SOURCE: Malibu Boats

Malibu Boats

May 04, 2016 07:00 ET

Malibu Boats, Inc. Announces Third Quarter Fiscal 2016 Results

Net Sales Increased 5.8% to $68.5 Million; Adjusted EBITDA Increased 6.2% to $14.1 Million; Adjusted Fully Distributed Net Income per Share Increased 17.6% to $0.40

LOUDON, TN--(Marketwired - May 04, 2016) -  Malibu Boats, Inc. (NASDAQ: MBUU) today announced its financial results for the third quarter of fiscal 2016 ended March 31, 2016.

Highlights for the Third Quarter of Fiscal 2016

  • Net sales increased 5.8% to $68.5 million compared to the third quarter of fiscal 2015.
  • Net sales per unit increased 8.6% to $71,769 and net sales per unit in the U.S. increased 10.6% to $75,338 compared to the third quarter of fiscal 2015.
  • Gross profit increased 2.8% to $18.4 million compared to the third quarter of fiscal 2015.
  • Adjusted EBITDA increased 6.2% to $14.1 million from the same period in fiscal 2015.
  • Adjusted fully distributed net income at $7.7 million was in line with the third quarter of fiscal 2015 and adjusted fully distributed net income per share increased 17.6% to $0.40 over the same period.

Jack Springer, Chief Executive Officer, stated, "Again, Malibu completed a successful quarter, our fiscal third quarter. The business, despite substantial international headwinds and an uncertain economic environment, continues to perform at a high level. We have been focused on consistently executing the fundamentals of our business and on those factors we can control. That strategy continues to serve us well as we have again met our key objectives. Our strategies of owning the technology and innovation side of the industry, offering the best integrated wake and surfing system on the market, driving demand through consistent new product and feature launches, maximizing productivity and quality through vertical integration, and being the best operator among marine companies continues to drive success. Importantly, our investments in the pace of new model introductions, trailer manufacturing and strong intellectual property all were key to our sustained performance. In the third quarter, orders at boat shows for our new boat models - the Axis A20, the Malibu Wakesetter 20 VTX, the Malibu Wakesetter 25 LSV and the Malibu M235 -- were strong and the 25 LSV continues to significantly outperform our expectations."

Mr. Springer continued, "The recovery and strength in the U.S. market continues to grow meaningfully at retail, but a strong U.S. dollar and lingering oil and gas concerns are negatively affecting and muting the positive U.S. performance. International wholesale shipments are down substantially as our international dealer's continue to manage inventory levels. Conversely, we have continued to see increased precipitation in the western region of United States which we believe could be a positive factor later this spring and summer, if it continues. We are seeing strong growth in the entry segment that Axis serves and the new Malibu product is having a noticeable impact in the premium segment. Malibu, as a company, is well positioned, as we have the leading market share in all segments, whether "Premium," "Entry" or "Total" Performance Sports Boats.

"We will continue to closely watch the global environment, along with the domestic segment, and focus on delivering results."

Results of Operations for the Third Quarter of Fiscal 2016

    Three Months Ended March 31,     Nine Months Ended March 31,  
    2016     2015     2016     2015  
   (In thousands, except unit and per unit data) 
     
Net sales   $ 68,539     $ 64,762     $ 186,285     $ 167,905  
Cost of sales     50,133       46,865       137,290       123,751  
    Gross profit     18,406       17,897       48,995       44,154  
Operating expenses:                                
Selling and marketing     1,574       1,657       5,998       5,326  
General and administrative     4,462       6,124       13,281       17,090  
Amortization     545       593       1,637       1,912  
  Operating income     11,825       9,523       28,079       19,826  
Other income (expense):                                
Other     40       1,650       64       1,650  
Interest expense     (1,249 )     (116 )     (2,927 )     (272 )
  Other income (expense)     (1,209 )     1,534       (2,863 )     1,378  
Net income before provision for income taxes     10,616       11,057       25,216       21,204  
Provision for income taxes     4,109       3,414       9,011       5,596  
  Net income     6,507       7,643       16,205       15,608  
Net income attributable to non-controlling interest     731       3,278       1,767       6,600  
  Net income attributable to Malibu Boats, Inc.   $ 5,776     $ 4,365     $ 14,438     $ 9,008  
                                 
Unit volumes     955       980       2,647       2,500  
Net sales per unit   $ 71,769     $ 66,084     $ 70,376     $ 67,162  
                                 

