MBUU by the numbers

[MalibuTime]

Book (or some portion thereof) is what the shareholders get when a company goes insolvent or the activist investors get ahold of the company. So I often look to book as a baseline for the downside....but again, I am a pessimist. I try to take care of the downside and let the upside take care of itself. Others may have different investment strategies and therefore no need to look beyond the stock price.

I also find it interesting that according to what I see, 75% of the stock in the newly 'public' Malibu is held by 10 Institutional investors. Institutional Investors are like the dinosaurs in Jurrasic Park..."they do move in heards"...and I really think it will not take much for one of them to decide to divest, and then all bets are off. Somethin like two quarters in a row like they had Q2'14.

I just don't see much upside to the company as an investment.....and a whole lotta risk.

Hmm that is interesting. Also, good chance they are trading stock back and forth to up the volume without pushing the price down. Used to see that where I worked before the stock finally took off in a big way (after I left, but that is OK I held onto what I had).

Edited August 16, 2014 by MalibuTime

[Soon2BV]

IXFE - What do you make of the huge swings in G&A?

[DarkSide]

Ixfe .... We look forward to your analysis of tomorrow's numbers....

[teamerickson]

LOL!

[IXFE]

Ixfe .... We look forward to your analysis of tomorrow's numbers....

Haha! Funny you bumped this back up. Believe it or not I've had tomorrow's earnings call circled on my calendar since this thread started. After tomorrow we should have 2 full years of data.

Give me a day or so to respond. I do have a day job, ya know?

[RTS]

Investors and analysts can participate on the conference call by dialing (855) 433-0928 or (484) 756-4263 and using Conference ID #87146197. 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.

8:30 a.m., I think.

[IXFE]

IXFE - What do you make of the huge swings in G&A?

Sorry I didn't respond sooner. I meant to, but I knew I'd need to go back into the financials and/or re-listen to the earnings call. I guess I never got around to it until today.

Here's a direct quote from the footnotes that explains why 2014 G&A is up vs. 2013. It's a laundry list of items.

"This increase is largely attributable to one time charges incurred in connection with our initial public offering, including termination of our previously existing management agreement, and stock compensation on modified awards as well as additional legal and professional fees associated with our recapitalization and equity offerings during fiscal 2014."

Speaking of G&A... one thing I don't like about MBUU's financials is they don't break out R&D from the other Operating Expenses (S&M and G&A). I can only assume Malibu putting it into G&A. I'm left to assume that R&D is immaterial, even less than S&M which they call out separately and is only 3% of revenue. Coming from a company that invests heavily in R&D, this is so odd to me. For all the innovation they claim, why can't I see it on the P&L?

[River Monsters]

For all the innovation they claim, why can't I see it on the P&L?

I would not want my competitors to see that number unless I absolutely had to divulge it. No way.

[IXFE]

I would not want my competitors to see that number unless I absolutely had to divulge it. No way.

Oh I agree... sometimes the less you have to reveal the better. I'm just not used to seeing a P&L for a product company with no R&D listed.

On the flip side, it may also be something Malibu might want their investors to see. I'm actually surprised they have survived three earnings calls without any analysts asking that question.

Edited September 12, 2014 by IXFE

[IXFE]

Okay folks... here is the MBUU P&L updated with Q4 data. This gives us two full years to examine. I hope my spreadsheet doesn't make you go blind.

Each of you can draw your own conclusions. Personally, I didn't find the numbers any more or less revealing than what I posted last quarter. However, I did learn a lot from the Q4 earnings call. You guys should really go listen. It's a look inside the company who's products we all love so much. Here's a link http://investors.malibuboats.com/

Things I learned from the call:

