Q1 2024 Malibu Boats Inc Earnings Call
Good morning, and welcome to Malibu boats conference call to discuss first quarter fiscal year 2024 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 reproduction of this call in whole or in part is not permitted without written authorization of Malibu boats and as a reminder, today's call is being recorded.
On the call today from management are Mr. Jack Springer, Chief Executive Officer, Mr. David Black interim Chief Financial Officer, and Mr. Ritchie Anderson, Chief operating officer.
I will now turn the call over to Mr. Black to get it started please go ahead Sir.
Thank you and good morning, everyone on the call Jack will provide commentary on the business and I will discuss our first quarter of fiscal year 2020 for financials. We will then open up the call for questions. A press release covering the company's fiscal first quarter 2024 results was issued today and a copy of that press release can be found in the investor.
Our 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 and 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.
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 David and thank you all for joining the call.
Both delivered solid first quarter fiscal results that surpassed our expectations. Despite a rapidly evolving operating environment for the first fiscal quarter net sales decreased 15% to $255 $8 million compared to the prior year net income decreased 42% to $28 million, while adjusted EBITDA.
Fell 31% to $39 million gross margins decreased 250 basis points to 22% and adjusted EBITDA margin decreased by 370 basis points to 15%.
In 12 short months, we went from unprecedented demand and navigating supply chain constraints, while shipping every boat possible to an incredibly volatile environment flushed with rising interest rates and decreasing demand levels.
Our team has taken this fluid environment in stride. However over the last several months the retail market, notably deteriorated and as that happened. We continued to showcase our durability as a business improve our dominant position in every market we serve.
General inventories across our brands are now back to or above pre COVID-19 levels and we have worked diligently to match wholesale supply to retail demand by quickly aligning production levels throughout the quarter, which accounts for the decreases versus last year.
While the softer retail demand levels are being driven by macro factors. They are being exacerbated by the return to a more normalized seasonality. In addition, the sense of urgency from customers to buy a boat has largely disappeared.
The silver lining is that across all of our brands those customers that are looking to buy.
We are continuing to gravitate toward larger more feature rich boat supporting higher asp's.
Importantly, these cells are also nearly all cash those customers utilizing significant financing when buying a boat or sitting on the sidelines in this more challenging interest rate environment.
This is very evident in recent metrics, historically, Malibu cobalt and pursuit consumers have averaged about 50% and those that pay cash for 75% or more of their purchases of those brands.
Through October 65% of Malibu customers, 59% of cobalt customers and 55% of pursue customers are paying cash for at least 75% of their boat purchase.
OBO, which averages about 40% of the customer base paying 75% or more of their boat purchasing cash has come in at 57% in the last four months.
Access was a surprise to me historically that average for consumers paying cash for 75% or more of their purchases has averaged 25% to 30% now.
At all access is averaging 45% of buyers paying in cash for 75% or more of their boat purchase.
Little doubt in our minds that the person buying on credit and buying next here. Both in terms of brand recognition and quality are remaining on the sidelines.
As we discussed last quarter, we have continued our aggressive introduction of new product into the market. In Q1, we have introduced four new Malibu and axis boats discussed in August and we have also introduced four new cobalt boats that are shipping to dealers now.
Excuse me one of the cobalt new both as a new or a 33 serve the largest surf boat ever designed and introduced by an M. B a brand.
They are 33 circle utilize surf gate and all of our surf technology, making it the largest most incredible wave generating machine over 30 feet.
This will continue to capture the serve craze and drive cell dealer, who currently standing in line to get there first one.
Pursuit, we have introduced the OS four O fab and it was on display for the first time at Fort Lauderdale, generating rave reviews, but more importantly in a fantastic success of a boat show that it generated orders.
As we have seen historically all of this new product will lessen the impact of any downturn we are in.
Speaking of Fort Lauderdale, We had spectacular results were surprising in this environment pursued was exceptionally strong last year percent set a record for sales at Fort Lauderdale at just over 30 units. So this year, we blew that record away proceed saw sales of 49 units and undoubtedly we expect to close a few.
More of this week the.
The metrics behind the sales were interesting and provides credibility to what we are saying and I have said in the past and on this call.
Large premium both led the way with 34 units sold being over 30 feet in link and 11 units being over 40 feet in length. This is one of the highest concentrations of larger both I remember, saying for pursuit.
Another key indicator of the premium focus was the richness of the E. S. P. R.
A S. P. On the boat show was nearly $520000 versus a normal year round a S. P. A 325 to $350000.
Toby yourself, which we're right on top of last year's record sales also bore out the larger premium nature of the show.
Almost 80% of the both so we're over 30 feet in length and carried an ISP of over $300000, which is nearly $200000 more than normal ISP. Your route.
Fort Lauderdale was a surprisingly strong show for us and although only one data point provides a positive vibe in the saltwater environment.
Market share for all of our brands continues to be a very positive story on a trailing 12 month basis, Malibu and axis is up 300 basis points in share cobalt Stern drive share is up 290 basis points pursuit has gained 205 basis points of share Pathfinder has gained 210 basis points of share to us.
And koby is slightly up at 10 basis points of share gain we fully expect this to continue throughout the downturn.
A monumental strength in India, and one that I believe is greatly overlook as our variable cost structure and the ability to generate free cash flow.
There are very few companies that have the capability, we do in achieving this since 2017 every year our variability of cost of goods sold is ranged from the high 80% range to 90% and in fiscal year quarter. One. It was no exception coming in at 88, 4% variable cost down to the gross margin line.
This leads to very strong cash generation in 2023, our free cash flow was nearly $130 million and our free cash flow conversion for the last three years has averaged 60%.
This gives us extreme covenants. So we can be very profitable and capable of investing in strategic opportunities opportunities at any point in time and in any cycle.
We've been through these cycles before and each time, we've emerged stronger our operational capabilities are unmatched and our innovation continues to set us apart and important element to our playbook is successfully matching production to retail demand.
