Malibu Boats (MBUU) Q2 2022 Earnings Call Transcript

Malibu Boats (MBUU 2.15%)
Q2 2022 Earnings Call
Feb 08, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Malibu Boats conference call to discuss second quarter fiscal year 2022 results. [Operator instructions] Please be advised that reproduction of this call and whole or part is not permitted without written authorization from 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. 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.

Wayne Wilson -- Chief Financial Officer

Thank you, and good morning, everyone. On the call, Jack will provide commentary on the business, and I will discuss our second quarter of fiscal year 2022 financials. We will then open the call for questions. A press release covering the company's fiscal second quarter 2022 results was issued today, and a copy of that press release can be found in the investor relations section of the company's website.

I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking and that actual results could differ materially from those projected on today's call. You 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. The factors that might affect future results are discussed in our filings with the SEC. And we encourage you to review our SEC filings for a more detailed description of these risk factors.

Please also note that we will be referring to certain non-GAAP financial measures on today's call. such as adjusted EBITDA, adjusted EBITDA margin, adjusted fully distributed net income and adjusted fully distributed net income per share. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. I will now turn the call over to Jack Springer.

Jack Springer -- Chief Executive Officer and Director

Thank you, Wayne, and thank you all for joining the call. We again delivered a tremendous quarter, exceeding expectations across the board as demand for both remained off the charts and showed no signs of slowing. While supply chain pressures have persisted during the quarter, our unmatched operational capabilities are dedicated team in the industry leading brands continued to pave the way for another history making year. We pride ourselves on providing the highest quality, most innovative both to our loyal customer base, and are excited to continue, and hopefully increase our pace of production as we push through the second half of fiscal year 2022.

For the second fiscal quarter, we posted record net sales increasing nearly 35% to $264 million over the prior year. With adjusted EBITDA growing 23% to $48 million and net income growing 40% to $31 million.  Our margins during the quarter proved resilient in light of the lingering supply chain issues, associated labor costs, and material pricing pressures. For the second quarter, gross margin declined 120 basis points to 24.1%, while adjusted EBITDA margin declined by 180 basis points to 18.2% during the quarter. We were able to offset many supply chain labor, and material pricing headwind through improved volumes, and predictably strong ASPs across all of our brands, which is a further testament to the insatiable demand for our boats, helping solidify yet another record-setting quarter.

As our pricing surcharge becomes prevalent in all boats in January, margins will be further stabilized for the second half of the year. As I mentioned, demand continued at a prolific paces as the thirst for our feature rich, larger boats remains incredibly strong, even during what is historically a slower season in October through December. Demand has been broad based across all brands, and all models. This has been underscored by dealer reports.

Our year in sales event for Malibu access, and the excellent performance that recent boat shows. During the Malibu access year in sales event, we nearly doubled our sales versus fiscal year 2020, resulting in the second largest number of orders ever for this event. This year was behind only last year when consumers new all boat shows were being canceled. Malibu success was realized despite higher ASPs, limited promotions being the reality.

Importantly, as both shows returned this year, we are maintaining the torrid pace of customer orders. In addition, the demand for all brands of boat shows is white hot. Fort Lauderdale was at a record pace of both sales for many brands, including our Pursuit, Cobalt and Cobia of brands. At the Denver boat show in January, we set records for the Malibu and access brands and importantly, our dealer met their plan sales targets.

The Minnesota show, held a couple of weeks ago, also experienced very strong sales for that show for malibu, axis and cobalt. Since Fort Lauderdale, there have been some small saltwater boat shows in each one, Pursuit and Maverick brands have had sales performance much better than in previous years. As we head down to Miami next week, we expect this momentum will continue. Our dealers have also remained agile in this ever involving environment.

Orders has held extremely well as customers looked at price increases to maintain their slot for a new boat, with long lead times playing a heavy factor in the decision making process. There is also a recognition that we are now in an inflationary environment that extends to all types of products, and it will likely continue. Therefore, the best practices are now to buy our boat. Our new model year 2022 product line up is once again underscoring what Malibu is known for, quality and innovation.

