Malibu Boats, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2014 (fiscal 2014 third quarter). The filing compares results with the periods ended March 31, 2013. Malibu completed its IPO and recapitalization on February 5, 2014, changing the public parent’s ownership and tax structure; consolidated operating comparisons therefore include pre-IPO LLC results.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $50.3 million, up 6.9% | $137.5 million, up 16.5% |
| Gross profit / margin | $13.4 million / 26.6%, versus $12.5 million / 26.6% | $36.1 million / 26.3%, versus $29.7 million / 25.1% |
| Operating income | $0.3 million, versus $5.5 million | $12.5 million, versus $10.7 million |
| Consolidated net income (loss) | $(1.0) million, versus $5.2 million | $9.4 million, versus $9.6 million |
| Adjusted EBITDA and margin | $10.1 million / 20.0%, versus $8.9 million / 19.0% | $26.9 million / 19.6%, versus $21.2 million / 18.0% |
Quarterly unit volume rose 2.9% to 788 boats and net sales price per unit increased about 3.9%. Nine-month volume rose 10.1% to 2,111 boats and price per unit increased about 5.8%. The reported quarterly loss includes results attributable to non-controlling LLC owners; Malibu Boats, Inc.’s attributable loss was $370,000, or $0.03 per basic share, for the period after the IPO. Adjusted EBITDA is a non-GAAP measure and excludes specified items.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $14.2 million, compared with $17.4 million a year earlier. Investing cash outflow was $3.8 million, principally capital expenditures; financing cash outflow was $21.1 million. Cash declined by $10.6 million to $5.3 million.
- At March 31, 2014, total debt was approximately $14,000 of equipment notes; the $63.4 million term-loan balance was repaid using IPO proceeds. The $10 million revolving facility was undrawn, as were the swingline and letter-of-credit facilities.
- Current assets were $33.2 million and current liabilities $26.7 million, implying working capital of approximately $6.5 million. The balance sheet also included a $13.6 million tax receivable agreement liability and $6.2 million of warranty liability.
Material changes and unusual items
- Quarterly general and administrative expense rose to $10.3 million from $4.2 million. Management attributed the increase largely to IPO-related charges, termination of the former management agreement, professional fees and stock-based compensation tied to modified awards. The company reported $4.5 million of management fees and expenses in its quarterly Adjusted EBITDA reconciliation, including a $3.75 million termination fee.
- Interest expense increased, including the write-off of deferred financing costs associated with repayment of debt. Nine-month results also reflect higher sales, improved production efficiencies, pricing and product mix.
- The February 2014 IPO raised $99.5 million net to the company before expenses. Proceeds funded debt repayment, purchases of LLC units and general corporate purposes. Existing LLC owners retained a 50.7% economic interest in the LLC and associated non-controlling interest.
Outlook, risks and contingencies
- Management expected favorable demand to continue into fiscal 2014, while noting that cold weather may have weighed on industry sales in the quarter. It cited domestic performance-sport-boat registrations up 12% in 22 reporting states through March 31, 2014.
- Management said existing cash, revolving capacity and operating cash flows should cover anticipated needs for the next 12 months. Fiscal 2014 capital expenditures were expected to be $5.0–$5.5 million, above fiscal 2013’s $2.9 million; up to $1.0 million of spending remained for a Tennessee facility expansion.
- Additional strategic and financial restructuring expenses could occur in fiscal Q4. Ongoing incremental public-company costs were estimated at $2.0–$3.0 million annually, excluding incentive-plan compensation.
- Risks cited include consumer demand and confidence, interest rates, dealer and consumer credit availability, fuel and input costs, competition, product acceptance, dealer-network dependence and manufacturing capacity. Dealer floor-plan repurchase commitments could create losses; no boats were repurchased and no reserve was recorded at quarter-end.
- Litigation includes PCMW claims involving windshield patents, copyright and trade secrets, and Malibu’s patent-infringement case against Nautique involving wake-surfing technology. Management said it intended to defend and pursue the respective claims vigorously.
Important facts for investors to verify
- How much of the quarter’s G&A and interest expense was nonrecurring, and how sustainable are Adjusted EBITDA margins after IPO-related adjustments?
- Whether sales growth, higher selling prices and new-model demand continue through seasonal periods and across the dealer network.
- Actual capital spending, operating cash generation and liquidity relative to management’s 12-month sufficiency assessment.
- Potential outcomes and costs of the PCMW and Nautique litigation, dealer repurchase commitments, and payments under the tax receivable agreement.
- How the 50.7% non-controlling LLC interest and potential exchanges of LLC units affect future per-share results and ownership.