Q4 2019 Earnings Call
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 at Malibu boats and as a reminder, this call is being recorded on the call today from management are Mr., Jack Springer, Chief Executive Officer, Mr., Wayne Wilson, Chief Financial Officer, and Mr. Ritchie Anderson, Chief operating Officer, I will turn the call over to Mr. Wilson to get started please go ahead Sir.
Thank you and good morning, everyone.
On the call Jack will provide commentary on the business and I will discuss our fourth quarter and full year 2019 financials.
And our initial outlook for fiscal 2020.
I will then hand, the call back over to Jack for closing remarks.
We will then open the call for questions.
A press release covering the company's fourth quarter fiscal year 2019 results was issued today and a copy of that press release can be found in the Investor Relations section of the company's website.
I also want to remind everyone that management's remarks on this call may contain certain forward looking statements, including predictions expectations estimates or other information that might be considered forward looking and that actual results could differ materially from those projected on today's call you should not place undue reliance on these forward looking statements, which speak only as of today and the company undertakes no obligation to update them for any new information or future events.
Factors that might affect future results are discussed in our filings with the SEC.
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. This morning.
We finished fiscal year 2000, lapping strong once again delivering record results.
Our outstanding financial and operational performance continues to demonstrate the strength of our premium portfolio, our commitment to operational excellence and the superior execution of our team.
I want to thank the entire N.B.U. team for another great year.
For the year net sales increased 38% to $684 million adjusted EBITDA increased 36% to $126 million and adjusted fully distributed earnings increased 46% $82 million or $3.76 per share.
During the fourth quarter, Malibu, cobalt and pursue continued to perform well maintaining a dominant position in the marketplace or.
Each have strong market share in their respective segments with Malibu and cobalt, having commanding share leads in their markets.
Malibu is unique to the industry for developing brand new boat across the entire product line each year and this year is no different our belief is that our exciting multiyear 2020 product lineup will further support our leadership in the coming year.
We are incredibly excited to introduce four completely new boats to the market. This model year in the Malibu and axis brands and over the last six weeks, we have already announced three of the four new boats that exemplify our focus on innovation.
In July we introduced the Malibu Wakesetter 23, I'm actually a brand new model born out of customer demand and the perfect mix of luxury and water sports performance. The Wakesetter 23, a magazine goes up our it makes the series of both Ann Inc. incorporates a wider pickle Fork Bell maximized space and the innovation only Malibu Malibu offers.
Incorporating a number of our patented technologies. The innovation is apparent throughout the 23, I'm actually including our new Stern turn feature which allows for amazing control of the boat at the touch of a button.
This feature is integrated with our proprietary power was three which in addition to start in turn creates remarkable maneuverability in cat spaces, and a value proposition that other inboard towboat competitors simply cannot offer.
Then in August we also announced a new Malibu Wakesetter 20, VTX and the Axis. A 2020 bps is a marine engineering Marvel built for versatility as our engineers spent countless hours designing this both for the old ultimate triathlete, providing tremendous performance for skiing, wakeboarding and wake surfing. What makes this bode incredibly unique is this patent holders, which provides the ability to select the hole from the sport preferred without sacrificing performance over the rest for the rest of the group.
Simply put this is the greatest crossover boat and water sports history and that has been confirmed by sales of this model overtime, making it the best and most successful crossover boat ever built.
Our all new Axis. A 20 is designed to provide an impressive combination of value and performance our axis Wake research team engineered nearly every component on this boat to achieve uncompromising performance in an impressively compact size in them and they truly delivered on this.
This boat in the wake, making powerhouse that is an absolute breeze to dock trailer and garage, while still providing ceiling for 11 people.
The fourth boat is being brought to market in September and we will have more information on that new boat enter next call. These are both further deliver on a customer experience that is far ahead of our competition.
