Q3 2025 Malibu Boats Inc Earnings Call
Charlie and the changing rooms
Speaker Change: Good morning, and welcome to Malibu Boats' conference call to discuss third quarter fiscal year 2025 results. At this time, all participants are now listening only mode.
Speaker Change: Later, we will conduct a question and answer session, and instructions will follow at that time Please the advise that reproduction of this call and hole or in part is not permitted without written authorization of Malibu Boats
Speaker Change: and as a reminder, today's call has been recorded. On the call today for management, our Mr. Steve Menneto, Chief Executive Officer, and Mr. Bruce Beckman, Chief Financial Officer. I will now turn the call over to Mr. Beckman to get it started. Please go ahead, sir.
Bruce Beckman: Thank you and good morning everyone. Joining me on today's call is our CEO , Steve Menneto. On the call, Steve will provide commentary on the business and I will discuss our third quarter of fiscal year 2025 financials. We will then open up the call for questions.
Bruce Beckman: A press release covering the company's fiscal third 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.
Bruce Beckman: I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements
Bruce Beckman: including predictions, expectations, estimates, or other information that might be considered forward-looking and that actual results could defer materially, differ, excuse me, materially from those projected on today's call.
Bruce Beckman: If 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
Bruce Beckman: Factors that might affect future results are discussed in our filings with the SEC and we encourage you to review these filings for a more detailed description of these risk factors.
Bruce Beckman: Reconciliation of these GAAP financial measures to non-GAAP financial measures are included in our
Bruce Beckman: Finally, during today's prepared remarks, comparisons are to cue 3 of fiscal 2024 unless otherwise noted. I will now turn the call over to Steve.
Steve Menneto: Thank you Bruce, and thank you all for joining today's call. Our results this quarter demonstrates solid execution in an environment that remains challenging
Steve Menneto: Both Q3 sales and adjusted the EBITM margins, finished above our guidance expectations for the quarter
Steve Menneto: We are successfully navigating continued industry softness. Our premium brands and feature rich offerings continue to resonate with customers as evidence by our mixed-driven ASP increases in all segments.
Steve Menneto: And as expected, we returned to grow up in the third quarter, both sequentially and versus the prior year. It is worth remembering that we were among the first in the industry to reduce our production levels in response to the elevated dealer inventories.
Steve Menneto: As a result, you're over your comparison in the second half are less challenging than they were in the first half [inaudible]
Steve Menneto: Turning first to the selling season, our overall dealer inventory's entering the season are healthy, aligned with historical levels and well below where they were a year ago.
Steve Menneto: The retail environment remains challenging as elevated interest rates and ongoing macro uncertainty continue to weigh heavily on the consumer sentiment and discretionary spending, prompting buyers to be more cautious and deliberate in their purchase decisions.
Steve Menneto: We remain actively engaged with our dealer network, continuously calibrating our strategies to closely align production levels with real-time retail dynamics, and we are committed to ensuring dealer inventories remain healthy and appropriately balanced.
Steve Menneto: While our overall boat show performance was mixed, we observed pockets of strength, notably with our pursuit brand
Steve Menneto: We also remain incredibly proud that our pursuit, once again, receive the prestigious Marine Industry Customer Satisfaction Award from MMA, underscoring our ongoing commitment to delivering exceptional customer experiences.
Steve Menneto: Additionally, our cobalt brand keeps delivering impressive results. We continue to see persistent demand from cash buyers who appreciate our premium feature rich folks.
Steve Menneto: Supported by our decision to invest in expanding capacity at our Rowan facility, we have realized the gain of 380 basis points of market share in the Cobalt models produced there.
Steve Menneto: Innovation remains absolutely critical to our long-term strategy. And I want to emphasize that we are keeping our hand firmly on the throttle for our new product development, even during these challenging market conditions.
Steve Menneto: Our ability to introduce compelling and differentiated new products is truly a cornerstone of our competitive advantage
Steve Menneto: This ongoing innovation resonates strongly in the marketplace, driving substantial customer engagement and enthusiasm [inaudible]
Steve Menneto: The performance of our newly introduced models at the boat shows provides strong evidence that our strategy is working. Nearly 40% of our Malibu boat show unit sales were driven by two premium models introduced this year, the M230 and the 25 LSV.
