Q2 2025 Malibu Boats Inc Earnings Call
Good morning, and welcome to the Malibu boats conference call to discuss second quarter fiscal year 2025 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.
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 if you require operator assistance. Please press Star then zero on the call today from management are Mr. Steve Banesto.
Chief Executive Officer.
Steve Banesto: And Bruce Mr. Bruce Beckman, Chief Financial Officer, I will now turn the call over to Mr. Backman to get it started please go ahead.
Bruce Beckman: Thank you and good morning, everyone.
Speaker Change: Joining me on today's call is our CEO Steve for that.
Speaker Change: On the call Steve will provide commentary on the business and I will discuss our second quarter of fiscal year 2025 financials. We will then open the call for questions.
Speaker Change: A press release covering the company's fiscal second quarter 2025 results was issued today and a copy of that press release can be found in the Investor Relations section of the company's website.
Speaker Change: I also want to remind everyone that management's remarks on this call may contain certain forward looking statements, including predictions expectations estimates and other information that might be considered forward looking and that actual results could differ materially from those projected on today's.
Speaker Change: 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.
Speaker Change: Factors 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.
Speaker Change: Please also note that we will be referring to certain non-GAAP financial measures on today's call.
Speaker Change: Such as adjusted EBITDA adjusted EBITDA margin adjusted fully distributed net income and adjusted fully distributed net income per share reconciliations of these GAAP financial measures to non-GAAP financial measures are included in our earnings release I will now turn the call over.
Steve Banesto: To Steve Steve.
Steve Banesto: Thank you Bruce and thank you all for joining the call.
Speaker Change: Our second fiscal quarter results came in slightly higher than expected during what has been a traditionally slower time of year. However, the broader retail marine market trends remained more challenging than we initially forecasted for the full year.
Speaker Change: While the quarter benefited from a favorable mix at our Malibu Axis segment and strong ASP performance indicators of demand are below our original assumptions.
Speaker Change: During the quarter, we continued to navigate this challenging market environment, which we attribute largely to the muted retail demand driven by sustained interest rate pressures, coupled with lagging effects on consumer purchases stemming from the hurricane season.
Speaker Change: As a result.
Speaker Change: The market is tracking down low double digits year to date, which is below the mid single digit decline we had originally planned for.
Retail softness is particularly evident in saltwater due to the lingering regional impact in Florida.
Speaker Change: Overall net sales in the quarter decreased by approximately five 1% year over year due to our focus on maintaining modest production levels in line with lower channel inventories.
Speaker Change: Disciplined production and lower channel inventories will continue to be our focus for the remainder of the fiscal year as we prioritize dealer health and brand strength.
Speaker Change: Shifting to the early season boat shows as many of you. All know these events provide important insights into customers' willingness to purchase new feature rich models, and we had the opportunity to showcase our 2025 lineup across our brands.
Dealer enthusiasm for these introductions reaffirmed our confidence and our commitment to staying on the leading edge of innovation, which continues to set us apart.
Speaker Change: Results in the early season shows have been decent but do not suggest a strong rebound in retail activity heading into the second half of the year.
Speaker Change: We will continue to watch closely as we head into the February Miami boat show for major signals within the saltwater segment and remained disciplined until we see firmer evidence of improvement in the market.
Speaker Change: Along with the early season shows our Malibu axis year end sales event a tradition, we've maintained for 15 years wrapped up earlier in the quarter. We were encouraged by the higher overall retail sell through and good participation compared to last year with moderating levels of promotional support required.
Speaker Change: This continues to underscore the strength of our brands and how they continue to resonate with customers in the current environment.
Speaker Change: However, it is important to note that while this activity as positive many dealers focused on moving non current units assign it inventory discipline remains top of mind across the channel.
Speaker Change: As we look ahead, we recognize that a sustained softening in the market, especially in saltwater will likely continued in the second half of the fiscal year.
Speaker Change: While we do anticipate some seasonal lift it is unlikely to lift the market enough to align with our original market assumption for a mid single digit decline for the year.
Speaker Change: Therefore, we are adjusting our outlook to reflect the reality of weaker retail trends with top line sales expected to be flat to down low single digits for the year and adjusted EBITDA margins to reflect approximately 10%.
Speaker Change: As I stated earlier, our focus remains on maintaining dealer health and not prematurely ramping production without a clear path.
