Q1 2023 Malibu Boats Inc Earnings Call
Okay.
Good morning, and welcome to Malibu boats conference call to discuss first quarter.
Yeah 2023 results.
At this time all participants are in a listen only mode.
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.
And as a reminder, today's call is being recorded.
On the call today from management are Mr. Jack Springer, Chief Executive Officer, Mr. Wayne Wilson, Chief Financial Officer, and Mr. Ritchie Anderson, Chief operating officer.
I will turn the call over to Mr. Wilson to get 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 first quarter of fiscal year 2023 financial results.
We will then open the call for questions.
Press release, covering the company's fiscal first quarter 2023 results was issued today.
A copy of that press release can be found in the Investor Relations section of the company's website.
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 the SEC and.
And we encourage you to review our SEC filings for a more detailed description of these risk factors.
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.
Our earnings release.
I will now turn the call over to Jack for his commentary.
Thank you Wayne and thank you all for joining the call Malibu boats kicked off our fiscal year 2023 with a splash of their continued momentum was supported by ongoing demand strength in both our fresh and saltwater businesses.
We not only maintained our record setting results, but we surpassed expectations despite impacts from hurricane in late in the quarter.
Goes without saying, our Hartford with each and every person that was impacted by the devastation in Florida in the aftermath of Ian.
Several of our dealers, who stated the pictures and videos just did not do a justice you have to be there to appreciate the devastation.
I personally could not be more proud of the MBR team that rose to the occasion to support communities in the rebuilding efforts.
Turning back to our results for fiscal year fourth fiscal quarter of 2023, we continued our record setting pace with net sales, increasing nearly 20% to a record $302 million over the prior year.
Net income grew 29% to $36 1 million, while adjusted EBITDA rose, 28% to $57 $1 million both records for the first quarter as well.
Gross margins increased 110 basis points to 24, 7%, while adjusted EBITDA margin improved 130 basis points to 18, 9% with.
We continue to showcase our durability and resiliency as a business despite supply chain pressures persisting across the broader marine industry.
Many of you have asked about the impact of Hurricane Ian on our performance.
I'm struck the last week of the quarter and did have some impact, which we believe will be made up in the second fiscal quarter more specifically, our saltwater brands lost about $5 million in revenue and $1 $6 million and contribution margin all of which would have increased adjusted EBITDA for the quarter.
We fully expect to recognize all of the impact in our second fiscal quarter.
As you may have noticed when visiting our web site. We recently rebranded Malibu boats incorporated or MBR for short symbolically, we believe that MBR as an enterprise is greater than the sum of its individual parts.
Our products give people dream days on the water across multiple boding segments, and our scale makes us unstoppable in the marine industry.
Our renewed company identity is reflective of a credible modern and growing company that has progressed well beyond our founding brand.
In addition, this eliminates any confusion between the corporate identity and the Malibu brand identity.
Retail demand continues to be strong, although we are seeing a return to more normalized seasonality, which everyone should expect that said our early saltwater shows have been very encouraging.
Salt water brands or increased over last year and what is striking is that pursued is up 40% and shows sales this year versus last year.
At Fort Lauderdale pursuits hold more boats than in 2021. We also also saw 74% of the pursuit boats sold at Fort Lauderdale.
30 feet in length or over <unk>.
Cobalt was also at the Fort Lauderdale show and saw a 25% increase over 2021 show cell.
We are experiencing that our customer is doing quite well and is very resilient and we expect the premium boat buyer, which is the customer for our premium brands to continue to be in the market and the early boat shows are punctuating that with an exclamation point.
There have been 43 trillion dollars of household household wealth created in the last three years and people remain willing to spend it in our customer demographics.
Further asp's remained elevated across the board as we satisfy customer demand for our boats.
Customers continue to demand larger boats as evidenced by Fort Lauderdale, and also continue to have an insatiable demand for features and options.
In particular, this bodes well for our first full year for the access $2 25, which was introduced last year and is the largest axis ever built.
As well as the Malibu 26, LLC, which is the largest malibu ever built cobalt, our 33 Stern drive and outboard and our 35 Stern drive and outboard as well as the new OS 445 for pursuit, which is the largest pursuit boat every bill <unk>.