We are seeing exceptional broad based demand, and while new product is highly sought after, the environment has placed abnormal demand on every boat that we sell. For Malibu and access customers have responded overwhelmingly to our exciting new products with the all-new Malibu wakesetter 25 LSV, and the brand new Malibu wakesetter 21 LX, as well as the access to P220 and P250 all past the point of being able to build to demand. At Cobalt, with the rollout of the R4 variants of boats in the first half, we have nine new boats in the  23-foot to 28-foot segment in just 15 months completely transforming the R series lineup. At Miami, we will introduce a new 30 plus foot boat in both the stern drive and outboard variants.

Everyone who has been on an experience these new both have marveled at the space, and the performance of these new models. Pursuit continues her consistent pace of product development. The brand new S 358, which debuted in November, will be in the water for consumers to experience in Miami. There will also be a new offshore model that will be brought to market in late March.

Maverick is now on a pace to begin introducing new models in early fiscal year 2023. Similar to cobalt, there is an opportunity to replace outdated products, and lack pursuit. There are product class spaces we will fill and drive additional growth. There has not been a meaningful build of channel inventory over the last quarter, and given the demand for all of our brands, most of our production in the second half will be for retail sold orders.

It will be fiscal year 2023 before we begin to see any build or channel inventory. And while into fiscal year 2024 before channel inventories can begin to normalize. Malibu has also stayed ahead of the curve on inflationary pressures. In October 2021, we announced the implementation of price surcharges to help offset rising costs, and maintain our healthy margin profile.

These price increases began to take effect on a limited basis in December and have shown no impact on the resilient demand across our full product suite. The supply chain continues to be the limiting factor on production. Based on our estimates, we could easily build at least 20% more boats in every brand. When you layer a lack of component availability with an amplified labor shortage of suppliers because the flu season and the spread of Omicron, production volumes continue to be limited during the second quarter, as most manufacturers reduce counts to meet the availability of parts.

The shortage of parts needed to build new both is highly unpredictable as supplier issues tend to bury on a weekly basis. It is important to note these lower production levels are solely due to the supply chain issues, and our brands remain in a position to flip the switch and increase production capabilities as the environment begins to normalize. Frankly, the challenges we are facing are a little like your golf ball hitting a pebble on the way to the cup. It is frustrating because of the opportunity for that hole, but it is temporary, and doesn't affect the long-term opportunity or results.

We remain focused with a proper grip intention on the putter as we leverage our operational prowess across the full product lifecycle, but persistently looking for ways to protect our margin profile during these volatile comps. Our initiatives solidly focused on providing customers with the best both in the market while maintaining a strong value proposition for our shareholders. While we can't predict when the supply chain will improve, rest assured as things normalize, we have the team in place to remain ahead of the game. Vertical integration has always been a competitive advantage for Malibu.

And in a volatile macroeconomic environment, it has only highlighted  our operational resiliency. We have a long track record of advancing these vertical integration efforts from towers to trailers, to engines, to floors, and I am pleased to announce our latest acquisition also fits into our vertical integration foundation. On February 1st, Malibu acquired the marine assets of a company called MTech. We acquired these assets under a new subsidiary, Malibu Electronics.

LLC. MTech has been a key supplier of complex wiring harnesses for our Malibu brands for years, and is one of several suppliers we use. Wiring harnesses have been a primary supply constraint over the past nine months, and we saw a clear opportunity to bring this capability into our vertical integration fold. As we bring this Alabama based manufacturing operation in-house, we will be better positioned to control our own destiny and alleviate supply constraints in the near term and provide a runway for growth for all of our brands longer term.

The assets included a 130,000 plus square foot manufacturing facility that historically had approximately 50% of its production devoted to customers in non-marine segments. We will continue full operations in Alabama, but there will be no external cells opening capacity for all of our brands. As a result, this transaction solves the problem immediately for Malibu by being able to provide the volume of harnesses that Malibu needs. This improvement will alleviate constraints at other suppliers shared between our brands, and ultimately enhance our ability to produce more units across all of our brands.

In addition to improving our vertical integration, we remain on pace to further enhance our production capacity through the maverick plant to expansion that doubles the production footprint of that plant. It is on schedule, and we expect to start seeing results soon as we begin to bring both to market from that facility during the second half of fiscal year 2022. This expansion will allow us to build more boats, larger boats, and increase the margin profile of the boats that are built at Maverick now and into the future. Many people just don't see the immense opportunity, and almost perfect setup for Malibu.