Speaker Change: <unk> demand as it materializes and preserving our brand position is the long in the long term will set us up for success as we continue to monitor the retail environment.
Speaker Change: Overall, I am confident in our team's ability to weather these market conditions with our emphasis on dealer health and commitment to innovation and positioning us to thrive when demand normalizes.
Bruce Beckman: I will now turn the call over to Bruce for further remarks on the quarter.
Bruce Beckman: Thanks, Steve our results in the second quarter were slightly above our expectations net sales decreased five 1% to $203 million and unit volume decreased 11% to 1222 units. The decrease in net sales was driven primarily by.
Bruce Beckman: <unk> unit volumes, and the Malibu and saltwater fishing segments, resulting primarily from decreased wholesale shipments, partially offset by a favorable model mix in our Malibu and saltwater segments and inflation driven year over year price increases the.
Bruce Beckman: The Malibu and Axis brands represented approximately 43% of unit sales saltwater fishing represented 25, 9% and cobalt made up the remaining 31, 1%.
Solidago net sales per unit increased six 6% to $163 $9000 per unit, primarily driven by favorable model mix and the Malibu and saltwater segment and inflation driven year over year price increases, partially offset by unfavorable segment mix.
Bruce Beckman: Gross profit decreased 2% to $37 $4 million and gross margin as a percent of sales was 18, 7%. This represents an increase of 90 basis points compared to the prior year period. The increase in gross margin was driven by plant efficiencies.
Bruce Beckman: And favorable model mix more than offsetting volume deleverage again, demonstrating the resilience of our operations and our highly variable cost structure.
Bruce Beckman: Selling and marketing expenses increased six 7% in the second quarter. The increase was driven primarily by an increase in certain personnel expenses and marketing events as a percentage of sales selling and marketing expenses increased versus the prior year by 30 basis points to 3%.
Bruce Beckman: General and administrative expenses increased 71, 9% or $11 $1 million. This increase was driven primarily by an increase in legal fees and compensated comps.
Bruce Beckman: Compensation related expenses as a percentage of sales G&A expenses were 13, 3%.
Bruce Beckman: GAAP net income for the quarter decreased 76, 1% versus prior year to $2 $4 million adjusted EBITDA for the quarter decreased 26, 3% to $16 $9 million and adjusted EBITDA margin decreased to eight 4%.
From 10, 9% in the prior year.
Bruce Beckman: non-GAAP adjusted fully distributed net income per share decreased 45, 6% to 31 per share.
Bruce Beckman: This is calculated using a normalized C corp tax rate of 24, 5% and a fully distributed.
Weighted average share count of Approx of approximately 24 million shares.
Bruce Beckman: For a reconciliation of GAAP metrics to adjusted EBITDA and adjusted fully distributed net income per share. Please see the table in our earnings release.
Bruce Beckman: We continued to demonstrate the resilience of our business model generating over $28 million in cash from operations in the quarter capital expenditures were $5 $6 million, and we repurchased $10 million of stock in the quarter in summary, our balance sheet continues to be strong and we have.
Ample liquidity to execute on our capital allocation priorities.
Speaker Change: Turning our attention to the full year as Steve described we continue to operate in a challenging retail environment with market's down double digits. So far this year, we do not see a clear upward trend change that would enable us to maintain the market assumption of mid single digit decline on which our original guidance was based.
Speaker Change: Given these dynamics, we are expecting the market to be down high single digits for the fiscal year and we are adjusting our production levels accordingly to maintain a disciplined approach to managing dealer inventories. We continue to expect our dealers to remain focused on bringing inventory levels below historical ranges and continue to.
Speaker Change: <unk> dealer health with that said, we are updating our guidance for the full fiscal year. We now expect sales to be flat to down low single digits year over year, even with this modest revision in our full year guidance, we still expect to return to growth in the second half of the year.
Speaker Change: Comparisons ease as such for Q3, we expect net sales to increase approximately 10% versus the prior year.
Speaker Change: We anticipate consolidated adjusted EBITDA margin for the full fiscal year to be approximately 10% for Q3, we expect adjusted EBITDA margins of approximately 10% to 12%.
Speaker Change: This will be the second consecutive year of calibrating channel inventory and this will position our wholesale to track with retail when demand returns, we'll keep a close eye on demand indicators and remain disciplined in our approach to production levels and dealer health, which will position us even stronger as the tide turns.