Comparison of the Third Quarter Ended March 31, 2016 to the Third Quarter Ended March 31, 2015

Net sales for the three months ended March 31, 2016 increased $3.8 million, or 5.8%, to $68.5 million as compared to the three months ended March 31, 2015. Included in net sales for the three months ended March 31, 2016 and March 31, 2015 were net sales of $5.5 million and $5.3 million, respectively, attributable to our Australian business. Unit volume for the three months ended March 31, 2016 decreased 25 units, or 2.6%, to 955 units as compared to the three months ended March 31, 2015 primarily driven by currency related challenges in international markets outside Australia, including Canada. Net sales per unit, however, increased approximately 8.6% to $71,769 per unit for the three months ended March 31, 2016 compared to the three months ended March 31, 2015, primarily driven by year over year price increases, including a large price increase in our Australian operations, and the mix of larger model sales such as the 25 LSV and M235, which carry a higher average selling price as well as demand for optional features and trailers. This was partially offset by increased discount activity on, among others, international sales to offset the impact of negative foreign currency fluctuations on sales prices attributable to a strengthened U.S. Dollar and increased sales of our Axis brand which carries a lower average selling price than our Malibu brand.

Cost of sales for the three months ended March 31, 2016 increased $3.3 million, or 7.0%, to $50.1 million as compared to the three months ended March 31, 2015. The increase in cost of sales in the third quarter of fiscal 2016 was primarily due to the mix of larger model sales noted previously, which have higher material content and labor hours, as well as increased sales of boat parts, and higher warranty expense attributable to the extension of our warranty coverage period from three to five years on both Malibu and Axis brands.

Gross profit for the three months ended March 31, 2016 increased $0.5 million, or 2.8%, to $18.4 million compared to the three months ended March 31, 2015. The increase in gross profit resulted primarily from our mix of larger model sales and increased demand for options, trailers, and boat parts. Gross margin for the three months ended March 31, 2016 decreased 79 basis points from 27.6% to 26.9% over the same period in the prior fiscal year. The decrease in gross margin was driven primarily by discounting on international sales and lower margins in our Australian operations caused by the higher U.S. Dollar denominated costs.

Selling and marketing expense for the three month period ended March 31, 2016 decreased approximately $0.1 million, or 5.0%, to $1.6 million compared to the three months ended March 31, 2015, due primarily to the timing of marketing events. General and administrative expenses for the three months ended March 31, 2016 decreased $1.7 million, or 27.1%, to $4.5 million as compared to the three months ended March 31, 2015, largely due to a decrease in legal, offering, and acquisition related costs which, in the third quarter of fiscal 2015, were associated with our Nautique litigation, Australian acquisition, and our tender offer completed in April 2015; offset by higher stock compensation expense associated with share-based awards granted in the second quarter of fiscal 2016.

Operating income for the three month period ended March 31, 2016, increased to $11.8 million from $9.5 million for the three month period ended March 31, 2015. Adjusted EBITDA in the third quarter of fiscal 2016 increased 6.2% to $14.1 million from $13.3 million, and Adjusted EBITDA margin increased to 20.6% from 20.5% in the third quarter of fiscal 2015.

Webcast and Conference Call Information

The Company will host a webcast and conference call to discuss third quarter fiscal 2016 results today, May 4, 2016, at 8:30 a.m. Eastern Daylight Time. Investors and analysts can participate on the conference call by dialing (855) 433-0928 or (484) 756-4263 and using Conference ID #32499875.

Alternatively, interested parties can listen to a live webcast of the conference call by logging on to the Investor Relations section on the Company's website at http://investors.malibuboats.com. A replay of the webcast will also be archived on the company's website for twelve months.

About Malibu Boats, Inc.

Malibu Boats is a leading designer, manufacturer and marketer of performance sport boats, with the #1 market share position in the United States since 2010. The Company has two brands of performance sport boats, Malibu and Axis Wake Research (Axis). Since inception in 1982, the Company has been a consistent innovator in the powerboat industry, designing products that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key aspect of their lifestyle.