• Last quarter they said there would be three new boats for 2015. This quarter they said it's four!! So they've made plans for yet another new model / redesign within the past couple of months. They acknowledged that the first two new boats were the already announced 22VLX and A22. The other new boats will not be revealed until "just before the boat show season" which probably means after the holidays as many boat shows begin in early/mid January. They said that one would be another Axis (making five total Axis models) and one would be a Malibu. I think the Axis will be the rumored T23. Any guesses on the new Malibu?? My money is on a new 247, or maybe a new 21'er to fill the gap left when they grew the VLX to 22.
• Axis reached a new record in units shipped in Q4 (247 units). This was 31% of MBUU's total volume (799 units). That's up from 26% mix in Q2 and 28% mix in Q3. Despite total MBUU boat sales being up Q3 vs. Q4 (788 in Q3, 799 in Q4; this is normal seasonality), the seasonal growth was driven entirely by Axis. Malibu branded boats were actually down in Q4 (564 in Q3 vs. 552 in Q4). But they claim Axis growth is not cannibalizing Malibu sales, and hasn't since the brand was introduced. According to the execs, Axis is targeted at specific competitors and they claim they have watched registration data and observed those targeted boat companies losing share as Axis has grown. I wonder who they are talking about. I'm sure Moomba is on the top of that list.
• Malibu expects 5-9% unit growth in 2015 (aprox 3,100 boats with Axis making up low 30% mix)
• Factory expansion will be complete by year end, increasing annual capacity from 4k to 5k boats.
• The 22 VLX began manufacturing in July. The new A22 hit the factory floor in August.
• The VLX is the second best seller in their entire lineup. The A22 is the third best seller. #1 is the 23 LSV and has been for years.
• They walked through all the new features on the 2015's. When he got to the new dash (aka Viper 2) Jack Springer said the following which caught my ear: "The new dash also uses what I call Viper 2 technology. This platform has new features available to us this year, and it will allow us to add features to the system for years to come with minimal cost."
• Analyst asked what the retail price was (to the consumer) for the G4 tower. Also the take rate of this option. The answer was "about $5,000" and "we estimate 25% take rate"
• The highlight of the marketing section was the discussion of a new Wakeboarding event Malibu is sponsoring in Cancun. "We also continue to grow our grass routs marketing around the globe. A new event that we will be sponsoring in a couple of weeks is a brand new wakeboarding competition that will feature top ranking professional men and women competing for huge prize money and celebrating the 25th anniversary of the World Wakeboard Association. It's called the WWA Cancun Pro and it will take place in Port of Cancun, Mexico from October 3 - 5. We are the lead sponsor and all the competitors will be pulled by the 2015 Wakesetter 23 LSV. The Cancun Pro will be the sports biggest event of the year and it will pay tribute to the sport of wakeboarding."
• Finally litigation... we've all heard that Malibu has an action against Nautique for infringing Surf Gate patent. That case is finally going to court in February 2015. Malibu is prepared to go all the way. But, did you know Malibu is being sued by PCMW for allegedly infringing their IP on windshield design? This explains why Malibu got rid of the vented, chrome A-pillars on MY'14 boats. These law suits are one of the primary reason G&A spending spiked in 2014 vs. 2013. MBUU expects to spend $3.5 - $5M on legal fees in 2015.

Enjoy everybody!!

[shawndoggy]

Major props for the review IXFE! This adds a TON of value to the community. Really appreciate it!!!!

• According to the execs, Axis is targeted at specific competitors and they claim they have watched registration data and observed those targeted boat companies losing share as Axis has grown. I wonder who they are talking about. I'm sure Moomba is on the top of that list.

There's a certain manufacturer in California that has been responsible for a great deal of Malibu defections on the west coast. They must not be an axis target, but they obviously should be.

• Finally litigation... we've all heard that Malibu has an action against Nautique for infringing Surf Gate patent. That case is finally going to court in February 2015. Malibu is prepared to go all the way. But, did you know Malibu is being sued by PCMW for allegedly infringing their IP on windshield design? This explains why Malibu got rid of the vented, chrome A-pillars on MY'14 boats. These law suits are one of the primary reason G&A spending spiked in 2014 vs. 2013. MBUU expects to spend $3.5 - $5M on legal fees in 2015.
• 
  

No resemblance!