Speaker Change: Despite the near term headwinds our strong balance sheet highly variable cost structure and continued cash flow generation provide us with both stability and flexibility to help us weather tough market environments, while continuing to execute on our capital allocation priorities with that I'd like to open up.
Speaker Change: The call for questions.
Speaker Change: As a reminder to ask a question you will need to press Star then one on your Touchtone telephone. If your question has been answered or you wish to withdraw your question. Please press Star then two please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: The first question comes from Craig Kennison with Baird. Please go ahead.
Craig Kennison: Hey, good morning, Thanks for taking my questions I wanted to start with Florida, I, just wonder if there's a way to unpack them.
Speaker Change: The implications of hurricane activity in Florida.
Speaker Change: Your overall exposure to that market and I'm sure a near term there was negative implications and I'm wondering if there's any signal of replacement demand longer term.
Speaker Change: Yeah. Thanks, Craig.
Florida as you know.
Speaker Change: Trying to recover and are some of the challenges we have down there of course are still rear their heads. So when we look at the overall market in saltwater.
Speaker Change: Total market across.
Speaker Change: Across the U S is down.
Speaker Change: Low single low double digits, Florida has accelerated more than that for us we do more than 50% of our saltwater businesses in Florida. So you could see that you know what that accelerated a downtrend beyond the overall U S market thats impacting us.
Speaker Change: Pretty heavily with us having such a concentration of business there.
Speaker Change: And I don't know, Steve if you have any visibility into you know.
Paul: How replacement demand and Paul Im sure.
Paul: You know consumers down there have a lot of different priorities when it comes to there.
Paul: A recovery in the boat is not maybe the first thing on their mind, but what are you looking for for a signal that hey, there's demand.
Paul: Placement demand on its way.
Paul: I think Greg just trying to get any type of indicators down there. We are its hard to predict as you said it we don't see it coming back where there's this wholesale within one quarter, we get this replacement value volume.
Paul: We know like right now if youre trying to rebuild your docks right six months to eight months out to get a new dock replacement routes are going back in and all of them.
Paul: Improvements that you're trying to make on your on your home that got affected so just looking at how long it takes to get a Doc back and you got to get your dock before you get your boat you got to go through the insurance.
Paul: So there is a lot of steps before we start seeing replacement volume and so we just kind of figure or replacement volume will kind of come back.
Paul: Not in one big sharp moment, but it will come back over time.
Speaker Change: Thanks, I'll get back in the queue.
Speaker Change: The next question comes from Joe Ultra Bello with Raymond James. Please go ahead.
Speaker Change: Thanks, Hey, guys good morning.
Speaker Change: So I guess first question on the guidance.
Speaker Change: You guide still implies.
Speaker Change: Second half revenue growth here call. It in the mid <unk> and I think it also implies a modest improvement in market trends I know the compares do get easier, but I guess my short question is how much visibility do you have in that second half number.
Bruce Beckman: Hi, Joe It's a it's a it's Bruce a virtue.
Speaker Change: I I think you know we.
Speaker Change: We have pretty good visibility for the third quarter, given where orders stand I think the question always becomes what happens in that fourth quarter, which will really be predicated on.
Speaker Change: You know what happens in the underlying market.
Speaker Change: You as you as you noted we will return to growth in the second half of the year a lot of that.
Speaker Change: You know as it relates to just how much the comparisons ease versus prior year I mean last year, we really saw a deceleration in our business.
Speaker Change: In the third and fourth quarters.
Speaker Change: And.
Speaker Change: So there's there's certainly that is a major factor and then from a retail perspective, you know the retail market theres still quite a bit of of of.
Speaker Change: The retail activity that remains in and in this time of the year, its probably about 60% of our retail activity has yet to take place.
Speaker Change: Now here.
Speaker Change: In the second half of the year. So there will still be some some adjustments I'm sure that we'll need to make you know as a as we see the retail numbers play out.
Speaker Change: Okay understood and maybe just kind of shift gears on G&A you mentioned it was up fairly significantly and I think you mentioned a couple of things, including compensation, maybe sort of unpack that a little bit and talk about the key drivers there and how should we think about SG&A spending this year.
Speaker Change: So first of all what I would say as you know the second quarter comparison was you know a very difficult comparison in Q2 of last year was the low watermark.
Speaker Change: For G&A last year.