Not only to protect our margins, but also to protect our dealers and make sure. They stay healthy Malibu <unk> ability to remain agile and flexible has always been and continues to be a key differentiator for Malibu.
I will say it again, our cost structure is 80% to 90% variable, which is which allows us to execute quickly and outperform.
Vertical integration allows us to control key components of our both from concept through delivery to the customer are operational excellence makes us nimble and capable of strong performance in any environment, while channel inventories, including saltwater normalized much faster than anyone anticipated are nevertheless to slow down our build schedule has helped our <unk>.
Dealers to have healthy inventories, enabling them to sell through model year 2023 inventory more quickly.
We are certainly laser focused on the inventory levels and believe most marine Oems are as well, which will ultimately lead to a quicker recovery once demand in Greece. It.
Looking ahead, the retail environment continues to weaken driven largely by dealer concerns around the broader economic and interest rate environment and as a result, they are being extremely cautious around inventory levels.
We had expected to see improvement in the second half of the year, but based on what we're seeing today that is not likely to be the case instead, we expect wholesale demand across our brands to remain pressured.
As such we are revising our fiscal year 2020 for outlook and now expect sales to be down from a high teens to low twenties percentage versus fiscal year 2023.
While it is a challenging environment my confidence in this team our dealers and the strength of our brands is unwavering I can't say it enough. We have managed through challenging times before and we will do it again in.
In these moments the companies that can leverage a strong balance sheet and continue to invest in the future while it definitely in strategically managing the business are the ones that emerged stronger than ever.
That has and will be Malibu, we have a strong track of outperforming the industry and everything we have done from an operational excellence and vertical integration standpoint will protect margins even in a down environment.
Great example of this is our rollout of the monsoon engine for cobalt, which we will continue to scale over the next few years. Additionally, we are very excited about the build out of our cobalt operations in Rone County, which will increase our volume capability and efficiencies for this brand. We are confident we will begin producing small boats in this facility and the <unk>.
First quarter of calendar year 2024.
Wherever our enterprise with a winning strategy, we will stay nimble advanced our innovation and product development, leveraging our vertical integration footprint and enhance operational excellence initiatives to ensure we remain on top as market conditions improve.
Now I'll turn the call over to David for further remarks on the quarter.
Thanks, Jack and the first quarter net sales decreased 15, 3% did you entered and $55 8 million and unit volume decreased 24, 1% to 1698 units.
Decrease in net sales was driven primarily by decreased unit volumes across all segments increased flooring program cost across all segments, resulting from higher interest rates and increased inventory levels, partially offset by a favorable model mix across all segments and inflation driven year over year price increases.
Now I'll do and Axis brands represented 47, 3% of unit sales or 804 boats saltwater fishing represented 29% or 491 votes and cobalt made up the remaining 23, seven or 403 boats.
Consolidated net sales per unit increased 11, 5% to approximately 150 665000 per unit, primarily driven by year over year price increases and favorable model mix within all segments.
Gross profit decreased 23, 9% or $17 8 million to $56 8 million and gross margin was 22, 2%. This compares to a gross margin of 24, 7% in the prior year period.
The decrease in gross margin was driven primarily by a decreased mix of our higher margin Malibu segment and increased dealer flooring costs.
Selling and marketing expense increased 10, 9% in the first quarter.
The increase was driven primarily by increased promotional events and an increase in compensation and personnel related expenses.
As a percentage of sales selling and marketing expense increased 50 basis points did you, 0.2% compared to one 7% in the prior year period.
General and administrative expenses increased seven 7% or $1 5 million. The increase was driven primarily by an increase in compensation and personnel related expenses as a percentage of sales G&A expenses increased 170 basis points to eight one compared to the prior year period.
Net income for the quarter decreased 42, 5% to $20 8 million adjusted EBITDA for the quarter decreased 31, 7% to $39 million and adjusted EBITDA margin decreased to 15, 2% from 18, 9%.
non-GAAP adjusted fully distributed net income per share decreased 36, 9%.
Dollars 13 per share.
This is calculated using a normalized C corp tax rate of 24, 5% and a fully distributed weighted average share count of approximately $21 3 million shares.
For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics. Please see the tables in our earnings release.
As Jack mentioned earlier, the retail environment continues to weaken driven largely by dealer concerns around the broader macro interest rate environment. While we had originally expected to see improvement in the second half of the year. We are now revising our fiscal year 2024 outlook to account for softening conditions in light of the weakening retail environment that has disrupt.
Seasonality heading into Q2.
We anticipate year over year decline in net sales ranging from high teens to low twenties percentage. We expect Q2 revenue decline of approximately 35% consolidated consolidated adjusted EBITDA margin is expected to be down 350 to 450 basis points year over year with Q2 down approximately 700.
Basis points.
We remain incredibly proud of our team's continued execution of MBR and our ability to navigate through any down cycle. We may face our variable cost structure strong cash flow generation has allowed us to execute quickly and outperformed all while maintaining strong workforce and relentlessly pursuing vertical integration and strategic acquisition opportunities.
Regardless of the environment, we are excited and optimistic about the future here at Malibu. Our team is strong our business model is battle tested and we continue to be positioned well strategically for fiscal year 2024 and beyond that.
All for questions.
To ask a question. Please press Star then one on your Touchtone telephone.
If your question has been answered or you wish to withdraw your question. Please press Star then two.
Please stand by while we compile the Q&A roster.
Yeah.
And our first question will come from Mike Swartz with Truest Securities. Please go ahead.
Hey, good morning, guys maybe.
Maybe just to start off on on the retail environment and some of your commentary around retail being softer in being one of the rationale for why you brought down your guidance I mean, we've obviously hidden everyone's seen the retail over the past couple of months and I think most people would say the numbers were actually decent you're talking about you know Fort Lauderdale, some others have talked about how strong.
