Q1 2022 Malibu Boats Inc Earnings Call
Good morning, and welcome to Malibu.
<unk> call to discuss first quarter of fiscal year, so I need to I need to be thoughts.
This time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please be advised that production of this call in whole or in part is not permitted without read an authorization of illegal boats and as a reminder, today's call is being decor.
And a call today from management or Mister Jack's fingers, Chief Executive Officer, and Mr. Bean Watson, Chief Financial Officer, and Mister Ricci Anderson, a chief operating officer, I will turn the call over to Mister will send to get US started. Please go ahead Sir.
Thank you and good morning, everyone on.
On the call Jack will provide commentary on the business and I will discuss our first quarter of fiscal year 20 twenty-two financials. We will then open the call for questions.
A press release covering the company's fiscal first quarter 20 twenty-two results was issued today and a copy of that press release can be found in the Investor Relations section of the company's website.
I also want to remind everyone that management's remarks on this call may contain certain forward looking statements, including predictions expectations estimates or other information that might be considered forward looking and that actual results could differ materially from those projected on today's call.
You should not place undue reliance on these forward looking statements would speak only as of today and the company undertakes no obligation to update them for any new information or future events.
The factors that might affect future results are discussed in our filings with the S. E C and we encourage you to review our SEC filings for a more detailed description of these risk factors. Please also note that we will be referring to certain non-GAAP financial measures on today's call such as adjusted.
EBITDA adjusted EBITDA margin adjusted fully distributed net income and adjusted fully distributed net income per share.
Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release.
I will now turn the call over to Jack Spring.
Thank you way and thank you all for joining the call. We once again demonstrated a dominant leadership in the marketplace as we delivered sustained momentum in the first quarter of fiscal year 20, twenty-two supported by continuing strength in retail demand even as we entered the all season, while the inflationary and supply chain pressures intensify.
Our teams unparalleled commitment and execution, coupled with our industry, leading brands and inherent operational strings were next door knob driving or outperformance in the quarter.
Malibu continues to be a premier force in the marine industry and the entirely your space setting the tone for continued growth and agility as we navigate through fiscal year 20 twenty-two M B a.
For the fiscal first quarter, we posted strong top line growth is net sales increased nearly 40% to $254 million over the prior year with adjusted EBITDA growing 23 per cent to $45 million.
Addressed gross margin declined by 170 basis point to 23.6% and adjusted EBITDA margin declined by 250 basis points to 17.6% during the quarter. The decrease in margins was better than anticipated and it was primarily generated from the inclusion of Maverick and fiscal 20 twenty-two the re.
Start of Covid, both cost and the realisation of supply chain issues that increased labor costs again against consensus all financial metrics were met or exceeded expectations. In addition, we saw an increase immaterial pricing pressures that accelerated in the in the first quarter that impacted margins.
During the quarter, we continue to capitalize on very strong retail demand and in particular larger more feature rich boats with our innovative best in class brands.
For Malibu sells for our new 25 L. S. B N P 250 models and a premium am series, both are booming driving in a handful margins where the business. Despite the negative impact of the supply chain on volume.
Also our new cobalt our series consisting of my new models in the last year remains highly sought after by consumers. These.
These cobalt models are inclusive stern surf and outboard variance for the R four or six and alright.
Related to retail demand the unlimited cheeseburger picnic continues and we are now offering soft serve ice cream for dessert.
Our order book remains unprecedented for every Malibu bran and we're not seeing any meaningful increase in dealer inventory levels as most both or either retail so or sold as soon as they hit the dealer's lot.
To put up on a point on it we continue the estimated over 90% of new boat orders will be retail settled in the second quarter of fiscal 2022.
At the same time channel inventory levels remain that historically low levels driven by the high retail demand, but also the increasing supply chain pressures affecting the <unk> power sports industry and global economy.
Again to contextualize, we estimate we have nearly half a billion dollars a channel inventory to feel that is nearly six months of production without selling another boat at retail with that in mind, even if the economy softens it will be at least two years before the channel is rebuilt.
Underscoring the retail demand the Fort Lauderdale boat show concluded last weekend.
10 minutes was very strong in sales for our brands were well above expectations. We were pleased and surprised with a strength from the 2020 Lauderdale show and last week substantially exceeded the 2020 numbers.
