Q3 2023 Malibu Boats Inc Earnings Call
Good morning, and welcome to Malibu boats conference call to discuss third quarter fiscal year 2020 treat yourself at this time all participants are in a listen only mode should you need assistance. Please signal the conference operator by pressing the Starkey followed by zero.
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On this call today from management are Mr. Jack Springer, Chief Executive Officer, and Mr. David Black interim Chief Financial Officer.
And Mr. Ritchie Anderson, Chief operating officer and Mr. Vein, the sudden advisor I will now turn the call over to Mr. Vincent to get started please go ahead Sir.
Good morning, everyone before I turn the call over to David I'd like to take a moment and thank the entire Malibu team for their commitment dedication and over my nearly 14 year tenure, it's been an honor to work alongside each and every one of you during our incredible transformation, we've accomplished a tremendous amount and I leave.
Proud what we have accomplished more importantly, I look forward to watching the continued success of Malibu and leave knowing that our talented team remains incredibly well positioned to expand our leadership as the premier recreational boat manufacturer.
I'll hand, it over to the capable hands of our new interim CFO David Black.
Thank you Wayne and good morning, everyone on the call Jack will provide commentary on the business and I will discuss our fiscal third quarter 2023 financials. We will then open the call up for questions.
A press release covering the Companys fiscal third quarter 2023 results was issued today and a copy of that press release can be found on 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.
That might affect future results are discussed in our filings with the SEC 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 Thank you David and thank you all for joining the call before we begin I wanted to acknowledge that this will be Wayne's final learning software MBR.
For nearly 14 years Wayne has played an integral role in executing our strategic vision, while at the same time supporting our tremendous growth. He will be deeply missed but he has built a strong team around him and as David Lee leads on an interim basis I have the utmost confidence in our team's ability to navigate the ship and continued to deliver the result.
That our stakeholders have come to expect on behalf of everyone at Malibu, We wish him. The best during this next stage of his career.
Turning to the third quarter, we extended our strong track record of performance delivering another record for sales despite modest margin pressures as volumes and inventories normalize within our freshwater brands while.
While the macroeconomic environment continues to evolve and create uncertainty we remain very confident in our ability to execute and match wholesale to retail demand.
During the quarter, we have seen steady improvements in lingering supply chain disruptions and resilient demand and our saltwater segment, all while continuing to make great strides in improving our pace of production and normalizing dealer inventories our team knows how to Dodge and weave in any environment and this quarter was no different we have a clear strategy.
Which we are executing and while the waters may be choppy at times, we were in a unique position to advance our innovation increase our capacity and deliver on our vertical integration initiatives for.
For the third fiscal quarter, we posted net record sales of $375 million, increasing 9% over the prior year with adjusted EBITDA of $79 $3 million and net income of $53 $5 million.
As expected during the quarter, we have seen a softening of volumes within our higher margin Malibu Axis segment as channel inventories reached the correct balance.
As a result gross margin declined 190 basis points to 26, 3%, while adjusted EBITDA margin declined 210 basis points to 21, 1% channel inventory for Malibu. In particular are ahead of schedule, while cobalt is not far behind however, despite the <unk>.
Yes, we've made drilling our freshwater channels the upcoming launch of our new model year lineup is on the way and these are standing ready heading into the prime selling season.
Meanwhile, demand within our saltwater segment has been exceptionally strong throughout the boat show season, reaching peak levels for the larger shows pursuit had historic boat show performance across the board from our shows at Fort Lauderdale in November to Palm Beach. In April . This also includes superb shows in New York, Miami and Atlanta.
Lentic City Cobian Pathfinder also had strong showing supporting our leadership position in this growing segment.
Dealers remain quite optimistic in this category and we have additional room to fill this channel heading into the first half of fiscal 'twenty four.
Overall compared to our freshwater brands, our saltwater brand stand several weeks behind the freshwater segment and reaching normalized inventory levels.
Given the strong pent up demand pursuit has the most room to grow followed by cobia.
While our Pathfinder brand is closer to being at optimum channel inventory levels.
Further to my point about pursuit of growth profile, we have not yet begun to see the replacement of both related to the hurricane and many of our dealers believe this will be very significant as it has been estimated that 15000 boats were total as a result of the hurricane.