Steve Menneto: A similar percentage of Kovia Boats show unit sales were driven by the all-new Kovia 265 and 285 center console models
Steve Menneto: We look forward to sharing the exciting innovation we have planned for the 2026 molly year in the
Steve Menneto: As we all are aware, tears haven't re-emerged as a prominent topic within our industry [inaudible]
Steve Menneto: As we have stated previously, we do not expect terrorists to have a meaningful impact on our fiscal 25 cost structure We will remain proactive in mitigating impacts through our strategic supply chain management initiatives
to balance any terra-related craze increases to our customers.
Steve Menneto: Additionally, we will continue to leverage our robust vertically integrated U.S. manufacturing capabilities, which provide a meaningful advantage in managing supply chain risks and gives us direct control over tariff mitigation strategies.
Steve Menneto: We remain agile and fully prepared to adopt swiftly if terrorists or other cost pressures that are escalated.
Steve Menneto: Looking ahead, we remain confident in our balanced approach, emphasizing dealer health, operational excellence, and continued innovation.
Steve Menneto: We have purposely built an agile and resilient operating model. Backfire, strong balance sheet and robust cash flow generation allowing us to strategically navigate current market conditions We are now at the end of the day.
Steve Menneto: Our diverse brand portfolio, combined with our premium market position, significantly enhances our capability to capture demand when the market returns to growth
Steve Menneto: We remain prepared to quickly adapt to changing market dynamics, including tariffs, supply chain development, or cross pressures, bolstered by our proven ability to effectively manage uncertainty.
Steve Menneto: Finally, I want to sincerely thank our dedicated team and our dealer partners for their exceptional efforts, adaptability and resilience. Your commitment reinforces my confidence in our trajectory and positions us strongly for future growth.
Steve Menneto: With that, I'll turn it back to Bruce to discuss our financial results in more detail.
Bruce Beckman: Thanks, Steve. As mentioned earlier, we return to grow during the third quarter with results above our expectations.
Steve Menneto: Net sales increased 12.4% to $228.7 million and unit volume increased 12.8% to 1,431 units.
Steve Menneto: The increase in net sales was driven primarily by increased unit volumes in the Malibu segment, a favorable model mix across all segments.
Steve Menneto: and inflation driven year-over-year price increases, which were partially offset by decreased unit volumes in the cobalt and saltwater fishing segments and an unfavorable segment X.
Steve Menneto: The Malibu and Axis Brands represented approximately 52% of unit sales, Saltwater Fishing represented 22.8% and Cobalt made up the remaining 25.2% [inaudible]
Consolidated net sales per unit decreased, 0.3% [inaudible]
to $159,792 per unit.
Primarily driven by an unfavorable segment mix
Steve Menneto: Partially offset by a favorable model mix in all segments and inflation driven year-over-year price increases.
Steve Menneto: Gross Profit increased 13.4% to $45.7 million, and Gross Margin as a percentage of sales increased 20 basis points to 20.0%
Steve Menneto: The increased gross margin was driven primarily by fixed cost leveraging and strong operational performance at our factories
Steve Menneto: Selling and marketing expenses increased 4.3%. The increase was driven primarily by higher event marketing activities. As a percentage of sales, selling and marketing expenses decreased by 20 basis points to 3.0%. The increase in sales increased by 20 basis points to 3.0%. The increase in sales increased by 20 basis points to 3.0%.
Steve Menneto: General and administrative expenses increased $6.7% or $1.2 million. The increase was driven primarily by legal and professional fees. [inaudible]
Steve Menneto: As a percentage of sales, GNA expenses were 8.7%. This represents a significant sequential improvement with expenses normalizing as expected.
U3 Gap Net Income increased 119.4% to $13.2 million $13.2 million.
Steve Menneto: Q3 adjusted Ibadah increased 16.0% to $28.3 million and Q3 adjusted Ibadah Margin increased 40 basis points to 12.4%
Steve Menneto: non-GAAP , adjusted fully distributed net income per share, increased 14.3% to 72 cents per share.
Steve Menneto: This is calculated using the normalized C Corp tax rate of 24.5% and a fully distributed weighted average share count of approximately 20.1 million shares.
Steve Menneto: for a reconciliation of gap metrics to adjusted EBITDA and adjusted fully distributed net income for share. Please see the tables in our meetings release.
Steve Menneto: We continue to demonstrate the resilience of our business model, generating over $15 million in cash from operations during the quarter.
Steve Menneto: Capital expenditures total $6.7 million, and we repurchase $10 million of stock in the form.
