Q4 2022 Malibu Boats Inc Earnings Call

Good morning and welcome to the Malibu Boats conference call to discuss fourth quarter and full fiscal year 2022 results. At 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 reproduction of this call in whole or in part is not permitted without written authorization of Malibu Boats.

As a reminder, today's call is being recorded. On the call today for management are Mr. Jack Springer, Chief Executive Officer, and Mr. Wayne Wilson, Chief Financial Officer, and Mr. Richie Anderson, Chief Operating Officer. I will turn the call over to Mr. Wilson to get it started. Please go ahead, sir.

Thank you and good morning everyone.

On the call Jack will provide commentary on the business and I will discuss our fiscal fourth quarter and full year

We will then open the call for questions.

A press release covering the company's fiscal fourth quarter and full year 2022 results was issued today. 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, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events.

Factors that might affect future results are discussed in our filings with SCC, and we encourage you to review our SCC 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 Springer.

Thank you, Wayne, and thank you all for joining the call. Fiscal year 2022 was another record year for Malibu boats, which included fantastic fourth quarter results that surpassed expectations.

Despite persistent supply chain and inflationary headwinds impacting the broader marine industry, our differentiated operating model, vertical integration capabilities, and strategic leadership continues to shine through, helping us persevere and be the market leader.

For fiscal year 2022, net sales increased nearly 31% to a record $1.2 billion.

Lowe's margin remained strong at 25.5%, and adjusted EBITDA grew 30% to a record $247 million, while adjusted EBITDA margin remained relatively consistent at 20.3%.

During the fiscal year, we have met unwavering demand by amping up our production capabilities through our vertically integrated model. As a result, we supported strong order volumes and ultimately exceeded our full year guide.

Malibu continues to set the tone led by our operational excellence, premium brands, and unmatched manufacturing capabilities across our differentiated portfolio.

We look to carry this momentum forward into the 2023 fiscal year, supported by our new model of your product.

Retail demand remained very strong and has continued to support extremely robust ASPs across all brands.

During the fiscal year, we did a masterful job of optimizing price in a difficult, supply-constrained environment compared to the broader marine industry.

With many competitors across our segments raising prices into the double digits year over year, we are proud to deliver our industry-leading innovation with minimal price increases comparatively, which will be a competitive advantage.

As many boat putting manufacturers experienced, we did see a slight pause with the delayed spring. However, retail demand bounced back with dealers seeing a quick recovery around Memorial Day that carried through the quarter end.

As a result, we have orders extending well into the first half of fiscal year 2023, and they show no signs of slowing.

The strength of the Malibu consumer has proven resilient. With our tried and true experience successfully navigating through challenging market cycles, we are confident in our strategic and operational capabilities coupled with our ability to execute in any macro environment.

Across all of our brands, we are performing at very high levels. Led by Malibu and Cobalt, we have consistently increased production volumes to keep pace with strong retail orders and have already begun to build back inventory in the channel in these segments.

At this time of year, in a fresh water environment, that is important because buyers want the boat right away to enjoy the last few weeks of the season before cold weather.

We believe this will give us an advantage over the first and early second quarters of fiscal 2023.

While Malibu and Cobalt have begun to build back some of our channel inventory, our saltwater brands, which are still seeing a higher than normal number of retail sold orders, have yet to make the same step forward and channel inventories remain very low.

Although, excuse me.

Although marine-wide supply chain issues continue to limit the channel build across our brands, and especially in the saltwater brands, we now believe that if the supply chain cooperates, we will see inventory begin to build at a better pace in the second half of fiscal year 2023.

We and other marine experts continue to believe that channel inventories will not reach normal levels until the end of calendar 2023 or the beginning of calendar 2024. This provides us with a great ramp up opportunity despite any macroeconomic conditions that may exist.

Headwinds driven by supply chain disruptions continue to be the limiting factor to normalizing production, with the biggest issues continuing to come from engines across all manufacturers, wind chills, electronics, and imports from Asia driven by continuing port congestion on the West and East Coast.