Fort Lauderdale was yet you're you're kind of using that to take down guidance, maybe just help us understand and clarify what exactly you were talking about is this is more to do with the dealer psyche than the actual retail demand that we're seeing any color would be great. Thanks Jack.
Yeah, I think it's the dealer sake, if all of the consumer stocking I don't I can't I can't belabor enough that any one that's going to be purchasing on interest rates are probably sitting on the sidelines. If you look back to 2021 'twenty two the interest rates. If they are buying or are you know up to four times more than what they were paying back then so I think.
That's a big impediment to the to the retail consumer psyche.
The dealers are certainly paying more they want to carry less inventory that factors into it and ultimately I think every single OEM company that is talking about that theyre looking at their order backlog versus previous years, and what they think you'll wind up being.
Unknown Executive: Good morning and welcome to Malibu Boats conference call to discuss first quarter fiscal year 2024 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 reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats and as a reminder today's call is being recorded On the call today for management are Mr. Jack Springer, Chief Executive Officer, Mr. David Black, Interim Chief Financial Officer, and Mr. Richie Anderson, Chief Operating Officer I will now turn the call over to Mr. Black to get it started. Please go ahead sir Thank you and good morning everyone. On the call Jack will provide commentary on the business and I will discuss our first quarter of fiscal year 2024 financials We will then open up the call for questions.
What I hope frankly is a fort Lauderdale proves to be a shift or a change in the environment that we have been in and things that we're going to continue to be in versus an aberration because it was so so strong.
And it was clearly evident that if you were an OEM that fold smaller boats or so less premium boats, you did not do as well and it was a premium like the pursuits of the world the Kobe as of the World.
<unk> did very well in and that bodes extremely well for that's all water environment.
But ultimately I think that you know what we have coming out of smog is you have you know year end sales event that will take place in freshwater through the rest of the year. Then you get that freshwater boat show cycle Miami of course, there's always going to be very important. So by the time that we get to reporting on the second quarter. I believe we will have a much better feel for what the years.
David Black: The press release covering the company's fiscal first quarter 2024 results was issued today and the 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, and other information that might be considered forward looking and that actual results could differ materially from those projected on today's call.
Turned out to be.
Okay.
Helpful. And then just just with regards to new Malibu kicked off its annual year end factory event I think it was a week or two ago, maybe just give us a sense of how that program compares to years past than maybe what you've seen thus far from a from a demand or an order perspective.
David Black: 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. You will encourage you to review our SEC filings for a more detailed description of these risk factors.
You know from our from what we've seen it's really too early to tell a lot of times that starts happening and then November and the leading all the way up to the December 15th timeframe of what I would tell you on the program itself is and I think that every boat. One is experiencing this is it is Richard this year than in previous years I think in there.
Towboat and freshwater environment, we are in the in a more promotional.
David Black: Please also note that we will be referring to certain non-gap 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. Reconciliation of these non-gap financial measures to gap financial measures are included in our earnings release.
Promotional Ah mindset, and we're seeing that with our competition as well and so you know I had to drive some of the volume we're going to have to be more promotional than we certainly took that attack path into the ear and sells about.
Okay. Thank you.
Okay.
And our next question will come from Eric Wold with B Riley Securities. Please go ahead.
Jack Springer: I will now turn the call over to Jack Springer. Thank you David and thank you all for joining the call. My group has delivered solid first quarter fiscal results that surpass our expectations despite a rapidly evolving operating environment.
Thank you good morning.
One point of clarification on the updated net sales guidance for the year what is the implied retail.
Jack Springer: For the first fiscal quarter net sales decrease 15% to $255.8 million compared to the prior year net income decrease 42% to $20.8 million while adjusted EBITDA fell 31% to $39 million. It goes margins decrease 250 basis points to 22% and adjusted EBITDA margin decrease by 370 basis points to 15%. In 12 short months we went from unprecedented demand and navigating supply chain constraints while shipping every boat possible to an incredibly volatile environment flush with rising interest rates and decreasing demand levels.
Market change there.
Using there.
So we're expecting.
High single digits to low double digits and our unlock God.
Okay and then on the.
Jack you talked about it I would tell you that.
Those credit buyers, they're relying on credit on the one staying on the sidelines.
In your opinion are the only purely thinking Mcdonald's because that's our interest rate costs are you seeing any reluctance from.
Wonder if this environment or any inability for those buyers to get credit even if they wanted to step off the sidelines and make that boat purchase.
Jack Springer: Our team has taken this fluid environment in stride. However over the last several months the retail market notably deteriorated and as that happened we continued to showcase our durability as a business and prove our dominant position in every market we serve. Channel inventories across our brands are now back to or above pre-COVID levels and we've worked diligently to match host cell supply to retail demand by quickly aligning production levels throughout the quarter which accounts for the decreases versus last year.
Yeah in terms of order is certainly they're just staying on the environment, because they're not going to pay those interest rates and it's so different than what it was if we go back to 2021 and the end of 'twenty 'twenty. One the interest rate was 0.25% by the fed now, 5.25% and so that has a huge impact on them. They are of course in this environment there.
There's some level of people that are looking for credit, but the it's more strenuous to get it or they cannot get it but I would put that at the bottom of the category in terms of versus people, who just are sitting on the sidelines.
Jack Springer: While the softer retail of the man levels are being driven by macro factors, they are being exacerbated by the return to a more normalized seasonality. In addition, the sense of urgency from customers to buy both has largely disappeared. The silver lining is that across all of our brands, those customers that are looking to buy are continuing to gravitate toward larger, more feature rich both supporting higher ASPs. Importantly, these cells are often nearly all cash.
Got it. Thank you very much helpful. I appreciate it.
Sure.
And our next question will come from Craig Kennison with Baird. Please go ahead.
Hey, Thanks for taking my questions as well I wanted to ask about your your dealer network and the health of that network.