Forward Looking Statements

This press release includes forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Forward-looking statements can be identified by such words and phrases as "believes," "anticipates," "expects," "intends," "estimates," "may," "will," "should," "continue" and similar expressions, comparable terminology or the negative thereof, and includes the statements in this press release concerning the impact of increased precipitation in the western region of the United States, and that we will continue to focus on delivering results.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including, but not limited to: general industry, economic and business conditions, demand for our products, changes in consumer preferences, competition within our industry, our reliance on our network of independent dealers, our ability to manage our manufacturing levels and our large fixed cost base, the successful introduction of our new products, and other factors affecting us detailed from time to time in our filings with the Securities and Exchange Commission (the "SEC"). Many of these risks and uncertainties are outside our control, and there may be other risks and uncertainties which we do not currently anticipate because they relate to events and depend on circumstances that may or may not occur in the future. Although we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that our expectations will be achieved. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation (and we expressly disclaim any obligation) to update or supplement any forward-looking statements that may become untrue because of subsequent events, whether because of new information, future events, changes in assumptions or otherwise. Comparison of results for current and prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Use and Definition of Non-GAAP Financial Measures

This release includes the following financial measures defined as non-GAAP financial measures by the SEC: Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Fully Distributed Net Income. These measures have limitations as analytical tools and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity. Our presentation of these non-GAAP financial measures should also not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of these non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.

We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation, amortization and non-cash, non-recurring or non-operating expenses, including certain professional fees, acquisition and integration related expenses, non-cash compensation expense and offering related expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales. Management believes Adjusted EBITDA and Adjusted EBITDA Margin are useful because they allow management to evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods, capital structure and non-recurring or non-operating expenses. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, the methods by which assets were acquired and other factors.

We define Adjusted Fully Distributed Net Income as net income attributable to Malibu Boats, Inc. (i) excluding income tax expense, (ii) excluding the effect of non-recurring or non-cash items, (iii) assuming the exchange of all Units ("LLC Units") of Malibu Boats Holdings, LLC (the "LLC") into shares of Class A common stock, which results in the elimination of noncontrolling interest in the LLC, and (iv) reflecting an adjustment for income tax expense on fully distributed net income before income taxes (assuming no income attributable to non-controlling interests) at our estimated effective income tax rate. Adjusted Fully Distributed Net Income is a non-GAAP financial measure because it represents net income attributable to Malibu Boats, Inc, before non-recurring or non-cash items and the effects of noncontrolling interests in the LLC. We use Adjusted Fully Distributed Net Income to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash or non-recurring items, and eliminates the variability of noncontrolling interest as a result of member exchanges of LLC Units into shares of Class A Common Stock.

A reconciliation of our net income as determined in accordance with GAAP to Adjusted EBITDA and Adjusted EBITDA Margin, and of our net income attributable to Malibu Boats, Inc. to Adjusted Fully Distributed Net Income is provided under "Reconciliation of Non-GAAP Financial Measures".

MALIBU BOATS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(In thousands, except share and per share data)

    Three Months Ended March 31,     Nine Months Ended March 31,  
    2016     2015     2016     2015  
Net sales   $ 68,539     $ 64,762     $ 186,285     $ 167,905  
Cost of sales     50,133       46,865       137,290       123,751  
Gross profit     18,406       17,897       48,995       44,154  
Operating expenses:                                
  Selling and marketing     1,574       1,657       5,998       5,326  
  General and administrative     4,462       6,124       13,281       17,090  
  Amortization     545       593       1,637       1,912  
Operating income     11,825       9,523       28,079       19,826  
Other income (expense):                                
  Other     40       1,650       64       1,650  
  Interest expense     (1,249 )     (116 )     (2,927 )     (272 )
Other income (expense)     (1,209 )     1,534       (2,863 )     1,378  
Net income before provision for income taxes     10,616       11,057       25,216       21,204  
Provision for income taxes     4,109       3,414       9,011       5,596  
  Net income   $ 6,507     $ 7,643       16,205       15,608  
Net income attributable to non-controlling interest     731       3,278       1,767       6,600  
  Net income attributable to Malibu Boats, Inc.   $ 5,776     $ 4,365     $ 14,438     $ 9,008  
                                 
Comprehensive income (loss):  
Net income   $ 6,507     $ 7,643     $ 16,205     $ 15,608  
Other comprehensive loss, net of tax:                                
  Change in cumulative translation adjustment     686       (858 )     37       (2,019 )
Other comprehensive loss, net of tax     686       (858 )     37       (2,019 )
  Comprehensive income, net of tax     7,193       6,785       16,242       13,589  
Less: comprehensive income attributable to non-controlling interest, net of tax   $ 808     $ 2,101       1,774       4,226  
  Comprehensive income attributable to Malibu Boats, Inc., net of tax   $ 6,385     $ 4,684     $ 14,468     $ 9,363  
                                 