As we have stated in the past, we maintain that any real improvement in the supply chain will not begin until the first half of calendar year 2023, and we are in an optimal position to execute as these headwinds improve and customers start coming back into dealerships looking for stock votes.

Despite these headwinds, our production capabilities have never been stronger. Our recent acquisition of Malibu Electronics represents just another example of our strategic leadership and foresight in managing our supply chain.

Importantly, we would not have been able to shift the volume that we did at Malibu and Cobalt without the addition of Malibu Electronics to our vertically integrated model.

We will only continue to see the benefits compound as we ramp up production in the quarters to come.

Turning to our market performance, we continue to hold our own in every brand, and in particular, I couldn't be prouder of the team at Cobalt. As you know from past calls, Cobalt was late to the game in the outboard market when we acquired them.

It was an immediate product focus for us, and we have since expanded the number of models from three to seven with more to come.

For context, in June of 2018, COBOL's outboard market share was approximately 4.4% in our competitive segment.

Based on the early June 2022 numbers released last month, COBOS Outboard Chair is now up to 18.1% year to date.

In just the last year alone, we have increased our outboard market share by 600 basis points and look to maintain this trajectory in the quarters to come.

Whether it be Malibu, Axis, Cobalt, Pursuit, or Maverick, no one has a track record of success in designing and bringing new products and innovations to market.

We win hands down on product and are very excited to release our incredible 2023 product lineup.

From Malibu and Axis, we are again introducing four new boats, which is far more than any other competitor.

This includes the all-new Malibu 22LSV and 26LSV, and the Axis A225 and T235.

We are especially excited about our new Malibu 26LSV. This 26-foot monster of a wave and weight machine is the largest boat ever built by Malibu and will serve a market that is growing in demand at every turn.

There are also compelling new features which we will debut on this model and extend across our other Malibu models.

While there is a plethora of new and compelling features, I will give you a taste of three in particular.

For several years, our focus on features has been around functionality, what makes the customers experience more convenient and ergonomics.

Case in point, we are introducing the max pivot seat, which smoothly changes between multiple positions and functional uses. And it now includes a bench seat, a bed, and a fully functional table.

Our new Malibu stereo system now features amplifiers that are 70% smaller, subwoofers, speakers, improved VSP tuning capabilities, and a transom remote which will take the user into the next stage of sound.

And lastly from Malibu, our rudder position sensor, which displays on the command center's main screen, will help enable ease in docking, slow speed maneuvering, and take offs with riders.

Turning to Cobalt, building on our R33 series with the stern drive boat release in fiscal year 2022, we have recently announced the R33 outboard version for our Coastal customers.

The hunger for these two boats has been loud and clear, with demand exceeding what we had initially projected by a large margin, which is a nice problem to have.

In just three weeks at the Cobalt dealer meeting, we will be unveiling our new R35 Stern and R35 outboard bows for a first look by our dealers.

There's no doubt that these two exceptional boats will also be in high demand as we make them available to the public after the first of the year.

Two features for cobalt that I'm excited to talk about are the new seed keeper option that eliminates up to 95% of boat row.

The marine industry has seen this feature become a must-have for boats over 30 feet in the saltwater environment, and we will make this feature available on our two new R33s as well as the two new R35s.

Secondly, we are introducing a side boarding door option for the R33 standard and the R33 outboard as well as the R35 standard and the R35 outboard.

This option provides effortless side entry and access to the boat and is very similar to the version offered on many pursuit models.

At Pursuit, during the beginning of our fiscal year in July , we introduced our largest boat ever built at Pursuit with the OS 445.

This offshore boat, which features massive living accommodations, first-in-class bow seating, and an incredible amount of storage, has already amassed orders for the next year and a half despite just now being seen in the log.

In the next couple of months, we will introduce a new boat on the other end of the link spectrum, the brand new S248, which will capture that smaller saltwater market.

There will be a third boat introduced in the second half of the model year that is a white space boat that we expect will drive significant volume over the next few years.

