Malibu Boats, Inc. (MBUU) Earnings Call Transcript & Summary

Good morning and welcome to Malibu Boats conference call to discuss the acquisition of Maverick Boat Group. [Operator Instructions] Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization of Malibu Boats. As a reminder, this call is being recorded. On the call today from management are Mr. Jack Springer, Chief Executive Officer; 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.

Good morning and thank you for joining us. This morning, we announced the acquisition of Maverick Boat Group, which we will be discussing in more detail during this call. A slide presentation for today's call can be found in the Investor Relations section of the company's website. Earlier this morning, we filed an 8-K with a press release, slides and purchase agreement, among other items. 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 considered forward-looking. 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. 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. During this call, we will not be discussing or entertaining questions regarding our fiscal year 2021 second quarter financial results. We plan to discuss those results on a regularly scheduled earnings call in February. I will now turn the call over to Jack.

Thank you, Wayne. We are very pleased to announce that we have closed the acquisition of Maverick Boat Group, which is comprised of 4 brands: Cobia, Pathfinder, Maverick and Hewes. Maverick represents a strong player in the center console and bay boat space and has a distinguished reputation. Complementing Pursuit, this strategic acquisition enhances Malibu's breadth of saltwater outboard offerings with 4 strong brands. Further, this acquisition increases production opportunity for a high-turn business while capturing previously untapped demand. The acquisition is anticipated to be immediately accretive, excluding purchase accounting and acquisition costs. For over 35 years, Maverick has been associated with high-quality and strong performance in the marine industry. As a pioneer in the flats and bay boat segments, Maverick's diverse model lineup in footage and price amplify exposure to a wide range of boating enthusiasts. Maverick also has built a strong foundation with its customers, which we are excited to integrate into the Malibu family. This acquisition propels our position within our historically high-growth market that has continued to see momentum, presenting new opportunities for further growth and profitability. With a combined passion for boating, Maverick is the perfect fit for Malibu's experience and business model in the saltwater market. Founded in 1984, what began as a family/founder-run business has grown into a strong, reputable player in the center console and bay boat space. As I mentioned, Maverick complements Pursuit and expands our saltwater outboard offerings with 4 additional great brands, expanding our portfolio of industry leading products. With 2 manufacturing facilities located in Fort Pierce, Florida, the acquisition of Maverick allows us to leverage our strong growth momentum while expanding our manufacturing capacity, product development and distribution opportunities. Arguably, most important, Maverick quickly strengthens our product portfolio for boats 28 feet and under, further enhancing our competitive position. Boats 28 feet and under as well as bay boats have been under consideration by Malibu for a while. We have been evaluating our normal build-versus-buy approach and the availability of Maverick Boat Group made the decision very easy. This acquisition positions us well immediately in the category of saltwater outboard boats that we consider important to our strategic growth. Maverick designs and manufactures the Cobia, Pathfinder, Maverick and Hewes brands totaling 28 unique boat models. Cobia serves cruising and sport fishing markets with center console and dual console categories ranging from 20 to 35 feet. Pathfinder focuses on bay fishing boats ranging from 20 to 27 feet, while Maverick and Hewes produce flats fishing boats ranging from 17 to 21 feet. The dealer network is well-established and filled with key relationships with 70-plus dealers in total. This acquisition marks the next iteration of our defined and successful M&A strategy. Maverick fits squarely within this strategic model, providing growth opportunities and characteristics for easy integration into our company. As we add Maverick, we remain focused on quality and output to grow and capture market share. As we saw with Cobalt and Pursuit, Maverick presents an amazing opportunity as we leverage the strength of both teams to continue to deliver innovative boats to our customers, while driving long-term growth and profitability for our shareholders. I will turn the call back over to Wayne to give a financial summary of the transaction.

Thanks, Jack. I'm going to take a few minutes and walk you through the basic financial implications of the transaction. The purchase price for Maverick was $150 million, which was funded with cash on hand and borrowings under Malibu's existing credit facility. In connection with the acquisition, Malibu added a $25 million incremental term loan facility and increased the available borrowing capacity under its revolving credit facility by $50 million to $170 million. In terms of size, for the trailing 12 months ended June 30, 2020, Maverick Boat Group generated approximately $120 million in revenue. As we all know, calendar year 2020 brought about unprecedented times, including complete production shutdowns, ranging from a few weeks to a few months depending on the company and industry. In addition, we saw a return to tremendous demand for marine products once the world began to open back up last summer. As a result, based on both pre-COVID and budgeted fiscal 2021 levels, the multiple paid was squarely in line with our typical ranges of between 7.5 and 8x EBITDA. As Jack said, Maverick adds complementary brands to our lineup that further diversify and strengthen our product offering, particularly as it relates to boats under 28 feet. The transaction closed December 31, which will result in Malibu recognizing the results of Maverick's operating performance for all of calendar year 2021. Maverick will be accretive day 1, excluding the impacts of purchase accounting acquisition costs. With that, I'll turn it back over to Jack for some closing comments.