Pursuit sales at the show were up substantially over over almost any previous year. The cobia brand under a maverick umbrella saw sales numbers more than four times last year's numbers at <unk> at the Fort Lauderdale show in Cobalt was also increase versus the 2020 show.
The strength of retail is further substantiated with the fact that our recent price increase was in effect and it and it was a very limited promotional environment.
Despite record setting demand and a strong executable backlog of orders supply chain pressures continued to affect production at the number of parse impacted have proliferated throughout the first quarter.
Production volume for many has declined over the fiscal first quarter as manufacturers in the marine space have reduced production counts to meet parts availability.
Shortages are across the board unlike previous quarters were with an outboard engines, where the primary pain points.
There are now a number of parts in short supply on any given day, which is called Malibu branch will reduce production counts.
This approach helps us preserve efficiency and ensures our customers receive the highest quality boats as we focus our efforts on and process build.
While our volume expectations have moderated since August we believe that the price increases we are implemented implementing will help I'll set this volume decline supporting our overall margin profile in the long term.
However at this time, we are reducing our got us for margins for the year given the abundance of retail so units that will that will be produced in the face of these increasing input costs.
Malibu remains a step ahead of the competition given our industry, leading relation vertical integration and operational excellent. We are well positioned to flip the switch at any moment and ramp up production Ah supply chain headwind subside.
All brands have at least 25% of additional capacity, we can use to increase low production once the supply chain returns to some normality and.
In addition, we remain on pace to execute on our strategic initiatives to help further enhance our production capabilities. We are ahead of schedule on a maverick plant two expansion that double as a production footprint of that plant and we expect to start building both in that new facility during the second half of fiscal 2022.
We have no doubt that our team's operational capabilities hard work and commitment to quality will help us stand out amongst the competition in that vein I am incredibly proud that we've maintained that are talented workforce. Despite the labor shortages, taking place across the industry as federal programs on social distancing in vaccinations impact and the.
<unk> decision regarding returning to work.
In the short term or efficiencies and gross margins are impacted as we are carrying more labor then needed based off current daily run right. We are doing this while operating under the assumption that when the supply chain improve we will be able to increase production counts quickly rather than having to wait weeks or months do the short labor supplies.
Bring in training delays.
While we cannot predict when the supply chain will improve we fully expect returned to normal.
A new model year 2022 product lineup is again underscoring Malibu lineup of premium brands as the preferred choice for our customers boating need.
For Malibu and the actors we continue to deliver exciting new products. In addition to the debut of the all new Malibu Lakes that are 25 L. S B and the brand new Malibu wasted or 21 L. X. We recently welcomed the axis P 220, a premier 22 foot Lake surf and wakeboarding boat during the quarter.
The P 220 traditional bell replaces at four axes replaces the T 22, and the new name highlight that this new model is bigger and better than its predecessor with an enhanced on a ladder performance.
Furthermore, we also introduced the largest actress ever produced the T 250 in the first quarter, which only adds to a rich margin profile and product suite that.
T. P 50 makes history as the first 25 foot boat produced by the cutting edge access brand and will set a new standard for performance convenience style and value in the 25 foot class.
As we mentioned last quarter, we are running at a high velocity pace of product development and newbolt losses within the pursuit brand in this fiscal year, we will be introducing three new boats all of which are filling out product flat space is that we identified when we acquired pursuit.
For cobalt, we are in the process of introducing five more boats between now and the Miami boat show that we are very excited about.
The rollout include the brand new or for Stern.
The R. Four star search, which replace a previous are three versions. In addition, there are four outboard marble will be a new release to the our series coming in the 23 to 24 foot link.
We believe that are awful models will only enhance the strong legacy of this luxury brands. We will also W. A larger boat that will exceed 30 feet in both the stern and outboard versions at the Miami boat show.
Our newest brand Maverick continues to smoothly integrate with Malibu world-class product development model and we will soon be sharing more new products for Maverick.
Similar to cobalt, there's an opportunity to replace that David products and lack pursuit their product what spaces that we will appeal to drive growth.
Looking ahead Malibu is in a unique an enviable position to meet expectations for fiscal year, 2022, notwithstanding tiling supply chain and inflationary concerns.