Weighted average shares outstanding used in computing net income per share:  
Basic     17,975,714       15,671,922       17,968,106       15,599,037  
Diluted     18,002,858       15,676,243       18,022,339       15,600,315  
                                 
Net income available to Class A Common Stock per share:  
Basic   $ 0.32     $ 0.28     $ 0.80     $ 0.58  
Diluted   $ 0.32     $ 0.28     $ 0.80     $ 0.58  
                                 
                                 

MALIBU BOATS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)

    March 31, 2016     June 30, 2015  
Assets            
Current assets            
  Cash   $ 19,068     $ 8,387  
  Trade receivables, net     16,503       9,482  
  Inventories, net     24,046       20,393  
  Deferred tax asset     509       629  
  Prepaid expenses and other current assets     3,135       1,370  
    Total current assets     63,261       40,261  
Property and equipment, net     17,905       14,946  
Goodwill     12,676       12,665  
Other intangible assets, net     12,347       13,995  
Debt issuance costs, net     974       1,158  
Deferred tax asset     102,497       106,001  
Other assets     48       102  
  Total assets   $ 209,708     $ 189,128  
Liabilities                
Current liabilities                
  Current maturities of long-term debt   $ 8,000     $ 6,500  
  Accounts payable     18,648       9,151  
  Accrued expenses     13,199       14,135  
  Income taxes and tax distribution payable     296       784  
  Payable pursuant to tax receivable agreement, current portion     2,969       2,969  
    Total current liabilities     43,112       33,539  
Deferred tax liabilities     984       1,084  
Payable pursuant to tax receivable agreement     93,619       93,501  
Long-term debt     66,000       72,000  
Other long-term liabilities     958       275  
  Total liabilities     204,673       200,399  
Stockholders' Equity (Deficit)                
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 17,919,408 shares issued and outstanding as of March 31, 2016; 100,000,000 shares authorized; 17,858,726 issued and outstanding as of June 30, 2015     179       178  
Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 23 shares issued and outstanding as of March 31, 2016; 25,000,000 shares authorized; 24 issued and outstanding as of June 30, 2015     -       -  
Additional paid in capital     34,237       32,973  
Accumulated other comprehensive loss     (2,044 )     (2,081 )
Accumulated deficit     (31,869 )     (46,239 )
  Total stockholders' equity (deficit) attributable to Malibu Boats, Inc.     503       (15,169 )
Non-controlling interest     4,532       3,898  
  Total stockholders' equity (deficit)     5,035       (11,271 )
    Total liabilities and deficit   $ 209,708     $ 189,128  
                 
                 

MALIBU BOATS, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

Reconciliation of Net Income to Non-GAAP Adjusted EBITDA and Adjusted EBITDA Margin (Unaudited):

The following table sets forth a reconciliation of net income as determined in accordance with GAAP to Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated (dollars in thousands):

  Three Months Ended March 31,     Nine Months Ended March 31,  
  2016     2015     2016     2015  
Net income $ 6,507     $ 7,643     $ 16,205     $ 15,608  
Provision for income taxes   4,109       3,414       9,011       5,596  
Interest expense   1,249       116       2,927       272  
Depreciation   833       622       2,449       1,791  
Amortization   545       593       1,637       1,912  
Professional fees 1   404       (408 )     622       3,068  
Acquisition and integration related expenses 2   -       366       401       1,666  
Stock based compensation expense 3   459       314       1,464       1,131  
Offering related expenses 4   -       628       -       728  
  Adjusted EBITDA $ 14,106     $ 13,288     $ 34,716     $ 31,772  
  Adjusted EBITDA margin   20.6 %     20.5 %     18.6 %     18.9 %
                               
(1)   Represents legal and advisory fees related to our intellectual property litigation with Pacific Coast Marine Windshields Ltd. ("PCMW"), Nautique Boat Company, Inc., and MasterCraft Boat Company, LLC. In addition, income from the settlement of our patent infringement litigation with Nautique in February 2015 is included in the three and nine months ended March 31, 2015.
     
(2)
  Represents legal and advisory fees as well as integration related costs incurred in connection with ongoing and completed acquisition activities, including our acquisition of Malibu Boats Pty. Ltd. completed on October 23, 2014.
     
