Malibu Boats, Inc. — Form 10-Q Summary
Period clarification: The filing is for the quarter ended March 31, 2022 (fiscal Q3 2022), not 2021 Q3 as stated in the request. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context and reporting period
Malibu designs, manufactures and sells recreational powerboats through eight brands and three reportable segments: Malibu, Saltwater Fishing and Cobalt. The filing reports the three and nine months ended March 31, 2022, compared with the same periods in 2021.
Financial performance
| Metric | Q3 FY22 | Q3 FY21 | Nine months FY22 | Nine months FY21 |
|---|---|---|---|---|
| Net sales | $344.3 million | $273.2 million | $861.7 million | $649.8 million |
| Gross profit / margin | $97.1 million / 28.2% | $72.0 million / 26.4% | $220.4 million / 25.6% | $167.3 million / 25.7% |
| Operating income / margin | $71.5 million / 20.8% | $46.9 million / 17.2% | $148.4 million / 17.2% | $104.7 million / 16.1% |
| Net income | $54.8 million | $35.1 million | $113.7 million | $79.3 million |
| Net income attributable to Malibu / diluted EPS | $52.9 million / $2.51 | $33.8 million / $1.61 | $109.7 million / $5.20 | $76.1 million / $3.63 |
| Adjusted EBITDA / margin | $79.8 million / 23.2% | $57.0 million / 20.9% | $172.6 million / 20.0% | $132.5 million / 20.4% |
Q3 sales increased 26.0%, while unit volume rose 4.4% to 2,562 boats and sales per unit grew 20.7% to $134,382. Management attributed growth to pricing, favorable model mix and higher Malibu and Cobalt volumes. Nine-month sales rose 32.6%; the comparison also reflects the Maverick Boat Group acquisition, completed in December 2020.
Q3 gross margin expanded 180 basis points, mainly on favorable model mix, despite higher material, labor and supply-chain costs. Nine-month gross margin edged down 10 basis points, partly due to the acquired Maverick Boat Group’s lower-priced product mix. Nine-month adjusted EBITDA margin declined 40 basis points.
Cash flow, balance sheet and debt
- Nine-month operating cash flow was $119.0 million, versus $100.4 million a year earlier. Purchases of property, plant and equipment were $40.1 million; operating cash flow less those purchases was approximately $79.0 million, before acquisitions and other investing activity.
- Cash was $57.0 million at March 31, 2022, up from $41.5 million at June 30, 2021. Inventories increased to $164.4 million from $116.7 million.
- Debt carrying value was $119.8 million, including $73.4 million classified as current; principal outstanding was $120.4 million. Cash exceeded current liabilities by approximately $52.5 million, and the reported current ratio was approximately 1.23.
- The company had $25.0 million drawn on its $170.0 million revolver and $143.7 million available, net of letters of credit. The $72.0 million existing term-loan balance matures July 1, 2022; management expected to repay it with operating cash. The reported borrowing rate was 1.70%, and the company was in compliance with its debt covenants.
- Nine-month investing cash use was $46.6 million, including capital spending, facility expansion and $6.6 million for the AmTech/BTR asset acquisition. Financing used $56.9 million, including $30.2 million of share repurchases and $20.0 million of revolver repayments.
Outlook, risks and unusual items
- Management expected dealer restocking demand to support wholesale shipments through the rest of fiscal 2022 and into fiscal 2023, potentially longer. It cautioned that supply constraints could limit production and prolong restocking.
- Supply-chain disruptions, labor shortages, logistics and port constraints, and inflation in materials, components, transportation and labor were ongoing challenges. Management expected elevated costs through the remainder of calendar 2022; surcharges across brands had taken effect December 1, 2021.
- Management said existing cash and operating cash flow should fund operations for the next 12 months and anticipated approximately $3.8 million of tax receivable agreement payments in that period. This outlook is subject to operating, economic and supply-chain uncertainty.
- Risks highlighted include weaker retail demand from higher fuel prices, interest rates or inflation; dealer and consumer credit availability; supplier capacity; competition; and the continuing effects of COVID-19 and supply disruptions. The company’s debt bears floating LIBOR-based interest; management estimated a 1 percentage-point rate increase would add about $0.7 million in annual interest expense at period-end debt levels.
- Material litigation contingency: In the Batchelder I product-liability case, a jury award and judgment could expose the company to a potential loss ranging from $0 to $140 million plus post-judgment interest. The company disputed the judgment, intended to pursue post-trial motions and appeal, and said payment was expected to be stayed pending that process. Applicable insurance may be limited to $26 million; no loss reserve was recorded. A related Batchelder II case had no reasonably estimable loss range. Management stated it knew of no other pending claims expected to have a material adverse impact.
- The company acquired wiring-harness supplier assets to advance vertical integration. It repurchased 475,143 shares for $30.2 million during the nine months, with $39.8 million remaining under its repurchase authorization at March 31. Disclosure controls were assessed as effective; no material change in internal control was reported.
Most important facts for investors to verify
- Progress and cash-flow capacity to repay the $72.0 million term loan maturing July 1, 2022, and any refinancing or borrowing changes.
- Whether supply constraints, surcharges and cost inflation affect production, dealer restocking, realized pricing and margins as management anticipated.
- Developments in both Batchelder matters, including appeals, potential damages, insurance coverage and any future accrual.
- Inventory levels and retail demand trends, particularly the effect of rates, fuel prices and inflation on orders and dealer finances.
- Execution and returns from capital spending, vertical integration and share repurchases; adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results and cash flow.