it was a blowout quarter is hard to imagine why our stocks were so.

Okay is there any insight that you have to like surcharges and.

And maybe how those are being absorbed and how you think about whether to increase them or them back over time.

Yes, it's been pretty remarkable we've not seen any pushback at all on the surcharges and I think that.

We thought long and hard about do we do a price increase that we do the surcharge will the benefits of each of those and I think that from a surcharge standpoint as well as the amount we struck a great balanced we tried to not only cover the cost that we've incurred to that point, but also anticipate the costs that we're going to come for the.

The year and I think our margins demonstrated it's been very resilient and we've been able to hold them and so I think we've done an exceptional job with that surcharge.

I would expect that I mean, we're not seeing costs go down so that surcharge is going to remain in place it will probably rollover into the pricing of the product for next year, but that's what people who have been dealing with for seven months, but we think that that will cover the remaining costs or the visibility that we see going forward and as.

I say, we have not seen any impact on the desire for boats.

Thanks, Thank you so much.

Thank you.

Our next question comes from Tristan Thomas Martin with BMO capital markets.

Hey, good morning.

Good morning.

First question Brunswick, they called out some weather impacts in the quarter did you see anything similar to that and then what was your retail performance in the quarter.

Yes, we did we heard it from our northern dealers and it's been I think a colder wetter weather environment up north.

Similar to a lot of other years like this we see it go from south to North. So there was some I think there was some impact on the retail side in the north that seems to have turned that first week of April North Carolina, I mentioned in North Carolina dealer. That's a Prime example, they saw a lot more activity in the <unk>.

<unk> of April so.

We've seen it from a retail standpoint, I think Wayne I'll, let you touch on that but I think it's about what we would have expected.

I do think that there was some weather impact in terms of the deliveries if youre looking at registration data.

Either in Ssi or warranty registrations, but from a retail activity with our dealers.

I think it's really on par with what we had expected.

And then what did you expect just to kind of give us some numbers.

Well I think.

It's going to be a little bit down year over year versus 2021, because 2021 was so robust if you recall the kind of big.

Yes jump in orders for the LTM period ended June of 2021 was incredibly high.

And so you have you have a little bit of decrease on a year over year basis, because Ian because of just the strength in Q1 2021.

Okay got it and then.

Given the capacity expansion of Maverick novel Electronics coming online what could your annual production run rate look like.

We've talked about it in the past without the supply chain. It can easily run we feel locked in 12000.

Okay.

Awesome. Thank you.

Thank you.

I'm not showing any further questions at this time I would now like to turn the call back to Jack Springer for any further remarks.

Alright. Thank you very much in summary, we achieved an outstanding record setting quarter, despite a consistently difficult supply chain environment.

Our dealer backlog remains very strong supported by unprecedented retail demand for larger innovative both driving ASP growth across the board.

The supply chain continues to be very unpredictable limiting production and now we are seeing new issues emerged with the recent shutdowns in Shanghai.

Our recent acquisition of Malibu electronics is already generating a significant return on investment and has enabled us to increase volumes at Malibu and cobalt.

Lack pursuit before the Maverick plant two expansion will deliver more volume larger boats and improved margin profile for the Kobe and Pathfinder brands and Maverick boat group as a whole.

Our approach to price increases through surcharges were very prudent and as covered inflationary cost at this point.

And then lastly channel inventory continues to be a historic lows setting us up for a two to three year runway to ramp up production at the <unk>.

Fly chain improves over time.

I want to thank you today for joining us and we thank you for your continued support and have a fantastic day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Good morning, and welcome to Malibu boats conference call to discuss third quarter fiscal year 2022 results. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please be advised that a reproduction of this call in whole or in part is not permitted without written authorization of Malibu boats.

As a reminder, today's call is being recorded.

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 fiscal third quarter 2022 financial results we.

We will then open the call for questions.

A press release covering the Companys fiscal third quarter 2022 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.

You should not place undue reliance on these forward looking statements, which speak only as of today and.

And the company undertakes no obligation to update them for any new information or future events.

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. We again delivered an exceptional quarter of record setting quarter, which was particularly extraordinary given the supply chain environment. The industry continues to face.

During a record setting quarter, we exceeded nearly all metrics as our demand for large feature rich boats continues at a ramp up pace.

While supply chain challenges persist limiting our unit growth, we were able to navigate this difficult environment and achieve more volume than we anticipated.

Led by our unmatched operational prowess and manufacturing capabilities, we continue to provide the most innovative highest quality both through our loyal customer base.

