Business context and reporting period
Malibu Boats, Inc. designs, manufactures and markets recreational powerboats under eight brands across its Malibu, Saltwater Fishing and Cobalt segments. This Form 10-Q covers the quarter and six months ended December 31, 2021 (the second quarter and first half of fiscal 2022); comparisons are to the corresponding fiscal 2021 periods. Amounts below are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $263.9; up 34.9% | $517.4; up 37.4% |
| Gross profit / margin | $63.6 / 24.1% | $123.3 / 23.8% |
| Operating income / margin | $40.2 / 15.2% | $76.9 / 14.8% |
| Net income | $31.0; up 39.9% | $58.9; up 33.3% |
| Net income attributable to Malibu Boats, Inc. | $29.9; diluted EPS $1.41 | $56.8; diluted EPS $2.69 |
| Adjusted EBITDA / margin | $48.1 / 18.2% | $92.9 / 17.9% |
Quarterly adjusted EBITDA increased 23.0%; the six-month comparison was $92.9 million versus $75.5 million. Adjusted EBITDA is a non-GAAP measure.
For the six months, operating cash flow was $58.0, compared with $72.6 a year earlier. Capital expenditures were $26.2, versus $11.5; cash at December 31 was $44.8, up from $41.5 at June 30, 2021. Inventory rose to $152.2 from $116.7, while trade receivables fell to $21.8 from $49.8.
Debt principal was $123.8 ($25.0 drawn on the revolver and $98.8 in term loans); reported debt net of issuance costs was $122.9. The balance sheet classified $76.3 as current, including existing term loans due July 1, 2022. The revolver had $143.7 available, after letters of credit. The reported interest rate was 1.35%, and the company was in compliance with its financial covenants. Management expects to repay the $76.3 due within 12 months using operating cash flow and says existing cash and operating cash flows should fund operations for the next 12 months.
Changes versus the prior comparable period
- Growth reflected higher unit volume, favorable model mix and pricing, and the December 31, 2020 acquisition of Maverick Boat Group, which particularly increased Saltwater Fishing sales. Quarterly unit volume rose 19.0% to 2,073; six-month volume rose 21.3% to 4,097.
- Gross margin declined 120 basis points for the quarter and 150 basis points for the six months, to 24.1% and 23.8%, respectively. Management attributed the pressure mainly to the acquired Maverick mix, as well as higher material, labor and other costs.
- Quarterly net income grew faster than adjusted EBITDA; adjusted EBITDA margin declined from 20.0% to 18.2%. For the six months, adjusted EBITDA margin fell from 20.0% to 17.9%.
- Operating cash flow decreased despite higher earnings, principally due to working-capital movements. Investing outflows were much lower than the prior period, which included Maverick acquisition spending; current-period investing was primarily capital expenditure.
Outlook, risks and unusual items
- Management expects dealer restocking demand to support wholesale shipments and financial performance through fiscal 2022, with potential continuation into fiscal 2023 and beyond. It cautioned that supply constraints could extend the restocking cycle and limit production. No specific numerical revenue or earnings guidance is provided.
- COVID-related and broader supply-chain constraints—including labor shortages, logistics and port challenges, and inflation in materials, components and transportation—continued to affect operations. The company expected elevated costs into calendar 2022 and implemented a surcharge across brands effective December 1, 2021. Management said higher prices could affect retail demand, though it did not expect them to affect fiscal 2022 wholesale shipments.
- Demand, production and results remain exposed to dealer inventory availability, consumer confidence, interest rates, financing access, fuel and input costs, competition, and the effects of COVID-19. Management said retail activity remained strong but dealer inventory was depleted; it also reported lower retail-registration growth in 2021, citing limited inventory and difficult comparisons.
- Batchelder litigation: A jury verdict resulted in a judgment with potential maximum liability to Boats LLC of $140 million plus post-judgment interest. The company disputes successor liability and is pursuing post-trial motions, with an appeal planned if unsuccessful; payment is expected to be stayed during that process. Management assessed a reasonably possible loss range of $0–$140 million plus interest, recorded no reserve, and said applicable insurance coverage may be limited to $26 million. Plaintiffs also assert possible pre-judgment interest and attorney fees, which the company contests. Potential further claims by surviving children had not been filed.
- All $123.8 million of debt principal was floating-rate debt using LIBOR as the reference rate. Management estimated a 1 percentage-point rate increase would add about $1.2 million in annual interest expense. The filing notes uncertainty around LIBOR transition and the tax receivable agreement’s lack of an alternative rate for interest on unpaid amounts.
- The company repurchased $5.2 million of stock during the six months under a newly authorized $70 million program; $64.8 million remained available at December 31. Contractual obligations included $164.9 million of purchase obligations, principally supplier orders expected to be purchased during fiscal 2022 and 2023.
- On February 1, 2022, a subsidiary entered an agreement to acquire certain wiring-harness business assets and real property from AmTech and BTR. The immaterial acquisition was expected to close in fiscal 2022’s third quarter and supports vertical integration.
Key facts for investors to verify
- Whether production and dealer inventory recover as anticipated despite continuing supply-chain and labor constraints, and whether wholesale restocking demand persists.
- Whether pricing surcharges and product mix can offset inflation and cost pressures without weakening retail demand or margins.
- The status and potential financial exposure of the Batchelder post-trial proceedings and any appeal, including insurance coverage and possible additional claims.
- How the company will address the $76.3 million of debt classified as current and the LIBOR transition for its floating-rate borrowings.
- Whether working-capital needs—especially inventory—and capital spending affect cash generation, and how the company balances debt repayment, repurchases and its other obligations.