Looking ahead, we are tightening our expectations for cat-backs [inaudible]
Steve Menneto: to $25 to $30 million, and we intend to modestly reduce the pace of share references relative to the $10 million executed this quarter. Review these as prudent adjustments to our plans given the increased macroeconomic uncertainties.
Steve Menneto: I would be remiss if I didn't highlight the strength of our financial position
Steve Menneto: We finished Q3 with over $39 million of cash on hand and over 300 million of untapped liquidity on our credit facility.
Steve Menneto: We remain committed to our capital allocation priorities and our confident, our resilient business model will enable us to navigate the uncertainty ahead.
Steve Menneto: Accordingly, with our acute focus on dealer inventory levels, we are revising our full-year guidance to reflect lower expected shipments
Steve Menneto: We now expect full-year net sales of down 3% to down 5% and full-year adjusted EBITDA margins of between 9% and 10%
Steve Menneto: Again, this updated outlook reflects our commitment to prioritizing long-term dealer and brand health over short-term volume
Steve Menneto: It is important to note that the implied Q4 sales and profitability levels are meaningfully above last year largely due to the actions taken in the prior year as Steve mentioned earlier
Steve Menneto: In summary, we continue to manage our business proactively during a period of considerable macroeconomic uncertainty.
Steve Menneto: We do not expect tariffs to have a material cost structure impact for the remainder of fiscal 2025. We are deploying a multitude of tariff mitigation strategies in order to balance the need for associated price increases. We do not expect tariffs to have a material cost structure impact for the remainder of fiscal 2025.
Steve Menneto: We anticipate having much greater terror visibility when we review our Q4 results [inaudible]
Steve Menneto: Our highly variable cost structure, strong balance sheet, and resilient cash flow generation positions us well to navigate near-term challenges while maintaining our capital allocation priorities and investing strategically to drive long-term growth and value creation.
Steve Menneto: With that, I'd like to open up the call for questions.
Steve Menneto: We will now begin the question and answer session. As a reminder to ask a question, you may press star 1 on your touch turn telephone. If your question has been answered and you would like to withdraw your question, please press star 2.
Please stand by while we compile the Q&A roster. [inaudible]
Speaker Change: The first question comes from Craig Kennison from Beard. Please go ahead.
Speaker Change: Hey, good morning. Thanks for taking my question. I wanted to start with with inventory. What would the goal be by the end of June with respected dealer inventory and maybe relative to last June ?
Speaker Change: Yeah, well, the other inventories, you know, typically, you know, come down quite a bit as we get to...
Speaker Change: You know, through the selling season, typically in the Q, you know, the end of Q4 were in the 20 to 25 weeks, typically is where we would typically be.
Speaker Change: We are expecting to bring our dealer inventories down this year in the mid-teens percent. That's been a consistent goal for us throughout the entire year. We started talking about that at the very beginning of the fiscal year.
Speaker Change: and that will put us below where we were last year, certainly, and the dealers are telling us that's where they want to take it. They want to take their inventory below historical levels there, also looking at the same macroeconomic uncertainty that we're looking at. And that's where we're looking at the same macroeconomic uncertainty that we're looking at.
Speaker Change: Thanks. I appreciate that. And then with respect to I guess the Malibu customer or the customer of your boats, do you have any insights into the behavior of that customer? How is the repeat buyer doing? How are your first time buyers doing? I'm just looking for a profile of who's in the market today and how that has changed.
Speaker Change: Craig, we're seeing retail kind of as what we expected is you see the ramp we're seeing some of the, you know
Speaker Change: The repeat buyers returning to the marketplace, particularly the cash repeat buyers, right? New buyers are still a small percentage of.
Speaker Change: of our overall retail. We've seen the normal, you know, seasonality ramp as you would expect. But as Bruce said, we, you know, with the economic uncertainty, we haven't seen it come back in full force. Like as expectations were a couple quarters ago. [inaudible]
Speaker Change: Yeah, if I may add to Craig, we continue to look at the data around a percent of our sales that are going to first-time buyers and
Speaker Change: You know, we've seen that kind of whole pretty steady, you know, over time there was questions I think of with that drop after after we exited the COVID period and we just haven't seen that so that's been a that's been a positive.
That's helpful. Thank you.
Eric Wold: The next question comes from Eric Wold from Texas Capital Securities. Please go ahead.