Cobalt has also continued its dominant performance driven by our ongoing operational enhancements and product innovation. Despite contraction in the overall sterndrive market cobalt has continued to outperform the 23 foot to 30 foot segment link which is most is is the most important link segment of the market.
It also remains the market share leader in the comprehensive 20 to 40 foot started Rob segment. This strength reinforces our strategic investments in premium brands, where we are either growing or leaving the segments. The product development engine will began picking up steam in the second half of fiscal year 2020, and over the coming 24 to 36 months cobalt will be bringing a number of new start under server and outboard models to the market.
Pursued is also performing very well capturing additional market share in the 20 to put the 44 foot saltwater outboard segment for model year not thing.
Lack cobalt perceived as a premium brand and has outperformed even our initial objective. It remains very well positioned to continue its impressive growth and market share gains, we believe our dealers and our customers will be very excited to see our new model year 2020 product with one boat coming in the first half of the year and additional boats coming later this year. We're also going to pursue manufacturing capability as our production capacity expansion remains on schedule. We have already begun clearing the property in tomorrow pursue will have his official groundbreaking ceremony for the new plan.
This brand new facility will be a primary driver of value and has been a pursuit as it will allow us to nearly double volume over time.
As you know our unparalleled vertical integration strategy is a primary competitive differentiator for our businesses. Our team has done an unbelievable job delivering a vertical integration initiatives generating synergies across our brands and driving growth and profitability in each of the markets that we serve.
That said, we are pleased to announce that our Malibu monsoon engines are now completely integrated into 100% of our Malibu and axis boats as of the first of July .
The dealer feedback we've received on Malibu monsoon engines has been tremendous as dealers had been eagerly awaiting for them to be incorporated into our entire portfolio of Malibu and axis boat further we know that existing Malibu and axis retail customers are trading in their previous years models on a malibu and axis axis to experience, our new Malibu engines in model year 2020 boat.
The integrated and the integration of our patented swim stepped technology at cobalt into our Malibu models. This last year has been incredibly well received by our dealers and customers. A lot. This is another example of our proven integration strategy in this case cross brand vertical integration.
Our ability to generate dynamic opportunities by leveraging our industry, leading technology and capabilities across each of our brands allows us to unlock maximum value out of our powerful product portfolio.
As of July 1st we have brought to market our newest vertical integration initiative, incorporating our own flooring into all of our Malibu and axis boat.
Well not as large as Gill Malibu engines, the profitability profile all of our new flooring vertical integration initiative is structured as strong or stronger than any of our other vertical integration initiatives over the years.
Malibu flooring will eventually make its way into the other brands thus expanding that profile. This is yet. Another example of our operational prowess and superior execution.
As you can see we are incredibly important proud of the progress we've made in the fourth quarter and in fiscal year 2019.
Now before turning the call over to Wayne I want to spend a few minutes talking about the amplified concerns surrounding the broader macroeconomic environment and more specifically the retail landscape and concerns about a cycle downturn.
We are still positive on the broader consumer sentiment as key economic indicators remain strong and I'll give you. An example of a few.
In June .
The U.S. economy added 164000 jobs in line with average employment growth in the first six months of the year unemployment remains unchanged at 3.7% maintaining the lowest levels. It has been in the last 49 years.
Consumer confidence rose to 135.7 in July this was a surprise far exceeding the expectations and in line with the consumer demand for our product and lastly, GDP is still strong and more importantly, it is positive at the state levels across the board.
That said, we recognize the first half of calendar 2019 has been choppy.
While we were cognizant of that unevenness in the various June results from this data. We believe we are incredibly well positioned as we move forward into fiscal year 2020.
The softness in June reversed largely in July with aside data, revealing strong growth with a performance sports boat or towable segment up 17% and Malibu and axis were up substantially more than that 17%.