Jack Springer: Those customers utilizing significant financing when buying a boat are sitting on those five lines in this more challenging interest rate environment. This is very evident in recent metrics. Historically, Malibu, Cobalt and Pursuit consumers have areas about 50% in those that pay cash for 75% or more of their purchases of those brands. Through October, 65% of Malibu customers, 59% Cobalt customers, and 55% of Pursuit customers are paying cash for at least 75% of their boat purchase.
Given you know carrying excess inventory may be facing higher interest expense any concerns about.
Your network or the broader marine dealer network.
Largely know Craig I mean, you always have some that you watch a little bit more closely we're very in tune with wells Fargo, and what they're saying and the early warning systems that are in place that did not exist in 2008 and 2009, So we feel pretty confident and we're actually looking to expand our dealer networks and we're working on that.
Jack Springer: Corbio, which averages about 40% of the customer base paying 75% or more of their boat purchasing cash, has come in at 57% in the last four months. Access was a surprise to me. Historically, that average for consumers paying cash for 75% or more of their purchases has averaged 25 to 30%. Now, access is averaging 45% of buyers paying in cash for 75% or more of their boat purchase. There is a little doubt in our minds that the person buying on credit and buying next-tier boats in terms of brand recognition and quality are remaining on the sidelines.
Today, the one thing I would point to though that we're focused on is during COVID-19 when the pier one builder's Oems could not build enough boats dealers took on tier two and tier three brands.
And so that that needs to go away frankly, I mean, theres floor plan, that's being tied up with with garbage brands and so we need their floor plan. So that is a focus area of ours.
And then could you just comment on the age of inventory and weather.
You see any issues with.
Non current model year inventory.
Jack Springer: As we discussed last quarter, we have continued our aggressive introduction of new product into the market. In Q1, we have introduced the four new Malibu and access boats discussed in August, and we have also introduced four new fill-ball boats that are shipping the dealers now. Excuse me. One of the Cobalt new boats is a new R33 SERP. The largest SERP boat ever designed and introduced by an MBI brand. The R33 SERP will utilize SERP gate and all of our SERP technology making it the largest most incredible wave generating machine over 30 feet.
For us no or in fact, even if we look at it across that freshwater environment. When we had the promotion back in July that was so successful a lot of that 23 inventory was moving there's very very little as you can imagine 22 inventory and so that's something that's a little bit of a difference from.
You know the last decade, if you look at it that way on saltwater I think that we were highly successful in any remaining aged inventory moving through that at Fort Lauderdale. So if I look at it over a call. It a five to seven year timeframe I would say that for our from our standpoint, the inventories are at.
Jack Springer: This will continue to capture the SERP craze and drive cells. These are currently standing in line to get their first one. At pursuit, we have introduced the OS405 and it was on display for the first time at Fort Lauderdale generating rave reviews, but more importantly in a fantastic success of a boat show that it generated orders. As we have seen historically, all of this new product will lessen the impact of any downturn we are in.
Fresh is they've been with the exception of during those Covid years.
Great. Thank you Jack.
Thank you.
And our next question will come from Joe Ultra Bello with Raymond James. Please go ahead.
Thanks, Hey, guys good morning.
It seems pretty clear there's there's some affordability issue among a large portion of your buyers given the percentage of cash buyers we're seeing.
Jack Springer: Speaking of Fort Lauderdale, we have spectacular results that were surprising in this environment. Perceive was exceptionally strong. Last year, Perceive set a record for cells at Fort Lauderdale at just over 30 units sold. This year, we blew that record away. Perceive saw cells at 49 units and undoubtedly, we expect to close a few more this week. The metrics behind the cells were interesting and provides credibility to what we are seeing and have said in the past and on this call.
Jack Springer: Large premium boats led the way with 34 units sold being over 30 feet in length and 11 units being over 40 feet in length. This is one of the highest concentrations of larger boats I remember seeing for Perceive. Another key indicator of the premium focus was the richness of the ASP. Our ASP on the boat fell with nearly $520,000 versus the normal year round ASP of $325,350,000. Tobias Cells, which were right on top of last year's record cells, also bore out the larger premium nature of the show. Almost 80% of the boats sold were over 30 feet in length and carried an ASP of over $300,000, which is nearly $200,000 more than normal ASP year-round.
Your core Malibu axis fire and a lot of that has higher rates as you imagine it but some of them might be pricing as well so.
The manufacturer what can Malibu to get sort of a threat.
Beyond pricing.
You know Joe I think beyond pricing I think that we are going to see a more promotional environment in that regard, but one thing that I would point out on the Malibu axis side is we have been because of our vertical integration because of the way that we manage our business against our primary competitors were 20th.
$30000 less than what they are so the value proposition that we offer the best boat on the market at a lower price because of the way that we manage our business. That's one of the reasons you see a 300 basis point gain in share and you know I think that in that equation you have them with some higher levels of inventory that they're going to have to move.
And so that's going to have an impact somewhat for a while but I am supreme confidence that with our model with the way that we're able to build both at the cost that we're able to build up we're going to win over the long term. They just can't get there. They cant compete in a normalized environment on the cobalt side cobalt continues to <unk>.
Jack Springer: Fort Lauderdale was a surprisingly strong show for us, and although only one data point provides a positive vibe in the soil water environment. Market share for all of our brands continues to be a very positive story. On a 12-month basis, Malibu and Access is up 300 basis points in share. Cobalt's turn drive share is up 280 basis points. Pursuit has gained 205 basis points of share. Pathfinder has gained 210 basis points of share to its credit, and Cobia slightly up at 10 basis points of share gain.
So the incredible strength of the brand and what I mean by that is the holding of Prost and whatever we come out with from a cobalt standpoint continues to be a strength.
Of the brands at lease up into Horn Lauderdale Cobalt has remained the strongest throughout at least the first three months of this year. So you know the I think for more for US frankly is a focus on next year, we have to have suppliers that are coming back to earth and coming out.