Our team has so much to be proud of his Malibu continues to navigate one of the most volatile and unprecedented periods in history.
Their commitment to operational excellent best in class products and distribution will enable us to continue to deliver on our strategic vision.
As a result, we remain incredibly well positioned in the marketplace or force that has enabled us to remain resilient quickly dodging in overcoming many of the obstacles our competitors are facing.
We're already off to an incredibly strong start fiscal year 2022, and we believe are sustainable long term competitive advantages will result in market share gains and increased profitability.
Together this will support continue to outperform us in the industry of value creation for our shareholders.
At this time I will now turn the call over to Wayne to take you through our financial performance in more detail.
Thanks Jack.
In the first quarter net sales increased 41%.
$253 $5 million in unit volume increased 23, 8% to 2024 boats. The increase in net sales was driven primarily by a favorable model mix in our Malibu in cobalt segments year over year price increases and increase unit volumes, primarily due to that.
Acquisition of Maverick book Group on December 31st 2022.
The Malibu and access brands represented approximately 52.3% of unit sales or 1059 boats saltwater fishing represented 24%.
Or 485 boats and cobalt need up the remaining 23, 7% or 480 Bucks.
Consolidated net sales per unit increased 13.1% to approximately $125200 per unit.
Primarily driven by year over your price increases and a greater mix of larger boats for Malibu cobalt segments.
Gross profit increased 36% to $59.8 million in gross margin was 23.6%. This compares to gross margin of $25, 3% in the prior year period.
A decline in gross margin was primarily driven by the inclusion of Maverick and the current period.
Selling and marketing expense increased 41.7% or $1.5 million in the first quarter.
As a percentage of sales selling and marketing expense remains consistent to the prior year period.
General and administrative expenses increased $38, 1% or $4.4 million they.
The increase was driven primarily by an increase in compensation and personnel related expenses travel related expenses.
Tech infrastructure.
Other administrative costs and incremental general administrative expenses due to the acquisition Maverick boku as a percentage of sales DNA expense, excluding amortization remains consistent prior year period.
Net income for the quarter increased $26, 7% to $27.9 million adjusted EBITDA for the quarter increased 23.1% to $44.7 million and adjusted EBITDA margin decreased 250 basis points to 17.6%.
Non-GAAP adjusted fully distributed net income per share increased 21.2% to one dollar and 37 cents per share. This is calculated using a normal icy corp tax rate of 23.8% and fully distribute weighted average share count of approximately 21.7 million share.
Ours.
For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics. Please see the tables and our earnings release.
As Jack mentioned earlier, we had a tremendous start to fiscal year 2022, and outperformed our first quarter expectations in spite of an incredibly dynamic environment.
We remain acutely aware of the uncertainty related to supply chain and inflationary pressures and as such have factored these items into our most recent outlook.
Despite these challenges Malibu remains incredibly well position given historically low dealer inventory levels robust customer demand and recently announced price increases mitigating the impact of rising input costs.
Based on our current operating plan our expectations for fiscal year 2022 are as follows.
We anticipate revenue to grow in the low to mid 20% range.
This is supported by robust aspie growth as we move prices to offset input cost increases in terms of cadence, we expect second quarter sales growth to be in the mid 30% growth range.
Consolidated adjusted EBITDA margin is expected to be approximately 19.5%.
The reduction in our margin for the year is driven by the combination of lower volumes and the temporary impact of inflationary cost pressures as we work through our announced price increases across our product lines.
We expect the second quarter, we'll see margins decrease approximately 300 basis points year over year, driven by the inclusion of Maverick and increase input costs.
Despite these challenges we are incredibly excited about the future of Malibu, our legacy Malibu and access business continues to perform well pursuit in cobalt have made great progress since they have been acquired and we are waiting anxiously for an improved supply chain that can demonstrate the incredible progress of our teams at.
Each are.
Or Maverick integration is full speed ahead, and we see robust growth opportunities over the next 18 months.
We feel prime for success as we continue to drive innovation capitalize on record setting consumer demand and deliver high quality products and healthy margins. We believe we are well positioned to advance our long term growth plan and fiscal year 2022 and beyond.
With that I'd like to open the call up for questions.
As a reminder to ask a question.
We'll need to pass style lying on your touch tone telephone. If your question has been answered our users Jimmy tire question <unk> can you stand by a lowly compiled thank you any lasting.
