Malibu Boats, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2017, compared with the periods ended March 31, 2016. The request metadata says “2016 Q3,” but the filing is for fiscal 2017 Q3.
Business context and results
Malibu designs, manufactures and markets Malibu- and Axis-brand performance sport boats through independent dealers. It reports U.S. and Australia segments. The filing describes Malibu as holding the leading U.S. performance sport boat market position; domestic market share exceeded 33% in calendar 2016.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $77.1 million, up 12.6% | $206.8 million, up 11.0% |
| Gross profit / margin | $21.4 million / 27.7%, versus $18.4 million / 26.9% | $55.0 million / 26.6%, versus $49.0 million / 26.3% |
| Operating income / margin | $13.0 million / 16.9%, versus $11.8 million / 17.3% | $31.5 million / 15.2%, versus $28.1 million / 15.1% |
| Net income attributable to Malibu | $8.0 million, versus $5.8 million | $18.7 million, versus $14.4 million |
| Diluted EPS | $0.45, versus $0.32 | $1.05, versus $0.80 |
| Adjusted EBITDA (non-GAAP) | $16.8 million; 21.8% margin, versus $14.1 million; 20.6% | $40.3 million; 19.5% margin, versus $34.7 million; 18.6% |
Quarterly unit volume increased 10.4% to 1,054 boats; nine-month volume rose 6.2% to 2,811. Net sales per unit increased 2.0% for the quarter and 4.6% for the nine months. U.S. sales drove growth; Australian sales were $5.5 million in the quarter and $17.2 million year to date.
Cash flow, debt and liquidity
- For the nine months, operating cash flow was $30.6 million, investing cash outflow $7.0 million, and financing cash outflow $17.3 million. Cash increased $6.4 million to $32.3 million.
- At March 31, 2017, total debt was $55.2 million net of financing costs, with no revolver or swingline borrowings. The $25 million revolver had $0.1 million in issued letters of credit. The company reported compliance with credit agreement covenants.
- Cash exceeded reported debt by approximately $22.9 million. Current assets were $76.7 million and current liabilities $46.6 million.
- The tax receivable agreement liability was $95.0 million, including $4.4 million current. Management estimated approximately $4.4 million due within 12 months.
Changes, outlook and risks
- Revenue growth reflected higher volumes, price increases, reduced discounts and demand for new models and optional features. Gross margin improved, supported mainly by lower material costs, while higher labor and warranty costs were offsets.
- G&A rose to $6.0 million for the quarter, primarily due to legal expenses, incentive compensation and engine-development activity. The nine-month results also included a $1.3 million reduction in the accrued Marine Power litigation judgment.
- Interest expense declined, reflecting lower average debt and favorable changes in the interest-rate swap’s fair value. The swap was not designated as a hedge; its valuation changes affected earnings.
- Management expected the performance sport boat market to continue growing at a healthy rate in 2017, potentially slower than recent years. It cited weaker international demand, a strong U.S. dollar, weak commodity prices, reduced demand in parts of the U.S., competition, consumer confidence and dealer/consumer credit availability as risks. No specific revenue or earnings guidance was provided.
- Management expected about $18 million of total investment in engine vertical integration through fiscal 2019, including amounts already invested, funded from operating cash and the revolver. Fiscal 2017 capital expenditures were expected to exceed fiscal 2016 levels.
- Warranty expense for the nine months was $5.9 million versus $4.0 million a year earlier; the warranty liability rose to $10.2 million. The company’s limited warranty for 2016-and-later model-year boats extends up to five years.
- On May 2, 2017, after quarter-end, Malibu settled its patent litigation with MasterCraft. MasterCraft agreed to pay $2.5 million once and future royalties under a license; claims were to be dismissed. A separate Marine Power judgment was amended to $1.9 million and remained under appeal. A former dealer sought $8.7 million in a lawsuit, which Malibu disputed.
Key facts for investors to verify
- Whether sales growth, unit volumes and pricing/mix trends continued after March 31, particularly given the filing’s international-demand and currency concerns.
- The final cash proceeds and ongoing royalty terms from the MasterCraft settlement, and their accounting treatment.
- Developments and potential exposure in the Marine Power appeal and the $8.7 million former-dealer claim.
- Actual spending, returns and funding needs for the engine vertical-integration project, alongside capital expenditures and debt repayments.
- Warranty claims and costs, dealer inventory/financing exposure, and the company’s ability to maintain credit-covenant compliance and meet tax receivable agreement payments.