Jack Springer: We fully expect this to continue throughout a downturn. A monumental strength of MBI and one that I believe is greatly overlooked is our variable cost structure and the ability to generate free cash flow. There are very few companies that have the capability we do in achieving this. Since 2017, every year, our variability of cost of good flow has ranged from the high 80% range to 90% and in fiscal year quarter one, it was no exception coming in at 88.4% variable cost down to the gross margin line.
With costs that makes sense and have the increase is very minimal it's time to get out of this inflationary mindset that many suppliers are in and lets get the pricing back to where it needs to be.
Got it very helpful and maybe just to follow up on that you makes it field inventories are at or above pre COVID-19 levels. I think on your last call. You mentioned you wanted them to be a tad below that.
We still think a tad below that is the right level given the current demand environment and what's baked into your guidance.
Jack Springer: This released a very strong cash generation. In 2023, our free cash flow was nearly $130 million and our free cash flow conversion for the last three years has averaged 60%. This gives us extreme confidence that we can be very profitable and capable of investing in strategic opportunities at any point in time and in any cycle. We have been through these cycles before and each time we have emerged stronger. Our operational capabilities are unmatched and our innovation continues to set us apart.
Given that I'll, let David answer the last part of the question but.
Given the current environment I think it is a tad below COVID-19 levels would a pre COVID-19 level it would be the right amount of inventory.
Yeah and embedded in our guidance, we were using the pre COVID-19 levels.
On a sell through perspective, so that's where we feel like the appropriate level is and we baked it into our future outlook.
Outlook.
Okay. Thank you.
And our next question will come from Jamie Katz with Morningstar. Please go ahead.
Jack Springer: An important element to our playbook is successfully matching production to retell the man. Not only to protect our margins, but also to protect our dealers and make sure they stay healthy. Malibu's ability to remain agile and flexible has always been and continues to be a key differentiator for Malibu. I will say it again, our cost structure is 80% and 90% variable, which allows us to execute quickly and outperform. Our vertical integration allows us to control key components of our boats from concept through delivery to the customer.
Hi, Good morning, I guess it would be helpful to hear how you guys are thinking about the lake.
In profit pressure between gross margin and Opex. This.
This year and then maybe if there's a way to quantify what the flooring costs might be.
That might help us.
Frame.
Thanks.
Yeah, so on the gross margin side.
Obviously, you know embedded in our guidance is more weakness on the tow boat side of the business and so you saw kind of in Q1.
Jack Springer: Our operational excellence makes us nimble and capable of strong performance in any environment. While channel inventory is including saltwater, normalize much faster than anyone anticipated. Our nevelness to slow down a build schedule has helped our dealers to have healthy inventories enabling them to sell through model year 2023 inventory more quickly. We are certainly laser focused on inventory levels and believe most marine OEMs are as well, which will ultimately lead to a quicker recovery once demand increases.
A further shift out of Malibu and that is.
Is creating a little bit of pressure on the gross margin and so you'll see that continue throughout the remainder of the year.
And then on a flooring perspective, I'd say, that's worth about a 150 basis points.
The pressure.
Okay, and then I think you guys said 700 basis points.
Jack Springer: Looking ahead, the retail environment continues to weaken, driven largely by dealer concerns around the broader economic and interest rate environment, and as a result, they are being extremely cautious around inventory levels. Further, we had expected to see improvement in the second half of the year, but based on what we are seeing today that it's not likely to be the case. Instead, we expect wholesale demand across our brands to remain pressured. As such, we are revising our fiscal year 2024 outlook, and now expect sales to be down from our high teams to low 20s percentage versus fiscal year 2023.
EBIT guide deleverage in the second quarter is there anything idiosyncratic and not or.
Or is it just.
Deleverage from lower volumes.
It's predominantly.
Imminently, the deleverage from lower volumes and a shift in mix as well.
Helpful. Thank you.
And our next question will come from Brandon Rolle with D. A Davidson. Please go ahead.
Good morning. Thank you for taking my question just circling back to the pricing conversation I know on previous calls you had voiced some frustration that suppliers may not have given as much pricing concessions that you're looking for could you update us on your recent conversations and kind of how do you expect pricing to trend here.
Jack Springer: While it is a challenging environment, my confidence in this team, our dealers and the strength of our brands is unwavering. I can't say it enough. We have managed through challenging times before and we will do it again. In these moments, the companies that can leverage a strong balance sheet and continue to invest in the future, while it deeply and strategically managing the business are the ones that emerge stronger than ever. And that has and will be Malibu.
Over the next I would say six to nine months. Thank you.
Brendan I mean, we've had some success nothing I think suppliers are is the natural environment right. When you have high volumes are going to raise prices when the volume starts coming down theyre going to start getting competitive and we've introduce competition into the mix in some cases, because we're very very focused that the consumer.
Jack Springer: We have a strong crack about performing the industry and everything we have done from an operational excellence and vertical integration standpoint will protect margins even in a down environment. A great example of this is our world out of the monsoon engine for cobalt, which we will continue to scale over the next few years. Additionally, we are very excited about the build out of our cobalt operations in Rome County, which will increase our volume capability and efficiencies for this brand.
He is speaking we have to listen to it the suppliers have to listen to it. So I would tell you that we expect marginal success going forward until we get to that but next budget cycle, which is going to be in the March timeframe of next year, and we're going to we're going to be extremely focused and putting a lot of pressure on.
Jack Springer: We are confident we will begin producing small boats in this facility in the first quarter of Calgary year 2024. We have an eye on the prize with the winning strategy. We will stay nimble, advance our innovation and product development, leverage our vertical integration footprint, and enhance operational excellence in this to ensure we remain on top as market conditions improve.
The costing aspect because I do firmly believe that we need to have.
A price increase that's relatively minor who's next year versus you know the previous four years.