As mentioned earlier demand for our boats remains incredibly strong across all models and brands.

We continue to see a strong backlog as dealers are noting an unwavering appetite for our boats with orders holding up extremely well.

Last week, our largest dealer partner across all of our brands announcer very stout retail sales quarter and same store sales were up 8% year over year.

Elevated demand from first time boat buyers continues to support this trend. We recently received the statistics from 2021 now.

Now the 2020 number of first time boat buyer totaling 63000 was viewed as a COVID-19 induced ceiling with 19000 more first time boat buyer versus a decade long average of about 44001st time boat buyers each year.

<unk> data for calendar year, 2021 remained elevated showing 12 or 26% more first time boat buyer as compared to the decade long annual average.

Further in 2021, all first time buyers, which would include new and used boat buyers surpass 415000 buyers for only the second time in 15 years.

This represents almost 360001st time used boat buyers of which a significant percentage will purchase a new boat as our next boat in the coming years.

Our 2022 model year, both our thriving with high high Asps across the board as dealers sustained numerous buyers waiting to get their hands on our boats at boat shows and if their dealerships.

As a reminder, the <unk> hundred 50 is the largest access ever build and confirms that customers want bigger boats at a return.

The brand and 25 OSB is also setting the market with new orders and sales for pursuit and Kobe also outperformed as we were well ahead of last year's sales numbers heading into our successful West Palm boat show for these brands.

Our series of cobalt consisting of nine new models over the last 18 months has created significant market demand and transform the R series with the addition of stern surf and outboard variance offered in three different links.

While our product success continues to be lack flapjacks buying flying off the grid 11, IHOP supply chain constraints remain our biggest hurdle to ramping production.

Even though we experienced some improvement to the supply chain in the third quarter, we supported more volume out the door. This does not signal a permanent recovery.

The supply chain remains volatile.

Limiting component availability across the brand for all brands, coupled with the ongoing on availability of outboard and Stern drive engine and parts our ability to produce is desired for our pursuit and cobalt and Maverick brands and build channel inventory channel inventory will remain impacted for the foreseeable future.

While these supply chain issues have been trying we remain focused on controlling our destiny and executing our strategic initiatives to help combat rising costs and increase our production.

As you have all seen for many years, if we can control it and manage it and B you performed exceptionally well a recent example is our acquisition of Malibu Electronics, we announced the acquisition last quarter and it has proved to be a major win we saw an immediate improvement in our ability to produce harnesses and alleviate supply constraints.

Our our Malibu and cobalt brands, we are encouraged by the long term potential of vertically integrate integrating Malibu electronics across all of our brands.

While we cannot predict when the supply chain issues will abate rest assured we have the pieces in place to combat future bottlenecks and provide operational resiliency across the board.

Inflated costs had been another challenge that has led to the need for price increases across the marine industry.

Our approach to price increases through a surcharge has been spot on and has covered the inflationary cost at this point.

While we believe there will be a slight increase the channel inventories for fiscal year 2022, we will largely see supply continue to mirror demand as retail sold orders are immediately captured.

This provides us with a favorable runway runway to reach further historic levels of performance.

No matter, which direction. The tide turns Malibu is perfectly positioned for success with a long runway to ramp up production and reach normalized channel inventories.

With demand continuing to run hot and considering our prolific operational capabilities. We take advantage of every opportunity to grow our business and our margin profiles.

Our entire Malibu family is what sets us apart from the competition.

Through our unwavering execution on our strategic priorities are planning hard work and commitment to quality, we will continue to push the pace because we look ahead.

Significantly increases our production square footage at Maverick was squarely on time, and we began producing our first both out of that facility in early April .

Much like pursue the couple of years ago. This will allow maverick to produce more boats larger boats and increase the margin profile of the <unk> brand.

With a quarter left in fiscal year 2022, we're in a great position to deliberate historic and record setting year.

We have reached significant milestones through our cross brand vertical integration efforts acquisition of Malibu electronics, and the Maverick plant expansion.

Each has helped us successfully navigate rough waters in the challenging environment and allowed us to continue our momentum and close out the year strong.

I'll now turn the call over to Wayne for further remarks on the quarter.

Thanks Jack.

In the third quarter net sales increased 26% to a record $344 $3 million and unit volume increased four 4% to a record 2562 units the.

Cobalt represented 21, 6%.

554 boats and saltwater fishing made up the remaining 21, 5% or 551 votes.

Consolidated net sales per unit increased 27% to approximately $134400 per unit.