Demand remains strong across our brands and the introduction of our new model year 2020 products. We will continue to drive orders. We had plan for continued aggressive growth through fiscal two of putting that team at retail, but a combination of bad weather in what we view as a slightly slower growth environment decreased sell retail sales at our dealers below the aggressive production projections in the highest retail quarter of the year. Therefore, our inventory at levels Malibu were slightly elevated heading into fiscal 2020.
In addition, we believe this is a meaningful challenge higher than normal competitor inventory remains out in the channel today and will likely impact the promotional environment in the near term.
Currently we expect to see a more moderate growth retail environment that may appear choppy for month to month, while we will provide more color when he speaks to our guidance in a few minutes.
We realize there is a lot of noise in the market from the observed retail choppiness to tariffs to concerns that cycle downturn is coming so let's just address the cycle concerns today.
As we have said and we continue to say we do not believe the downturn is imminent. We continue to believe that the 2020 election cycle plus one year is the next potential cycle change. However, it is important to address any potential downturn in perspective.
M.B. you use extremely welcome.
Position to encounter any cycle downturn and even strengthen during that time and we believe we will get stronger first we have premium brands, which will perform better during a downturn.
Secondly, our variable cost structure is a huge asset for us we can quickly adjust and we expect our margins at the gross and the EBITDA levels to remain remarkably consistent even during a downturn.
Over the last eight to 10 years, we have plotted every single addition in meeting our growth requirements. We know every move we made and we can correct quickly reversed course.
Thirdly, it's important to realize that the downturn in 2008 is fresh on everyone's mind, but that was an aberration that will not occur in the next downturn. It was a great recession exacerbated by banking crisis with market participants who were not managing dealer inventories and those factors play as a marine into industry into a 70% decline in units. We expect the next downturn to be similar to those that we experienced prior to 2008.
Those downturns resulted in a 20% to 30% loss of units that rebounded quickly within two to three years from the drop we are committed to being prudent stewards monitoring inventory levels and reacting quickly to align wholesale with retail demand that will be a difference maker in any cycle downturn.
In a normal downturn, we believe we will be able to maintain gross margins in the range of 20% to 24% and EBITDA margins in the mid teens with a rapid acceleration to above 24% growth in near 20% EBITDA margins upon recovery from the cycle.
First our vertical integration advantage, which allows us to manufacture up to 25% more both in health will be a huge advantage in a cycle downturn, we will be able to rapidly de celebrate our cost profile and that cost advantage will allow us to maintain better margins our competitors on the other hand, we'll be solely dependent on the supplier base that will be slow to react and we'll have to maintain pricing to survive because they are sub scale. This will be passed on to manufacturers, giving him be you a big advantage secondly.
Our investment profile for new products and features will remain robust this will drive market share gains across all of our brands. Lastly, we know a number of powder based companies will not want to go through another cycle. This will provide an opportunity to acquire more high quality brands and low acquisition process. If we choose to deploy capital in that manner, frankly, I'm confident that you will be in a great position to maintain the superior margin profile in a down cycle given that and given all these reasons. We also believe will be a stronger powerhouse coming out of any downturn.
Turning back to David current day, and given our ongoing confidence in our business, we will be leveraging our recently authorized $35 billion share repurchase plan during fiscal 2020, as we believe Malibu stock at current levels represents an incredible investment opportunity I will now turn the call over to Wayne to discuss financial performance in more detail as well as our guidance.
Thanks Jack.
In the fourth quarter net sales increased 40.5% to $194.8 million.
And unit volume increased 16.6% to 1992 boats.
The Malibu brand represented approximately 38.7% of unit sales were 771 boats.
Access represented approximately 21.7% or 433 boats cobalt represented 31.9%.
For 636 boats in pursuit made up the remaining 152 boats.
Consolidated net sales per unit increased 20.5% to approximately nine the $7800.
The increase was primarily due to the inclusion of pursuit models, which had a considerably higher average selling price than our other brands.
And for our other brands year over year price increases and a greater mix of larger boats.