Impressively, the <unk> 33, and <unk> 35, as well as the pursuit OLED for 45, all have backlog is extending well into the second half of fiscal year 2024.
Said another way Malibu remains a premier force in the marine industry as well as the entire leisure space led by our premium suite of award winning brands, which we believe will continue to drive growth as we navigate through fiscal year 2023 MBR.
While we are excited about the emerging opportunities ahead, we remain acutely aware of the headwinds facing consumers and the industry more broadly.
Marine wide supply chain issues have not abated in fact, they are worse and in certain areas, while some areas indeed have improved.
We continue the issues coupled with the elevated demand levels is limiting our ability to see channel inventories build across our brands from historically low levels.
As you know we have been able to consistently increase production volumes in both Malibu and cobalt to keep pace with strong retail orders and these efforts have resulted in some inventory build.
Second half fiscal year demand will determine whether adequate channel inventories in place for these brands by the end of the fiscal year.
We will also keep a watchful eye on our annual year end sales event and series of boat shows to further evaluate near term inventory build capabilities.
The other hand, our saltwater brands continue to see a higher than normal retail so the order book.
As a result pursuit and <unk> are still unable to take the same step forward as Malibu and cobalt and channel inventory remains very low.
Thus, we believe adequate channel inventory for our saltwater brands will not be realized until sometime in fiscal 2024.
Additionally, as I said earlier supply chain disruptions continue to hinder our efforts to normalized production with the biggest issues remaining with engines across all manufacturers windshield and electronics we.
We continue to believe that any real improvement in the supply chain will not begin until the first half of calendar year 2023.
Turning to our market performance, our teams continued to push boundaries across our brands and our customers are gobbling it up like occasion fraud deep fried Turkey dinner at Thanksgiving.
Malibu and axis are outperforming on every metric supported by the incredible reception of our new model year lineup demand remains strong.
Further our team continues to earn accolades as best in class as they get both the out the door for a winning customers and dealers.
Cobalt has maintained its momentum into the first quarter not only are the new R 35, Stern and our 35 outboard both exceeding every customer's wish as well as our expectations, but the operational capabilities of the team at cobalt are allowing them to expertly navigate complex supply chain and labor headwinds.
We have seen the cobalt leadership and team grow expansively through supply chain and labor issues and this testing by fire has forged a strong results oriented team I'm very proud of how far cobalt has progressed.
At pursuit, we are seeing better availability of labor and importantly retention has improved.
They are performing well with further efficiencies and improvements to be gained and with the shortage of inventory. They have in the channel. The second half of the year is shaping up to be very good for pursuit.
For Maverick boat group, we recently unveiled the highly anticipated 2023, Pathfinder 2400, Prs in 'twenty 400 open at the Maverick dealer meeting in August .
While Kobe and Pathfinder each are significantly short in channel inventory, we expect inventories to marginally increase as we move throughout the year.
Additionally, we are reaping the benefits of our Maverick plant to expansion as this will only add even more production capacity and expand margins in our saltwater segment.
As we kick off yet another fiscal year every one of our brands are incredibly well positioned for stellar performance our secret sauce. The factor is our ability to not only invest in innovation, but also leverage our vertical integration and our strategic expansion of production capacity.
Well I know the bears out there are zeroing in on the RV industry as a bellwether to the earnings out of demand. Let me remind you that there are distinct differences in marine <unk>.
Looking at recent industry data from September 2022 versus comparable September data in 2019, RV weeks on hand of inventory is up high single digits to low.
Double digits on a percentage basically basis.
Conversely, Marine on hand inventory is still down about 35%, 34% across all of marine and to put a finer point on this as it relates to the MBR freshwater channel inventory and MBR is consistent with their respective markets, but our saltwater channel inventory is substantially lower than the industry in both combined.
Significant runway.
While we are cognizant that this is a dynamic environment.
One that is not necessarily reflective of any previous cycle. We know India is poised for continued performance and even outperformance. However.
However, we will move quickly as we have in the past should we see any material shifts in these trends.
Backed by our superior start to the year and our unparalleled track record of success, we remain confident in our ability to deliver short and long term value and profitability to our shareholders as we pave the way through fiscal year 2023.
I will now turn the call over to <unk> for further remarks on the quarter.
Thanks Jack.
