Malibu Boats, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2019, the three months ended September 30, 2018. The filing was signed November 6, 2018. Results exclude Pursuit, acquired after quarter-end.
Financial performance
| Metric | Q1 FY2019 | Q1 FY2018 | Change |
|---|---|---|---|
| Net sales | $123.5 million | $103.5 million | +19.3% |
| Gross profit / margin | $30.5 million / 24.7% | $22.9 million / 22.1% | Profit +33.1%; margin +260 bps |
| Operating income / margin | $16.8 million / 13.6% | $11.0 million / 10.6% | Operating income +52.9% |
| Net income | $12.0 million | $6.4 million | +87.3% |
| Net income attributable to Malibu Boats, Inc. | $11.3 million | $5.9 million | — |
| Diluted EPS | $0.54 | $0.31 | — |
| Adjusted EBITDA (non-GAAP) / margin | $22.9 million / 18.5% | $17.7 million / 17.1% | EBITDA +29.7%; margin +140 bps |
Sales growth reflected a 15.8% increase in unit volume to 1,516 boats and a 3.0% increase in consolidated sales per unit to $81,453. Malibu U.S. external sales were $69.2 million, Cobalt sales $48.3 million, and Malibu Australia sales $6.0 million. Management attributed Malibu U.S. growth to new models and demand for the Axis A24, and Cobalt growth to R-series models. Gross-margin improvement was attributed to Cobalt efficiencies and higher volume.
Operating cash flow was $13.2 million, versus $5.0 million a year earlier. Investing cash outflow was $2.2 million, primarily capital expenditures; financing cash outflow was $0.4 million. Cash increased $10.5 million to $72.2 million. Current assets were $151.6 million and current liabilities $69.1 million at quarter-end.
Long-term debt had a carrying value of $108.6 million, against $110.0 million of principal outstanding. The term loan’s reported weighted-average interest rate was 4.1%; the MD&A reports 4.26% at September 30. The company reported compliance with credit covenants. Its revolving facility was expanded from $35 million to $85 million in connection with Pursuit.
Material changes and unusual items
- Compared with the prior-year quarter, gross margin, operating margin, net income and adjusted EBITDA margin improved. General and administrative expense rose 26.8% to $9.0 million, largely due to Pursuit acquisition-related costs; the filing identifies $1.4 million of such costs for the quarter in its adjusted EBITDA reconciliation.
- Other expense declined substantially, mainly because the prior-year quarter included a $2.6 million increase in the tax receivable agreement liability. The effective tax rate was 23.0%, versus a benefit-driven negative 4.2% in the prior-year quarter.
- The company adopted ASC 606 on July 1, 2018 using the modified retrospective method. Adoption had no material effect on reported financial statements; prior-year figures were not restated.
- On October 15, 2018, after quarter-end, Malibu completed its $100 million Pursuit asset acquisition, funded with $50 million of cash and $50 million borrowed under the revolving facility. The filing says a portion of the purchase price was placed in escrow.
Outlook, risks and contingencies
Management said industry retail registrations were recovering and reported continued, accelerated domestic demand growth in performance sport boats during calendar 2018. It expects demand for its products to continue, but provided no specific revenue, earnings or unit-volume guidance. Management expects existing cash, revolving availability and operating cash flows to fund operations for the next 12 months; it expects fiscal 2019 capital expenditures to exceed fiscal 2018 levels, primarily due to Pursuit. The company expects approximately $18 million of total investment in its engine vertical-integration strategy through fiscal 2019, including amounts already invested.
Management cited potential demand and execution risks, including higher interest rates, consumer confidence, dealer and retail credit availability, fuel costs, currency and oil-market effects, competition, product acceptance, labor and raw-material costs, and its ability to manage manufacturing levels and acquisitions. Boat sales are seasonal, with peak demand generally in the first and fourth fiscal quarters.
Dealer floor-plan repurchase commitments covered $136.5 million of financed units at September 30; no repurchase reserve was recorded. A former dealer’s Canadian lawsuit seeks damages exceeding $5 million; Malibu denies liability and is defending the case. The filing says management knows of no other pending claims expected to have a material adverse effect. Approximately $3.9 million was expected to be payable under the tax receivable agreement within 12 months.
Important facts for investors to verify
- How Pursuit’s post-quarter acquisition affects subsequent-period sales, margins, integration costs, cash and borrowing; the quarter’s results contain no Pursuit operations.
- Whether volume, pricing and gross-margin gains persist, especially given seasonality and competitive conditions.
- Post-acquisition leverage and remaining revolver capacity after the $50 million draw, alongside planned capital expenditures and engine-program investment.
- Potential exposure under dealer repurchase commitments and the status and possible financial impact of the Wizard Lake litigation.
- The sustainability and comparability of adjusted EBITDA, a non-GAAP measure that excludes acquisition, stock-compensation and engine-development costs, among other items.