Business context and reporting period
Malibu Boats, Inc. designs, manufactures and sells recreational powerboats through independent dealers. This Form 10-Q covers the quarter and six months ended December 31, 2020 (fiscal 2021); comparisons are with the corresponding 2019 periods. On December 31, 2020, the company acquired Maverick Boat Group (MBG), adding the Cobia, Pathfinder, Maverick and Hewes brands. Because the acquisition closed on the quarter’s final day, MBG did not contribute to reported quarterly or six-month sales.
Key financial results
| Metric | Three months ended Dec. 31, 2020 | Year-over-year | Six months ended Dec. 31, 2020 | Year-over-year |
|---|---|---|---|---|
| Net sales | $195.6 million | +8.6% | $376.6 million | +6.9% |
| Gross profit / margin | $49.5 million / 25.3% | +24.1%; margin +3.2 pts | $95.2 million / 25.3% | +19.2%; margin +2.6 pts |
| Operating income / margin | $28.9 million / 14.8% | +22.6% | $57.9 million / 15.4% | +25.1% |
| Net income | $22.1 million | +25.8% | $44.2 million | +28.9% |
| Net income attributable to Malibu Boats, Inc. | $21.2 million; diluted EPS $1.01 | Prior-year diluted EPS $0.81 | $42.3 million; diluted EPS $2.02 | Prior-year diluted EPS $1.57 |
| Adjusted EBITDA (non-GAAP) | $39.1 million; 20.0% margin | +27.5%; prior margin 17.0% | $75.5 million; 20.0% margin | +27.8%; prior margin 16.8% |
Quarterly unit volume declined 3.4% to 1,742 boats, while sales per unit rose 12.5% to $112,312, reflecting favorable product mix and higher-priced models. For the six-month period, units fell 4.4% to 3,377 and sales per unit increased 11.8% to $111,528. Adjusted EBITDA is a company-defined non-GAAP measure and should not be viewed as a substitute for GAAP earnings or liquidity measures.
Cash flow, liquidity and debt
- Six-month operating cash flow was $72.6 million, versus $52.5 million a year earlier. Capital expenditures were $11.5 million; acquisition spending, net of cash acquired, was $150.4 million.
- Cash was $23.7 million at December 31, 2020, down from $33.8 million at June 30, 2020. Current assets were $140.0 million and current liabilities $102.3 million.
- Gross principal debt was $165.0 million: $100.0 million of term loans and $65.0 million drawn on the revolving facility. The balance-sheet debt carrying amount was $163.6 million after unamortized issuance costs. The company reported $103.8 million of revolver availability, after outstanding letters of credit.
- The company borrowed $90.0 million under its credit facilities in connection with the MBG acquisition. The credit amendment increased revolver capacity from $120.0 million to $170.0 million and added a $25.0 million term loan. The reported interest rate was 1.39%; debt is floating-rate and LIBOR-based. The company was in compliance with financial covenants at quarter-end.
Material changes versus the prior comparable period
- Profitability and gross margin improved despite lower unit shipments. Management attributed sales growth primarily to Malibu’s favorable model mix and Saltwater Fishing’s higher volumes and larger models; Cobalt sales and units declined amid lower production.
- Quarterly general and administrative expense increased 49.2% to $15.0 million, primarily due to acquisition-related costs and higher legal expenses. Six-month G&A included $2.6 million of MBG acquisition costs.
- Interest expense declined year over year, which management attributed to lower rates and lower average debt during the comparable periods; acquisition financing increased debt at period-end.
- The acquisition increased goodwill to $101.2 million and other intangible assets to $239.6 million. Purchase accounting remained preliminary, including $49.2 million of goodwill and $102.6 million of identifiable intangibles assigned to MBG.
Outlook, management commentary and risks
Management said dealer inventories had been depleted by strong retail demand and prior production interruptions, and expected restocking to support wholesale demand through fiscal 2021 and potentially fiscal 2022. It expected Cobalt unit volumes to return to year-over-year growth in the second half of fiscal 2021. These are expectations, not formal company revenue or earnings guidance; the filing provides no specific consolidated financial forecast. Management stated that cash, revolver availability and operating cash flows should be sufficient for the next 12 months.
Management cited strong 2020 domestic retail demand and forecast industry growth rates approaching 20% for performance sport boats, 8% for fiberglass outboards and 9% for sterndrive boats; these are industry estimates, not company guidance. It also noted emerging supply-chain constraints, labor challenges, lower international demand in some markets, and the risk that renewed COVID-19 restrictions or weaker economic activity could interrupt operations or reduce consumer spending.
- MBG integration, realization of acquisition benefits, purchase-price adjustments and finalization of fair values are significant execution and estimation risks; management expected purchase accounting to be finalized in the second half of fiscal 2021.
- Dealer floor-plan repurchase commitments covered $180.6 million of financed inventory. No repurchases or probable repossessions were reported at quarter-end, and no reserve was recorded.
- Warranty liability was $31.0 million. Management noted estimation uncertainty, particularly for extended warranty periods with limited historical claims experience.
- Patent litigation with Skier’s Choice remained ongoing; trial was reset for May 10, 2021. The company reported legal and advisory costs associated with the case.
- The company’s floating-rate debt exposes it to rate increases; management estimated a 1 percentage-point increase would add about $1.7 million of annualized interest expense at period-end debt levels. The filing also discusses uncertainty in replacing LIBOR and a lack of an alternative rate specified in the tax receivable agreement.
- The $50.2 million tax receivable agreement liability represents payments to pre-IPO owners, generally equal to 85% of specified realized or deemed tax benefits; approximately $3.6 million was expected to be due within 12 months.
Important facts for investors to verify
- Track whether MBG integration, its preliminary purchase accounting and expected synergies develop as management anticipates.
- Verify whether dealer restocking, retail demand and production capacity support growth, particularly in Cobalt and Saltwater Fishing, amid supply and labor constraints.
- Monitor cash generation, acquisition-related debt, floating interest rates, covenant headroom and revolver availability.
- Assess the durability of margin expansion given favorable product mix, higher per-unit material and labor costs, and acquisition and legal expenses.
- Follow warranty claims, dealer floor-plan exposure, Skier’s Choice litigation and payments under the tax receivable agreement.