In the first quarter net sales increased 19, 2% to a record $302 $2 million and unit volume increased two.
10, 5% to a record 2237 units the increase in net sales was driven primarily.
By increased unit volumes in our Malibu, and saltwater fishing segments and inflation driven year over year price increases.
I will do and axis brands represented approximately 54, 4% of unit sales or 1218 votes.
Salt water fishing represented 24, 5%.
Or 548 volts, and cobalt made up the remaining 21, 1% or 471 boats.
Consolidated net sales per unit increased seven 9% to approximately $135000 per unit.
Primarily driven by year over year price increases and a little bit by favorable model mix within the <unk> segment.
Gross profit increased <unk>.
24, 9% to $74 6 million and gross margin was 24, 7%.
This compares to a gross margin of 23, 6% in the prior year period. The increase in gross margin was primarily driven by favorable labor and material markets.
Selling and marketing expense increased one 3% in the first quarter. The increase was driven primarily.
By travel expenses slightly offset by decreased promotional base as a percentage of sales selling and marketing expense decreased 30 basis points to one 7% compared to 2% in the prior year period.
General and administrative expenses increased 19, 4% or $3 1 million.
The increase was driven primarily by an increase in compensation and personnel related expenses professional fees and travel expenses as a percentage of sales G&A expenses, excluding amortization remained flat compared to the prior year period.
Net income for the quarter increased 29, 3% to $36 $1 million adjusted EBITDA for the quarter increased 27, 6% to.
<unk> to $57 1 million and adjusted EBITDA margin increased to 18, 9%.
From 17, 6%.
non-GAAP adjusted fully distributed net income per share increased 37% to $1 79 per share. This is calculated.
Using a normalized C corp tax rate of 24, 3% and.
And a fully distributed weighted average share count of approximately $21 3 million shares for a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics. Please see the table in earnings release.
As Jack mentioned earlier, we had a tremendous start to fiscal year 2023, with our MDI team delivering strong results and exceeding expectations. Despite a dynamic operating environment, while supply chain headwinds remain we believe our ability to produce more units will build channel inventories setting our dealers up to when the retail battle.
Based on our current operating plan our expectations for fiscal year 2023 remain unchanged and are as follows we.
We anticipate net sales growth in the mid to high single digit percentage growth year over year in terms of cadence Q2 revenue growth should approach, 20% year over year.
Consolidated adjusted EBITDA margin is still expected to be down slightly.
We expect Q2, adjusted EBITDA margins of approximately 17%.
We are incredibly proud of our team's continued execution at MDI, we continue to post incredible results and surpass expectations each quarter, which is a testament to their discipline and resilience in the face of the continued tough operating environment.
While we have channel restocking tailwind, we remain mindful of the potential for a shifting landscape that will require attentive discipline to navigate.
Regardless of the environment, we are excited about the future at Mt.
Our team is strong our business model is proven and NPI continues to be positioned while strategically wed.
We look forward to producing a strong financial performance in fiscal 2023 and beyond.
With that I'd like to open the call up for questions.
Thank you.
You ask a question you will need to press star one one on your Touchtone telephone please standby, while we compile the Q&A roster.
One moment please for the first question.
Okay.
Our first question will come from Michael Swartz of truth.
<unk> Securities Your line is open.
Hey, guys good morning.
Sure.
A quick question on guidance.
Wayne your guidance for the second quarter second quarter revenues up, 20%, which I think well ahead of consensus and EBITDA margin of 17.
I think well below.
Maybe walk through the puts and takes why why we're seeing that kind of discrepancy between earnings and revenue during the quarter.
Yes, I mean part of that is going to be.
The timing of.
The way some price increases come in some of its going to be related to.
Mix shift within the business.
Bolt on the face of it.
Call It business unit or segment mix shift.
It may have some differential in margins as well as mix shifts in terms of product within.
Individual business units. So I think there's a number of things along those lines that are that are impacting that debt and kind of drive that difference.
Okay, Great and then maybe just given where interest rates are given the macro concerns out there.
And understanding that inventory uncertainty certain of your businesses are coming back.
What's the dealer appetite to carry inventory in the off season right now are.
Are you, providing any flooring support or just any comments you can provide around that.
Yes.