Okay. Our first question comes from the line of my flights.
Truly securities your line is open.
Hey, guys good morning.
Jack maybe.
And Wayne maybe touching on some of the comments around guess lower volume expectations you did roughly.
$2000 in the quarter and I think you said kind of unconstrained you could do closer to I think you said 20, 25% above that so roughly 2500 a quarter. One I guess is that correct and then maybe too how do we think about the volume dynamic over the next couple of quarters, just given some of the manufacturing and supply chain.
<unk> Rashid.
Yeah, I think it pretty well on target I mean, right now we could easily get if we have a supply chain. There was cooperating gives you that 2500 number we can take it up even higher I'll give you an example.
Of what we've done we focused very strongly in a vertical integration and we continue the vertical integration we have several initiatives in place, but one of the things that we did is we shifted our focus mark and moved we slowed down on the vertical integration side, and we devoted some capex and devoted some attention to our final finish area.
Expanding that and so we believe that that positions the Malibu and access brands to even do more than that 25% once and supply chain start supporting us. So what we're investing in and focusing on is when the supply chain correct that we are able to take counts up as quickly as we possibly can because it's <unk>.
Heard when you have nearly a half a billion dollars of back channel inventory backlog, we want to be in a position to recover that.
Quickly as possible.
So so you're right on that quality I think for all my going forward. It's.
If you are a little more and it's gonna change in we may see our ability to take accounts up in the second quarter be better than what we thought but we also may see a stay the same so with the supply chain. The way it is and the changes that are occurring on a week to week basis is just very hard to predict I don't think that we see it versus what Wayne.
Said going down any further.
Okay Yeah.
Adding some color to that Mike in terms of cadence what I would tell you is Q to look at a lot more like Q1, and we've seen this in past years. If you. If you think about last fiscal year.
And frankly with just the way holidays lineup and seasonality and how we manage the supply chain last year. We think this year sets up very similarly, the cadence that we provided I think will as you work through that those numbers hole will translate into something very similar.
And ultimately what you're going to see it.
Is he in volumes that are more towards that 2500 unit range in Q3 and Q4 of this year.
And ultimately I think we think we have to.
Capacity on top of that.
That's available as the supply chain.
Loosens up.
Okay that that's very helpful. And then just on your pricing commentary and understanding I think most of the price increases were taken in October so they weren't reflected in the first quarter, but maybe help us understand the magnitude of the price increases you did take and then maybe how.
How your policy on price for action has changed.
Of later in recent months.
Well we've.
The standpoint way that we did it mark if we did the surcharge you have a couple of opportunities. One you can increase prices and systematically which is more complex or you can look at it from the surcharge basis, which allows you some flexibility to take it down and take it up whatever you need to do we went with a surcharge format and are are straw.
<unk>, our focus was to not only try and compensate for the for the cost increases that we were saying, but anticipate a few of them that may be coming based on.
We've had with our suppliers our strategy was to remain margin neutral. So look at that price increase make sure. We're capturing all the calls and keep our margins where they need to be our versus what we have predicted before.
Okay. Thanks.
Mike just to add one piece of color Those'll actually start impacting our P&L in the month of December. So that's part of the temporary disconnect between price increases in cost and put increases.
So that leads a little bit to the pressure on that 19, five guide versus the 20.
For the year.
Okay makes sense. Thank you guys.
Okay.
Your next question comes from the line of <unk> became 19 Caroline is helping.
Hey, guys. Good morning, I guess first on the component shortages it seems like it it changes by the week and sometimes by the day is it concentrated any particular brand or facility at this point.
No I mean, it's across all of marine if youre manufacturing OEM, you're seeing these impacts across the board and it's not really focused in one brand.
Yeah.
You have certain things that are pertinent to a brand or a segment. For example, you have the outboard in that will affect the Maverick Brown and the pursuit brands. We don't have the engine issues as it relates to Malibu and an actor.
But.
There are there are some components that extend all the way across I'm electronics components.
Petroleum related products are still an issue plastic and so that extends across all the brand.
Got it okay and cover the surcharges going into.
Place.
<unk>.
How does that position you from a pricing standpoint, because he's a competition are you seeing others take pricing up.
And it's an order of magnitude.