For Maverick Boat Company, we are launching our first new product since we acquired the company with the unveiling of the new 2023 Pathfinder 2400TRS, which will be introduced at the MBG dealer meeting next week.

Our team at Pathfinder was given four lanes to build the boat of their dreams and beat the competition to every turn. They have done just that, and we expect the line to buy this boat to be longer than a Sunday after church at a Golden Corral buffet.

As we end another record year, I am proud of the significant progress our team continues to make. We are the best, and we continue to get better every single year. We have set ourselves in a unique position to continue our pace of ramping production.

Heading into fiscal year 23, we are on track to start our channel build and remain confident in the outlook as demand remains high.

As we have stated over the past 18 months, even if there is a downside scenario, our previous experience, best-in-class operations, and battle-tested strategic leadership will mitigate these potential headwinds, allowing us to maintain strong margins in the quarters to come.

Overall, our team's hard work, commitment to excellence, and agility in the midst of a challenging supply chain environment has delivered superior results, allowing us to cruise past the competition, deliver more boats to our customers, and maintain our track record of success.

As we embark on fiscal year 2023, we believe our future remains exceptionally bright. We have a winning playbook demonstrated by over a dozen years of continuing success. From unprecedented consumer demand, the introduction of our new model year 2023 products, historically low dealer inventories, our unbeatable culture of operational excellence and vertical integration, we are extremely well positioned to drive substantial growth and profitability.

all the while delivering long-term value for our shareholders.

I will now turn the call over to Wayne for further remarks on the quarter.

Thanks Jack.

In the fourth quarter, net sales increased 27.6% to $353.2 million and unit volume increased 10.3%.

to 2,596 boats.

The increase in net sales was driven primarily by year-over-year price increases.

a favorable model mix, and increased unit volumes, primarily in our Malibu and Cobalt segments.

The Malibu and Axis brands represented approximately 56.9% of unit sales, or 1,478 boats. Cobalt represented 22.7%, or 588 boats. Saltwater fishing represented the remaining 20.4%.

or 530 votes.

Consolidated net sales per unit increased 15.7% to approximately $136,000, primarily driven by year-to-year price increases and a favorable model mix.

Gross profit increased 29.5% to $89.6 million and gross margin was 25.4%. This compares to a gross margin of 25.0% in the prior year period.

selling and marketing expense increased 1.7%.

or 0.1 million dollars in the fourth quarter.

as a percentage of sales selling and marketing expense decreased by 40 basis points.

General and administrative expenses increased 2%, or $0.3 million. The increase was driven primarily by an increase in compensation and personnel related expenses, increases in information technology.

expenses and travel which were slightly offset by a decrease in professional fees.

As a percentage of sales, G&A expenses, excluding amortization, decreased 120 basis points to 4.9%.

Net income for the quarter increased 42.1% to $49.7 million. Adjusted EBITDA for the quarter increased 28.3% to $73.9 million and adjusted EBITDA margin increased 10 basis points to 20.9%.

non-GAAP adjusted fully distributed net income per share increased 32.1% to $2.43 per share. This is calculated using a normalized C-corp tax rate.

of 23.8 percent and a fully distributed weighted average share count of approximately 21.3 million shares.

For reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to gap metrics, please see the table in our earnings release.

As Jack mentioned earlier, we delivered another record setting year in fiscal year 2022, further cementing our position as the most innovative and efficient operators in the industry.

Our feature-rich boats continue to be highly sought after by our customers.

and we have further enhanced our ability to deliver despite persistent headwinds affecting the broader marine industry.

We are just beginning to see the benefits of our timely, strategic acquisition of Malibu Electronics, which has helped us successfully improve our volume output across Malibu and Cobalt through the back half of the fiscal year.

We are also still in the early innings of realizing the potential of our Maverick plant expansion, which will add even more production capacity to our saltwater segment.

Thank you.

looking at full year numbers.

Net sales increased 31.1% to a record $1.2 billion, and unit volume increased 13.1% to a record 9,255 votes.

Consolidated net sales per unit increased 16%.

to just over $131,000, driven by higher sales of new, more expensive models and optional features and higher over-year prices.