In terms of I'll, let Wayne talk about the flooring sephora, but in terms of the dealer sentiment today, we've just come off of all four of our dealer meetings that began in August and just finished up with Malibu last week.
The dealers are certainly watching everything in this different environment, but they realize that they have spec inventory, we've talked a lot about that.
In the dealer meeting the winners are going to be the dealers who have inventory.
The fallacy of thought that somehow we're in a completely retail sold environment.
80% of the people are going to be willing to wait for both is just balances.
We are back to a normal environment and which in any given year, 50% will be stock goes from 50% will be retail sold boats and I think our dealers realize that and actually I would say that across the board in every one of the dealer meetings there was optimism.
Almost a demand to get more inventory.
When you talk about Floorplan.
With respect to flooring.
Depending on the different.
<unk>.
Brand and its programs ultimately there is some flooring support being provided and it kind of moves a little bit from year to year and across and across brands, but there is absolutely some flooring support being provided.
Okay, great. Thank you.
Thanks, Mike <unk>.
Thank you.
Yes.
One moment please for our next question.
Our next question will come from Joe Hello, Bello Raymond James Your line is open.
Thanks, Hey, guys good morning.
Wanted to ask a few questions on retail you mentioned on the last call I think your outlook for this year.
What for your retail to be down call. It high single digits for fiscal 'twenty three.
Thats still the case and what do you call. It Q1 and October look like.
Yes, Joe.
Joe This is Wayne.
Ultimately, we have not modified that projection right our last.
In our last conversation with you always.
Approximately eight or nine weeks ago and it hasn't moved.
Dramatically.
Our projection internally hasnt, we havent seen a big change in the retail activity. There is a lot of assumptions other than just total market growth.
But it's only been eight or nine weeks and those are weeks that are kind of in the slowing.
Boeing time period. So we at this point in time, we don't really believe that it.
It makes sense for us to make a big alteration it because what we are seeing across.
Look at the highest retail activity that youre seeing right now is kind of saltwater fish.
And Jack talked about Fort Lauderdale.
We saw some real strength that the higher end.
And so I think we're consistent on that high single digit kind of market decrease on a fiscal year basis.
Okay, Okay, and just a follow up on that if you will.
Retail was down high singles this year.
And your shipments are up call it low to mid singles in terms of units.
Would that put you in terms of turns on the dealer level versus historical.
I don't really think of it in terms just because it turns.
But we think about it in terms of weeks right and we're tracking that on a by business unit basis and.
Our projection.
For the.
Freshwater businesses gives us close to more normalized inventory levels today.
Like I said, given the number of inputs that goes in.
You tweak any number of those and it can move the needle, but it's it is getting much closer to appropriately inventory by the end of the year.
In the assumptions for the saltwater segment in those businesses. The reality is that youre still under inventoried coming out.
Going into fiscal 'twenty four.
And it's going to really depend on the fine tuning of what's happening internationally and.
And those types of things.
Okay, great. Thank you guys.
Yes.
Thank you.
One moment for our next question.
Our next question will come from Craig Kennison of Baird. Your line is open.
Hey, good morning, Thank you for taking my question.
I will say I like the new corporate brand strategy. It does help us differentiate you.
Your Corporation from Europe .
So thanks for that.
Question on.
Affordability.
I realize you have a more affluent consumer which may help explain the strength that you're seeing relative to maybe other.
Parts of the economy, but we continue to hear pushback just on affordability the cost of boats has moved up significantly.
Scarcity out there so dealers can charge a premium and now the fed has come in with higher rates just curious.
How you think about that trend of affordability.
And whether ultimately it could become a headwind even for that more affluent consumer.
Yes crude you know one of the things we've heard back for 13 years as both were getting too expensive.
And the thing that I'll point to is I believe you always hear that and Theres no doubt I'm not discounting that prices have gone up and the inflationary pressures has been.
Astronomical more than we've ever seen before and Thats whats driving price increases, but I think there are several factors at play here one youre seeing these price increases across the board in any type of a luxury.
It is happening and this is a reality in the world today and people I think are realizing it's not people taking process, but it is that inflationary factor.
Secondly, I'll point out that if pricing were really a concern we would not see these boats continue to be loaded out.