Primarily driven by year over year price increases and a greater mix of larger boats for our Malibu and cobalt segments.

Gross profit increased 34, 8% to a record $97 1 million and gross margin was 28, 2%. This.

This compares to a gross margin of 26, 4% in the prior year period.

The increase in gross margin was driven by volume increases a richer mix of product increased asps and improve vertical integration efforts through our recent acquisition of Malibu electronics.

Selling and marketing expense increased 45, 1% or $2 1 million in the third quarter as a percentage of sales <unk>.

Selling and marketing expenses increased by 30 basis points over the prior year period.

The increase was driven primarily by increased event and boat show activities as well as personnel costs.

Offset by an increase in it infrastructure expenses and travel.

Net income for the quarter increased 56, 1% to a record $54 $8 million adjusted EBITDA for the quarter increased 39, 9% to a record $79 8 million.

And adjusted EBITDA margin increased 230 basis points to 23, 2%.

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.

Our strong performance.

Driven by increased volume a richer mix of product over the quarter is a testament to our team and how they've continued to persevere in the face of the challenging operating environment. This was supported by smart strategic deployment of capital, including our continued vertical integration efforts across our brands last quarter's acquisition Malibu electronics was a major success and helped us.

Take greater control over our supply chain, while driving higher unit volumes despite the environment.

As Jack mentioned earlier.

While supply chain issues and cost inflation continued to drive.

Uncertainty we are in a strong position to continue to maximize our production it's difficult environment and continue our momentum to close out a very successful fiscal year 2022.

In a strong fashion.

<unk> on our current operating plan our expectations for fiscal year 2022 are as follows.

We anticipate revenue to grow in the 28% to 29% range year over year.

<unk> adjusted EBITDA margin is expected to approach 25%.

Our track record of sound decisions to vertically integrate acquired brands positioned for growth invest in new product and expand capacity, where appropriate we will prove to be the things that differentiate us.

We believe our team and our strategy set us apart and we are positioned to have industry, leading performance that will deliver value for our shareholders partners and employees through fiscal year 2022 and beyond.

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

Thank you as a reminder to ask a question you will need to press star one on your Touchtone telephone. Your question has been answered or you wish to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from Mike Swartz with choice Securities.

Hey, guys good morning.

I just wanted to touch on margins for the quarter I think.

EBITA margin might have actually been an all time record for you. So just maybe go through maybe the puts and takes there and how do we look at brand by brand I mean, I guess, where did the brand sitting that general.

Vicinity of getting to the 20% plus.

Plus targets that you've outlined.

In the past.

Yes, with respect to the performance across the portfolio.

I would tell you that the the Malibu brand having.

Been here for the longest has the highest margins.

On a year over year basis, we're seeing strength.

Across the business the one place where there is a.

Bit of margin pressure is in maverick, but that's because we've added a bunch of costs.

That business as we position it to grow even further and really fill up that plant to expansion.

So with respect to the.

The 20% target.

The Malibu businesses in excess.

Of that 20% target and it has been for some period of time and continues to.

The increase as we continue to invest in that business, whether that be through the engine vertical integration flooring, Malibu electronics et cetera.

That is closely followed by the pursuit and cobalt in businesses that are in the.

The higher teens region.

And both are seeing in the quarter meaningful year over year improvements.

So.

The one that.

Is the furthest away and part of the saltwater segment is that Maverick business that we only owned for just over a year.

And where we're making those investments.

<unk> is really pretty predictable and formulaic.

Wayne's point Malibu, various <unk> business, a lot of our operational capabilities have been fully deployed at our Malibu. We've had cobalt now for over four years, we've seen that EBITDA margin grow and grow I think two years into it we had double EBITDA and so we continue to see the margin grow.

The changes that we make as it becomes more sophisticated.

I will say pursued had a really really good quarter from a growth and an EBITDA margin perspective did very very well.

And then in Maverick and to the point about Maverick, we're a year less than a year and a half into it and so you can expect to see the very top of the same type of growth overtime with Maverick as we've seen with the others.

Okay.

Great color and then maybe just a question on the on the guidance I mean, I think if I'm doing my math correctly. It would imply that there is a sequential step down in production and margins maybe.

Talk us through that is that just seasonality was there something in the third quarter that was a bit of an anomaly and we see kind of a return to more of a baseline or.

Just any color you can provide around that.

Yes, what I would tell you is.

Q4 is setting up similar to Q3, and what we said last quarter was.

Our guidance for Q3 was hey look there's there's some upside here.

And we contrast that to the prior year.