David Black: I will now turn the call over to David for further remarks on the quarter. Thanks, Jack. In the first quarter, net sales decreased 15.3%, the 255.8 million, and unit volume decreased 24.1% to 1,698 units. The decrease in net sales was driven primarily by decreased unit volumes across all segments, increased flooring program cost across all segments, resulting from higher interest rates and increased inventory levels, partially offset by a favorable model mix across all segments.
Great. Thank you.
Yeah.
And our next question will come from Noah is that skin with Keybanc. Please go ahead.
Hi, Thanks for taking my question, maybe just one for me on capital allocation priorities I guess does the current environment change, how you're thinking about priorities I know you had mentioned.
You know looking to acquire a pontoon brand or or or greenfield ones or just trying to get updated thoughts.
Around that here thanks.
David Black: And inflation driven year-over-year price increases. The Malibu and Axis brands represented 47.3% of unit sales for 804 boats. Saltwater fishing represented 29% for 491 boats, and cobalt made up the remaining 23.7 for 403 boats. Consolidated net sales per unit increased 11.5% to approximately 15665,000 per unit. Primarily driven by year-over-year price increases and favorable model mix within all segments. Gross profit decreased 23.9% for 17.8 million to 56.8 million, and gross margin was 22.2%.
You know right now what we've done is we our capital allocation has been a product that's been to the Rone County facility, which will be doing small both for cobalt. It's been known for our tooling design Center that is a you know that's going to be a big important vertical integration for us going forward across all of the brands and.
What I would tell you is that you know that doesn't change our mindset a product is critical you know back in 2009 timeframe and a two year period of time, we took market share up 900 basis points, because we were the only one bringing out products. So we're always going to be progressive and aggressive in bringing on new products new innovations we.
Think that's a core lifeblood of the business.
David Black: This compares to a gross margin of 24.7% in the prior year period. The decrease in gross margin was driven primarily by a decreased mix of our higher margin Malibu segment and increased dealer flooring cost. Felling and marketing expense increased 10.9% in the first quarter. The increase was driven primarily by increased promotional events and an increase in compensation and personnel related expenses. As a percentage of sales, selling and marketing expense increased 50 basis points to 2.2% compared to 1.7% in the prior year period.
And we put some in the in the.
In the Powerpoint this morning, you'll see some information on cash and I talk about it as well.
One of the.
Blessings or benefits that we have is because we have such strong cash generators. We don't have to look at an environment and say hey, we need to pull back we we don't need to make this acquisition I will tell you that from an M&A standpoint, if the right asset comes to market at any point in time be at midnight or in the <unk>.
David Black: General and administrative expenses increased 7.7% or 1.5 million. The increase was driven primarily by an increase in compensation and personnel related expenses, points to 8.1 compared to the prior year period. Net income for the quarter decreased 42.5% to 20.8 million, adjusted EBITAS for the quarter, decreased 31.7% to 39 million, and adjusted EBITAS margin, decreased to 15.2% from 18.9%. NONGAB adjusted fully distributed net income per share, decreased 36.9% to $1.13 per share.
We will be in the market for that acquisition because we can be we we have that capability. We also have three or four initiatives strategic initiatives that we're going to be embarking over the next two or three or four years. There really are no relationship at all to what economic environment. We're in because once we emerge.
That we will be stronger and will have higher market share.
Thank you.
Yeah.
I'm not showing any further questions at this time I would now like to turn the call back over to Jack Springer for any further remarks.
Thank you Joe appreciate it.
Summary, malibu's fiscal first quarter results surpassed our expectations supported by our team superior execution combined with the inherent strength across our lineup of brands. Despite a rapidly evolving operating environment.
David Black: This is calculated using a normalized C-Corp tax rate of 24.5% and a fully distributed weighted average share count of approximately 21.3 million shares. For a reconciliation of adjusted EBITAS and adjusted fully distributed net income per share to Kat metrics, please see the tables in our earnings release. As Jack mentioned earlier, the retail environment continues to weaken. Through it largely by dealer concerns around the broader macro and industry environment.
As we moved through the quarter, the retail environment markedly deteriorated in the sense of urgency customers had over the last few years, largely with God, coupled with a challenging interest rate and macro economic landscape.
However, those customers in the market are continuing to support elevated Isps as they look for free feature rich boats.
Our variable cost structure and ability to create significant free cash flow ensures a strong balance sheet quicker recovery and ability to invest in important strategic opportunities or strategic planning operational excellence and supply chain management continues to support our outperformance of the broader industry and our vertical integration has enabled us to re.
David Black: While we had originally expected to see improvement in the second half of the year, we are now re-guising our fiscal year 2024 outlook to account for softening conditions and lighted the weakening retail environment that has disrupted seasonality heading into Q2. We anticipate year-of-year decline in net sales ranging from high teens to low 20s per percentage. We expect Q2 revenue decline of approximately 35%. Consolidated adjusted EBITAS margin is expected to be down 350 to 450 basis points year-of-year with Q2 down approximately 700 basis points.
Main resilient.
We are confident that this thing will once again exercised this operational prowess to navigate the current environment, while at the same time advancing our innovation, our manufacturing capabilities and our vertical integration footprint to ensure we once again emerge stronger as a market conditions improve.
David Black: We remain incredibly proud of our teens' continued execution at NBI and our ability to navigate through any down cycle we may face. Our variable cost structure and strong cash flow generation has allowed us to execute quickly and outperform. All while maintaining strong workforce and relentlessly pursuing vertical integration and strategic acquisition opportunities. Regardless of the environment, we are excited and optimistic about the future here at Malibu. Our aim is strong, our business model is battle-tested, and we continue to be positioned well strategically for fiscal year 2024 beyond.
As always I would like to thank you for your support and for joining US today, while we are in a challenging retail environment, especially compared to the Covid years, we will continue to thrive and grow with continued excellence in fiscal year 2024 have a great day.
This.
Today's conference call. Thank you for participating you may now disconnect your lines.
Unknown Executive: To ask a question, please press star the one on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, please press star then two. Please stand by while we compile the Q&A roster.
