Business context and reporting period
Malibu Boats, Inc. designs, manufactures and sells recreational powerboats through Malibu, Axis, Cobalt and Pursuit brands and independent dealers. This Form 10-Q covers the quarter and nine months ended March 31, 2019 (fiscal 2019 Q3); this differs from the request metadata’s “2018 Q3.” Results include Pursuit from its October 15, 2018 acquisition.
Key financial metrics
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Net sales | $199.9 | $140.4 | $489.2 | $358.3 |
| Gross profit / margin | $49.7 / 24.9% | $36.4 / 25.9% | $118.5 / 24.2% | $86.8 / 24.2% |
| Operating income / margin | $30.6 / 15.3% | $23.9 / 17.1% | $68.3 / 14.0% | $50.6 / 14.1% |
| Net income | $22.2 | $16.8 | $49.2 | $17.6 |
| Net income attributable to Malibu / diluted EPS | $21.1 / $1.01 | $15.7 / $0.76 | $46.7 / $2.23 | $15.2 / $0.76 |
| Adjusted EBITDA / margin | $37.8 / 18.9% | $28.5 / 20.3% | $90.0 / 18.4% | $66.8 / 18.6% |
For the nine months, operating cash flow was $46.4 million versus $47.0 million; capital expenditures were $10.7 million. Investing cash outflow was $110.8 million, including $100.1 million for Pursuit. Financing cash inflow was $18.3 million. Cash fell $46.1 million from June 30, 2018 to $15.5 million.
At March 31, 2019, total assets were $456.4 million and stockholders’ equity was $189.9 million. Debt principal was $130.0 million ($110.0 million term loans and $20.0 million revolver); balance-sheet debt net of issuance costs was $128.8 million. The $85.0 million revolving facility had $65.0 million of undrawn capacity. Debt and revolver mature July 1, 2022; the company reported covenant compliance. Current assets were $133.5 million and current liabilities $83.0 million.
Material changes versus prior comparable period
- Q3 sales rose 42.4%, net income 32.2% and adjusted EBITDA 32.4%; unit volume increased 17.2% to 2,094 and consolidated sales per unit rose 21.4% to $95,472. Nine-month sales rose 36.5%, net income 179.2% and adjusted EBITDA 34.8%.
- Growth reflected higher volumes and pricing, stronger demand for Malibu/Axis new models and options, Cobalt R-series demand, and Pursuit sales. Pursuit contributed $36.5 million of Q3 sales and $66.4 million for the nine months; it was absent from the prior-year reported results.
- Q3 gross margin declined 100 basis points, principally with Pursuit integration; nine-month gross margin was unchanged. Q3 adjusted EBITDA margin decreased 140 basis points. Operating expense growth included Pursuit costs, integration expense and increased intellectual-property litigation costs.
- Nine-month 2018 net income was affected by a $47.2 million noncash tax expense related to U.S. tax reform, while other income included a $27.7 million reduction in the tax receivable agreement liability. These items make the reported year-over-year net income comparison unusually pronounced.
- Cash was lower following the Pursuit acquisition and working-capital investment: receivables and inventories increased $14.1 million and $21.6 million, respectively, in the nine-month cash flow reconciliation.
Outlook, commentary, risks and unusual items
Management expects demand for its products to continue growing but provides no specific revenue or earnings guidance. It says domestic demand has offset weaker demand in oil-dependent and international markets. Management believes the company’s dealer network, product pipeline and experience can support market-share growth in Cobalt and Pursuit over time, while noting that new product development will take time.
Risks cited include consumer demand and confidence, interest rates, dealer and consumer credit availability, tariffs, currency strength, oil prices, fuel and raw-material costs, labor availability, competition, dealer dependence, manufacturing levels and fixed costs, and the success of new products and engine integration. Management believes cash, revolver availability and operating cash flow will fund operations for the next 12 months. It expects fiscal 2019 capital expenditures to exceed fiscal 2018 levels and estimates about $18 million of total investment in its engine vertical-integration strategy through fiscal 2019.
Other items to note: the company expects approximately $3.9 million in tax receivable agreement payments within 12 months; that agreement generally requires payment of 85% of realized or deemed tax benefits and may accelerate in certain change-of-control events. Dealer floor-plan repurchase commitments covered $320.9 million of financed inventory at March 31, 2019, with no reserve recorded; losses could arise if dealers default and repurchases are required. The company is pursuing patent litigation against Skier’s Choice, with trial set for October 21, 2019; Cobalt previously obtained a judgment in its patent case against Brunswick/Sea Ray. Management reported effective disclosure controls; Pursuit controls remain under integration. The company does not expect the forthcoming lease standard to materially affect operations or cash flows, but expects lease right-of-use assets and liabilities on the balance sheet that may be material.
Important facts for investors to verify
- Confirm the period: the filing is for the quarter ended March 31, 2019, not 2018 Q3.
- Separate organic performance from acquired Pursuit contribution when assessing growth, margins and cash generation.
- Track whether gross and adjusted EBITDA margins recover as Pursuit integration progresses, and whether acquisition-related and litigation costs persist.
- Monitor operating cash conversion, receivables and inventory, cash balances, revolver use and debt-service capacity.
- Assess the scale and potential outcomes of floor-plan repurchase exposure, tax receivable agreement obligations and ongoing patent litigation.