Every single one of our brands you can take tens of thousands of dollars off of the cost of the boat or the crossover boat by not taking features and options. Yet every single book continues to be loaded up which says that there's a lot. There is concern and there is discussion around pricing, but people are still buying the boats.
Pointing.
Pointing this out in the in the commentary when you have in a three year period of time 43 trillion dollars worth of wealth that's been created.
And in 2000 and for the Grand total was 41 trillion you've seen a lot of wealth created in the stock market. We've seen that in the last 30 days has come back over 10%. So the consumer has the money and I think that our consumers specifically the demographic is that they will continue to spend money and pursue their passions.
So moving to the dealer framework I think one of the things that we've taken out of our dealer meetings as they realize they have been in a very unique heady environment of capturing MSRP or close to MSRP on boats or a two year period, a 24 month period, but we are.
More inventory coming into the channel with more competition that is taking place there is a realization in the dealer base that that can't continue.
So some of the pricing is going to come back naturally as a result of there being more inventory and dealers not taking the higher margins that they've been taking.
Thanks, and is there a way to compare the rate the average rate of consumer is facing today for interest versus maybe a year ago. Just curious how that has played out.
Yes.
In terms of the rate.
Look.
In terms of the buy rates that dealers are getting they are moving meaningfully.
And what we're hearing and those are going to coincide largely.
With the fed rate moves may be a little bit less than the fed rate moves that being said.
Dealers are as we had anticipated taking less.
In terms of a markup in their F&I business and so I think it's a triple digit move I'm not sure. It's.
North of 200 basis points at this time.
That's helpful. Thanks, Wayne and finally, just with respect to Hurricane Ian just curious if you have any expectation.
Way to frame the level of replacement demand created by that catastrophe.
I think it is early Craig we're already starting to see a couple of times, but it is very <unk>.
Ali and sparse over the next year.
I think we will see that come to bear you have people that are living in Florida, and boating is a huge part of their life and so once that the insurance settlements are made I think we will see some.
Man that we had not anticipated.
Great. Thank you.
Thank you.
One moment please for our next question.
And our next question will come from Fred Wightman of Wolfe Research. Your line is open.
Hey, guys. Thanks for the question just to follow up on the Hurricane impact you gave some numbers as far as the saltwater revenue and then also operating income contribution what exactly are those numbers for those just shipments that got pushed specifically out of the last week, what exactly that is.
Exactly what it is for Ed what transpired.
Hurricane hit that last week of the month it was hit.
South, Florida, and so dealers that were scheduled to take boats.
This call with me today, where we can't take them at this point because they may just get destroyed and so it's that last week of shipments or some subset of that last week of shipments that did not go out.
It makes sense and then just following up on the comments about <unk>.
Other promotions starting to normalize as inventories come back in that potentially helping affordability is there any way that you could sort of give up.
Broad brush stroke about where you think the average discount might be today, it's in the retail channel and sort of how that might trend over the next pick up pick a horizon six months 12 months versus sort of historical norms.
Today is still above norm.
Lauderdale blue prove that out a little bit so meaning above norm that it's not the discounting is not where it was call. It three years ago, but as we progressed through the boat show season is more inventories come into the channel I think it gets more competitive and so we'll see that come back more to I don't even know that it gets back to the 18 that same time.
Frame it may still be not as significant as it was in but the market is going to determine that.
Perfect. Thank you guys.
Keith.
Thank you.
And im 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 Chris and.
In summary, we delivered a record setting first quarter to kick off fiscal year 2023, once again, demonstrating the inherent strength and capabilities of Malibu brand.
We remain exceptionally resilient quickly dodging and overcoming obstacles in our industry that our industry is facing and coming out on top against our competitors. This provides us with immense confidence that we will reach our goals and outperform in the year ahead, we continue to capitalize on the solid retail environment with demand for our <unk>.
New model year boats, driving ASP growth across the board.
Our tried and true strategy around vertical integration and operational excellence in combination with our best in class products and distribution will enable us to deliver on our strategic vision.
Our competitive differentiators are allowing us to achieve long term sustainable success.
Confidence in our ability to deliver value to our shareholders, while outperforming peers to solidify our industry leading position in fiscal year 2023.
As always I would like to thank you for your support and for joining us in our continued realization of growth and excellence in fiscal year 2023 have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect have a pleasant day, and then Julian weekend.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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