Gross profit increased 42.3% to $47.7 million and gross margin was 24.5%. This compares to a gross margin of 24.2% in the prior year period. The increase in gross margin is attributable to our operational efficiency initiatives and consistent with our annual guidance and expectations are comparable gross margin performance in the combined Malibu and cobalt business increased 170 basis points year over year in Q4.
Selling and marketing expense increased 22.2% for.
Zero point $8 million in the fourth quarter as a percentage of sales selling and marketing expense decreased by about 40 basis points.
General and administrative expenses increased 30.5% for $2.7 million. The increase was predominantly driven by incremental expenses attributable to the addition of pursuit boats, including acquisition related expenses as a percentage of sales DNA expenses, excluding amortization decreased 50 basis points to 6.0%.
Net income for the quarter increased 53.5% to $20.5 million.
Adjusted EBITDA for the quarter increased 38.4% to $35.8 million and adjusted EBITDA margin decreased 30 basis points to 18.4% attributable to the addition of pursuit.
non-GAAP adjusted fully distributed net income per share increased 42.1%.
The one dollar an eight cents per share. This is calculated using a normalized C corp tax rate of 24.1% and a fully distributed weighted average share count of approximately 21.9 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.
Looking at full year numbers net sales increased 37.6% and unit volume increased 17%.
Consolidated net sales per unit increased 17.6% to approximately $92900 per unit.
The increase was largely driven by the inclusion of person.
Gross profit increased 38.2% to $166.3 million, our comparable Malibu cobalt gross margin increased 130 basis points, driven by our operational initiatives, including our engine initiative.
Net income for the year increased 125.1% to $69.7 million and adjusted EBITDA increased 35.8% to $125.9 million for the full year.
For the year non-GAAP adjusted fully distributed earnings per share increased 44.6% to $3.76 per share.
Our consolidated outlook for fiscal 2020 is as follows.
For Malibu in cobalt, a low single digit percentage decrease in unit volumes over last year.
While the market has been resilient and continues to grow our wholesale shipments outpaced retail demand during fiscal 2019, some of that inventory was needed by our dealers, but not all and weather combined with a slower calendar Q2 at retail has left our dealers with a few extra weeks of inventory that we will be trying to reduce.
Our plan also takes into account a more moderate growth rate at retail.
For pursuit unit volume growth should approach, 40% for the fiscal year.
Consolidated net sales is expected to grow at a mid to high single digit percentage for the full year.
It will be impacted by our volume expectations as I, just mentioned as well as positive net sales.
Per unit growth at Malibu, and cobalt and a decrease in net sales per unit pursuit as we increase production in our Florida facility that produces a less rich mix of product.
Once we bring our new plant their online this will reverse.
Net sales, we'll see the strongest growth in our fiscal first quarter as pursuit will be included in fiscal 2000, Twentys Q1, where it was not in fiscal 2019.
Consolidated gross margin is expected to be up slightly year over year.
Consolidated adjusted EBITDA margin is expected to be down slightly year over year.
Margins are being impacted by a number of factors, including lower more margin profile impact from the inclusion of pursuit for the partial year period.
Anticipation of the impacts of a more competitive pricing environment driven by inventory levels.
From a timing perspective margins will see meaningful compression year over year in the first fiscal quarter because of the inclusion of pursuit.
Q2 will be impacted as well by this but we should see a positive trend on a year over year basis as we go through.
The quarters.
Consolidated capital expenditures are expected to be between 40 and $45 million. This is driven by our expansion of our facilities at pursuit and Kobal.
Before turning the call back over to Jack I wanted to briefly reiterate our view on the current market.
Our lowered Malibu cobalt wholesale shipment targets are an attempt to prudently manage dealer inventories in an environment that has lower but still positive retail growth rates, we continue to see growth in our retail markets and registrations.
We believe we are positioned extraordinarily well within the marine market, because we have the best brands and meaningful exposure to the most attractive segments.
