Business context and reporting period
Malibu Boats, Inc. designs, manufactures and sells recreational powerboats through eight brands and three segments: Malibu, Saltwater Fishing and Cobalt. This Form 10-Q covers the fiscal second quarter and six months ended December 31, 2022; comparisons are with the same periods in 2021.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Year-over-year | Six months ended Dec. 31, 2022 | Year-over-year |
|---|---|---|---|---|
| Net sales | $338.7 million | +28.4% | $640.9 million | +23.9% |
| Gross profit / margin | $75.7 million / 22.3% | +19.0%; margin down 1.8 pts | $150.3 million / 23.4% | +21.9%; margin down 0.4 pts |
| Operating income / margin | $48.7 million / 14.4% | +21.1%; margin down 0.8 pts | $97.2 million / 15.1% | +26.4%; margin up 0.3 pts |
| Net income | $36.4 million; $35.2 million attributable to Malibu | +17.5% consolidated | $72.5 million; $70.0 million attributable to Malibu | +23.1% consolidated |
| Diluted EPS | $1.72 | vs. $1.41 | $3.41 | vs. $2.69 |
| Adjusted EBITDA (non-GAAP) | $57.6 million; 17.0% margin | +$9.5 million; margin down 1.2 pts | $114.7 million; 17.9% margin | +$21.8 million; margin unchanged |
Quarterly unit volume rose 17.7% to 2,439 boats, while sales per unit increased 9.1% to $138,882. For the six-month period, unit volume rose 14.1% to 4,676 and sales per unit increased 8.5% to $137,071. Segment sales for the quarter were Malibu $158.2 million (+18.5%), Saltwater Fishing $105.6 million (+40.3%) and Cobalt $75.0 million (+35.9%).
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $50.8 million, versus $58.0 million a year earlier. Capital expenditures were $22.3 million, and cash used in financing was $62.3 million. Cash declined by $33.9 million to $49.8 million.
- At December 31, 2022, current assets were $301.6 million and current liabilities $132.1 million. Inventories were $185.6 million, up from $157.0 million at June 30, 2022.
- Long-term debt was $70.2 million, net of unamortized issuance costs; gross revolving-facility borrowings were $71.7 million. The company reported $276.8 million of available borrowing capacity, including the effect of letters of credit, under its $350 million facility maturing July 2027. The stated interest rate was 5.55%; the company was in compliance with financial covenants.
- Management expects fiscal 2023 capital expenditures of $65–$70 million and says cash, operating cash flow and available revolver capacity should fund operations for at least the next 12 months.
Material changes and management commentary
Sales growth reflected higher wholesale volumes across all segments, inflation-related price increases, favorable model mix and dealer restocking. Higher material, labor and component costs, along with dealer flooring costs associated with higher interest rates and increased dealer inventories, pressured quarterly gross margin. Management said price surcharges introduced in fiscal 2022 became permanent price increases at the start of fiscal 2023.
Dealer inventories remained below pre-pandemic levels. Management expected wholesale demand to continue through fiscal 2023, with inventory potentially normalizing in the second half of fiscal 2023 for Malibu and Cobalt and in the first half of fiscal 2024 for Saltwater Fishing. Supply-chain challenges were expected to affect production through at least the rest of fiscal 2023, although incremental improvement had begun. Retail activity trended lower in the first half of fiscal 2023.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management identified retail demand, supply-chain performance and production capacity as key drivers of future wholesale shipments.
- Risks cited include inflation and elevated input and transportation costs, higher interest rates, weaker consumer or dealer financing, fuel prices, currency and tariff changes, competition, weather disruptions, and ongoing supply-chain and labor constraints. Hurricane Ian caused temporary Florida production downtime in the first quarter; facilities were not meaningfully damaged and production and shipments resumed in the second quarter.
- The Batchelder I product-liability case remains on appeal. A judgment was entered against a subsidiary with potential maximum liability of $140 million plus post-judgment interest; plaintiffs also seek approximately $8 million in prejudgment interest and approximately $56 million in attorneys’ fees. Payment is stayed during appeals, and the company recorded no loss reserve. Applicable insurance limits are $26 million, and an insurer has asserted potential coverage defenses. The filing describes the loss as reasonably possible, with a range of $0–$140 million, plus potential interest and fees. A related Batchelder II case has no estimable loss range.
- A new $100 million share-repurchase authorization began November 8, 2022; none had been used under this program as of December 31. The prior program expired November 8, 2022, after $7.9 million of repurchases in the six-month period. The company also reported that a 1% federal excise tax on certain buybacks became applicable beginning January 1, 2023; no significant tax impact from the Inflation Reduction Act was recorded for the six months.
Important facts for investors to verify
- Whether dealer retail demand and inventory restocking support the expected shipment and normalization timeline, particularly as retail activity has softened.
- Whether supply-chain improvements, inflationary costs and dealer flooring expense stabilize or further affect production and gross margins.
- The appeal status, potential damages, attorneys’ fees and insurance coverage in the Batchelder matters, including the absence of a recorded reserve for Batchelder I.
- Actual fiscal 2023 capital spending, cash generation, borrowing and use of the new repurchase authorization.
- Adjusted EBITDA is a non-GAAP measure; compare it with GAAP results and the company’s reconciliation in the filing.