Gross profit increased 31.1% to $310.1 million.

That income for the year increased 43% to $163.4 million.

and adjusted the EBITDAI increase 29.7% to a record $246.5 million for the full year.

For the year, non-GAAP adjusted fully distributed net income per share increased 31.6% to a record $7.91 per share.

As mentioned in prior quarters, we believe that heading into fiscal year 2023, our continued ability to produce more units will build channel inventories, setting our dealers up to win the retail battle. Our agility in managing supply chain issues has given us a significant competitive advantage, helping us continue to efficiently produce the best and most innovative products while fortifying our industry-leading fiberglass boat manufacturing capabilities.

We are excited to showcase our new model year line.

highlighting our unmatched innovation, quality, and feature-rich boats.

Based on our current operating plan, our expectations for fiscal year 2023 are as follows.

We anticipate net sales growth in the mid to high single digit percentage growth year over year.

In terms of cadence, we see higher year-over-year growth in the first half and nearly double the annual rate in the first fiscal quarter.

Consolidated adjusted EBITDA margin is expected to be down slightly. However, we believe there will be a modest increase year over year.

in the first fiscal quarter.

In closing, fiscal year 2022 was a massive success as we set numerous records for operational and financial performance. We have proven that no matter the environment, from supply chain disruptions to inflation.

We have the teams and capabilities to push the throttle forward and capitalized on continued strong retail markets.

Our differentiated best-in-class portfolio continues to perform at the top of the marine industry, and our fiscal year 2023 lineup will push the boundaries as we continue to drive long-term value for our customers and shareholders.

With that, I'd like to open the call up for questions.

As a reminder, to ask a question, please press star 11 on your telephone.

Please stand by while we compile the Q&A roster.

Our first question comes from Brett Andress with KeyBank. Your line is now open.

Hey, good morning guys. I was hoping to get your thoughts on the July SSI data, or really any of the data we follow for the last few months. You know, you did mention...

That spring pause has there been any difference?

there in that data versus you know how you guys were expecting it to play out or you seen anything different in your own.

warranty registrations. It's trying to kind of make sense of some of it.

Yeah we're trying to make sense out of the tape Brad. The SSI data is more problematic than it's ever been and you know the caution I'll give is that we have said since we went public that if you look at any one given month it's going to be wrong. First of all it's at best it's 55-60% of the states that are reporting. It's not until it matures over that quarter that it begins to have some semblance of truth to it.

And so we really wait for that. The thing I'll point out though, and this even goes back to the gene data that came out, there were three states that were missing. And so the disarray right now that's going on with SSI, it just doesn't give us any confidence. We are looking very closely at our internal warranty numbers, which do indicate a different story.

Got it. And then if you want to elaborate on that story, that would be helpful. But my second question is just on the channel restock opportunity. I think you've given us some numbers in the past, the total units needed to restock the channel. Where are we with that today? And if your 2023 guide plays out like you expect, how much progress would you expect to make there?

I think that from the standpoint of the channel inventory, we always talk in weeks on hand. And it's still double-digit weeks on hand. That's low across the board, more so in the saltwater than the freshwater, as we talked about. I think as the year progresses, we will continue to see a better channel inventory build, first of all, in Malibu, secondly in Cobalt, to that freshwater segment. And then it will follow in saltwater. But that won't even, I don't think, begin to take.

Thank you.

Please stand by for our next question.

Our next question comes from Jamie Katz with Morningstar. Your line is now open.

Hi, good morning. Thanks. I am curious to hear what you guys are seeing from an economic perspective. Obviously the demand from a shipment perspective is pretty good, but is there any cutting back anywhere accessories? Obviously we see the ASP numbers. Is there any weakness you know that can be alluded to or anything different maybe in the...

new boat buyers relative to the historical buyers that would indicate any sort of trend shift.