Our strategy to innovate and invest in those brands remains strong and we are in the early stages at pursuit and cobalt of accelerating that investment.
In closing.
Malibu is fiscal year 2019 was another record breaking year and we are set up to perform regardless of the economic climate.
With that I'd like to hand, the call back over to Jack for some remarks. Thanks Wayne.
Give you some remarks on what Weve discussed just now our fiscal 2019 was another record setting year for our business the eighth straight record setting year demand for our products continues to be strong and we continue to bring more product than anyone else.
Our channel inventory levels will remain within range of where we want them to be for all of our brands.
Our unmatched vertical integration strategy continues to propel our company forward and strongly differentiate our business from the competition. It is also a competitive advantage not only now but anything in any cycle downturn.
While the level of uncertainty exists in the global economic environment, our views of the strength of the us economy, and our consumer highlighted by the important metrics that we follow.
We believe that our operational prowess and laser focus on superior execution will allow us to successfully navigate recent choppiness in the marine segment.
And most importantly, Malibu remains incredibly well positioned going forward to maintain and extend our leading positions and deliver long term value for our stakeholders.
This is the reality, whether we return to a consistent bull marine market or in or a bearish market. We are supremely confident in our capabilities operator, we will now take questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your touched on telephone. If your question has been answered or you wish.
The queue. Please press the pound key prevent any background noise. Please state your line. What's your question hasn't stated.
Our first question comes from Mike for Us.
Address your line is open.
Hey, guys good morning.
Good morning.
I guess starting off just in terms of the outlook for fiscal year 2000, maybe give us a sense of how you're thinking.
About the overall retail demand for the market and then in some of the various segments that you that you compete in.
I think from a I'll speak about doing cobalt together for a minute I think that we are going to see as we said that would be less than it has been in previous years. We do believe is still a good retail environment and I think it will manifest itself over time on the pursuit side that is a market that has been pretty resilient through the summer and even through the assets the times and so we think that given that we don't have a an ability to produce to the capacity or to the need that our dealers have pursued is going to be pretty strong for us.
And then just I guess, a clarification question with the with it.
With the fiscal 20 guidance are pursued you said.
Hey, Michael you might you cut out month.
Okay.
Well, let him hop back in the queue I guess, we'll move on if he has dropped.
Thank you.
Question comes from Brett Andress of Keybanc capital market. Your line is now open.
Hey, good morning.
Good morning, Brett.
Jack do you have any thoughts on what we saw in the retail data in June that that large decline that was followed by a snap back in July just any sense of the underlying factors during those months and you know I guess, it's been hard to figure out any trend line in the industry here lately, but do you have have you seen any of that July strength continue into August .
Okay.
Two pretty good questions there.
You know I think the June when we look at June without a doubt weather was an impact I'll give you some examples.
First example is on the kind of the northeast sector, you had almost three straight months of rain and cooler weather I'll put it that way every single weekend and Texas you had 10 out of 13 weekends ahead ray during that early part of the March April timeframe. When you start delivering both in Texas. We know we've heard we know about all the problems that we've heard in the Midwest. So the weather was absolutely I believe a factor in the month of June I think Thats why we saw it across every single segment.
June was a weird dynamic in terms of the data that was delivered to the market number one it was like number two it did not contain key states, Texas was not included California is not included Utah was not included there were about seven states that you would typically see as a part of the data that were not included in the June data for whatever reason.
Then when we roll forward to July .
Yeah, we did see that pick up and to answer your question I got on the phone with a number of our dealers are probably talk to you about.
Dealers, representing 40% or more of the Malibu units and either is representing 20% or more of the cobalt units.
To give some granularity on what we saw in June what we saw in July and what our expectations are going forward.
And I think across the board July was a very strong month in a key illustration comes out of Utah I was told they were skiing on the mountain on July the fourth next week, you hit 90, 95 degrees and they started selling boats like crazy frankly, as well as the terminology that was used I think from what I have heard in saying that has extended into August and it continues to be fairly good retail.