Thank you, Wayne. This acquisition marks an important evolution for Malibu as a growth company. It advances our strategy to further expand our portfolio of premium brands, allowing us to serve additional customers in new and expanding markets. To that point, its highly complementary nature to Pursuit allows us to reel in additional boating enthusiasts, ultimately expanding our customer base and increasing upgrade opportunities. We are excited to integrate Maverick into the Malibu family and are confident in our ability to do so seamlessly. As always, we will look to innovate with Maverick as we have with Malibu, Cobalt and Pursuit, and are excited to have you join us on this journey. We would now like to open up the call to questions. Operator?

[Operator Instructions] Our first question comes from Craig Kennison with Baird.

Could you comment on the margin profile of the business?

Yes, Craig, we're not going to disclose full financials, but I would tell you the EBITDA margin profile of the business is in the low to mid-teen range, a little bit higher than what we've seen with other businesses but below our existing profile.

That helps. And then as you think about the opportunity here, would you say you're more excited about maybe revenue growth potential or are there cost synergies that excite you?

Yes, this is not really a cost synergy scenario for us. There will be some over time, especially being closer to Pursuit, but we'll continue to operate Maverick separately. We're most excited about the revenue opportunities, the product distribution that we're going to be able to attain. And I think just general improvement that we normally bring to companies.

To put that into context in terms of the revenue opportunity, Craig, ultimately, this business has been run and had some of the highest turns that they see in the industry when you talk to industry players. And so it has really underfed the market historically. The family that owned it was very conservative. And we really like the opportunity to grow it, and you would probably decrease those turns a little bit by getting more inventory out there and getting more share.

And finally, when you think about their backlog in the context of 2020 and the strong demand we had, is it looking similar to what we've seen in other boat categories where there's just a huge backlog?

Yes, their backlog is off the charts. It's the strongest backlog we've seen in the entire industry. So we have a very long runway, and it's very similar to Pursuit in that when we acquired Pursuit, we knew that we had to put inventory into the channel. It's absolutely this scenario and probably even more so.

Our next question comes from Brett Andress with KeyBanc Capital Markets.

So it sounds like Maverick runs at higher turns. Just any way to frame up maybe where their channel inventories are today? And how much of that backlog is retail-sold versus dealer-sold?

In terms of inventories, at the end of the calendar year, their inventories were down 75%. So you're measuring it in the low single-digit weeks right now in terms of on-hand dealers. So it's a really low inventory position in the field. In terms of retail-sold, I don't know, Jack...

It's very high. I don't know the exact number, Brett, but it's very high.

Got it. Okay. And then just any color on the networks overall, what opportunities do you have there?

I think between Maverick and Pursuit, there's definitely network overlap as we're able to get more and more product out into the channel. Currently, there are probably half a dozen to a dozen dealers that are somewhat common, and we'll expand that over time because it is so complementary. One of the things that I'll point out is that because of the size range of Maverick and the price range of Maverick, it's very, very similar to the Malibu-Axis model. So you have a scenario here where you have a product group in Pursuit that indexes higher from a foot length enterprise point of view, and Maverick indexes lower. So we're really excited about the opportunity to offer the full range of products.

Got it. And then just last one quickly. Just in terms of funding, can you give us any update on where your cash on hand was December 31?

I think pro forma closing net debt is, I want to say, just south of $150 million. So we drew -- there was about $90 million of additional funding drawn either through revolver or the incremental term loan, and we had just under $90 million of cash.

Our next question comes from Mike Swartz with Truist Securities.

Just in terms of the opportunity for this business, and I think you framed it as more of a revenue opportunity, where do you think margins can get to? Because I know historically, you've said Pursuit, Cobalt and obviously your legacy Malibu business, you're targeting a 20% EBITDA margin for each of those. Is this a similar story here or this just run at a lower margin level than those businesses over time?

Yes. Over time, it will be at the same margin level. I mean that's our goal. And we think that with the opportunities that we have, with the efficiencies that we can generate more new product and more product out in the market, that we'll get there. And it's very similar as we think about a Cobalt or we think about a Pursuit, we take a company like that, we invest in it, we improve the operations to the extent that we can and we see that gradual build toward that 20%. And we're very confident that will happen with Maverick.

Okay. And then just any capital investment to speak of with this? I know Pursuit was obviously a new facility, a large capital investment there. Is there anything to speak of with Maverick?