While the timing of this replacement cycle remains uncertain, we stand ready to fulfill these orders.
The next few weeks through the quarter will be important to fully understand what retail demand is and will be through the summer weather has been a headwind at this point due to a cool spring and lots of precipitation we.
We have just began hearing from dealers that the weather pattern is alleviating and we are beginning to see warm weather the warm weather needed to drive retail.
Our success over the years has been driven not only by our leadership in the market, but also our commitment to investing in the business either organically or through acquisitions.
A prime example of the tremendous progress we've made with the acquisition of the Maverick boat group of brands and our successful facility expansion there.
<unk> is running at a ramped up pace and showcasing our tried and true model of integrated integrating premium brands within our industry leading operations today.
Today is no different we continue to have our foot on the gas from a strategic growth standpoint, and then be a we are constantly looking for ways to increase our manufacturing capacity expand our vertical integration footprint grow our distribution network and bring key capabilities in house.
I'm excited to speak to some transformative new developments I will begin with a successful build out of 100000 square foot plus new tooling plant on available pursuit property on March 1st we officially launched our tooling design center or T. D C.
The PVC is a very large vertical integration initiative that will first focus on pursuit and the tooling needs there.
This has been a huge endeavor and part of our multiyear plan to bring our product tooling in house. We are very excited about the potential. This brings the MBR as we look to better control capital expenditures improve our tooling quality and increased volumes.
We have a strong team in place there to lead the charge and plan to start expanding our tooling capabilities for pursuit with the ultimate goal of eventually building the majority of all tooling for all <unk> brands.
Secondly, we recently filed an 8-K for the purchase of property with plans to build out a 260000 plus square foot facility, which is strategically located near our M. B a headquarters in Tennessee.
This facility gives us added capacity and flexibility to grow in line with our long term market opportunities ahead.
We always want to be in the best position to have adequate capacity for growth.
Whether growth through our existing brands or diversifying our mix into other high growth segments, such as Greenfields into pontoons. This purchase does just that providing us with premium optionality for expansion wherever the tide turns and.
And another very exciting development and one that many of you have asked about over the years starting in the first quarter of fiscal 2020 four we will begin offering monsoon stern drive engines to our cobalt dealers and customers as we move into the second half of fiscal 2024, we plan to continue the rollout of our monsoon engines in the cobalt surf boats.
As we scale. This over the next few years. We believe this move has the potential to further enhance our strong EBITDA margin profile and generate a triple digit return on investment.
[noise] comprehensively, we have kept our handle on the throttle and continue to adapt in a well.
Adapt well Todd turning market environment, our operational excellence and vertically integrated model have cemented our strong footing as a premier recreational boats manufacturer.
We look forward to delivering another successful year and as we look across the horizon and I am confident in the steps we have taken to pave the way for the next leg of our growth.
With that I will now turn the call over to David to take you through our financial performance in more detail.
Thanks, Jack and the third quarter net sales increased 9% to a record of $375 1 million and unit volumes increased two 9% to 2000 and 637 votes. The increase in net sales was driven primarily by increased unit volumes for a saltwater fishing and cobalt segments here.
For year price increases and a favorable model mix.
General and administrative expenses increased 13.6% or 2.3 million in the third quarter. The increase Lister open primarily by an increase in compensation and personnel related expenses, along with an increase in professional fees and increased travel related expenses.
As a percentage of sales selling and administrative in general and administrative expenses increased 20 basis points to 5.2% compared to 5.0% for the prior year period.
Net income for the quarter decreased 2.5% to 53.5 million adjusted EBITDA for the quarter decreased 0.6% to 79.3 million and adjusted EBITDA margin decreased 210 basis points to 21.1%.
non-GAAP adjusted fully distributed net income per share decreased 0.8% to $2.59 per share.
This is calculated using a normalized C corp tax rate of 24.3% and 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 gape metrics. Please see the tables and our earnings release.
This quarter highlighted the strength of our operations team given our strong performance in spite of moderated volumes for our Malibu axis segments as expected channel inventory has reached more normalised levels in the Malibu access channel.