And in my view of the World is that what Wayne said, what I said regarding the inventories for Malibu and for cobalt is accurate you have a weather related environment, a lower retail environment and we put a couple of weeks of inventory into the channel I fully expect that that will be margin loans by the end of the first or the second quarter.
Understood. Thank you for that and kind of actually following up on what you just said so that the down low single digit unit guide for the combined to Malibu and cobalt business I guess, if you dissect that a little bit more what does that imply for the core Malibu units because it seems like as you kind of alluded to Malibu inventories are a little bit more elevated.
Then it seems like cobalt at the moment.
Yeah, there I think they're pretty close from an inventory standpoint, but Malibu do we believe there is probably slightly more upside than on the cobalt because as we saw in July that's a very strong segment of the 17% growth rate Malibu being even greater than that.
Got it and then the last one I got here just to the flooring integration can you give us some historical context around around that I guess is the profitability profitability impact of this initiative similar to I guess trailers, which I think had a 30 basis point impact and then also what's the timing of that initiative flowing through to the bottom line.
Yes.
Good question look I think our reference in terms of the profile and attractiveness of that investment is really a function of.
Hey percentage, so when when we start measuring things in basis points.
Yes, specifically relative to trailers as an example trailers we did trailers when it would be and we did not have cobalt or per pursued onboard which increases the denominator when lower that relative to 30 basis point move.
Yes, one two is trailers have a much larger nominal dollar amount in terms of the overall cost.
And so this initiative.
Will over time be able to leak in.
18 basis points to the improvement, but the economics are extraordinarily attractive. So when we talk about the attractiveness of that initiative. It really has to do with us.
Essentially the return on the cash that we're getting.
And investing not the absolute not yet a nominal dollars return.
Understood. Thank you.
Yes.
Thank you and our next question comes from Eric Wold of B. Riley. Your line is now open.
Thank you and good morning.
Good morning, all my questions.
Following up on kind of your comments around potential cycle downturn, I, just or just one.
Yeah, Yeah, I appreciate the comments around where you.
Could see gross margins and EBITDA margins and it's like a downturn, maybe just taking that a step further I mean, how far with levels have to decline across all your brands before you kind of get to breakeven EBITDA kind of could you maybe stress test it a step further.
Yeah, and again I think.
I'll point out that we go back to a breakeven scenario when you have a 70% down market back in 2008. The world has changed a lot. Since then and the capabilities of change I mean, you had a brand new management team that.
At that point in time was inheriting a recessionary environment I don't think breakeven you're looking at an 89% drop off for your breakeven. We are so variable 90% variability we can control.
That EBITDA margin loan greatly much more so than call. It in the mid two thousands.
That's perfect. Thank you and then on the on the acquisition strategy they have to spend a little bit on how how is your acquisition strategy would change if at all during a cycle downturn versus kind of what you pursued or type stuff.
Couple of years, you how would you.
No differently your overall judge brands, both John Burkart saturation multiples.
Yes, that's a really good question I don't think it marginally in terms of what our strategy as changes we believe the winning strategy is to buy the best brands Cobalt was the best ran out there pursued is one of the best brands out there you know what I said in the past that we will continue to say, whether we're in a bull or a bear market, we're going to we're not going about dogs dogs take you down. So we believe firmly that if we have a premium brand that comes to market. It will actually whether we're in a risk in a downturn or not it will improve and put us into more of that what I call a powerhouse capability.
So there will be I think.
If there is a downturn there will be a lot of potential companies coming to market and kicking the tires.
We will continue to be very selective and we will look for those best brand. So they're going to be top tier brands in terms of quality perception in the market and also in that top tier from a market share standpoint, and that's what we would potentially look at.
I think that right now we're not quite there yet theres still a lot of noise out there and so we're looking more on the repurchase at this point in time.