We said look there is not a lot of upside to this as our guide and we don't think that there is a lot of juice, we can squeeze out of it.

Alternatively last quarter, we said, Hey look here's the guide, but yes, we're going to do everything we can to maximize production.

The environment allows us to.

We will do it and what I would tell you is with respect to Q4, you have a little bit of a similar setup as to Q3, where you have upside in the quarter.

Relative to that guidance.

But the supply chain continues to rear its head in pretty pretty meaningfully and so I think the.

Element there on volume and margins really has to do with.

Setup and could Q4 look a lot like Q3, yes.

But the amount of uncertainty that we're dealing frankly.

Has been increasing over the past three to five weeks as opposed to decreasing.

We went into.

Last quarter.

Okay very helpful. Thanks, guys.

Yes. Thank you.

Thank you. Our next question comes from <unk>, Zhang with Bahrenburg.

Hey, guys. Thanks for taking my question.

Yes.

Average unit prices continuing to increase.

Sequentially, hoping you could once again addressed the question of how high unit prices can continue to expand at this point with that seeing significant demand destruction.

Your expectation for prices are once supply kind of normalizes down the line.

Really I think first of all I'd point out that the asps are being driven by what the customer wants.

Is that larger boat.

If the bow with more features more options on it so thats primary driver and as long as that's in place you can continue to see those asps grow.

Have been in a scenario that for a dozen years. Since 2009, we are continually seeing the asps grow the size of the both grow in terms of what the customers wanted wanting the amount of features and innovations that are being put on the boats and.

And is that a couple of different aspects to it is driven Isps of course, but it is also quick in the cycle for when a personal trade in their boat and get another boat and Thats something that we feel like that we certainly mastered over time of creating that environment, where a customer says I have got to have that newest bill because.

And I would just add to that Rudy that.

While we've taken some price to help offset the inflationary pressures. The reality is that pricing meaningfully moved at retail back in the second half of calendar 2020, when inventory tightened up and so there is.

Well over 18 months of acceptance by consumers at elevated pricing levels.

And.

Very cognizant of.

The element, that's inflation related and we're going to manage that appropriately.

And not and not push that too hard but to Jack's point, there's a lot of elements of mix Bolton model and feature set to consumers absolutely driving.

That's really helpful and then just.

Secondly, I guess.

Could you just provide some further color on amtech I guess, how quickly been able to integrate it how quickly, let's say kind of ramping.

How much it benefited your ability to increase production volumes during this quarter.

With the acquisition that I think we're very well staged to very quickly take on new products for both Malibu and cobalt.

It's hard to put an exact number on it but it amtech absolutely drove more units and a tremendous amount of return on investment in this quarter. It will do it again.

Again in the fourth quarter, and then I think over time as we start rolling it out to the other two brands.

It's going to have a big impact yes.

To add a little anecdote there I would tell you in the quarter.

We experienced an acute shortage of a relatively small harnessed from a different supplier and having amtech allowed us to turnaround.

Prototype harness within 24 hours.

COBOL and within 48 hours, having production volumes delivered to the plant. So its the type of thing that in this environment and that agility to keep the lines moving.

Yeah, actually resulting in lower costs and.

And just absolutely maximizing your volume that is hard to quantify in terms of return.

Okay. Thanks, guys appreciate it.

Thank you.

Our next question comes from Joe <unk> with Raymond James.

Hi, guys. Good morning, good morning, good morning.

First question on supply chain I wanted to back to something you mentioned earlier when.

The uncertainty and lack of visibility.

<unk> I guess over the last three years to five weeks. If you look at your revenue guide the original guidance for the back half was revenue accelerating in Q4 slightly from Q3.

No longer the case based on today's guidance.

Our checks indicate that things got a little bit worse than a few wide in April from a supply chain standpoint, it sounded like you sort of confirm that so maybe help us understand what you saw in April and what you're seeing in May.

Supply chain standpoint, thanks.

It's really a more of a continuation of the same Joe it's been extremely unpredictable you don't know from a week to week basis, what youre going to be short one thing that I would point to though is the shutdown in Shanghai has absolutely had an impact.

I think that.

As long as China can continue to.

We remain somewhat stable that will look a little bit better from supply chain, but we just simply don't know that.

Okay. That's helpful. And then maybe on pricing, obviously youll see that 'twenty, one I know a lot of that was mix, but maybe help us understand how much of that was with these price increases I know you guys put in surcharges a few months ago, I guess more importantly, what sort of price increases.

So the MSR piece should we expect for model year 'twenty right.

So in terms of the mix.