Never have I seen the company so well-positioned for success, regardless of what may come. The historically low channel inventories dictate that we have a long runway of solid production opportunity despite any economic environment. As the supply chain improved with the demand that we have, we are positioned to absolutely rip and grow production, and profitability significantly. The lack of channel inventory also greatly softens any deteriorating economic environment, as we have a solid two plus years to get channel inventory back to where it should be.

We are in a most enviable position that dictates solid, substantial performance over a multi-year period of time. In the short-term or long-term, Malibu remains incredibly well-positioned to spot supply chain, challenges, and inflationary pressures that are impacting the industry. We strongly believe there is no better team to execute on our strategic priorities than our tried and true Malibu family. Our team's operational capabilities, hard work, and commitment to quality is what makes us truly unique.

Fiscal year 2022 has positioned to be another incredible year in Malibu 4 year history with record revenue, and record earnings. As we set ourselves on the second half of the year, Malibu remains in a unique and enviable position to dominate the marketplace. By developing our cross brand vertical integration, we are confident in our ability to generate new synergies across our powerhouse brands in fiscal year 2022 and beyond. We will continue to drive innovation, and be the first to market with compelling new products and features.

We are optimistic about our future and furthermore, we are mostly proud over Malibu brands as they continue to navigate this volatile and unprecedented environment. We will continue to support our absolute outperformance in the industry, and ultimately create greater shareholder value for all of our investors. With that, I will now turn the call over to Wayne to take you through our financial performance in more detail.

Wayne Wilson -- Chief Financial Officer

Thanks, Jack. In the second quarter, net sales increased 34.9% to $263.9 million, and unit volume increased 19% to a record 273,000 boats. The increase in net sales was driven primarily by increased unit volumes due to the acquisition of Maverick boat group, and a favorable model mix across our brands. The Malibu and Axis brands represented approximately 56.9% of unit sales, or 1,179 boats.

Saltwater fishing represented 22.6%, or 469 boats, and cobalt made up the remaining 20.5%, or 425 boats . Consolidated net sales per unit increased 13.3% to approximately $127,300 per unit. Primarily driven by year-over-year price increases, and a greater mix of larger boats for Malibu and Cobalt segments. Gross profit increased 28.4% to $63.6 million, and gross margin was 24.1%.

This compares to a gross margin of 25.3% in the prior year period. The decline in gross margin was driven by the inclusion of Maverick. Selling and marketing expenses increased 41.4%, or $1.7 million in the second quarter. As a percentage of sales, selling and marketing expenses increased slightly by 10 basis points over the prior year period.

The increase was driven primarily by incremental costs associated with the Maverick acquisition, compensation personnel related expenses, and promotional events that have since resumed after being suspended due to COVID-19 in the prior year period. General and administrative expenses increased 6.3%, or $1 million in the second quarter. The increase was driven primarily by an uptick in compensation personnel related expenses, IT infrastructure expenses, and G&A expenses due to the acquisition Maverick. As a percentage of sales, G&A expenses, excluding amortization decreased 160 basis points to 6.1%, compared to 7.7% for the prior year period.

Net income for the quarter increased 39.9% to a record $31 million. Adjusted EBITDA for the quarter increased 23% to record $48.1 billion, and adjusted EBITDA margin decreased 108 basis points to 18.2%. Non-GAAP adjusted fully distributed net income per share increased 23% to $1.50 per share. This is calculated using a normalized C Corp tax rate of 23.8%, and the fully distributed weighted average share count of approximately $27.1 million.

For reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the table in our earnings release. In addition to strong operating performance, as always, we have looked to, and successfully deployed our capital opportunistically in recent months. Our acquisition of the marine assets of MTech that enhances our vertical integration strategy will modest in size positions us to increase production by taking greater control of our supply chain. In addition, given the strength of our business, we opportunistically repurchased $5.2 million of the company's shares during the fiscal second quarter under our existing $70 million share repurchase program.

As Jack mentioned earlier, we maintained our momentum throughout the first half of fiscal year 2022, and exceeded expectations despite continued headwinds from a volatile supply chain and inflationary environment. Consumer demand was unfazed. And march forward at a robust pace, helping to drive ASPs to unforeseen levels. Malibu remains incredibly well-positioned to capitalize on this robust demand environment while maintaining our strong growth and margin profile despite ongoing macro challenges.

