Malibu Boats [MBUU] Conference call transcript for 2021 q3
2021-11-06 15:32:19
Fiscal: 2022 q1
Operator: Good morning, and welcome to Malibu Boats Conference Call to Discuss First Quarter Fiscal Year 2022 results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without reauthorization of Malibu Boats. And as a reminder, today's call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; and Mr. Wayne Wilson, Chief Financial Officer; and Mr. Ritchie Anderson, Chief Operating Officer. I will turn the call over to Mr. Wilson to get started. Please go ahead, sir.
Wayne Wilson: Thank you, and good morning, everyone. On the call, Jack will provide commentary on the business, and I will discuss our first quarter of fiscal year 2022 financials. We will then open the call for questions. A press release covering the company's fiscal first quarter 2022 results was issued today, and a copy of that press release can be found in 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. The 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. 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 Springer.
Jack Springer: Thank you, Wayne, and thank you all for joining the call. We once again demonstrated our dominant leadership in the marketplace as we've delivered sustained momentum in the first quarter of fiscal year 2022, supported by continuing strength in retail demand even as we enter the off-season. While inflationary and supply chain pressures intensified, our team's unparalleled commitment and execution, coupled with our industry-leading brands and inherent operational strengths were next to none, driving our outperformance in the quarter. Malibu continues to be a premier force in the marine industry in the entire leisure space, setting the tone for continued growth and agility as we navigate through fiscal year 2022 and beyond. For the fiscal first quarter, we posted strong top line growth as net sales increased nearly 40% to $254 million over the prior year, with adjusted EBITDA growing 23% to $45 million. Adjusted gross margin declined by 170 basis points to 23.6%, and adjusted EBITDA margin declined by 250 basis points to 17.6% during the quarter. The decrease in margins was better than anticipated and was primarily generated from the inclusion of Maverick in fiscal 2022, the restart of Cobalt boats costs and the realization of supply chain issues that increased labor costs. Against consensus, all financial metrics were met or exceeded expectations. In addition, we saw an increase in material pricing pressures that accelerated in the first quarter that impacted margins. During the quarter, we continued to capitalize on very strong retail demand, and in particular, larger, more feature-rich boats with our innovative best-in-class brands. For Malibu, sales for our new 25 LSV and T250 models and our premium M-Series boats are booming, driving enhanced margins for the business despite the negative impact of the supply chain on volumes. Also, our new Cobalt R-Series, consisting of 9 new models in the last year, remains highly sought after by consumers. These Cobalt models are inclusive of stern, surf and outboard variants for the R4, R6 and R8. Related to retail demand, the unlimited cheeseburger picnic continues, and we are now offering soft-serve ice cream for dessert. Our order book remains unprecedented for every Malibu brand. And we are not seeing any meaningful increase in dealer inventory levels as most boats are either retail sold or sold as soon as they hit the dealer's lot. To put a finer point on it, we continue to estimate over 90% of new boat orders will be retail sold in the second quarter of fiscal 2022. At the same time, channel inventory levels remain at historically low levels, driven by the high retail demand, but also the increasing supply chain pressures affecting the entire powersports industry and global economy. Again, to contextualize, we estimate we have nearly $0.5 billion of channel inventory to fill. That is nearly 6 months of production without selling another boat at retail. With that in mind, even if the economy softens, it will be at least 2 years before the channel is rebuilt. Underscoring the retail demand, the Fort Lauderdale Boat Show concluded last weekend. Attendance was very strong, and sales for our brands were well above expectations. We were pleased and surprised with the strength from the 2020 Lauderdale Show, and last week substantially exceeded the 2020 numbers. Pursued sales at the show were up substantially over almost any previous year. The Cobia brand under our Maverick umbrella saw sales numbers more than 4x last year's numbers at the Fort Lauderdale show. And Cobalt has also increased versus the 2020 show. The strength of retail is further substantiated with the fact that our recent price increase was in effect and it was a very limited promotional environment. Despite record-setting demand and a strong executable backlog of orders, supply chain pressures continue to affect production as the number of parts impacted have proliferated throughout the first quarter. Production volume for many has declined over the fiscal first quarter as manufacturers in the marine space have reduced production counts to meet parts availability. Shortages are across the board, unlike previous quarters where resin and outboard engines were the primary pain points. There are now a number of parts in short supply