Business context and reporting period
Malibu Boats, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended March 31, 2021 (fiscal Q3 and fiscal year-to-date 2021). The company designs, manufactures and sells recreational powerboats through the Malibu, Axis, Cobalt, Pursuit, Cobia, Pathfinder, Maverick and Hewes brands.
On December 31, 2020, Malibu acquired Maverick Boat Group for approximately $150.7 million. Its results are included in fiscal 2021 from the acquisition date, but not in the comparable 2020 results; reported growth therefore includes an acquisition contribution. The company reports Malibu, Cobalt and Saltwater Fishing segments.
Financial performance and liquidity
Amounts below are in millions, except per-share data and margins.
| Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Nine months ended March 31, 2021 | Nine months ended March 31, 2020 |
|---|---|---|---|---|
| Net sales | $273.2 | $182.3 | $649.8 | $534.5 |
| Gross profit / margin | $72.0 / 26.4% | $45.8 / 25.1% | $167.3 / 25.7% | $125.7 / 23.5% |
| Operating income / margin | $46.9 / 17.2% | $30.1 / 16.5% | $104.7 / 16.1% | $76.4 / 14.2% |
| Net income | $35.1 | $23.9 | $79.3 | $58.1 |
| Net income attributable to Malibu Boats, Inc. | $33.8 | $22.8 | $76.1 | $55.4 |
| Diluted EPS | $1.61 | $1.09 | $3.63 | $2.66 |
| Adjusted EBITDA and margin | $57.0 / 20.9% | $36.4 / 20.0% | $132.5 / 20.4% | $95.5 / 17.9% |
Third-quarter sales rose 49.8%, gross profit 57.1% and net income 47.2% year over year. Adjusted EBITDA is a non-GAAP measure; the filing provides a reconciliation and cautions that it is not a substitute for GAAP results or a liquidity measure.
For the quarter, unit volume increased 36.6% to 2,454 boats and sales per unit rose 9.7% to $111,313. Malibu segment sales were $138.0 million, Cobalt $55.2 million and Saltwater Fishing $79.9 million. Saltwater Fishing’s increase chiefly reflects Maverick Boat Group; Cobalt unit volumes were lower, partly because of weather-related shutdowns.
- Cash flow: Nine-month operating cash flow was $100.4 million, compared with $74.2 million a year earlier. Investing used $169.5 million, including $150.4 million for the acquisition; financing provided $78.4 million. Cash ended at $43.0 million, up from $33.8 million at June 30, 2020.
- Debt and liquidity: March 31 debt was $163.4 million net of $1.2 million of unamortized issuance costs ($164.7 million principal). Cash plus available revolver capacity provided approximately $146.8 million of reported liquidity. The $170.0 million revolver had $65.0 million drawn and $103.8 million available, including the effect of letters of credit. The company reported covenant compliance.
- Balance sheet: Current assets were $200.9 million and current liabilities $128.6 million. Inventories were $115.7 million, versus $72.9 million at June 30, 2020. Total liabilities were $384.7 million and stockholders’ equity $345.6 million.
Changes, outlook, risks and unusual items
- Gross margin improved year over year in both the quarter and nine-month period, supported by higher sales and product mix. Nine-month operating margin also improved. Quarterly net margin was 12.9%, compared with 13.1% in the prior-year quarter.
- Management attributed higher demand to consumers choosing boating as outdoor, socially distanced recreation. Production ramp-up was affected by severe winter weather, labor and supplier constraints, including disruption to Cobalt operations.
- Management expected dealer inventory replenishment to support wholesale shipments through fiscal 2022 and said strength could continue into fiscal 2023. The filing provides no specific quantitative revenue or earnings guidance. Management warned that demand could weaken if broader economic activity contracts and noted that unusually strong 2020 retail growth could lead to slower or negative year-over-year registrations after May 2021.
- COVID-19, supplier capacity and parts availability, manufacturing workforce needs, dealer financing and health, consumer confidence, interest rates, fuel and material costs, competition and product acceptance remain relevant risks. The company said it had not experienced significant COVID-related shortages, but future effects remained uncertain.
- Acquisition accounting remained preliminary. Goodwill recognized for Maverick was $49.2 million, and acquired identifiable intangible assets were preliminarily valued at $102.6 million; final appraisals and working-capital adjustments were pending. Nine-month acquisition-related costs were $2.6 million, expensed in general and administrative costs.
- Debt bears floating rates using LIBOR. The filing describes the transition risk and estimates that a 1 percentage-point increase in the applicable rate would add approximately $1.6 million of annualized interest expense at period-end debt levels.
- Dealer floor-plan financing agreements carried $201.1 million of repurchase exposure; the company reported no repurchases or probable repossessions and no reserve at March 31. Warranty liabilities were $32.3 million. A patent dispute with Skier’s Choice remained ongoing, with trial scheduled for May 10, 2021.
- Management said disclosure controls were effective at a reasonable assurance level. Integration of Maverick’s controls was ongoing. The company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of reported sales, earnings and Saltwater Fishing growth reflects Maverick Boat Group versus existing-business demand and pricing or mix? The filing does not provide a clear organic-growth measure.
- Whether supply-chain, labor and weather constraints ease sufficiently to support the planned production ramp and dealer restocking, and whether dealer inventory and retail demand remain strong.
- Final purchase-price allocation, including Maverick’s intangible-asset valuations, goodwill and any resulting amortization or adjustments.
- Debt maturities, floating-rate exposure and compliance with credit-agreement covenants, especially as LIBOR is replaced and the existing term loans mature in July 2022.
- Developments in the Skier’s Choice litigation, product warranty claims and dealer floor-plan repurchase exposure.