Based on our current operating plan, our expectations for fiscal year 2022 are as follows; we anticipate revenue to grow in the 22% to 24% range year-over-year, with growth accelerating slightly from Q3 to Q4; consolidated adjusted EBITDA margin is expected to exceed 19.5%; In Q3 adjusted EBITDA margins should be approximately 20%. Malibu is undoubtedly the industry leader, blazing the trail, and consistently outperforming against our peers over the long-term. We've continued to invest to drive growth into the future. And with the Maverick plant to expansion opening, our harnessed vertical integration or simply the robust wholesale restocking tailwind, we believe our prospects are bright.

We are incredibly well-positioned to capture robust growth opportunities as demand for our larger feature rich boats continues at a record-setting pace. We look forward to continuing to deliver even greater value to our stakeholders in fiscal year 2022 and beyond. With that, I'd like to open the call up for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from the line of Joe Altobello with Raymond James. Your line is open. Please go ahead.

Joe Altobello -- Raymond James -- Analyst

Thanks, guys. Good morning. So for incoming questions around the guide. Just starting with the sales guide largely unchanged, I guess you've maybe narrowed a little bit to the middle of your prior range.

But directionally, how are you guys thinking about units and ASPs going forward in the second half of the year? And I know in the last quarter or last earnings call, you talked about potentially approaching 2,500 units per quarter at some point. It sounds like supply chain issues are kind of pushing that back. So maybe help us think about the impact of units and ASPs on that sales number the second half. 

Wayne Wilson -- Chief Financial Officer

Yeah, Joe. Look, I think from the guide perspective, we're not really from a unit volume perspective, moving much from what we said that is that 2,500 ish type number that's been thrown around on a quarterly basis. It's still the ballpark for the back half. We talked about a little bit more acceleration on a year-over-year basis in the cadence of the revenue guide.

And so what's that mean for net sales per unit? There's not a big move in net sales per unit up that would draw down that volume number that we talked about previously. 

Joe Altobello -- Raymond James -- Analyst

OK. That's helpful. And maybe on the EBITDA margin line. Sounds like things are getting a little bit better, is that all that the surcharge going into effect in the second half or fall into effect in the second half? Or are there other items that are helping your margins? 

Wayne Wilson -- Chief Financial Officer

Yeah. We're seeing some flow through on the surcharge comes in slowly, right? And so there's elements that impact Q3 and impacts Q4 a little bit more, even more so, but that's also meant to align with those costs coming in. So what we're really seeing across our businesses is that the margins are performing pretty well, that it's not meant to be. The surcharge is not meant to be the margin additive, right? What you're really seeing there is is ultimately that the businesses are performing as we are increasing volume on a year-over-year basis that we are going to have strong performance.

So it's not really the surcharge, it's really about just how the businesses are performing sequentially. 

Jack Springer -- Chief Executive Officer and Director

Yeah. The point that I make, Joe, is that the cost increases come first, followed by the surcharge. So we're playing catch up on that. So to Wayne's point it's going is not a margin additive factor is to keep, all things being relative, keep the margins that where they should be.

So in the second half, the margin improvement, that you see will come from the operation. It will come from the supply chain improving. And we do see some windows of that supply chain improvement so our hope is that we'll be able to build a few more votes than what we had predicted last quarter.

Joe Altobello -- Raymond James -- Analyst

OK. Thank you, guys. 

Operator

Thank you. And our next question comes online line of Mike Swartz with Truist Securities. Your line is open. Please go ahead.

Mike Swartz -- Truist Securities -- Analyst

Hey, guys, good morning, I just want one quick clarification, you're saying a surcharge went into place in December  and I guess you start to see more of the benefit of that going forward, but it being a surcharge, does that mean that it could and will be rescinded at some point? I'm just trying to understand how that how that works. 

Jack Springer -- Chief Executive Officer and Director

So the way surcharge work, Mike, is it to be rescinded. It could be maintained, and you find its way into a price increase. It could be decreased from whatever it was to a lesser amount, or we could come back and increase the surcharge in the spring. So the reason we went this route was to be very flexible based on the environment.

So we've really captured every conceivable event that could occur. 