Perfect and just last quick one for Wayne how much of the.
The 40 to 45 million of Capex is from the facility expansion or kind of what would be kind of a more normalized kind of maintenance Capex you know after those are completed.
Yeah. So a great question I mean, you're looking at.
Half about half of that being true.
Hi growth Capex youre going to be more in the $20 million range on it on a normalized basis given given the size of the business. These days.
Perfect. Thanks, guys.
Thank you.
Thank you and our next question comes from Tim Conder of Wells Fargo Securities. Your line is now open.
Thank you.
Gentlemen.
Jack just a little more color on it on a couple of things here first the on retail a question was asked earlier, but what at this point are your expectations for the core ski wake served part of your business for the industry. As you look into the 20 of the 20 season as a whole as far as.
Retail I know, it's a hard question at this point there is a lot of weather variability that will be likely next year.
And the and more so I guess from the perspective of.
Just what you see on the channel inventory clearance also had exceeded the rest of the industries.
Channel.
Relative to where to where you all are but I know that the fold all that and it would be at a percentage of what you're thinking for the next season on retail.
Yeah, So Tim I'll take the kind of retail profiles, hoping in the core ski wake segment over the.
On an LTM basis, seeing we're seeing a number for that market. That's mid single digits rates, so whether that's five or 6% the numbers aren't fully developed but but the reality of the situation is you've had some more recent choppiness in that data. You've also had the impacts of weather. So I think we feel like there's a couple potential competing factors increased choppiness.
And some of it may or may not be weather related and potentially some negative impacts from weather. So our kind of base case assumption you know our dealers feel good.
And and ultimately.
We see that being kind of the new status. What we spent a number of years at really high single digit or double digit growth rates and it feels like that that you have a more moderate growth rate in that mid single digits is probably where at that.
Yeah as far as the inventories I'll talk about that Tim.
No.
I can't tell you anything more in terms of the broader landscape and competitors and their channel inventories than you already know.
We all know where others are so I'm going to talk about Malibu.
We're in a better position than any other competitor out there as it relates to channel inventory and our focus is on making sure that our dealers are moving through that inventory. If we think about floor plan financing ever model, you're not seeing both at the dealer has today. They are paying interest on it up to $3000 a month of interest and so I want to make absolutely sure that our dealers are very.
Comfortable and very healthy and as I said earlier I think that we will have our inventories in very very good shape within the first six months.
Okay are you are you planning on.
To to offer any incentives or any assistance in any way to the dealers here Jack over the next.
Six months are here, especially during the <unk>.
The off season.
Yeah, you may have seen this out in the market now, we're giving the dealers some help today moving while you're not taking inventory.
You know my view of the World is that is absolutely asinine start discounting model year 20 inventory. So we focus on that older age inventory and our goal is to get our dealers in that position, where they're very comfortable and they are looking forward to selling model year 2000, and so we are.
Really at this early date I suspect that we will pretty will be completed in terms of the help that will need to be giving by the end of the first quarter.
Okay, and lastly, gentlemen.
You talked about obviously, the pursuit plant ramp up weighing on margins a little bit when when are you targeting that to be to be complete and we should start to see that reversal in the margins the two.
Since you mentioned.
So the the reversal that I was speaking of which was specific to the ASP trend there.
So so we gave it.
That facility has not been the one producing the S. Four await an S 368 center console models, which are some of the highest priced models for for the brand.
And so as we expand and try and increased production in the existing Florida facility before the new one comes online.
The incremental volume that we're getting out of those operating efficiencies is going to come in the form of a less rich mix and negatively impacting.
The ASP.
So that SP reversal will occur once that plant comes online and that plant will come online.
We plan in the very early part of fiscal 2001.
Okay. Okay. Thank you.
Thank you.
Thank you and our next question comes from Joe Altobello of Raymond James Your line is now open.
Thanks, Hey, guys good morning.
Good morning.
