Malibu Boats, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2021, three months ended September 30, 2020. Unless noted, dollar amounts are in millions. Comparisons are with the three months ended September 30, 2019.
Business context
Malibu designs, manufactures and sells recreational powerboats through independent dealers under the Malibu, Axis, Cobalt and Pursuit brands. It reports three segments: Malibu (including Axis), Cobalt and Pursuit.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $181.0 | $172.1 | +5.2% |
| Gross profit / margin | $45.7 / 25.3% | $40.0 / 23.2% | +14.3%; +210 bps |
| Operating income / margin | $29.0 / 16.0% | $22.7 / 13.2% | +27.6% |
| Net income | $22.0 | $16.7 | +32.1% |
| Net income attributable to Malibu Boats, Inc. | $21.1 | $15.9 | +33.0% |
| Diluted EPS | $1.01 | $0.76 | +32.9% |
| Adjusted EBITDA (non-GAAP) | $36.3; 20.1% margin | $28.4; 16.5% margin | +28.0% |
Sales increased despite unit volume declining 5.3% to 1,635 boats. Consolidated sales per unit rose 11.1% to $110,694, reflecting favorable model and product mix, including demand for larger Malibu and Cobalt models and optional features. Gross margin improvement reflected higher revenue and favorable mix, partly offset by higher costs for new, larger boats.
- Malibu: Sales rose 16.2% to $99.8 million; unit volume increased by 17 to 1,031.
- Cobalt: Sales fell 11.3% to $44.5 million; unit volume declined by 112 to 458.
- Pursuit: Sales rose 1.7% to $36.7 million; unit volume increased by 3 to 146.
North American revenue was $175.6 million, up from $159.9 million. International revenue was $5.4 million, down from $12.2 million.
Cash flow, debt and liquidity
- Operating cash flow was $32.8 million, compared with $27.7 million. Capital expenditures were $5.4 million, versus $10.7 million; investing cash outflow was therefore lower year over year.
- Cash increased by $18.7 million during the quarter to $52.4 million. Financing cash outflow was $8.8 million, including repayment of $8.8 million on the revolving facility.
- Debt principal was $75.0 million: a $75.0 million term loan and no revolving borrowings. Balance-sheet debt, net of unamortized financing costs, was $74.1 million. The stated borrowing rate was 1.40%; the term loan matures July 2022.
- The revolving facility has $120.0 million of capacity, with $1.2 million of letters of credit outstanding. Management reported approximately $120.0 million available for borrowing.
- Current assets were $169.4 million and current liabilities $97.3 million at September 30. The company reported compliance with its credit covenants.
- The tax receivable agreement liability was $50.0 million; approximately $3.6 million was expected to be due within 12 months. The company’s stated total contractual obligations were $223.5 million, including purchase obligations and the tax receivable agreement.
Changes, outlook and risks
- COVID-19-related facility shutdowns in spring 2020 reduced shipments in the second half of fiscal 2020. Management said summer retail demand improved and dealer inventories were below prior-year levels, which it expected to support wholesale restocking demand in fiscal 2021 and potentially into fiscal 2022. No specific numerical earnings or revenue guidance was provided.
- Management was managing production for supply constraints, which had begun to emerge, but reported no significant shortages to date. Cobalt production was affected by plant optimization and capacity work, new model introductions, and pandemic-related labor and supply challenges; management did not expect year-over-year Cobalt unit gains until the second half of fiscal 2021.
- Management cited renewed COVID-19 restrictions, economic contraction, consumer confidence, dealer and retail financing availability, supply constraints, labor and material costs, tariffs, foreign exchange, fuel prices and competition as factors that could affect results. It stated existing cash, revolver capacity and operating cash flow were expected to fund operations for the next 12 months.
- Interest expense declined to $0.6 million from $1.2 million, reflecting lower rates and lower average debt. The company’s floating-rate debt referenced LIBOR; management discussed uncertainty around the planned LIBOR transition and estimated a 1 percentage-point rate increase would add about $0.8 million of annualized interest expense at quarter-end debt levels.
- Selling and marketing expense fell 28.7%, primarily due to reduced travel and promotional events. General and administrative expense rose 9.2%, primarily due to higher legal expenses. Adjusted EBITDA adds back $1.6 million of litigation-related professional fees; it is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or liquidity.
- The company’s patent litigation against Skier’s Choice continued; trial was rescheduled to begin January 25, 2021. The company said it intended to pursue the case and considered the counterclaims without merit.
- A new repurchase program authorizes up to $50.0 million of Class A shares and LLC units through July 1, 2021; none were repurchased under the program during the quarter. Separately, 2,939 shares were repurchased to satisfy employee tax withholding.
Important facts for investors to verify
- Whether lower dealer inventories translate into sustained wholesale orders, and whether supply, labor and plant constraints limit production.
- Whether Cobalt production and unit volumes recover as management anticipated in the second half of fiscal 2021.
- How demand, international sales and margins respond to pandemic developments, economic conditions and product mix.
- Developments in the Skier’s Choice litigation, including any financial or operational impact.
- Floating-rate debt exposure, LIBOR replacement terms, covenant compliance, and cash requirements under the tax receivable agreement and repurchase authorization.