Speaker Change: And there were you know so there were some some some some of the change was driven by that comparison, we we've seen higher levels of legal spend activity. I mean, if you look at the footnotes in our Q Youll see US you know, they're describing the legal activities certainly that's elevated from from where we've been.
Speaker Change: Historically in and we're looking forward to having that that'd behind us.
Speaker Change: And then this year from a compensation cost standpoint, you know we have you know incentive compensation. This year would that didn't wasn't in the comparison periods. So that's a that's probably the larger driver we expect that spend to normalize as we move forward. There's a number of this these items that we would say are you now.
Speaker Change: One time in nature.
Speaker Change: And particularly the legal expenses and some of our.
Speaker Change: You know employee kind of transition expenses. So we would expect it to moderate in the second half in and trend down over time more in line with our historical norms.
Speaker Change: Okay, great. Thank you.
Speaker Change: The next question comes from Noah <unk> with Keybanc capital markets. Please go ahead.
Speaker Change: Hey, Thanks for taking my question, maybe just one on the kind of broader industry. How our dealer is feeling right now sentiment wise and how are you feeling about kind of the health of your dealer base. Thanks.
Speaker Change: Sure no.
Speaker Change: So retail how the dealers feeling just actually talking to a few dealers over the last few weeks actually cautious cautiously optimistic optimistic as kind of the right phrase as Bruce stated about 60% of the retail what left to happen.
Speaker Change: So they're feeling realm.
Speaker Change: Relatively good about the market. We just had our year end sales event and some of the boat shows and couple of those together they've been able to clear out inventories they've been able to get our retail activity moving without having to really overspend promo.
Speaker Change: In a market where some of our competitors are still clearing out their inventories and have accelerated promo. So theyre feeling good there.
Speaker Change: And then they appreciate most managing inventories and keeping production.
Speaker Change: The disciplined approach to production to help them get into the selling season. So we're looking forward to it and we'll see what happens and how it unfolds here over the next two quarters.
Speaker Change: Great and maybe a eight day.
Speaker Change: Has the tariff question I think you guys have fairly minimal exposure, but just any thoughts around potential tariff impact and how you'd be able to mitigate that or just just anything to share there. Thanks.
Speaker Change: Yeah. So you know we've.
Speaker Change: <unk> done a preliminary look at I mean as you can appreciate there's there's not a lot of clarity on on on.
Speaker Change: Actually what's going to happen, but based on where we stand in our fiscal year based on what we believe our exposures to be and are our best guess of what the what the tariffs might be we don't expect it to be material this year and if.
Speaker Change: If that changes and and you know theres something more for us to share with you, we certainly will and I'm sure. It will be part of our fiscal year 'twenty six conversation.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from Brandon Rolle late with D. A Davidson. Please go ahead.
Speaker Change: Good morning. Thank you for taking my questions first just on the boat shows could you dive in a little more on kind of what youre seeing in terms of a demand by segment, maybe which segments are seeing stronger demand versus others.
Speaker Change: Sure.
Speaker Change: Brendan will will dive in a little bit we had in this in saltwater we had a really good flips.
Speaker Change: Fort Lauderdale show.
Speaker Change: That was that was really good but then you see when.
Speaker Change: When you move to Atlanta, maybe we were a little bit mixed in Atlanta, So youll see some mixed signals, there, but really strong coming out of Florida, there on the on the freshwater.
Speaker Change: At the same time Atlanta was a really good show we had a good show in Minneapolis, and Chicago very strong and you know a little bit mixed and in New York for freshwater as well so.
Speaker Change: We're seeing those types of signals when it all adds up that's why we said it was decent is theres a lot of a lot of things to be excited about as we move through and Theres a lot of things that you're kind of scratching your head go and why did that not.
Speaker Change: Material and materialize into a better better result, so.
Speaker Change: So overall boat show activities, I think of giving the dealers that cautious optimism.
Speaker Change: For when they get into the selling season.
Speaker Change: Some opportunities to work with.
Speaker Change: Okay, and just on the inventory front, how much longer do you think will be in somewhat of a destocking phase if you're current retail expectations play out over the next six to nine months.
Speaker Change: Well.
Speaker Change: And I think I think you'll see the dealer sentiment change when the retail market changes I think until then they're going to be.
Speaker Change: Hunkered down you know concerned about their cash flow and concerned about their exposure. So so we you know that that's part of making sure that we keep it as healthy.