[oldjeep]

Didn't someone else sue them over the round pillar design too?

[IXFE]

No resemblance!

Haha! By the sound of their rhetoric, the Malibu execs have their heals dug in on this one too. They kept calling it "the alleged infringement" and seemed ready and willing to go the distance.

The execs revealed that PCMW won a preliminary judgment recently that opens up possible damages to all Malibu profits during the time they "allegedly" used PCMW's design, not just those associated with the windshield. That's serious money... > $100m, that would likely break Malibu's back. Malibu is claiming the number is more like $8m.

I hope for all our sakes they win that case!

[TallRedRider]

Thanks again IXFE! For those of us who are not accountants, I had to wade through some trashy stuff to figure out what S&M was...Selling and Marketing, P & L...Proft and Loss, G & A....General and Administrative.

I don't want to be the one to tell them this...but when they made a decision to put surfgate on Axis boats, I am confident they cut Malibu's sales. They probably cut other company's sales more, but they still will lose some Malibu sales because of it. If I were the company, I would have done it too, but to pretend that you won't lose some Malibu sales is ignorant.

[IXFE]

Thanks again IXFE! For those of us who are not accountants, I had to wade through some trashy stuff to figure out what S&M was...Selling and Marketing, P & L...Proft and Loss, G & A....General and Administrative.

I don't want to be the one to tell them this...but when they made a decision to put surfgate on Axis boats, I am confident they cut Malibu's sales. They probably cut other company's sales more, but they still will lose some Malibu sales because of it. If I were the company, I would have done it too, but to pretend that you won't lose some Malibu sales is ignorant.

Sorry Tall... I should know better than to use acronyms. But I kind of chuckled imagining your Google search.

Cannibalization is a hard thing to prove. I wish we had more than three quarters of mix data. That would help. Even then, it's impossible to know what would have happened in 2014 if they had not put Surf Gate on the Axis. But I tend to agree with you... there's almost certainly "Surf Gate" buyers who would have / could have bought a Wakesetter but instead opted for an Axis this year and pocketed the discount. Shoot... the idea has crossed my mind more than once.

When you listen to these earnings calls enough you learn to discern between facts and opinion (or wishful thinking). I remember vividly when the CEO of a certain tech company strong in PC's swore that tablets were not eating into PC sales. Lol. That was the epitome of wishful thinking.

[justgary]

Sorry for not paying attention in class, but I missed the reason for the Q314 loss. Charges for the factory expansion?

And clearly (because the total volume of boats built is similar), Axis is cutting into Malibu sales, but it looks like they have spread the prices of the two brands so that the average dealer invoice is about 0.5% higher. But (and excluding the 3Q14 loss) even with that, the net income per boat went from about 11% to about 12%. What we can't see directly is that Axis may well be contributing more to the bottom line even though it is not the premium brand.

The amazing thing to me is the volume built. I don't know how many shifts the factory runs, but if you assume one shift, they are finishing a boat every 43 minutes. If you assume two shifts, it's a boat every hour and a half. Holy cow, if you think about what it takes just to prep, mask, spray, and pull each hull from a mold (and do it in the customer's custom-ordered color pattern), that's an astonishing pace to keep up day after day.

[Pnwrider]

The amazing thing to me is the volume built. I don't know how many shifts the factory runs, but if you assume one shift, they are finishing a boat every 43 minutes. If you assume two shifts, it's a boat every hour and a half. Holy cow, if you think about what it takes just to prep, mask, spray, and pull each hull from a mold (and do it in the customer's custom-ordered color pattern), that's an astonishing pace to keep up day after day.

Can you expand on how you came up with those numbers? Supply chain management is not an area I'm familiar with...

[Nitrousbird]

it's only a matter of time.

In 2002 I paid 45kOTD for my first VLX with trailer. 12 years later look what they go for.

in 2005 I paid 53k for my duramax, i can get one now for about 65k You can't tell me that the materials in boats have gone up that much more in boats.