Eric Wold: Hey, good morning, guys. Thanks for taking my questions. I guess first of all, in order to obviously give you the boat show season was mixed, some of you kind of said the past. I guess now they're kind of
Eric Wold: You're firmly past it. What are you seeing with a competitive promotional activity, especially with those brands that...
Eric Wold: You feel may not be in the best inventory tradition and given kind of you know the state of the consumer, you know how much you want to kind of you know chase deals against someone that's maybe overly competitive versus maybe let some of those deals go [inaudible]
Eric Wold: I think two respects there is one is, you know, we've been, we've been really as we stated earlier, helped by our new products. I mean, when you look at some of the new product innovations that were launched and some of the new products.
Eric Wold: Those continue to do really well in the marketplace gaining share and we don't have the support those is
Eric Wold: as strongly in the promo environment. For ours, we've been pretty consistent in our promo execution and we're going to continue to do that and work with our dealers to make sure that we're competitive into marketplace. [inaudible]
Eric Wold: But we haven't had to do anything elevated to be, you know, in our strong position [inaudible]
Speaker Change: Yeah, I would just echo that, you know, our promotional levels have been pretty consistent year to date last year and we'd expect them actually, you know, to be much less in our fourth quarter of this year than they certainly were a year ago . . . .
Speaker Change: because a year ago we were focused on getting our dealer inventory down, so I think in the overall market you've seen various competitors address their inventory challenges into a certain extent that's going to play out the way it's going to play out you can't chase all of those deals.
Speaker Change: But we expected the promotional environment, you know, will remain competitive, but we'll, you know, moderate as the industry kind of works through with challenges.
Speaker Change: A group of your dealers that you feel are maybe in a tough position, maybe struggling a little bit out there. Anyone that you're worried about, you think that it's a health, you know, pretty pretty pretty get across the board. [inaudible]
Speaker Change: Pretty good across the board. We monitor every brand and all the different regions of the country and so forth, and I think everybody's in pretty good shape and pretty consistent.
Eric Wold: The other thing we're always doing, Eric is monitoring the overall health of the dealer network and
Speaker Change: you know, the dealer network, you know, from, you know, from just a...
You know...
Speaker Change: An overall standpoint is pretty healthy and we are always in conversations with four-plan finance providers and checking on that and are pretty happy with where the dealers are right now, particularly giving the challenging markets.
Michael Swartz: The next question comes from Michael Swartz from Truist. Please go ahead.
Hey guys, good morning.
Michael Swartz: Maybe to start, just on the tariff side, I know that you have said that you don't expect any material impact in...
Cisquier 25, which ends in a couple months, but as we look out further afield, I mean...
Michael Swartz: Is there any way to think about your tariff risk? I don't know if you have much direct exposure from international sourcing, but any way, any parameters you could give us on how to think about that as we think about fiscal year 2026 and beyond?
Michael Swartz: Well, Tarrison, in general, Michael, you know, like you said, the director exposure is, you know...
Michael Swartz: We're managing every day. We're looking at what's changing. We're trying to make sure that we try to understand what the impacts are clearly. But really what we're working on internally is how do we take those mitigation opportunities with either reshoring, buying ahead, all the different steps that you would take and we have a team focused on that. [inaudible]
Michael Swartz: From a quantification standpoint, we source about 18 to 20% of our cost of sales from outside the US.
Michael Swartz: which, you know, relative to others in the industry, I think it's less than the overall industry, but there certainly is, is some exposure there.
and are there any singular, large-
sources within that 18-20% .
Michael Swartz: No, I mean, I think it's distributed across a number of different categories, some of them.
Michael Swartz: being pretty obvious, like, outboard engines and then there are others that are maybe less obvious, you know, hinges and latches and electronics, those of that nature.
Okay, okay. That's super helpful. Thank you for that.
Michael Swartz: And I guess are you or anyone you you're aware of moving model year 26 ahead by by a month or two?
Michael Swartz: No, we're not aware of anybody moving model year 26 ahead by a month or two and no, we have not really seen anybody in the industry make a move in pricing at all of us I think are kind of wait and see what are the impact you know and how we're going to deal with them.
Michael Swartz: So, we still have Q4 to kind of figure that out
Speaker Change: Yeah, I would just say that I think it's probably a normal inflation environment and this is an industry that passes long-clost increases, so I would expect
Michael Swartz: You know, absent the terror topic that it would be a pretty normal year.
Okay, great, thank you guys [inaudible]
Speaker Change: The next question comes from Noah Katzatzkin from Keybank. Please go ahead.