While we have some runway for continued inventory within our saltwater segment, we will now focus on expansionary distribution over the coming quarters that has been planned for years post acquisition with.
With prime selling season coming down the Pike and inventory at more normalised levels, we look to maintain our trajectory and deliver a strong close to fiscal year 2000 twenty-three.
Based on our current operating plan our expectations for fiscal year twenty-three are as follows we anticipate revenue to grow just north of 10% year over year.
And consolidated adjusted EBITDA margin is expected to be down slightly.
While we look forward to delivering another successful fiscal year, we are even more excited about what the future holds as Jack mentioned earlier, we announced three new major initiatives two of which represent the next phase of our vertical integration strategy. These initiatives are indicative of how we position M. B I to outperform over the long term by utilizing our scale.
<unk>, an experienced team and high RLI projects that are unique to our business.
These vertically integrated initiatives are why we continue leading the way as the premier recreational boats manufacturer and I look forward to working with our best in class team to execute in the coming quarters and years with that I'd like to open the call up for questions.
Mhm.
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At this time, a little pause momentarily to assemble our roster.
Ah Science question comes from Jamie Cats mornings diet. Please go ahead.
Hi, Good morning, Thanks for taking my question and thank you for your contributions Wayne I'm I'm I'm, hoping you guys can talk a little bit about how you think the profitability and saltwater can change over time. So in the near term, we're looking at a higher mix of saltwater.
Past, but it looks like the EBITDA margin will be improving despite sales declining maybe in the fourth quarter. How can you talk a little bit about how that shakes out of her but the near term and the longer term because it would seem like the the saltwater the salt.
Segment, becoming a bigger percentage of the next might actually be a bit of a drag on the overall EBITDA margins. Thanks.
Yeah, Jamie that that is a fact and it's really the evolution we've seen it with everything that we've acquired what.
One of the things that we absolutely seen over time is your Malibu access back in 14 17, whenever we made or acquisitions, we had a high EBITDA percentage. So our margins were were very hot the highest in the industry. So each of the acquisitions that we've made beginning with cobalt has.
Brought down the comprehensive EBITDA margin uhm, because you're dealing with lower EBITDA margins, where the acquisitive brands and then we start building them back up one of the things we've talked about as in the first two years cobalt doubled his <unk> EBITDA until you were driving that margin a very slim a similar thing has happened twice.
Now with the acquisition of pursuit and 18 and the acquisition of M. B G. In 2020, we had we began with with a basis of much lower margins. We've seen those margins increase we've seen seen some of that out of pursuit and they continue to grow. So if you think that in the short term we've seen that growth with is still well behind.
What a malibu is or even what a cobalt is at this point, but it is growing in the long term, we expect to eventually be able to take all of our branch into that 20% EBITDA margin threshold. It's gonna take you know with a salt water it'll take a few years to three years to get to that point.
But we fully expect to be there and that's where we'll get primarily the the greatest benefit and margin uplift is from that saltwater side.
Yeah, I guess I was just surprised.
Drinking saltwater we I it looks like we should maybe have EBITDA margins appear over here in fourthquarter.
The other question I had was on dealer profitability and I think in prior quarter. As you guys have talked about dealers sort of lacking away with optimal problem profitability and and maybe you know that needs to see it a little bit now the the environment's changing can you talk about maybe how that has changed over the last quarter and the Willie.
Next the dealers too maybe moderate their profit per unit to facilitate faster churns. Thanks.
Yeah, I think it's suggesting without a doubt coming out of Covid. There there was that overhang of keeping margins fine. We we we've addressed it with the dealers and I was pretty vocal about it last quarter. We <unk>. It is adjusting is it where it needs to be yeah, no and I think well for you if Argo would tell you the same thing across.
The entire spectrum of marine, but one of the <unk>.
Situations are a realistic advanced that's going to occur is we're about to go into a heavy selling season, and we have inventories that at least on the freshwater side or approaching normality and then they're building on that saltwater side. It is going to be a much more competitive environment and you know the the message that we're delivering to our.
Dealers is the dealers that are going to win or the dealers that are very aggressive in their marketing and lead follow up and also very aggressive in their pricing unwilling to lose bills and we have seen a moderation in that holding the margin now where we want it to be yet and some of our breath.