Mike Swartz -- Truist Securities -- Analyst

OK. Great. Thanks, Jack. And then just a second question on the Cobalt business.

Just looking at production volume there, you're still well below where you were pre-COVID so maybe talk about, has anything changed in that business? or is this just a [Audio gap] factor of mixing toward larger lower unit volume boats? 

Jack Springer -- Chief Executive Officer and Director

I think you hit the nail on the head based among the environment. Number one, you look at the units, they have been impacted without a doubt by the supply chain. And the absence of supply chain issues, there would have been more volume coming out of cobalt. But secondly, as with the ASPs that you've seen, the customers are buying larger boats, they're buying the more expensive boats.

And so that's why we see the revenue offset because of what's happened with the the volume of both at that higher level. And we have some both of that are coming out. Frankly, in the second half, I mentioned that that are going to improve that even further. 

Mike Swartz -- Truist Securities -- Analyst

OK. Great. Thanks, Jack.

Jack Springer -- Chief Executive Officer and Director

Sure.

Operator

Thank you. And our next question comes from the line of Jaime Katz of Morningstar. Your line is open. Please go ahead.

Jaime Katz -- Morningstar -- Analyst

Hi, good morning. I just want to say on Cobalt for a minute. I think cobalt was sort of called out as maybe more disproportionately impacted by supply chain issues in the commentary by segment. Is there something different in their supply chain that would impact them differently? And also, was there any impact this year from some of the recent storms across the Midwest or South Midwest, where ever Kansas is, that may be constrained some production which I know happened last year.

Thanks.

Jack Springer -- Chief Executive Officer and Director

Yeah. -- I'll answer the second question first. There really have not been any impact from storms until last week when the storm went through Kansas last week, we did have some impact and some a couple of short days with nothing major. The thing that I would point to a little bit different than Cobalt is, all of our brands that will use different product from potentially different suppliers and in the case of cobalt, because of different power plants, we buy engines from multiple parties, and those parties have all struggled, frankly, whether it be Yamaha, Mercury, Volvo, they all struggle on that basis.

The other area is Cobalt is pretty dependent on a supplier related to windshields, and that windshield supplier has struggled greatly. COVID has impacted them, and so our hope is that they begin working out of that in this third quarter. And from a supply chain perspective, it will be better. What I'll point to is, and this is probably important to understand our acquisition of MTech will alleviate some of the burden from a wiring harness perspective on the existing suppliers.

And I think, that we'll see very quickly the ability of now Malibu electronics to begin subsidizing the wiring harnesses for cobalt so that we expect that supply chain issue for cobalt go away. 

Jaime Katz -- Morningstar -- Analyst

OK. That's really helpful. And then as you think about the new 30 foot boats that are coming out at Miami, is there a new customer segment you might be trying to target with this? Or is it just sort of a customer led initiative that consumers were looking for something in the size range? Thanks. 

Jack Springer -- Chief Executive Officer and Director

Well, it's not new target is customer led. So if we think about the product that exists today, you have an R33 and and R35 or a little bit older, you have an A29 that we came out with a couple of years ago. So there's a propagation on that. People are continuing to buy larger boats, they want the boats with more features and more ergonomics.

And we believe that on this particular boat that both the stern drive version and the outboard version delivers that for that and that either next Cobalt customer or the Cobalt customer ready to purchase the next boat. 

Jaime Katz -- Morningstar -- Analyst

Thank you. 

Operator

Thank you. And our next question comes from the line of Fred Wightman with Wolfe Research. Your line is open. Please go ahead.

Fred Wightman -- Wolfe Research -- Analyst

Hey, guys, good morning. Thanks for the question. Just to follow up on the EBITA guidance. I think you guys were expecting a 300 basis point decline this quarter and you came in a little bit better than that.

Are there some costs that shifted from 2Q into the back half of the year? Is that just lingering uncertainty about the supply chain? Just a modest tweak to the outlook there. Is there anything else that we should be expecting? 

Wayne Wilson -- Chief Financial Officer

Yeah. Now look, it absolutely did come in better. The actual manifestation of the price increases didn't hit as quickly as we had modeled or anticipated. Combined with the fact that our team, there's really three components that looked operations team has done an incredible job in a really dynamic environment to run as efficiently as possible.

