Malibu Boats, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020. This is an annual report, not a standalone 2019 Q4 filing; the filing separately reports the quarter ended June 30, 2020. All dollar amounts below are USD.
Business context and results
Malibu designs, manufactures and sells recreational powerboats under the Malibu, Axis, Cobalt and Pursuit brands through independent dealers. It reported three segments: Malibu, Cobalt and Pursuit.
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $653.2 million | $684.0 million | Down 4.5% |
| Unit volume | 6,444 | 7,362 | Down 12.5% |
| Gross profit / margin | $149.3 million / 22.8% | $166.3 million / 24.3% | Profit down 10.2%; margin down 1.5 percentage points |
| Operating income | $85.3 million | $98.1 million | Down 13.1% |
| Net income | $64.7 million | $69.7 million | Down 7.2% |
| Net income attributable to Malibu Boats, Inc. | $61.6 million; diluted EPS $2.95 | $66.1 million; diluted EPS $3.15 | EPS down 6.3% |
| Adjusted EBITDA and margin | $110.9 million / 17.0% | $125.9 million / 18.4% | EBITDA down 11.9% |
| Cash from operating activities | $94.1 million | $81.5 million | Up $12.6 million |
| Capital expenditures | $41.3 million | $17.9 million | Higher, including facility expansions |
FY2020 segment sales were Malibu $354.8 million (down 5.3%), Cobalt $174.8 million (down 15.4%) and Pursuit $123.6 million (up 20.3%). Pursuit’s comparison includes a full year in FY2020 versus approximately nine months in FY2019 following its acquisition.
Financial position and material changes
- At June 30, 2020, cash was $33.8 million, total assets $477.3 million and total stockholders’ equity $261.5 million. Current assets were $124.5 million and current liabilities $70.2 million.
- Debt principal outstanding was $83.8 million: $75.0 million term loan and $8.8 million revolving borrowings. The revolver has $120.0 million capacity; approximately $110.0 million was available after outstanding borrowings and letters of credit. The reported interest rate was 1.66%, and the company was in covenant compliance.
- During the pandemic, the company drew the remaining $98.8 million available on its revolver and repaid $110.0 million in June. It reported $49.9 million cash on hand as of August 27, 2020.
- FY2020 net investing cash use was $40.4 million, compared with $118.0 million in FY2019, when the Pursuit acquisition was completed. FY2020 financing cash use was $47.3 million, including $13.8 million spent to repurchase 483,679 shares.
- Quarter ended June 30, 2020 sales were $118.7 million versus $194.8 million a year earlier; quarterly net income was $6.5 million versus $20.5 million. The filing attributes the sharp quarterly decline chiefly to COVID-19-related shutdowns.
Outlook, commentary and risks
COVID-19 forced all facilities to suspend operations on March 24, 2020, with facilities reopening between April 20 and May 4. Fourth-quarter sales fell 39.1% and unit volume 43.9% year over year. For FY2020, sales declined $30.9 million and volume declined 918 units. Management said retail demand improved materially from May through July 2020, reducing dealer inventories; it expected inventory restocking to support wholesale demand in FY2021 and potentially beyond, provided consumer demand did not materially weaken. Management expected FY2021 capital expenditures to be below FY2020. No specific FY2021 revenue or earnings guidance was provided.
- Key uncertainties include further pandemic-related closures or economic weakness, shifts in consumer confidence and discretionary spending, dealer access to floor-plan financing, supplier interruptions, seasonality and weather, tariffs, and competition.
- Dealer concentration is material: the top ten dealers accounted for 38.5% of FY2020 net sales. The company also has repurchase commitments tied to dealer floor-plan financing; $161.4 million was financed under programs with repurchase obligations at year-end. Two units were repurchased in FY2020 and resold above cost.
- Malibu and Axis engine supply depends on General Motors; a UAW strike caused $2.6 million of FY2020 costs for replacement engines. Pursuit and Cobalt outboard purchases are tied to Yamaha volume commitments, including a requirement covering at least 90% of qualifying outboard-equipped boats.
- Variable-rate debt exposes the company to interest-rate and LIBOR-transition risk; a 1 percentage-point rate increase was estimated to add about $0.8 million in annual interest expense. The term loan matures July 2022 and the revolver July 2024.
- The warranty liability was $27.5 million. Estimates for later years of extended Malibu, Axis and Cobalt warranty coverage have limited historical claims data; auditors identified warranty-cost assumptions as a critical audit matter. A hypothetical 10% change in the warranty estimate would affect annual net income by about $2.1 million.
- The company is pursuing patent litigation against Skier’s Choice concerning wake-surfing technology. Management said it intended to pursue the matter; the filing does not quantify a potential outcome.
- The tax receivable agreement requires payments to pre-IPO owners equal to 85% of specified realized tax benefits. The recorded obligation was $49.7 million, including $3.6 million due within one year. Management estimated about $49.7 million in future payments over 17 years for existing transactions, subject to assumptions and excluding potential later exchanges or purchases.
Management said existing cash and operating cash flows should fund operations for the next 12 months, while noting pandemic-related uncertainty. A new share repurchase authorization of up to $50.0 million was approved in August 2020; no repurchases had occurred under it as of the filing. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether the strong May–July 2020 retail demand persisted and translated into dealer orders and profitable shipments in FY2021.
- Dealer inventory, dealer financial health and financing availability, including exposure to concentrated dealers and repurchase commitments.
- Gross-margin recovery after FY2020’s lower volume, facility shutdowns and $2.6 million engine-supply disruption cost.
- Warranty claims and reserve adequacy as extended warranty periods mature, along with progress and outcome of the Skier’s Choice patent litigation.
- Liquidity, covenant headroom, floating-rate debt exposure and the timing and cash requirements of tax receivable agreement payments.
Adjusted EBITDA is a non-GAAP measure; the filing cautions that it should not be viewed as a substitute for GAAP net income or as a liquidity measure. Forward-looking statements are subject to the risks described in the filing.