Every single manufacturer I know is doing it and some even higher some have also talked about the fact that they may take another price increase after the first of the calendar year. So we feel like that from our inquiries. We're not we're we're trying to protect the Malibu P&L and balance sheet.
And not gouge. So we feel like that we are very much right in the middle part of where people were raising process.
Okay, great. Thanks, guys.
Next question comes from Saint Kennison, We'd buried your line is open.
Hey, good morning, Thanks for taking my question.
Blowing up with respect to your pipeline your order backlog.
As you pushed through price increases.
Have there been any cancellations as people pushed back against the higher price immediately they expected.
No Craig's list, finishing you know we've been watching you very closely.
We're in a clearly we're in a world that.
Most of US had never experienced before and there's really not been a blip on the price increases I believe is there a couple of things factoring into it there's still a lot of money out there and our demographic has a lot of money. They have a lot of money that to go out and buy things with secondly, there I think it's dawning on customers.
From an early on aspect that if one or both I need to get in line. Because there is a line we have some of our models depending upon the brand that are already sold out for 2022 and well into 2023, and so I think that there is a consumer dynamic at play that there's a recognition that if I sell my boat.
And I Wanna Bobbo I've got to get out of layoffs, I've gotta get that slot in place.
Keep it and we.
We have not seen those cancellations I think the other thing I would point too we watch very closely the Fort Lauderdale boat show because that was our first entree. Our first boat show after the price increase went into effect and we saw four times the volume for Cobia, we saw huge volume.
For pursuit over last year, and so there was literally no impact in terms of pricing.
On what the Fort Lauderdale, Bocelli did which which tells US along with the other ancillary data that we're getting that people. We're just gonna buy both right now.
And it's such a an ideal environment in some ways I know, it's difficult I'm supply chain, but in terms of taking orders dealers has to be delighted to get full MSRP is there anything you can do to.
Preserve some of the elements of this current environment in terms of maintaining the right backing level and and maybe creating a process.
Where you can you can take orders and more or less fell slots as opposed to boats in the channel.
Yeah, you mean going forward on a more permanent basis.
Yeah. Once we get out of the crisis. There are attributes that are beneficial here in terms of margin and just.
Selling these production slots I'm wondering if you can find a way to preserve some of that.
Well I think that.
Honestly, it's a function of the environment, we're in and the environment will switch.
We are.
Unlike what some people in our federal government would like to have we are a capitalistic environment.
And it's going to return back to more of a near normal situation and dealers are going to have security stock because people will want to come in and we will get back to that mix.
In a given year, 50% sold her stock both in 50% of retail Foldboat.
And so there there is going to be that customer that comes back and they're gonna want to buy that stock. Both will it go all the way back I don't know that it will but I don't think that we've created our we will see a dynamic.
In which people are going to continue to buy slot.
I think we will return to that 50% buying slots or retail sailboat.
That's great. Thank you so much.
Thank you.
Thank you.
Your next question comes from Fred Weidman lead wealthy you say your line is helping.
Hey, guys. Good morning, there was a comment that you're carrying more labor today than you need just given the current run rates and I totally get why you would do that given the expectation that volumes will ramp as we move through the year, but could you quantify the drag in the quarter.
The first quarter or how to think about that until the second quarter and the balance of the year.
Yeah.
Would tell you is it you are going to measure it and.
A dozen or to call at 10 to 20 ish basis points is probably the appropriate number from that drag.
I think we're hopeful that drag will will persist a little bit into the queue to and I think we are hopeful that.
The supply chain recovers and a little bit from where it's at today.
And we're able to minimize that that drag in the back half of the year.
Okay, Great and then could you just maybe touch on some of the higher level industry data from from Ssi and two you're trying to have slowed a bit ski wake us down and I'll call. It mid single digits year to date are you seeing a big disconnect from some of your internal registration data versus what some of the industry sources are saying and how do you sort of see the retail.
Dynamic shaking out going forward.
Yeah, we're not really seeing them, we think that our internal data on registrations as marrying up for the most part two what FFI data showing the big dynamic we would talk about this the last couple of quarters is you had that huge outperformance that insatiable demand last.