Yeah Jamie I asked a good question and something we're following very closely and I'll talk about it on two different planes. You know the from the standpoint I'm talking a lot to dealers anybody that I can talk to Wells Fargo whoever it may be and this is a great time of year for me because we have four dealer meetings in a period of three months. So I'm able to communicate directly one-on- one with the dealers and get an understanding of what's happening.

Speaking to our brands and what we have, we are not seeing any type of a shift change. We continue to see people come out and buy the larger boats. I think the last year's brand new T250 model is a great example of that, the largest access ever built. It outperformed expectations. So they continue to buy the larger boats. They continue to option up boats and buy every conceivable feature.

that would make sense for a given customer, and that's across all of our brands. And I'll point that to really one thing, and that's our demographic. We have a unique, very strong demographic that, in my opinion, is the last demographic that's ever affected by economic conditions. You know, our... If you look at our annual income across the board of our demographic, it's very, very high. The net worth is very, very high.

And when you combine that with the fact that over the last three years, $43 trillion of additional wealth have been created, I use the term resilient. I think it makes our consumer very resilient. Now moving to the second plane, what we are seeing is that across the marine industry, those smaller units, call it 22 foot and under, are being impacted. Last year, as an example, for the full year calendar 2021, almost half of us werecher Los Angeles golf fans. And you know, it was probably more than that. Now we are seeing the MOT is scale growth on the Butterfly and actually historically our primary bottom line was 15,000. So, US $ Initiatives Hospital has helped to drop more money by decades, Damn million and more.

That 22 foot and under market was down 13.8%, whereas the rest of the industry was pretty well flat versus 2020, which we know was a humongous year. So I think our demographic is extremely strong and is carrying forward, and then it's that smaller demographic, that less expensive demographic that is probably feeling some pain at this point in time.

Excellent. And then just as a follow-up, I guess, given the cadence of acquisitions you've had,

Historically, I'm curious where you guys are seeing valuations in the boat space, whether there could be opportunities or if it seems like maybe interest is too high across the board where valuations are running a little bit heated. Thanks.

Yeah, since the first year, there's not been a lot of assets come to market. It's been a pretty slow time. I do believe as the economy potentially wanes, that's going to pick up some. I will say that what we have seen have not been necessarily assets that we would want to pursue, and they have been at higher multiples. But again, if we're entering any type of a softening phase, I think that...

assets will come to market, number one, and number two, I think it'll be not as frothy and people will be more realistic in their expectations.

Thank you.

Please stand by for our next question.

Our next question comes from Jarek Johnson. With VMO, your line is now open.

Great, thank you. I have two questions, please. First, in the past, you've given us the percent of production that's dealer sold and retail pre-sold. Wayne, maybe if you could give us those numbers. Wayne, I should have one.

I actually don't have those specific numbers.

The

amount of presales that are occurring in the saltwater.

Segment is higher at this time. Jack, you may have some more specifics and have been the source of that in the past.

No, not in terms of pretty sales. I would say it's still in the saltwater, remains in that 80 to 90% range at a minimum. We're just not creating any channel inventory. Whereas we talk in terms of historical trends, and it's normally in that 50% level for the freshwater market, it's still elevated a little bit, but it's coming back more toward a normal, maybe 60% or so, but that's just really a guess on my part, Gary.

Okay, great. And perhaps – Okay, great.

you could give us a retail demand expectation for your fiscal year.

Yeah, so the

We haven't necessarily given forecasts of the specific number. We obviously, Garrick, are modeling that out and looking at different scenarios, especially in the environment that we're in today, where there's a channel inventory opportunity. What I would tell you is that the primary model or scenario that we used to come to our forecast...

was a down high single digit percentage for our fiscal year and a modest amount of channel inventory.

Okay, great. Thank you, Wayne. Thanks, Jack.

Thank you, Wayne. Thanks, Jack.

Please stand by for our next question.

The next question comes from Martin Mattala with Raymond James your line is now open

Hey guys, it's actually Joe. You hear me okay?

Yes, yeah, no, no, no, no. Good morning. I have a couple questions on the guidance. First, even though Marching is going to be down this year, you said it's going to be up in the first quarter. Help us understand some of the puts and takes there and maybe why that would get worse over time.