Hands, but though I think it will get there.
Thanks.
The next question comes from Joe Alto Bellow with Raymond James. Please go ahead.
Good morning. This is Martin on <unk>, Yeah can you help us square your <unk> with this sharp S. S. I D and everything so far and how do you feel about the later Victorian costs, you'll get some branch.
Mmk would you repeat the first question please.
Yeah, absolutely can you help us square shipments for the quarter was the source S. S idea that we've been seeing.
Okay. Let me guess it takes a bag you have to understand where we're coming out of your head you have a retail environment that has been very low on the inventory and it's a really easy arithmetic equation in terms of you know that your inventories are down you have to build that retail inventory out by shipping wholesale and in it.
<unk> and your second question, but what what have you been doing is playing catch up now for the last call at.
30 months of trying to get enough inventory in the channel were largely there I think on the freshwater brands, which will be Malibu in cobalt, we're not there yet on the salt water, which will be pursuit and cobia, but waited it squares frankly as you have.
Number one you're coming out of an environment, where you're cops last year were out of sight.
And you're not going through and we warned against this you are not going to touch the cops that existed last year.
They once we get into the second half of the year is going to get easier because you saw those cops come down from but the the <unk>. The big thing number one number two the wholesale retail squaring has to do with the channel inventory, we have to put more inventory in the jail to realize the retail that we want to moving cause.
The second part of the question you were as it relates to channel inventories Malibu is right, where it needs to be in terms of what the historical norms have been in the channel cobalt is slightly behind.
But we think that certainly by the end of this fiscal year, you'll be caught up in there in case pursuit and cobia. They are a few weeks behind would Malibu and a cobalt our and our expectation is that the channel inventories will normalize and the first half of 2024.
Got it. Thank you and you mentioned the opportunity to expand our distribution for pursuit and Maverick can you give me an idea of what the rough magnitude of that looks like.
Yeah. It is if you're thinking I'm going to talk about a geographically for a second and it's really kind of on their pursuits. The cobia sad, but I'm gonna also touch on cobalt.
On the pursuit in the Cobia Sad if you think about those two brands and entities. They are largely heavily focused on the southeast in the northeast have some presence in the mid Atlantic have a little bit of presence in the great Lakes region, but that's really about it if you look at a pursuit dealer basis around 30.
Five there's a lot of opportunity for growth, especially when you compare against Sir two major competitors.
Cobia and Pathfinder are very much the same scenario and the ability to fill out the mid Atlantic fill out the great legs, and then start that process of moving west and it's over time, it they're not going to be huge dealers and confirm a saltwater standpoint, you have that in Florida.
But there can be a lot of volume improving that pursuit network 245, or 50 over the coming call. It year to 18 months, improving Pathfinder about 15 to 20 dealers overtime cobia very similar scenario, so that's where the salt water our focus is.
We think we have a lot of opportunity to increase the number of dealers and by virtue of that increase.
The amount of volume going out we also have an opportunity with cobalt cobalt. We have you know a limited number today of saltwater dealers because we've been confirmed on the number of both that we've been able to build overtime and so we have a target list of additional outboard dealers that we're working on right.
Now we would expect to come to fruition in the next three to six months.
Got it thank you very much.
Thank you.
The next question comes from.
D E. Davidson. Please go ahead.
Yeah I think this is the perfect on for Brandon I guess my first question you know in terms of catered for the quarter you guys see any slowdown of retail later in the quarter and then maybe how that trying to in April it sounds like salt water fishing is doing well, but curious how other brands and categories trying to.
You know I wouldn't say, we saw a slowdown in the quarter I will bench market again.
The last six seven years or.
More than anything what we've seen is a delay in the season kicking off because of the cool weather and because of the precipitation.
You know my belief is that over the next call up to the end of our fiscal year, but certainly through the end of June we're gonna have a much much better understanding of what's at retail environment is going to look like because we're gonna have a weather pattern that is actually helping us instead of hindering us.
Okay. That's helpful and I guess with the increased sales guidance.
Unpack, what's any better than that.
<unk> you know the outperformance related to the boat shows. So are you guys see that's wrong or retail performance at dealers outside of the shows.