on any given day, which has caused Malibu brands to reduce production count. This approach helps us preserve efficiency and ensures our customers receive the highest quality boats as we focus our efforts on in-process build. While our volume expectations have moderated since August, we believe that the price increases we are implementing will help offset this volume decline, supporting our overall margin profile in the long term. However, at this time, we are reducing our guidance for margins for the year given the abundance of retail sold units that will be produced in the face of these increasing input costs. Malibu remains a step ahead of the competition given our industry-leading innovation, vertical integration and operational excellence. We are well positioned to flip the switch at any moment and ramp-up production and supply headwinds subside. All brands have at least 25% of additional capacity we can use to increase boat production once the supply chain returns to some normality. In addition, we remain on pace to execute on our strategic initiatives to help further enhance our production capabilities. We are ahead of schedule on our Maverick Plant 2 expansion that doubles the production footprint of that plant, and we expect to start building both in that new facility during the second half of fiscal 2022. We have no doubt that our team's operational capabilities, hard work and commitment to quality will help us stand out amongst the competition. In that vein, I am incredibly proud that we've maintained our talented workforce despite the labor shortages taking place across the industry as federal programs on social distancing and vaccination's impact and the individual's decision regarding returning to work. In the short term, our efficiencies and gross margins are impacted as we are carrying more labor than needed based off current daily run rate. We are doing this while operating under the assumption that when the supply chain improves, we will be able to increase production counts quickly rather than having to wait weeks or months due to short labor supplies, hiring and training delays. While we cannot predict when the supply chain will improve, we fully expect our return to normal. Our new Maverick 2022 product lineup is again underscoring Malibu's lineup of premium brands as the preferred choice for our customers' boating needs. For Malibu and Axis, we continue to deliver exciting new products. In addition to the debut of the all-new Malibu Wakesetter 25 LSV and the brand-new Malibu Wakesetter 21 LX, we recently welcomed the Axis T220, a premier 22-foot wakesurf and wakeboarding boat during the quarter. The T220 traditional valve replaces -- for Axis replaces the T22. And the new name highlights that this new model is bigger and better than its predecessor with an enhanced on-water performance. Furthermore, we also introduced the largest Axis ever produced, the T250, in the first quarter, which only adds to our rich margin profile and product suite. The T250 makes history as the first 25-foot boat produced by the cutting-edge Axis brand and will set a new standard for performance, convenience, style and value in the 25-foot class. As we mentioned last quarter, we are running at a high velocity pace of product development and new boat launches within the Pursuit brand. In this fiscal year, we will be introducing 3 new boats, all of which are filling out product lot spaces that we identified when we acquired Pursuit. For Cobalt, we are in the process of introducing 5 more boats between now and the Miami Boat Show that we are very excited about. The rollout include the brand-new R4 Stern, the R4 SURF, which replaced the previous R3 versions. In addition, the R4 outboard model will be a new release to the R-Series coming in the 23- to 24-foot length. We believe that R4 models will only enhance the strong legacy of this luxury brand. We will also debut a larger boat that will exceed 30 feet in both the stern and outboard versions at the Miami Boat Show. Our newest brand, Maverick, continues to smoothly integrate with Malibu's world-class product development model, and we will soon be sharing more new products from Maverick. Similar to Cobalt, there's an opportunity to replace outdated products, and like Pursuit, there are product white spaces that we will fill to drive growth. Looking ahead, Malibu is in a unique and enviable position to meet expectations for fiscal year 2022, notwithstanding a tightening supply chain and inflationary concerns. Our team has so much to be proud of as Malibu continues to navigate one of the most volatile and unprecedented periods in history. Their commitment to operational excellence, best-in-class products and distribution will enable us to continue to deliver on our strategic vision. As a result, we remain incredibly well positioned in the marketplace. Our foresight has enabled us to remain resilient, quickly dodging and overcoming many of the obstacles our competitors are facing. We are already off to an incredibly strong start to fiscal year 2022. And we believe our sustainable long-term competitive advantages will result in market share gains and increased profitability. Together, this will support continued outperformance in the industry and value creation for our shareholders. At this time, I will now turn the call over to Wayne to take you through our financial performance in more detail.
Wayne Wilson: Thanks, Jack. In the first quarter, net sales increased 40.1% to $253.5 million, and unit volume increased 23.8% to 2,024 boats. The increase in net sales was driven primarily by a favorable model mix in our Malibu and Cobalt segments, year-over-year price increases and increased unit volumes, primarily due to the acquisition of Maverick Boat Group on December 31, 2020. The Malibu and Axis brands represented approximately 52.3% of unit sales or 1,059 boats. Saltwater Fishing represented 24% or 485 boats, and Cobalt made up the remaining 23.7% or 480 boats. Consolidated net sales per unit increased 13.1% and to approximately $125,200 per unit, primarily driven by year-over-year price increases and a greater mix of larger boats for Malibu and Cobalt segments. Gross profit increased 30.6% to $59.8 million, and gross margin was 23.6%. This compares to gross margin of 25.3% in the prior year period. The decline in gross margin was primarily driven by the inclusion of Maverick in the current period. Selling and marketing expense increased 41.7% or $1.5 million in the first quarter. As a percentage of sales, selling and marketing expense remains consistent to the prior year period. General and administrative expenses increased 38.1% or $4.4 million. The increase was driven primarily by an increase in compensation and personnel-related expenses, travel-related expenses, IT infrastructure, other administrative costs and incremental general and administrative expenses due to the acquisition of Maverick Boat Group. As a percentage of sales, G&A expense, excluding amortization, remains consistent to the prior year period. Net income for the quarter increased 26.7% to $27.9 million. Adjusted EBITDA for the quarter increased 23.1% to $44.7 million. And adjusted EBITDA margin decreased 250 basis points to 17.6%. Non-GAAP adjusted fully distributed net income per share increased 21.2% to $1.37 per share. This is calculated using a normalized C Corp tax rate of 23.8% and a fully distributed weight average share count of approximately 21.7 million shares. For a reconciliation of adjusted EBITDA and adjusted fully distributed net income per share to GAAP metrics, please see the tables in our earnings release. As Jack mentioned earlier, we had a tremendous start to fiscal year 2022 and outperformed our first quarter expectations in spite of an incredibly dynamic environment. We remain acutely aware of the uncertainty related to supply chain and inflationary pressures and as such, have factored these items into our most recent outlook. Despite these challenges, Malibu remains incredibly well positioned given historically low dealer inventory levels, robust customer demand and recently announced price increases mitigating the impact of rising input costs. Based on our current operating plan, our expectations for fiscal year 2022 are as follows. We anticipate revenue to grow in the low to mid-20% range. This is supported by robust ASP growth as we move prices to offset input cost increases. In terms of cadence, we expect second quarter sales growth to be in the mid-30% growth range. Consolidated adjusted EBITDA margin is expected to be approximately 19.5%. The reduction in our margin for the year is driven by the combination of lower volumes and the temporary impact of inflationary cost pressures as we work through our announced price increases across our product lines. We expect the second quarter will see margins decrease approximately 300 basis points year-over-year driven by the inclusion of Maverick and increased input costs. Despite these challenges, we are incredibly excited about the future of Malibu. Our legacy Malibu and Axis business continues to perform well. Pursuit and Cobalt have made great progress since they've been acquired, and we are waiting anxiously for an improved supply chain that can demonstrate the incredible progress of our teams at each. Our Maverick integration is full speed ahead, and we see robust growth opportunities over the next 18 months. We feel primed for success as we continue to drive innovation, capitalize on record-setting consumer demand and deliver high-quality products at healthy margins. We believe we are well positioned to advance our long-term growth plan in fiscal year 2022 and beyond. With that, I'd like to open the call up for questions.
Operator: [Operator Instructions] Your first question comes from the line of Mike Swartz from Truist Securities.
Operator: Your next question comes from the line of Joe Altobello with Raymond James.
Operator: The next question comes from Craig Kennison with Baird.
Operator: Your next question comes from Fred Wightman with Wolfe Research.
Operator: The next question comes from Gerrick Johnson with BMO.
Operator: I'm not showing any further questions at this time. I would now like to turn the call back to Jack Springer for any further remarks.
Jack Springer: Thank you very much. In summary of our quarter, while inflationary concerns and ongoing supply chain constraints that put significant pressure on our industry and the global economy, our first quarter results yet again demonstrate the inherent strength and capabilities of Malibu brands. Our strategic planning, operational excellence and supply chain management continues to support our outperformance. Our vertical integration strategy remains second to none and a competitive differentiator, driving profitability and unlocking maximum value from our innovative product portfolio. We also continue to capitalize on higher -- on the hotter-than-ever retail environment and unprecedented backlog, which will support further growth and strong earnings. We remain optimistic, these tailwinds will remain elevated for some time. While we are limiting in increasing production accounts, every brand is well positioned, and we are prepared to increase production quickly and with substantial volume, once parts and systems are available from our suppliers. Our teams continue to push boundaries through the introduction of new product models that exemplify innovation and luxury and draw customers into the Malibu, Cobalt, Pursuit and Maverick lifestyles. As price increases help counter short-term volume declines and the supply chain issues moderate, we look forward to advancing our industry-leading position and outperforming our peers. Given our excellent start to the year, we remain confident in our ability to deliver value to our shareholders while maintaining our guidance for fiscal year 2022. As always, we thank you for your continued support and for joining us in our journey towards growth and continued excellence in fiscal year 2022. I hope you and those around you are saying safe and healthy. Have a fantastic day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