Bureau of Labor Statistics inflation calculator shows 53k in '05 is $64,655 today, so right on.

45k in '02 is $59,595 today. What would an EQUALLY OPTIONED VLX to your '02 sell for today? Actually, it would be more fair to compare an equally option V-ride, which would be about the same money.

I have the bill of sale from the original owner of our boat (we bought it from him); after tax in 2001 was $43,705 (sales tax was 1.75% lower then too). That's about 59k in today's money. Boat was pretty loaded but NOT ordered with a tower/wedge (had dealer add that a year later), so figure in that cost as well.

[IXFE]

Sorry for not paying attention in class, but I missed the reason for the Q314 loss. Charges for the factory expansion?

Look at G&A expenses in Q3... over $10M. That's compared to normal G&A of $4M per quarter. Malibu says they incurred an additional $6M in one-time charges in Q3. Here's the direct explanation...

"This increase is largely attributable to one time charges incurred in connection with our initial public offering, including termination of our previously existing management agreement, and stock compensation on modified awards as well as additional legal and professional fees associated with our recapitalization and equity offerings during fiscal 2014."

So basically it was a bunch of junk related to going public.

Factory expansion will not show up all at once in the Income Statement as it's a capital expenditure. That means they pay for the improvements up front, but book them as an asset on the Balance Sheet (you're basically trading one asset for another... cash for building). Over subsequent years they depreciate that asset over to the Income Statement. Since it's a production facility, that depreciation is likely charged to Cost of Sales. That's how we depreciate our production factories at work.

Edited September 13, 2014 by IXFE

[justgary]

Thanks, IXFE.

Pnwrider, I simply looked at IXFE's spreadsheet that showed 2,910 units built in FY14. Let's assume that a work year has 2,080 hours per shift (I'm ingraciously working the staff every week day without leave or holidays), so they are building 2,910 / 2,080 = 1.4 boats per hour, which is one boat every ~43 minutes. If they work two shifts to get all those boats out, the number of hours available doubles, so it's one boat every 85 minutes. That seems like the more believable number.

I admit that it's a simplistic view of their throughput, but if they built that many boats, they had to build them sometime.

Edit: By the way, that build rate tells me that they are probably nearly production limited, so their income will not go up substantially without the ability to build more boats per hour. I suspect that they are keeping up with demand, since dealers seem to have them in stock. If that's the case, they are getting very good use out of their facility.

Edited September 13, 2014 by justgary

[IXFE]

Thanks, IXFE.

Pnwrider, I simply looked at IXFE's spreadsheet that showed 2,910 units built in FY14. Let's assume that a work year has 2,080 hours per shift (I'm ingraciously working the staff every week day without leave or holidays), so they are building 2,910 / 2,080 = 1.4 boats per hour, which is one boat every ~43 minutes. If they work two shifts to get all those boats out, the number of hours available doubles, so it's one boat every 85 minutes. That seems like the more believable number.

I admit that it's a simplistic view of their throughput, but if they built that many boats, they had to build them sometime.

Edit: By the way, that build rate tells me that they are probably nearly production limited, so their income will not go up substantially without the ability to build more boats per hour. I suspect that they are keeping up with demand, since dealers seem to have them in stock. If that's the case, they are getting very good use out of their facility.

I the earnings call, Jack said the current capacity is 4k boats per year. After the plant expansion is complete it will be 5k per year.

I agree that it's hard to believe these numbers are coming from one shift.

[justgary]

So now I have two questions:

Is the Merced, CA plant still open, and

Do these production (and sales) numbers include Australia?

[shawndoggy]

Australia isn't MBUU, it's a completely separate company that pays a licensing fee.

[justgary]

Thanks. I figured that was the case, but wanted to ask. What about Merced?

[IXFE]

Australia isn't MBUU, it's a completely separate company that pays a licensing fee.

Technically true... but not for long. I forgot to mention in my notes... MBUU is in the process of acquiring boat production in Australia. They build aprox. 300 boats/year.