Michael Swartz: And our first question will come from Mike Schwartz with tourist securities. Please go ahead. Hey, good morning, guys.
Jack Springer: Maybe just to start off on the retail environment. Some of your commentary around retail being softer and being one of the rationale for why you brought down your guide. I mean, we've obviously seen everyone seeing the retail over the past couple of months, and I think most people would say the numbers were actually decent. You're talking about, you know, Fort Lauderdale. Some other have talked about how strong Fort Lauderdale was, yet you're kind of using that to take down guides.
Jack Springer: Maybe just help us understand and clarify what exactly you're talking about. Is this more to do with the dealer psyche than the actual retail demand that we're seeing? Any color would be great. Thanks, Jack. Yeah, I think it's the dealer psyche. It's also the consumer psyche, and I can't belabor enough that anyone that's going to be purchasing on interest rates, they're probably sitting on the sidelines. If you look back to 2021-2022, the answer rates that they're paying are up to four times more than what they were paying back then.
Jack Springer: So I think that's a big impediment to the retail consumer psyche. The dealers are certainly paying more. They want to carry less inventory. That factors into it. And ultimately, I think every single OEM company that is talking about this, they're looking at their order backlog versus previous years and what they think it will wind up being. What I hope, frankly is that Fort Lauderdale proves to be a shift or a change in the environment that we have been in and think that we are going to continue to be in versus an aberration because it was so, so strong.
Jack Springer: And it was clearly evident that if you were an OEM that sold smaller boats or sold less premium boats, you did not do as well. And it was that premium like the pursuits of the world, the cobbias of the world that did very well. And that boat is extremely well for that's all water environment. But ultimately I think that, you know, what we have coming out of Smok is you have, you know, year in sales events that will take place in fresh water through the rest of the year.
Jack Springer: Then you hit that fresh water boat show cycle Miami, of course, as always going to be very important. So by the time that we get to reporting on the second quarter, I believe we'll have a much better feel for what the year is going to turn out to be. Okay, that's helpful.
Jack Springer: And then just with regards, I know Malibu kicked off its annual year end factory event. I think it was a week or two ago. Maybe just give us a sense of how that program compares to years past and maybe what you've seen thus far from a, you know, demand or an order perspective. You know, from what we've seen, it's really too early to tell a lot of times that starts happening in that November and the leading all the way up to December 15 timeframe.
Jack Springer: What I would tell you on the program itself is, and I think that every one is experiencing this is it is richer this year than in previous years. I think in that tow boat and fresh water environment, we are in a more promotional mindset. And we're seeing that with our competition as well. And so, you know, to drive some of the volume, we're going to have to be more promotional. We certainly picked that attack pass into the year and so the month. Okay, thank you.
Eric Wold: And our next question will come from Eric Wold with Be Rally Securities. Please go ahead. Thank you. Just one point of clarification on the updated net sales guidance for the year. What has the implied retail market change that you're using there? Yes, so we're expecting high single digits to low double digits in our own block. Okay. And then on the, um, Jack, you talked about those credit buyers, um, they're relying on credit on the ones staying on the sidelines.
Eric Wold: Are they, in your opinion, are they purely staying on the silence because of that, uh, industry costs, right? Are you seeing any reluctance from, um, when there's this environment or any inability for those buyers to get credit, even if they wanted to step on the sideline and make that vote for just. Yeah, in terms of order, it's certainly they're just staying on the environment because they, they're not going to pay those interest rates.
Eric Wold: And it's so different than what it was. If we go back to 2021, the end of 2021, the interest rate was 0.25%. By the Fed, now it's 5.25% and so that has a huge impact on them. They're, of course, in this environment, there is some level of people that are looking for credit, but there is more strenuous to get it or they cannot get it. But I would put that at the bottom of the category in terms of versus people who just are sitting on the sidelines.
Jack Springer: Thank you very much, I appreciate it, sure.
Craig Kennison: And our next question, we'll come from Craig Kennison with there. Please go ahead. Hey, thanks for taking my questions as well. I wanted to ask about your dealer network and the health of that network, given carrying excess inventory may be facing higher interest expense. Any concerns about your network or the broader marine dealer network? Well, there's no Craig. I mean, you always have some that you watch a little bit more closely. We're very in tune with Wells Fargo and what they're seeing. And the early warning systems that are in place did not exist in 2008 and 2009. So we feel pretty confident.
Jack Springer: We're actually looking to expand our dealer networks and we're working on that today. The one thing I would point to though that we're focused on is during COVID when the tier one builders, OEMs, could not build enough boats, dealers took on tier two and tier three brands. And so that needs to go away, frankly. I mean, there's floor plan that's being tied up with with garbage brands. And so we need that floor plan. So that is a focus area of ours.
Jack Springer: And then could you just comment on the age of inventory and whether you see any issues with non-current model year inventory? For us, no. In fact, if we look at it across that freshwater environment, when we had the promotion back in July that was so successful, a lot of that 23 inventory was moving. There's very, very little. As you can imagine, 22 inventory. And so that's a little bit of a difference from the last decade if you look at it that way.
Jack Springer: On saltwater, I think that we were highly successful in any remaining age inventory moving through that at Fort Lauderdale. So if I look at it over a color of five to seven year time frame, I would say that from our standpoint, the inventories are as fresh as they've been with the exception of during those COVID years.
Jack Springer: Great. Thank you, Jack.
Joseph Altobello: Thank you. And our next question will come from Joe Altabella with Raymond James. Please go ahead. Thanks. Hey guys, good morning. So it seems pretty clear that there's some affordability issue among a large portion of your buyers. Given the percentage of cash buyers you're seeing, particularly among your core, you know, malleable access buyers. And a lot of that higher rates, as you mentioned, but some of it might be pricing as well.