(3)   Represents equity-based incentives awarded to key employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC.
     
(4)   For the three and nine months ended March 31, 2015, this represents legal, accounting and other expenses directly related to our April 2015 tender offer and for the nine months ended March 31, 2015, expenses directly related to our follow-on offering that closed on July 15, 2014. There were no such offerings for the three and nine months ended March 31, 2016.

Reconciliation of Non-GAAP Adjusted Fully Distributed Net Income (Unaudited):

The following table sets forth a reconciliation of net income attributable to Malibu Boats, Inc. to Adjusted Fully Distributed Net Income for the periods presented (dollars in thousands, except share and per share data):

    Three Months Ended March 31,     Nine Months Ended March 31,
    2016   2015     2016   2015
                   
Net income attributable to Malibu Boats, Inc.   $ 5,776   $ 4,365     $ 14,438   $ 9,008
Provision for income taxes     4,109     3,414       9,011     5,596
Professional fees 1     404     (408 )     622     3,068
Acquisition and integration related expenses 2     -     366       401     1,666
Fair market value adjustment for interest rate swap 3     510     -       685     -
Stock based compensation expense 4     459     314       1,464     1,131
Offering related expenses 5     -     628       -     728
Net income attributable to non-controlling interest 6     731     3,278       1,767     6,600
Fully distributed net income before income taxes     11,989     11,957       28,388     27,797
Income tax expense on fully distributed income before income taxes 7     4,256     4,245       10,078     9,868
Adjusted fully distributed net income     7,733     7,712     $ 18,310   $ 17,929
                           
Adjusted Fully Distributed Net Income per share of Class A Common Stock 8 :                          
Basic   $ 0.40   $ 0.34     $ 0.94   $ 0.79
Diluted   $ 0.40   $ 0.34     $ 0.94   $ 0.79
                           
Weighted average shares of Class A Common Stock outstanding used in computing Adjusted Fully Distributed Net Income 9 :                          
Basic     19,380,638     22,678,824       19,375,330     22,601,655
Diluted     19,380,638     22,678,824       19,375,330     22,601,655
                           
                           
(1)   Represents legal and advisory fees related to our intellectual property litigation with Pacific Coast Marine Windshields Ltd., Nautique Boat Company, Inc., and MasterCraft Boat Company, LLC. In addition, income from the settlement of our patent infringement litigation with Nautique in February 2015 is included in the three and nine months ended March 31, 2015.
     
(2)   Represents legal and advisory fees as well as integration related costs incurred in connection with ongoing and completed acquisition activities, including our acquisition of Malibu Boats Pty. Ltd. completed on October 23, 2014.
     
(3)   Represents the change in the fair value of our interest rate swap entered into on July 1, 2015.
     
(4)   Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC.
     
(5)   For the three and nine months ended March 31, 2015, this represents legal, accounting and other expenses directly related to our April 2015 tender offer and for the nine months ended March 31, 2015, expenses directly related to our follow-on offering that closed on July 15, 2014. There were no such offerings for the three and nine months ended March 31, 2016.
     
(6)   Reflects the elimination of the non-controlling interest in the LLC as if all LLC members had fully exchanged their LLC Units for shares of Class A Common Stock.
     
(7)   Reflects income tax expense at an estimated normalized annual effective income tax rate of 35.5% of income before income taxes for the three and nine months ended March 31, 2016 and 2015, assuming the conversion of all LLC Units into shares of Class A Common Stock and the tax impact of excluding offering related expenses. The estimated normalized annual effective income tax rate is based on the federal statutory rate plus a blended state rate adjusted for deductions under Section 199 of the Internal Revenue Code of 1986, as amended, state taxes attributable to the LLC, and foreign income taxes attributable to our Australian based subsidiary.
     
(8)   Adjusted fully distributed net income divided by the shares of Class A Common Stock outstanding in (9) below.
     
(9)   Represents the weighted average shares outstanding during the applicable period calculated as (i) the weighted average shares outstanding during the applicable period of Class A Common Stock, (ii) the weighted average shares outstanding of LLC Units held by non-controlling interests assuming they were exchanged into Class A Common Stock on a one-for-one basis and (iii) the weighted average fully vested restricted stock units outstanding during the applicable period that were convertible into Class A Common Stock and granted to directors for their services.

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