Components of mix.

Yes.

Complicated just across the business units as you as you mix up.

With respect to Malibu cobalt, obviously, let's use cobalt for example, the new R series is a meaningfully more expensive.

Model that replaced our three year five year, seven with our four or six or eight and so you have.

A bit of a tailwind there around the mix.

Not dissimilar on the Malibu side.

The new models, a bunch of the newer models are larger in size and so it's probably a little bit higher than 50% of that is in the form of year over years.

Price increases and the rest being a strong mix component.

So in terms of modeling 23, as we think about that.

Look we're.

We're working through that currently.

I think we're focused as we have always been on having a long term sustainable business model and I think given the inflationary pressures I think we feel position like we can.

Increased price to maintain margin, but I don't think that we are inclined to increase price for the sake of increasing price. So we're going to try and minimize those as best as we possibly can.

And let the environment.

It really dictate to us.

Where that needs to go.

Okay. Thanks, guys.

Thank you.

Our next question comes from Jamie Katz with Morningstar.

Hi, good morning, nice quarter. Thank you for taking my question.

I'm, mostly curious to hear what Didnt go as expected this quarter, because it looks like things really turned out quite a bit better than what they anticipated.

I think you captured it well it was a blowout quarter is hard to imagine why our stock where it's at.

Okay is there any insight that you have to like with surcharges and.

And maybe how those are being absorbed and how you think about whether to increase them or <unk> them back over time.

Yes, it's been pretty remarkable we've not seen any pushback at all on the surcharges and I think that.

We thought long and hard about do we do a price increase that we do the surcharge will benefits of each of those and I think that from a surcharge standpoint as well as the amount we struck a great balance we tried to not only cover the cost that we've incurred to that point, but also anticipate the costs that we're going to come for the.

The rest of the year and I think our margins demonstrated it's been very resilient and we've been able to hold them and so I think we've done an exceptional job with that surcharge.

I say, we have not seen any impact on the desire for boats.

Thanks. Thank you so much thank.

Thank you.

Our next question comes from Tristan Thomas Martin with BMO capital markets.

Hey, good morning.

Good morning.

First question Brunswick, they called out some weather impacts in the quarter did you see anything similar to that and then what was your retail performance in the quarter.

Yes, we did we heard it from our northern dealers and it's been I think a colder wetter weather environment up north and similar to a lot of other years like this we see it go from south to North. So there was some I think there was some impact on the retail side in the north that seems to have turned.

That first week of April North Carolina mentioned, North Carolina dealer. That's a Prime example, they saw a lot more activity in the month of April so.

We've seen it from a retail standpoint, I think Wayne I'll, let you touch on that but I think it's about what we would have expected.

Yes, I do think that there was some weather impact in terms of the deliveries that you are looking at registration data.

Either in Ssi or warranty registrations, but from a retail activity with our dealers.

I think it's really on par with what we had expected.

And then what did you expect just to kind of give us some numbers.

Well I think.

It's going to be a little bit down year over year versus 2021, because 2021 was so robust if you recall that the kind of big.

Yes jump in orders for the LTM period ended June of 2021 was incredibly high.

And so you have you have a little bit of decrease on a year over year basis, because and because of just the strength in Q1 2021.

Okay got it and then.

Given the capacity expansion of Maverick <unk> electronics.

Electronics coming online what could your annual production run rate look like.

We've talked about it in the past a little bit without the supply chain. It can easily run we feel locked in 12000.

Okay.

Awesome. Thank you.

Thank you.

I'm not showing any further questions at this time I would now like to turn the call back to Jack Springer for any further remarks.

Alright. Thank you very much in summary, we achieved an outstanding record setting quarter, despite a consistently difficult supply chain environment.

Our dealer backlog remains very strong supported by unprecedented retail demand for larger innovative both driving ASP growth across the board.

The supply chain continues to be very unpredictable limiting production and now we are seeing new issues emerged with the recent shutdowns in Shanghai.

Our recent acquisition of Malibu electronics is already generating a significant return on investment and has enabled us to increase volumes at Malibu and cobalt.

Lack pursuit before the Maverick plant II expansion will deliver more volume larger boats and improved margin profile for the Kobe and Pathfinder brands and Maverick boat group as a whole.

Our approach to price increases through surcharges were very prudent and as covered inflationary cost at this point.

And lastly channel inventory continues to be a historic lows setting us up for a two to three year runway to ramp up production as the supply chain improves over time.

I want to thank you today for joining us and we thank you for your continued support have a fantastic day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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