Speaker Change: Will enable us to you know to be well positioned when the when the market turns to.
To be able to take off from there.
Speaker Change: Okay, and just finally on the saltwater market your commentary around weakness there or is that just for your saltwater product or products or do you feel like it's a you know the larger saltwater industry as a whole that seeing the weakness here early on in 24 hours.
Speaker Change: It's the whole industry that we're seeing.
Speaker Change: Brandon those where they are what we were talking about.
Speaker Change: Yeah.
Thank you.
Speaker Change: The next question comes from Mike Albany's with benchmark. Please go ahead.
Mike Albany: Yeah, Hey, good morning, guys I appreciate it Brandon just actually I ask my last question around saltwater but I.
I have another question here on a S piece are you saw some growth there I'm just wondering if you can kind of frame.
Mike Albany: How much of that was really driven by product mix versus just the annual cadence of price increases in and really trying to get an idea is if we're back to you know maybe that more normalized 3% to 5%. If we're getting close to it or you know any way you can kind of dive into that.
Mike Albany: Frame that would be helpful.
Speaker Change: Yeah, well, what I would say is you know mix has been a big driver of our ESP performance within our respective segments and overall.
Speaker Change: Price increases have been very modest this year.
Speaker Change: You know low single digit range.
Speaker Change: So it's really more mix, we expect the mix to moderate as we as we go forward just because last year we.
Speaker Change: We really pulled back on production on the on the Malibu Axis segment, and and saltwater was a greater share of our mix last year in the second half than we expect it to be this year. So there is you know that has a higher ASP per unit, so that will that will likely influence the back half.
Speaker Change: Okay, and then just as a follow up to that I mean, how are you feeling on you know aside from products product mix, but just going back to that that the cadence of price increases being modest but.
Speaker Change: You also talked about you made some positive commentary around some of the promotional activity you're seeing in your product. I mean is it is it fair to think that that moderate you'd be able to kind of get back to stepping up the price increases or I guess the broader question is consumer affordability that much of an issue where you have to keep it at that low single digit.
Speaker Change: You know I think really second half.
Speaker Change: Yeah, I mean, I think in the in the near term, it's really going to be more about promotional levels of support we expect to see moderating levels of promotional support in certainly for ourselves and I think the industry over time as the industry works through its inventory challenges you know when the inventories get down to.
Speaker Change: Who are you know to kind of where they need to be then I think you'll see some of that promotional discounting go away.
Speaker Change: Our price increases you know over you know our strategy really has been to minimize those as much as possible and really just pass along inflation, which I think is pretty consistent with how others in the industry play it we have to be concerned.
Speaker Change: Concerned about the.
Speaker Change: Ability headwinds in this in this market.
Speaker Change: Sure I appreciate it guys. Thank you yep.
Speaker Change: Yep.
Speaker Change: The next question comes from Jamie Katz with Morningstar. Please go ahead.
Jamie Katz: Hi, Good morning, two quick ones first any color on cobalt the only.
Speaker Change: You meant that had unit growth or is it just.
Speaker Change: The consumer that has changed or was it just better inventory maybe than some of the other segments before at the corner.
Speaker Change: Cobalt has continued to kind of be a strong performer I mean, we've we've seen you know.
Speaker Change: Good market share performance in that brand.
Speaker Change: We have a very good.
Speaker Change: Dealer network in that part of our of our business and then David you know.
David: Continued to execute quite well and we have some exciting new models in that are you know in that product line.
Speaker Change: Okay, and then we haven't really touched on.
Speaker Change: The lending environment with your lending partners and maybe the quality of the borrowers so.
Speaker Change: Any additional color to add there. Thank you.
Speaker Change: You mean on the.
Speaker Change: Consumers and their ability to access credit to purchase boats is that what you mean.
Speaker Change: Yeah.
Speaker Change: We haven't seen so interest rates you know have come down some I would say from where they were at peak, but they haven't really moved that much.
Speaker Change: Recently with the with the fed moves so consumer rates I would say remains stubbornly high which is part of the reason why the market has yet to rebound in Arkansas.
Speaker Change: But no no like increase in defaults or anything like that that you're here.
Speaker Change: Not that not that is not that we're seeing now.
Speaker Change: Excellent. Thank you.
Speaker Change: Yeah.
Speaker Change: I'm not showing any further questions at this time. This concludes today's conference call. Thank you for participating you may now disconnect.
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