Just sticking with the inventory discussion for a second you know Wayne earlier, you mentioned that your dealers are feeling good but has the volatility from month to month.
Cause your dealers that want to take a more conservative view when it comes to inventory maybe hold generally less inventory on an apples to apples basis for model year 2000.
That's very question, Joe I think that the impact on anybody you're always dealing with the short term so without a doubt.
Our dealers who were not feeling as good after that June SSR, they came out and what they experienced from a weather standpoint July they felt a lot better and and I think even that extends into August .
I would say that I, even have that same impact. That's the reason I started calling dealers wanted to really know what they were thinking about so as we see this what we've called Choppiness I don't think that in the dealers mine there can help but be a little bit of an impact but at the end of the day.
The dealer is going to look at their world based on the number of 2000 nothing models. They have on their parking lot and so to the extent that they are moving inventory and they're selling inventory and they're getting the help to do that so that they can bring in more current inventory this probably more appealing to the consumer they are they will feel better.
Okay. That's helpful and just secondly on the promo environment you did allude this morning.
Potential increase in promotional activity in the industry. You said the same thing three months ago have we seen that yet or is it still sort of on the call here.
Yes, I think that we've seen some of it there there is been some in some cases, it's been more spotty market by market by market.
But.
Yes, I think time will tell whether we see more of a pervasive canvas of discounting.
Okay, great. Thank you guys.
Thank you.
Thank you and we do have a follow up question from Mike Swartz with Suntrust. Your line is open.
Welcome back I, sorry, yeah, sorry about that.
The question I was in the middle of was it just on the weighing on the guidance for fiscal 20 on pursuit unit volumes I think you said up approaching.
40% I guess, what would that be on a pro forma basis, assuming you owned it for all 19.
Yeah, I mean, it's it's going to be up.
Meaningfully in terms of a double digit percentage.
Okay, and a highly driven by the operations team ability to take to improve and to get more out of that factory.
Okay, and then just one more from me with regards to the 20 guidance gross margin was up or is up slightly in your guidance it looks like.
I guess the big ish.
The big shift offset to that would be operating deleverage. So maybe you could go through some of the factors. There I know you've talked about maybe some higher so sales and marketing expenses, it's a competitive environment, but just I guess help us understand why you would see that level of de leveraging in 20.
Yeah, well, so what you really.
The inclusion of pursuit is a 40, almost 50 basis point headwind just to start with.
And so we were still contract manufacturing votes in from the seller US two of the big boats and those big boats come in at a.
Yes, fixed lower margin as well so you start with that being the most meaningful component combine that with.
And the anticipation of increased promotional environment, and that's really going to be the end of the primary driver that couple of primary drivers.
Okay, but even with the sales and marketing piece or higher promotion costs and most of that youre anticipating would be in the first half.
Yeah look I think I think thats, probably a fair and I think that's that's our expectation could leak a little bit into the.
The second half a yeah, I I think it could but.
Obviously boat show season is really fiscal Q3, and so if that is where.
That means to you.
Happen to be competitive.
Then then it may leak into that fiscal Q3 as well.
Okay, great. Thanks, a lot.
Thanks, Yeah, and ladies and gentlemen, this does conclude our question and answer session I would now like to turn the call back over to Jack Springer for any closing remarks.
Thank you.
Malibu had another great quarter in a fiscal year that was great as well each of our brands continue to perform well in our dealer inventory levels remain at appropriate levels, although we're going to take them down a little to support the strong demand for our products as we look to fiscal year 2020, we are well positioned to deliver solid performance and continue to unlock value for our shareholders. While we still believe in the economic metrics and the economy, we recognize the choppiness that we've recently seen and we prepared for a cycle downturn whenever it comes knowing that we will be stronger and more powerful upon exit the mini cycle.
I want to thank everybody for your continued support of Malibu and I. Thank you for being on the call today have a fantastic back.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect.
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