Malibu Boats, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended June 30, 2023; filed August 29, 2023. The filing also reports fourth-quarter results. Although the request metadata refers to 2022 Q4, this source is the FY2023 annual report.
Business context
Malibu designs, manufactures and sells recreational powerboats through eight brands in three segments: Malibu (including Axis), Saltwater Fishing (Pursuit and Maverick Boat Group brands) and Cobalt. It sells primarily through independent dealers. Fiscal 2023 unit volume was 9,863, up 6.6%; Saltwater Fishing and Cobalt volumes increased, while Malibu volume declined slightly.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $1,388.4 million | $1,214.9 million | +14.3% |
| Gross profit / margin | $351.3 million / 25.3% | $310.1 million / 25.5% | Margin down 0.2 percentage points |
| Operating income | $144.8 million | $213.8 million | Down 32.3% |
| Net income | $107.9 million | $163.4 million | Down 34.0% |
| Net income attributable to Malibu Boats, Inc. | $104.5 million | $157.6 million | Down 33.7% |
| Diluted EPS | $5.06 | $7.51 | Down 32.6% |
| Adjusted EBITDA and margin | $284.0 million / 20.5% | $246.5 million / 20.3% | EBITDA up 15.2% |
| Operating cash flow | $184.7 million | $164.8 million | Up $19.9 million |
Sales growth reflected higher volume in Saltwater Fishing and Cobalt, favorable model mix and price increases. Cost inflation and higher dealer flooring costs weighed on margins. General and administrative expense rose to $175.7 million, principally due to a $100 million product-liability settlement and related legal and advisory costs. Adjusted EBITDA is a company-defined non-GAAP measure and adds back the settlement and certain related expenses.
By segment, FY2023 sales were $636.2 million for Malibu, $449.2 million for Saltwater Fishing and $303.0 million for Cobalt. Sales increased 4.7%, 31.4% and 14.2%, respectively.
Fourth-quarter sales were $372.3 million versus $353.2 million a year earlier. The quarter recorded a net loss of $18.0 million, including a net loss attributable to Malibu Boats, Inc. of $17.4 million, compared with prior-year net income attributable to the company of $47.9 million. The filing attributes the annual earnings decline principally to the litigation settlement.
Liquidity, debt and capital allocation
At June 30, 2023, cash was $78.9 million and the company had no borrowings outstanding under its $350 million revolving credit facility; $348.4 million was available after letters of credit. Current assets were $326.3 million and current liabilities were $232.4 million. The company reported $184.7 million of operating cash flow and $54.8 million of capital expenditures for the year.
After year-end, the company borrowed $75 million on July 7, 2023 to fund settlement payments; it reported $65 million outstanding as of August 24, 2023, at a 6.70% interest rate. The revolver matures July 2027 and has financial and other restrictive covenants. Long-term debt at June 30, 2023 was zero.
FY2023 capital expenditures are expected to be $70–$80 million, mainly for the new Tennessee facility, new models, capacity and vertical integration. The company expects cash, operating cash flows and revolver availability to cover operating needs for at least the next 12 months. It has a $100 million repurchase authorization through November 8, 2023, with the full amount still available at fiscal year-end; it does not anticipate paying cash dividends in the foreseeable future.
Outlook, commentary and key risks
- Management provided no quantified revenue or earnings guidance. It said wholesale demand is likely to become more dependent on retail activity as dealer inventories normalize. Malibu and Cobalt dealer inventory had returned to pre-pandemic levels; Saltwater Fishing inventory was still normalizing.
- Management said supply-chain disruptions had largely been rectified, but inflationary pressures were expected to continue into FY2024. Higher interest rates, inflation and discretionary-spending sensitivity could restrain boat demand and dealer financing.
- The $100 million Batchelder product-liability settlement was recorded in FY2023. The company said it had received approximately $21 million in insurance proceeds by August 24, 2023 and was pursuing additional recovery from insurers in litigation; the outcome is uncertain.
- Other notable exposures include dealer concentration (top ten dealers accounted for 41.1% of FY2023 sales), contingent dealer-floorplan repurchase obligations, product warranties, variable-rate borrowing, and payments under a tax receivable agreement. The warranty liability was $41.7 million; management disclosed limited historical experience for some longer warranty periods.
- The former CFO resigned in April 2023; the company said it was searching for a permanent CFO. Management and the auditor concluded internal control over financial reporting was effective as of June 30, 2023.
Important facts for investors to verify
- Review the fourth-quarter and annual results against the $100 million settlement, related legal fees, and the company’s non-GAAP adjustments.
- Track insurance litigation and proceeds, including any reservations of rights, and compare actual recoveries with the settlement amount and related expenses.
- Monitor retail demand, dealer inventory normalization, wholesale orders and dealer floorplan financing as interest rates and consumer conditions change.
- Confirm FY2024 capital spending, facility ramp-up and expected returns from vertical integration initiatives.
- Assess liquidity and covenant headroom after post-year-end revolver borrowings, along with variable-rate interest costs and tax receivable agreement payments.
- Review warranty claim trends and dealer/customer concentration, including exposure to major dealer groups.