Jack Springer: So as a manufacturer, what can malleable features of a dress that beyond pricing? You know, Joe, I think being on a browsing, I think that we are going to see a more promotion environment in that regard. But one thing that I would point out on the malleable access card is we have been, but some of our vertical integration because of the way that we manage our business against our primary competitors, we're 20 and 30 thousand dollars less than what they are.
Jack Springer: So the value proposition that we offer, the best vote on the market at a lower price because of the way that we manage our business, that's one of the reasons you see a 300 basis point gain and share. And, you know, I think that in that equation, you have them with some higher levels of inventory that they're going to have to move through. And so that's going to have an impact somewhat for a while.
Jack Springer: But I am supremely confident that with our model, with the way that we're able to build both at the cost that we're able to build them, we're going to win over the long term. They just can't get there. They can't compete in a normalized environment.
Jack Springer: On the cobalt side, cobalt continues to show the incredible strength of the brand. And what I mean by that is the holding of price and whatever we come out with on from a cobalt standpoint, continues to be a strength. And of the brands that lease up into Fort Lauderdale, cobalt has remained the strongest throughout at least the first three months of this year.
Jack Springer: So, you know, I think for more for us, frankly, is a focus on next year. We have to have suppliers that are coming back to earth and coming out with costs that make sense and have the increase is very minimal. It's time to get out of this inflationary mindset that many suppliers are in. And let's get the products things back to where it needs to be.
David Black: Craig Kennison, David Black, Wayne Wilson, David Black, Craig Kennison, David Black, Wayne Wilson, David Black, Wayne Wilson, David Black, Wayne Wilson, David Black, Wayne Wilson, David Black, Wayne Wilson, David Black, Craig Kennison, David Black, Wayne Wilson, David Black, Wayne Wilson, And then I think you guys said 700 basis points of, you've got the leverage in the second quarter. Is there anything idiosyncratic in that or is it just the leverage from lower volumes? Thanks. It's predominantly the deliverage from lower volumes and the shifting mix as well. Thank you.
Brandon Roll: And our next question will come from Brandon Rollet with DA Davidson. Please go ahead. Good morning. Thank you for taking my question. Just circling back to the pricing conversation. I know in previous calls, you had voiced some frustration that suppliers may not have given as much pricing concessions that you're looking for.
Jack Springer: Could you update us on your recent conversations and kind of how do you expect pricing to trend here over the next, I would say, six and nine months. Thank you. Yeah, Brandon, I mean, we've had some success. I think suppliers are, it's a natural environment, right? When you have high volumes are going to raise prices when the volumes are coming down, they're going to start getting competitive. And we've introduced competition into the mix in some cases because we're very, very focused that the consumer is speaking.
Jack Springer: We have to listen to it. The suppliers have to listen to it. So I would tell you that we expect marginal success going forward until we get to that budget next budget cycle, we're just going to be in that March timeframe of next year. And we're going to, we're going to be extremely focused and putting a lot of pressure on the costing aspect because I do firmly believe that we need to have a price increase that's relatively minute next year versus, you know, the previous four, for years. Great, thank you.
Noah Zatzkin: And our next question will come from Noah Zatzkin with key bank. Please go ahead. Hi, thanks for taking my question.
Jack Springer: Maybe just one for me on capital allocation priorities. I guess does the current environment change how you're thinking about priorities? And then you had mentioned, you know, looking to acquire a pontoon brand or green field ones are just trying to get updated thoughts around that here. Thanks. Yeah, you know, right now, what we've done is with our capital allocation has been a product. It's been to the Ron County facility, which will be doing small boats for cobalt.
Jack Springer: It's been for a tooling design center that is a, you know, it's going to be a big, important vertical integration for us going forward across all of the brands. And what I would tell you is that, you know, that doesn't change our mindset. Product is critical. You know, back in 2009 timeframe in a two-year period of time, we took market share of 900 base points because we were the only one bringing out product.
Jack Springer: So we're always going to be progressive and aggressive in bringing out new product, new innovations. We think that's a core lifeblood of the business. Yeah, and we put some in the, in the PowerPoint this morning, you'll see some information on cash, and I talked about it as well. I think one of the blessings or benefits that we have is because we are such strong cash generators, we don't have to look at an environment and say, hey, we need to pull back.
Jack Springer: We don't need to make this acquisition. I will tell you that from an M&A standpoint, if the right asset comes to market at any point in time, be it midnight or not, we will be in the market before that acquisition because we can be. We have that capability. We also have, you know, three or four initiatives, strategic initiatives that we're going to be embarking over the next two, three, four years that really have no relationship at all to what economic environment we're in because once we emerge from that, we will be stronger and we'll have higher market share. Thank you.
Unknown Executive: I'm not showing any further questions at this time.
Jack Springer: I would now like to come to call back over to Jack Springer for any further remarks. Thank you, Joe. Appreciate it.
Jack Springer: In summary, Malibu's fiscal first quarter results surpassed our expectations supported by our team superior execution, combined with the inherent strength across our lineup of brands, the spot rapidly evolving operating environment. As we move through the quarter, the retail environment markedly deteriorated and the sense of urgency customers had over the last few years largely was gone, coupled with the challenge to interest rate and macroeconomic landscape. However, those customers in the market are continuing to support elevated ASPs as they look for feature rich boats.
Jack Springer: Our variable cost structure and ability to create significant free cash flow ensures a strong balance sheet quicker recovery and ability to invest in important strategic opportunities. Our strategic planning, operational excellence and supply chain management continues to support our outperformance of the broader industry and our vertical integration has enabled us to remain resilient. We are confident to this team will once again exercise its operational prowess to navigate the current environment. While at the same time advancing our innovation, our manufacturing capabilities, and our vertical integration footprint to ensure we once again emerge stronger as a market conditions improved.
Unknown Executive: As always, I would like to thank you for your support for joining us today. While we are in a challenging retail environment, especially compared to the COVID years, we will continue to thrive and grow with continued excellence in fiscal year 2024. Have a great day.
Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect your