Malibu Boats(US:MBUU)2022-08-25 13:09PART I Item 1. Business Malibu Boats is a leading designer, manufacturer, and marketer of recreational powerboats under eight brands, with top market share in key segments - Malibu Boats is a leading designer, manufacturer, and marketer of recreational powerboats, including performance sport boats, sterndrive, and outboard boats, under eight brands: Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes, and Cobalt15 - The company holds the 1 market share position in the United States in the performance sport boat category (Malibu and Axis brands) and the 24'-29' segment of the sterndrive category (Cobalt brand)1524 - As of July 1, 2022, Malibu Boats' global distribution channel consisted of over 400 dealer locations, with over 300 in North America1944219 - The COVID-19 pandemic has impacted operations since Q3 FY2020, leading to temporary shutdowns, constrained production, and lower dealer inventory levels, which continued into FY202220220 U.S. Recreational Powerboat Market (Calendar Year 2021) | Recreational Powerboat Category | Unit Sales | Retail Sales (Millions) | | :----------------------------- | :--------- | :---------------------- | | Outboard | 188,660 | $10,388 | | Sterndrive | 8,950 | $945 | | Performance sport boat | 13,850 | $1,801 | | Jet boat | 5,750 | $356 | | Cruisers | 1,650 | $1,940 | | Total addressable market | 218,860| $15,430 | - The company's strategy includes continued development of new and innovative products (e.g., Surf Gate, Power Wedge III), strengthening its dealer network, pursuing vertical integration opportunities (e.g., engines, wiring harnesses), and selectively pursuing strategic acquisitions323334353637 - Malibu Boats has vertically integrated key components of its manufacturing process, including engines (Malibu Monsoon), boat trailers, towers, machined parts, soft grip flooring, and wiring harnesses, to reduce reliance on third-party suppliers and improve efficiency2660242 - The company relies on General Motors for engine blocks for Malibu and Axis brands (agreement through MY2023) and Yamaha for most outboard motors for Pursuit, Cobalt, and Maverick Boat Group brands (agreements through June 2023)6264104105 Employee Profile (Worldwide) | As of July 31, | | :------------- | | 2022 | 3,015 | | 2021 | 2,645 | | 2020 | 1,795 | Item 1A. Risk Factors The company faces risks from supply chain disruptions, economic downturns, and a potential $140 million product liability judgment - The company's profitability is vulnerable to sales decreases due to its large fixed cost base and is highly dependent on the availability and cost of raw materials, component parts, and transportation, which have been impacted by supply chain disruptions and inflation100101102 - Reliance on single suppliers for engines (General Motors for Malibu/Axis) and outboard motors (Yamaha for most other brands) poses a significant risk of supply interruption and potential cost increases104105 - Growth through acquisitions carries risks related to integration, realizing expected benefits, and securing additional capital, which could dilute existing stockholders or increase debt vulnerability111112113114115 - The company is exposed to significant product liability risks, including a potential maximum liability of $140 million plus post-judgment interest and approximately $56 million in attorney's fees, while insurance coverage is limited to $26 million157158159 - The company is obligated to make substantial payments under a tax receivable agreement, estimated at approximately $45.5 million over the next fifteen years, which could be accelerated or exceed actual tax benefits173174178179 - Weak general economic conditions, rising interest rates, and increased energy/fuel costs can negatively impact consumer discretionary spending and demand for recreational powerboats, affecting sales and profitability135136142149 - The company's variable rate indebtedness exposes it to interest rate risk, with a 1.0% increase in rates potentially leading to an additional $1.2 million in annual interest expense169172 Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments187 Item 2. Properties Malibu Boats operates seven manufacturing facilities across five U.S. states and Australia, totaling approximately 1.6 million square feet - The company operates seven manufacturing facilities in Tennessee, Kansas, Florida (two locations), California, Alabama, and Australia188189190191192193194195 - Facilities are used for manufacturing Malibu and Axis boats (Tennessee, Australia), Cobalt boats (Kansas), Pursuit and Maverick Boat Group boats (Fort Pierce, Florida), towers and product development (California), and wiring harnesses (Alabama)188189190191192193194195 - Total manufacturing and office space aggregates to approximately 1.6 million square feet, with some properties owned and others leased188189190191192193194195 Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 17 of the audited consolidated financial statements - Legal matters are discussed in Note 17 of the audited consolidated financial statements196 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable198 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Malibu Boats' Class A Common Stock is listed on Nasdaq under MBUU, with no dividends paid and $35.4 million remaining in its stock repurchase program - Malibu Boats' Class A Common Stock is listed on the Nasdaq Global Select Market under the symbol 'MBUU'199 - As of August 23, 2022, the closing price of Class A Common Stock was $66.82 per share200 - The company has never declared or paid any cash dividends on its capital stock and anticipates retaining all future earnings for business expansion201 - The Board of Directors authorized a stock repurchase program of up to $70.0 million for Class A Common Stock and LLC Units, expiring November 8, 2022204494 Stock Repurchases (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------------- | :------------------------------- | :--------------------------- | | April 1, 2022 through April 30, 2022 | — | $— | | May 1, 2022 through May 31, 2022 | 79,852 | $55.50 | | June 1, 2022 through June 30, 2022 | — | — | | Total | 79,852 | $55.50 | - During fiscal year 2022, the company repurchased 554,995 shares of Class A Common Stock for $34.6 million. As of June 30, 2022, $35.4 million remained available under the repurchase program205494 Item 6. [RESERVED] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Malibu Boats achieved significant financial growth in FY2022, with net sales increasing 31.1% to $1,214.9 million and net income rising 43.0% to $163.4 million, driven by higher unit volumes and price increases Key Financial Highlights (FY2022 vs. FY2021) | Metric | FY2022 ($M) | FY2021 ($M) | Change ($M) | Change (%) | | :--------------- | :---------- | :---------- | :---------- | :--------- | | Net Sales | 1,214.9 | 926.5 | 288.4 | 31.1% | | Cost of Sales | 904.8 | 690.0 | 214.8 | 31.1% | | Gross Profit | 310.1 | 236.5 | 73.6 | 31.1% | | Operating Income | 213.8 | 149.8 | 64.0 | 42.7% | | Net Income | 163.4 | 114.3 | 49.1 | 43.0% | | Adjusted EBITDA | 246.5 | 190.1 | 56.4 | 29.7% | Unit Volume by Segment (FY2022 vs. FY2021) | Segment | FY2022 Units | FY2021 Units | Change (Units) | Change (%) | | :---------------- | :----------- | :----------- | :------------- | :--------- | | Malibu | 5,173 | 4,841 | 332 | 6.9% | | Saltwater Fishing | 2,035 | 1,428 | 607 | 42.5% | | Cobalt | 2,047 | 1,916 | 131 | 6.8% | | Total Units | 9,255 | 8,185 | 1,070 | 13.1% | - Net sales per unit increased 16.0% to $131,267 in FY2022, driven by year-over-year price increases and a favorable model mix, particularly in the Malibu and Cobalt segments258 - Gross margin remained flat at 25.5% in FY2022, as higher sales revenue and a favorable product mix were offset by increased costs due to supply chain disruptions and inflationary pressures260 - The company expects meaningful wholesale demand to restock dealer inventories in fiscal year 2023 and potentially beyond, but the primary driver will be retail activity225 - Elevated raw material, components, and transportation costs are anticipated to persist through calendar year 2022 and beyond; surcharges implemented in December 2021 were made permanent price changes at the beginning of FY2023226 Cash Flow Summary (FY2022 vs. FY2021) | Activity | FY2022 ($M) | FY2021 ($M) | Change ($M) | | :----------------- | :---------- | :---------- | :---------- | | Operating Activities | 164.8 | 131.3 | 33.5 |\ | Investing Activities | (61.6) | (181.1) | 119.5 |\ | Financing Activities | (60.4) | 57.3 | (117.7) |\ | Increase in Cash | 42.3 | 7.7 | 34.6 | - Capital expenditures for FY2022 were $55.1 million, with an expectation of $65.0 million to $70.0 million for FY2023, primarily for new models, capacity enhancements, and vertical integration initiatives294304 - The company's product warranty liability was $38.7 million as of June 30, 2022, with estimation uncertainty for longer warranty terms (years four and five) due to limited historical claims experience354355356326 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Malibu Boats is exposed to foreign exchange rate risk and interest rate risk, with a 100 basis point increase in rates potentially raising annual interest expense by $1.2 million - The company is exposed to foreign exchange rate risk due to its Australian operations, which purchase components from U.S. suppliers in U.S. dollars, resulting in a $0.1 million loss in foreign currency translation in FY2022329 - The company is subject to interest rate risk from variable-rate borrowings under its revolving credit facility and term loans331 - As of June 30, 2022, a 100 basis point increase in interest rates would increase annual interest expense by approximately $1.2 million332334 - The Amended Credit Agreement, effective July 8, 2022, transitioned the benchmark rate from LIBOR to SOFR for borrowings333 Item 8. Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements, management's report, and the independent auditor's report on internal controls, detailing key accounting policies, acquisitions, debt, and contingencies - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2022, based on the COSO framework339 - KPMG LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of internal control over financial reporting and on the consolidated financial statements for the fiscal year ended June 30, 2022342343350 - A critical audit matter identified was the evaluation of certain assumptions underlying the product warranty liability for Malibu and Axis branded boats, particularly for warranty year five, due to limited historical claims experience354355 Consolidated Statements of Operations and Comprehensive Income (FY2022, 2021, 2020) | Metric | FY2022 ($M) | FY2021 ($M) | FY2020 ($M) | | :----------------------------------------- | :---------- | :---------- | :---------- | | Net sales | 1,214.9 | 926.5 | 653.2 | | Cost of sales | 904.8 | 690.0 | 503.9 | | Gross profit | 310.1 | 236.5 | 149.3 | | Operating income | 213.8 | 149.8 | 85.3 | | Income before provision for income taxes | 210.0 | 148.3 | 83.7 | | Net income | 163.4 | 114.3 | 64.7 | | Net income attributable to Malibu Boats, Inc. | 157.6 | 109.8 | 61.6 | | Basic net income per share | $7.60 | $5.29 | $2.98 | | Diluted net income per share | $7.51 | $5.23 | $2.95 | Consolidated Balance Sheets (As of June 30, 2022 and 2021) | Asset/Liability | June 30, 2022 ($M) | June 30, 2021 ($M) | | :-------------------------- | :----------------- | :----------------- | | Total current assets | 298.5 | 212.8 | | Property and equipment, net | 170.7 | 132.9 | | Goodwill | 100.8 | 101.0 | | Other intangible assets, net| 228.3 | 235.4 | | Total assets | 851.3 | 742.8 | | Total current liabilities | 139.3 | 134.4 | | Long-term debt | 118.1 | 139.0 | | Total liabilities | 337.8 | 361.6 | | Total stockholders' equity | 513.6 | 381.2 | Consolidated Statements of Cash Flows (FY2022, 2021, 2020) | Activity | FY2022 ($M) | FY2021 ($M) | FY2020 ($M) | | :----------------- | :---------- | :---------- | :---------- | | Operating activities | 164.8 | 131.3 | 94.1 | | Investing activities | (61.6) | (181.1) | (40.4) | | Financing activities | (60.4) | 57.3 | (47.3) | | Increase in cash | 42.3 | 7.7 | 6.4 | - The company acquired certain assets of AmTech, LLC (wiring harnesses) in February 2022 and all outstanding stock of Maverick Boat Group in December 2020 for an aggregate purchase price of $150.7 million, resulting in $49.2 million in goodwill and $102.6 million in identifiable intangible assets435436439320 - As of June 30, 2022, the company had $119.6 million in total debt, including $23.1 million in term loans and $97.0 million outstanding under its revolving credit facility456457 - The company's Tax Receivable Agreement liability was $45.5 million as of June 30, 2022, with an estimated $4.0 million due within the next 12 months473296 - The company is a defendant in the Batchelder I Matter, a product liability case, with a potential maximum liability of $140 million plus post-judgment interest and approximately $56 million in attorney's fees, against which insurance coverage is limited to $26 million531532533 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure550 Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022552 - Management's assessment of the effectiveness of internal control over financial reporting is included in the Annual Report, and KPMG LLP issued an attestation report on its effectiveness553554 - There have been no material changes in internal control over financial reporting during the fourth quarter ended June 30, 2022555 Item 9B. Other Information This item contains no other information - None556 Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable557 PART III Item 10. Directors, Executive Officers and Corporate Governance The company has adopted a Code of Business Conduct and a Code of Ethics, with further details on directors and corporate governance to be provided in the Proxy Statement - The company has adopted a Code of Business Conduct and a Code of Ethics, applicable to employees, directors, and officers, available on its website559 - Additional information required by this item will be included in the Proxy Statement560 Item 11. Executive Compensation Information regarding executive compensation will be included in the Proxy Statement - Information required by this item will be included in the Proxy Statement561 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners and management, and related stockholder matters, will be included in the Proxy Statement - Information required by this item will be included in the Proxy Statement562 Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence will be included in the Proxy Statement - Information required by this item will be included in the Proxy Statement563 Item 14. Principal Accountant Fees and Services KPMG LLP is the company's independent registered public accounting firm, with further details on fees and services in the Proxy Statement - KPMG LLP is the company's independent registered public accounting firm564 - Information required by this item will be included in the Proxy Statement564 PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the consolidated financial statements from Part II, Item 8, and provides an index of exhibits filed with this Annual Report on Form 10-K - The consolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K565 - A comprehensive list of exhibits, including the Third Amended and Restated Credit Agreement, organizational documents, and various employment and incentive plans, is provided566567569 Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - None570 SIGNATURES SIGNATURE The Annual Report on Form 10-K is duly signed by Malibu Boats, Inc.'s CEO and CFO on August 25, 2022, along with other directors - The report is signed by Jack D. Springer, Chief Executive Officer (Principal Executive Officer), and Wayne R. Wilson, Chief Financial Officer (Principal Financial and Accounting Officer), on August 25, 2022574 - Other directors, including the Chairman of the Board, also signed the report576