Yeah, so look, the EBITDA margin down, I'll talk specifically about just the down slightly guy. The reality is our plan calls for increased mix in saltwater in businesses that are a little less mature than Malibu. And so on a mix-adjusted basis or a mix-neutral basis, we're actually seeing margin expansion. And so that's kind of the aggregate.

view of what's going on on margin for the year. In terms of the cadence, if you look at the timing of when that mix change is impacting the P&L, it's more in the second half of the year. And so you're seeing better performance in the first half. There's actually less of an impact of that mix in that first quarter, and that's what we're trying to let you know.

Yeah, we haven't been giving a big break out in terms of the volume versus ASP. We're going to see a number that's going to be split pretty evenly between volume and ASP.

Yeah, love it. Love it. Love the cloud.

Go ahead, John .

No, because the ASP increase is going to be all mixed and keep this uptake at sounds like.

mostly. Well, so you know you keep in mind Joe that what you're you know you're comparing something that hey this is what's happening with prices between you know a certain date certain and and another date there are you know embedded as prices have risen throughout the fiscal year 22 there is a thing you know we took into account there is an

there is absolutely a natural uplift that's gonna be happening relative to that. So if you go back to the mid-year and how we modified prices, and so not all boats in the year were at the price that we ended the year at. And so there is a modest uplift that's associated with that. Actually, we think we would see a little bit higher uplift on ASP, but for some of the mix that we've talked about.

Okay. Perfect. Thanks, Mike. The other thing I want to point out, Joe, a couple things, and you cut out a little bit, but the couple things I do want to point out is you're looking at the website related to Malibu. So that is specific to the Malibu and Access products and not necessarily to the other brands. The other thing is that is the beginning of the year from a price increase standpoint. So that does not say we want to do that. We think that gives us a competitive advantage, but that doesn't say we will not reevaluate that at the beginning of the calendar year.

Thanks for clarifying, Jack. Appreciate it.

Thanks for clarifying, Jack. We appreciate it.

Please stand by for our next question.

Thank you.

Our next question comes from Brett Andrus with KeyBank. Your line is now open.

Hey yeah just to follow up is there any way I think Jackie mentioned this earlier to frame up how much price your competitors have taken since you were eighteen?

I guess COVID and how much you've taken. I'm just trying to frame up.

what you think that gap is right now going into model year 23.

You know, it's a little bit more unclear when you get to companies that are not public. But generally, we believe that we're at the, you know, I'll put it in framework of we're at the lower end of the spectrum, regardless of whether it's public or private. We are aware of some public companies as an example that 12.9% was was the price increase that came out. So a pretty staggering price increase on top of all the COVID price increases that occurred. In all honesty, the panic thatghan chuckles like that, Miller And

So we're really confident that regardless of what brand we're dealing with, what segment we're dealing with, we're at the lower end of the spectrum of the price increases.

Got it. Thank you.

I'm not showing any further questions at this time. I would now like to turn the call back to Jack Springer for any further remarks.

Thank you very much.

In summary, we had a massive quarter and a massive year that we're very proud of. Nautilus boats continue this dynastic run, delivering another great quarter and outstanding year.

Our dealer backlog remains exceptionally strong, supported by the unprecedented consumer appetite for larger, feature-rich boats, and it will drive ASP growth across the board. We are capitalizing on the strong demand environment and taking advantage of the attractive trends that have materialized over the past few years. We are the boating leaders, offering the finest, most modern products in the marine industry. From Malibu and Axis to Cobalt to Pursuit to the Maverick brands, we are in a unique and favorable position with our suite of premium brands and boats.

at your industry dominance.

Lastly, channel inventory remains at historic lows, providing an incredible opportunity for continued success for the next two to three years as the supply chain normalizes.

As always, I would like to thank you for your un-relenting support and I look forward to doing our continued victories together as we strive to make fiscal year 2023 the best year yet from Allelu. Have a great day. Happy work.

This concludes today's conference call. Thank you for participating. You may now disconnect.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.