And then three, there's cost that we've budgeted that, whether that be they've been deferred or you're trying to hire people and those people are hard to find. So those are the three components of it. I put operations is number one, the price manifestation in the cost line items as number two, and then kind of some deferral on the G&A side, or just delay in the realization of that as number three in terms of order of magnitude. 

Fred Wightman -- Wolfe Research -- Analyst

OK. Great. And then just high level thoughts on the buyback here. I know you guys did $5 million in the quarter.

I think that $70 million authorization expires in November of this year. But how are you thinking about leaning into that buyback just given where shares are trading, and also the offset there from an M&A perspective you guys are still buying stuff. So what are sort of the puts and takes? 

Wayne Wilson -- Chief Financial Officer

Yeah, the puts and takes are that the stock got incredibly weak there in December for a little bit, and it was continued to be what we think is an attractive valuation. We have not been a what I would describe as programmatic repurchaser or that just deploys capital regardless and as valuation agnostic. And I think that's been our M.O. for a long time and we'll continue to be our M.O.

We deployed only $5 million in the quarter, but I think we will continue to look at it in a similar fashion. We're very positive on the direction of our business in terms of the wholesale restocking, and the duration of that tailwind, what we're seeing with the margins of our business, and in the strength, and its prospects. So you all shouldn't be surprised if it continues to be weak, that if we continue to buyback shares, we think we have plenty of liquidity, plenty of capacity, debt capacity. If we there was an incredible M&A deal, we haven't done anything that would preclude us from actually executing on a transaction, an attractive transaction if it became available to us. 

Fred Wightman -- Wolfe Research -- Analyst

Great. Thanks, guys.

Operator

Thank you. And our next question comes from the line of Eric Wold with B. Riley Securities. Your line is open.

Please go ahead.

Eric Wold -- B. Riley Financial -- Analyst

Thanks. Good morning. Couple of questions of follow up to prior questions. I guess if you think about the supply chain issues across kind of all all three brands.

Have you seen any light at the tunnel in certain areas of the range of uncertainties and call it Whack-A-Mole, as you described previously. Is that remained as wide as it has been? or somewhat narrowed in some of the areas that were uncertain before or not as uncertain as they had been?

Fred Wightman -- Wolfe Research -- Analyst

No, Eric, I think it has narrowed a little bit. And I think the things I would point out is that, in which he told me this earlier before you had a scenario where the supply chain would, they couldn't give you any problems that it would be. We don't know when we're going to be able to get the product to you will do the best that we can. And now it's become a little bit more of we have some coming to you, and we'll get back with you as soon as possible.

And so that's why I say that we see a window of improvement, and it's a little bit predictive to what we had said about two quarters ago that we think in the second half it will start improving. It will continue that improvement across calendar year 2022. So we are definitely seeing improvement, gives us some confidence that we'll be able to produce more than what we had maybe originally projected in the second half.

Eric Wold -- B. Riley Financial -- Analyst

Got it. And then, I know the price surcharges increases that you talked about, the hope it's going to maintain margins given supply chain inefficiencies and input costs, increase and what not. But assuming that the current trend toward larger, higher, more feature rich, higher ASP boats moving into the order book continues, and some of those production efficiencies wane in the coming quarters or so, we think about that makes the order book holding at those higher levels. How would that translated to gross margins on the other side versus going to historical levels? If I ask that in a coherent way.

Wayne Wilson -- Chief Financial Officer

Yeah, look. I think, If I understand your question correctly. Is there a potential tailwind to the to the margin profile of the business? And what's that potentially look like if you can release one incremental volume, but also to the mix that you're seeing? 

Eric Wold -- B. Riley Financial -- Analyst

Yes. 

Wayne Wilson -- Chief Financial Officer

Is that the question? 

Eric Wold -- B. Riley Financial -- Analyst

Yeah. Yes, Wayne. 

Wayne Wilson -- Chief Financial Officer

Yeah, so look, I think it's a really good question. The reality is that versus our last year when we were talking to our guidance and there was limited upside. I think we do feel like this year from guidance there is incremental upside -- versus being in an environment where it's potentially more constrained in terms of that upside is. And so I look, if those scenarios come to fruition, you're probably looking a lot more like what we thought at the beginning of the year, which was in the low 20s type number.  If you have the mix impact and you have some incremental volume beyond what's embedded in the guide, you're probably stepping up in terms of adjusted EBITDA margins into the low 20s, probably not getting all the way back to last year as 2025 because of the inclusion of Maverick.