The first quarter of last year, and so if there's gotta be a flatline you can't continue that pace with the inventory levels, where they are I believe that will probably for the next quarter to continue to see the Ssi data come in against the previous year lower but then we're gonna be going against comps that are more normalized so I would expect.
Start picking up again, and then we get inventory into the channel that will also calls lithify date or retail registrations to pick up.
Okay.
And I think.
Importantly from our perspective.
Retail, it's just said <unk>.
Typically a lotta people use that as a proxy for demand and the reality is in the environment that we're in today, it's not a great proxy for demand because the reality is that there's just not that inventory and if you look at the underlying data.
Let's call ski wake out as the example, and you look at actually what happened in September.
The reality is you were you were down on a on a two year basis.
Mid single digits versus 25% in August and September and and that's the function. There is simply that there's no inventory so.
That's going to ultimately correct itself and I think we feel really comfortable that retail demand remains robust and frankly that registration data is really difficult to put any weight and as a proxy because because of the lack of inventory.
It makes sense. Thank you.
Yeah.
Next question comes from Santa.
Need the amount on your line is helping.
Thank you good morning again.
One morning, we went for Jack here.
You mentioned gross margin was primarily impacted by Maverick Ah can you talk about what that would have looked like excluding the impact of Maverick and then for Jack.
I don't know if I have that number directly.
In front of me just given the way we report out but I would tell you that the business is performing.
Pretty well obviously some of the labor that we're carrying is is a is a drag and and so that would have impacted the gross margin on a year over year basis relative too.
Excluding maverick, but I don't have that number right in front of me.
Quantified that as a probably 150 and even on the gross side, it's more than that it probably about.
50 basis points for the year.
Four.
<unk> 50 to 60 basis points for the or for EBITDA.
In the individual quarters that are not comparable.
B approaching a couple of hundred basis points.
Okay, Alright, Thank you and then Jack we always loved when you played economists the cheeseburger picnic continues I'd.
I'd say Fort Lauderdale, it looks more like an all you can eat steak dinner. So how are you feeling about the U S consumer right here all that's going on in the World. What's your outlook for the consumer in the next six months next 12 months.
Yeah.
I feel very good about the outlook right now I think that our consumer or demographic.
Is in a very good place in life with a lot of capital at their disposal.
The metrics that I look at it have changed in the environment has caused them to change right. Now will tell you. The primary metric I look <unk> look at the stock market.
And I think as long as the stock market reforms are demographic is going to continue to be there. They have shown absolutely no reticence and buying a boat regardless of the price, which has been I would have never expected that so for the next six months I feel very good and if we can get that supply chain to start cooperating with.
With us and we can start building more both it should be fantastic.
Okay, great. Thanks, a lot Jack thanks.
By the way did you want strawberry vanilla and chocolate.
[laughter] I guess right now all of the above.
Alright.
I'm not showing any further question at this time I would now like to turn to call back to Jack's by any further remarks.
Thank you very much and several of our quarter, while inflationary concerns are ongoing supply chain constraints put significant pressure on our industry and the global economy, our first quarter results, yet again demonstrate the inherent strengths and capabilities of Malibu brands.
Our strategic planning operational excellence and supply chain management continues to support our outperformance Ah.
A vertical integration strategy remained second to none in a competitive differentiator driving profitability and then locking maximum value from our innovative product portfolio.
We also continue to capitalize on hotter and hotter than ever retail environment, and unprecedented backlog, which will support further growth and strong earnings.
We remain optimistic these tailwinds will remain elevated for some time.
While we are limiting increasing production with accounts every brand as well positioned and we are prepared to increase production quickly and with substantial volume worst parts and systems are available from our suppliers.
Our teams continue to push boundaries through the introduction of new product models that exemplify innovation and luxury and draw customers into the Malibu cobalt pursuit and Maverick lifestyles.
As price increases help counter short term volume declines in the supply chain issues moderate we look forward to advancing our industry, leading position and outperforming our peers.
Given an excellent start to the year, we remain confident in our ability to deliver value to our shareholders, while maintaining our guidance for fiscal year 2022.
As always we thank you for your continued support and for joining us in our journey towards growth and continued excellent and fiscal year 2022.
I hope you and those around you are saying safe and healthy have a fantastic day.
This concludes today's conference call. Thank you for participating Jimmy Nowadays.
[music].
[music].
[music].
[music].