Speaker Change: Hi, good morning. Thanks for taking my question. This is Ryan Williams on for Noah Zatzkin. Maybe the first one to see helpful to hear kind of any additional color on how demand trended in the quarter, and then if there were kind of any meaningful step changes in April as well.
Speaker Change: No, I think Ryan, we said the demand in the quarter kind of had its seasonal ramp as you would expect [inaudible]
Speaker Change: and but did not have that robust you know punch that we were kind of open for a few quarters ago so we say it's kind of the mixed results it keeps kind of chugging along and you know we're you know we see the same thing in April new products are doing well
Speaker Change: and we're fortunate that we have quite a few new products in the marketplace.
Speaker Change: Thanks. That's really helpful. And maybe just another on, I know we're in a fluid environment. And if things work to deteriorate, how are you thinking about what cost lovers are available in the business?
Speaker Change: Well, I mean, we talk a lot about the highly a variable nature of our cost structure and we would definitely be relying on that.
Speaker Change: You know, if we were to see a further downturn, you know, cost rupture is 80 to 90% variable above the gross margin line.
Speaker Change: And then, of course, we would look for opportunities to free up cash from the balance sheet as well to manage any downturn just like.
Speaker Change: like we've done previously. So, you know, we have a very resilient business model. We generate cash in all kinds of environments and we have a very strong balance sheet. So we feel, we feel, you know, as good as you can feel coming into what continues to be a challenging market environment.
Great. Thanks for taking my questions.
Speaker Change: The next question comes from Mike Albanese from Benchmark, please go ahead [inaudible]
Yeah, hey, good morning, guys
Speaker Change: Thanks for taking my question. I think last quarter you had called out some additional weakness, maybe forming in the saltwater segment. Could you just comment on what you're seeing in that market specifically or any changes to, I guess, consumer behavior that kind of happened throughout the quarter?
Speaker Change: Yeah, we saw an improvement, I would say, in the saltwater segment, particularly in Florida, I think it's the last call we talked about Florida being down, you know, around 20% in the second quarter. We saw that improved in the third quarter, didn't see it bounce.
Speaker Change: You know, back to growth. I think it just, you know, just kind of went back to kind of the overall trend in the market. So some improvement, but not a different trajectory entirely.
Speaker Change: Got it, that's awful. So I mean, just really last quarter, I know you had called off Florida, I mean...
Speaker Change: You're looking at it through this quarter here, you've got to return from that back to that normal friend if you will.
Speaker Change: You were thinking, well, maybe two quarters ago. Yeah, okay. Awesome. Thank you. Yeah
Speaker Change: And the next question comes from Jaime Katz from Morningstar. Please go ahead.
Jamie Katz: Hey, good morning, guys. I just wanted to ask about the upcoming quarter. It looks like the third quarter was a little better than we expected, and then you have adjusted it, but to push down a little bit. So, can you talk a little bit about what has changed since your last update in that cost structure that is just leading to that pressure? Thanks.
Speaker Change: What's really the units? I mean, we've taken our expectations [inaudible]
Speaker Change: for units down because we changed our view in the market. If you remember previously, we were saying that we were expecting to see a little bit of improvement in the market in the second half of the year from what trend we were experiencing in the first half of the year.
Speaker Change: And, you know, as we've kind of seen the market play out through the third quarter and then given what our dealers are telling us and just the general macro economic uncertainty, we're no longer expecting an improvement.
Speaker Change: in the market, so therefore we had to make an adjustment from our prior expectations in production levels and therefore it impacts our overall financial projections for the year and for the quarter.
Sure.
Speaker Change: And then as you think about capital allocation and sharey purchases in the quarter ahead or the next fiscal year, if the environment stays this way, doesn't make more sense to have dry powder on the balance sheet, just to navigate the environment or given the depressed level of shares, do you think it's maybe more prudent to...
continue down that Sherry Purchase Cycle that you've been on.
Speaker Change: What I would say just generally, we remain committed to our capital allocation priorities.
Speaker Change: and we may have to modify our tactics from time to time, just given the realities of the market. So I think that's what's behind the comments that I made my remarks that we're going to be modifying our level of shared root purchases here in Q4.
and then we still expect that we will.
The
Speaker Change: You know, you know, looking at chair repurchases as part of our overall capital allocation strategy moving forward. And we're obviously looking to maximize shareholder value through the execution of those priorities.
Thank you.
The End