I think it's a little bit of a combination of both I mean, certainly on the saltwater side you you've had the growth in the boat shows that we talked about so those are our customers that are place retail sold orders.
So we're seeing a little bit of that I would I would classify that from a retail on the freshwater side, it's been pretty consistent throughout the first half of the calendar year not a lot of growth at all this more of a flattish in nature and again I think that comes back to a little bit of the weather that we're doing.
<unk>.
Okay. That's great. That's all I had thanks a lot.
You.
The next question comes from Eric.
Please go ahead.
Thank you good morning, a couple of questions I guess I guess first of all the the new real estate purchase.
I know, it's early but maybe any sense of a timeline of when you think of decision might be made on a direction for that and kind of the earliest appointment might be.
Kind of second part of that whenever I see construction of any new facility, how far out of my mind that look.
So just to put a little bit more a finer point on it Eric is the facility is already going up so we're buying a we're buying land in a facility that was already in the design phases started going up so that will come to bear very quickly in terms of it'll be this calendar year that we will take possession.
<unk> next quarter I'll I'll be more probably forthcoming in terms of what we're gonna do with that there is some combination certainly it's around capacity you know we've talked a lot about we always want to have 20% to 25% capacity for every single one of our brands to run on one shift operation because we strongly believe in.
One shift operation and then secondly, I've stated for a number of quarters, we are going to be in contact. So if there's not an acquisition to be made then we will greenfield continent, but both of those will be coming over the next call. It a couple of quarters.
Got it and then.
Question, I know I know, you're not giving physical 24 guidance at this point because I really think about the drivers.
That would would undermine that clearly malibu access it kind of optimal imagery. It as soon as the driver for there is now no longer channels bail organa inventory.
Replace card, we're kind of just pure underlying demand cause I'm wrong, there and then what about the other excuse me just how much of a driver will.
Channel fail, new dealer distribution B, we get branded versus what you think could be just the underlying.
<unk>.
Several drivers that are going to propel us we don't know what the economy's Gonna do you know, we we have to think that upfront, but I talked about the cops and the second half of the year, they're gonna be at least from a year over year basis are gonna be much easier to me and that will extend into the second fiscal half of next year as well.
There is some channel inventory bill we have leppo salt water that will be a driver not so much on freshwater the channel inventories where it needs to be new product is always a driver and you will hear in that next call in August that we continue to be very aggressive a new product across all of our brands.
And what we're bringing yeah, and then you <unk> I think a driver for fiscal year 24, and it will pick up momentum as we go through out the year is new distribution.
Yeah.
Talk about it a little bit earlier, but on that pursuit on that Kobe, all that pathfinder and cobalt side of the equation. We will have new distribution that will he'll be a driver for 2024.
Yeah, and I think just add there I think you know we're gonna learn a lot over the next few months right as retail comes in so I think this is gonna be a moving target on really what those additional key drivers are gonna be in the following year.
Perfect. Thank you.
Thank you.
I'm not showing any further questions at this time I would like to call back over to Jack's for any further chosen you Max.
Okay. Thank you very much.
In summary, our third quarter resolved for strong meeting expectations as we demonstrate the inherent strengths and capabilities of our MBR brands.
Demand for Salt water has been robust and we have the capitalize on our historic boat show performance in this segment throughout the boat show season.
Supply chain disruptions of east and we've continued to maximize our production capabilities.
[noise] wild freshwater channel inventories, reaching normalize levels led by our Malibu brands, while inventory for saltwater will follow and increasing in the channel in the coming months.
Our commitment to continued investment in the business and growth is unwavering and we are extremely excited to execute on our next phase of vertical integration plans as we bring tooling in house and they expand our <unk> just the cobalt as well as at additional capacity for growth.
We are well positioned to deliver value to all of our stakeholders and we remain confident in our ability to execute for the remainder of fiscal year 2023.
Always I Wanna. Thank you for your support and for joining US as we look to deliver on our strategic objectives and continue to grow are leaving brand throughout the remainder of 2023 and ended 2024 have a great day.
The confidence has now concluded. Thank you for attending today's presentation you may all know disconnect.