But, on a apples to apples basis up year-over-year.

Eric Wold -- B. Riley Financial -- Analyst

Helpful. Thank you. 

Operator

Thank you. [Operator instructions] And our next question comes from the line of Rudy Yang with Berenberg. Your line is open. Please go ahead.

Rudy Yang -- Berenberg Capital Markets -- Analyst

Hey, guys. Thanks for taking my questions. First, once the clarification from me on the price surcharge, I guess, can you just clarify the expectation of when that will fully take effect? And just regarding the continued rollout of new models, are there going to be kind of planned price increases for those models? Or is this surcharge even that's going to represent all of the price increases over the medium term? 

Jack Springer -- Chief Executive Officer and Director

Yeah. Last question first. The surcharge that's in place or has already been planned for the new model, so there's not going to be a separate surcharge for them. It was a limited basis December.

I think, your question was when did it become fully vague? That we'll start seeing the fully baked part of that, probably this month in February. A little bit less so in January, but largely the full price increase is in effect now.

Rudy Yang -- Berenberg Capital Markets -- Analyst

Thanks. That's certainly helpful. And secondly, can you just comment to any thoughts on rising rates and any effect they could potentially have on your business this upcoming year? And I guess just as well as how you believe the industry as a whole, that's historically performed in a rising rate environment. 

Wayne Wilson -- Chief Financial Officer

Yeah. In terms of this fiscal year, I think rising rates will have probably no impact. The wholesale restocking need is immense in that combined with the strength that we're seeing at retail. Look, if the [Inaudible] raises a quarter point in March that flows through to the retail consumer, probably isn't actually impacting retail this year, in my opinion.

Our belief is that the financing sources have a reasonable about of NIM or net interest margin when it comes to the products to finance at retail here, and may absorb some of that. First and secondly, there's other elements of that distribution of that retail financing product that have the potential to absorb the initial rate increases, and those are likely to occur before there's really any meaningful impact when it comes to the interest rate that people are paying at retail for boats. And so we don't foresee that impacting us this fiscal year at least, and maybe even this calendar year because of those factors. 

Rudy Yang -- Berenberg Capital Markets -- Analyst

All right. Thanks so much.

Jack Springer -- Chief Executive Officer and Director

Thank you.

Operator

I'm showing. I'm showing no further questions at this time, and I would like to turn the conference back to Jack Springer for any further remarks.

Jack Springer -- Chief Executive Officer and Director

Thank you very much. We continue to capitalize on scorching retail environment, an unprecedented backlog, and we don't see any signs of its slowing. While we are limited in increasing production counts right now, every brand is well-positioned to ramp up production once parts, and systems are available from our suppliers. In the meantime, we are taking matters into our own hands to control what we can, which we highlight by our acquisition of MTech.

This acquisition further enhances our vertical integration strategy in the long-term, and addresses a supply chain challenge in the short-term. Our strategic planning, operational excellence, and supply chain management continues to support our outperformance. Our teams continue to push boundaries through the introduction of new product models that exemplify innovation in luxury, and draw customers into the Malibu, Cobalt, Pursuit and Maverick lifestyles. Historically, low channel inventories, unprecedented demand and rising ASPs create a near perfect setup that positions Malibu extremely well for multiple years of growth, and increasing profitability.

Our first half results yet again demonstrate the inherent strength and capabilities of Malibu's brands. We remain confident in our ability to deliver value to our shareholders, and we are increasing our guidance for fiscal year 2022. As always, we thank you for your continued support, and for joining us in our journey toward growth and continued excellence in fiscal year 2020 to have a fantastic day. 

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Wayne Wilson -- Chief Financial Officer

Jack Springer -- Chief Executive Officer and Director

Joe Altobello -- Raymond James -- Analyst

Mike Swartz -- Truist Securities -- Analyst

Jaime Katz -- Morningstar -- Analyst

Fred Wightman -- Wolfe Research -- Analyst

Eric Wold -- B. Riley Financial -- Analyst

Rudy Yang -- Berenberg Capital Markets -- Analyst

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