Yes. We're going to look at a couple of things. One, we'll be there next week, and we'll be getting a good idea more from a machinery and equipment aspect what we need to invest in, to make it less labor-intensive and add to the margin naturally. But the second thing, very similar to Pursuit, is to get the product out into the market that we need and fulfill that backlog, we're going to need to produce more boats. And we think that we'll be able to do that incrementally within the existing footprint that we have, but we also plan to take a similar view, and there is land and so we will probably look at over the next 6 to 12 months, adding square footage to Maverick.

Our next question comes from Joe Altobello with Raymond James.

Just want to follow-up on my last question about the capacity expansion. It looks like Maverick was already in the process of expanding one of their facilities. What's the timing on that? And it sounds like you guys foresee the potential for additional capacity expansion beyond that.

Yes. So in 2018, Maverick added another building. And the initial intent of that building was to be phase 1 of 2 phases equal sizes. So they did a fantastic job of setting it up for that next phase or that next building, adding about the same square footage. So that's what we'll be looking at doing on that property. And I would anticipate we will start that process very quickly.

Okay. And it looks like Maverick right now has a little over 70 dealers. I guess, first, where are they located? Are they concentrated geographically? And how many dealers do you see eventually -- or potentially getting to?

Again, very similar to Pursuit. I think we'll expand that over time. They are concentrated in the Southeast, in the Northeast, little bit in the mid-Atlantic, some in the Great Lakes. One aspect that they do have that's pretty exciting to us is they have a very good business with some of the boat clubs. And so that's an iteration for us that we hope to grow over time as well. But again, very similar to Pursuit. We think that we'll see that go west. And we don't know yet, but we believe that there will be opportunities to combine dealers in terms of they carry both the Maverick and a Pursuit and add to the dealer network that way as well.

Got it. One last one from me. With Pursuit and Cobalt I think there were some tax benefits in terms of the acquisition. Are there any tax benefits with this deal?

There are not. It's an acquisition of C-Corp stock.

Our next question comes from Gerrick Johnson with BMO Capital.

I just wanted to jump on the back of Mike's question about CapEx. Is there any way you can quantify the CapEx that will be added to 2021 and the run rate on an annual fiscal year basis? And then also, who is top of mind in terms of competitors in the bay and flats boat market? That's one that we're probably less familiar with versus the offshore market.

Yes. So in terms of CapEx, in fiscal '21, any incremental in fiscal '21 is probably relatively modest versus what we're expecting for the year. Quantifying that for folks, that new facility that came online in 2019 time frame was a little over 100,000 square feet, which is about half the size of the Pursuit facility that we just did. So if we were doubling the facility of that size, you'd be adding a little over 100,000 square feet. And so probably the rough justice and early numbers would be about half the capital need that we committed on the Pursuit addition. In terms of incremental CapEx, prospectively, on an ongoing basis, from a maintenance perspective, our general rule of thumb is about 3% of sales.

Yes. And on the bay boats, the flats competitors, Gerrick, it's going to be Sea Hunt, NauticStar, Robalo. Those are going to be the primaries, and there will be some others as well.

Okay. And then lastly, can you just talk about prior ownership, family-run business, I guess? Was there private equity involved? Maybe a little bit of history on the Maverick ownership.

Yes. The company was owned by Scott Deal and his family. Scott was the majority, and he started it in 1984. I've known Scott for a long period of time. We served on the Board of the IBBI. I think a great deal of Scott, I think a great deal of Maverick. We actually began talking to them back in early 2019. And we had just closed Pursuit. So for us, it was probably not the right time with everything that we had to do, but we kept the conversation going. Scott has run a great business. And like a lot of founders, he's been very frugal, he's made sure that he's made money during the good times and the bad times. And like the previous ownership, Scott is going to stay with us, and he'll have a role in the company. And also very similar to the model that we've deployed at Cobalt and at Pursuit, the people are the most important thing. And they are the ones that are building the boats and getting the product out to the dealers for the end consumer. And so we -- our intent is to keep every single person, provide opportunities and provide growth for those people of Maverick.

Our next question comes from Alex Maroccia with Berenberg.

Can you give us a sense of Maverick's customer profile, especially where it's competing against Pursuit with Pathfinder and Cobia?

On the Pathfinder side, which is a bay boat, it really does not compete against Pursuit. That's one of the attractive features for us. We had thought about on Pursuit going into bay boats. So versus -- the build-versus-buy scenario that gets us there immediately. Cobia is very complementary to Pursuit. If you think about a Pursuit, it's a larger boat that's going to have more accouterments on it, the price point is going to be higher. And given that Pursuit ranges from anywhere from 23 to 42 feet, that ASP for Pursuit is about $250,000. On Cobia, with a lower foot length, with the less accouterments, more of the Axis type model is $96,000 ASP. So this is going to be a highly complementary product to Pursuit, not competitive.

Got it. That's helpful. And then on the dealer financing side, is there anything we should think of that's a bit different for Maverick's dealers versus what you're experiencing currently?

No, not at all. I mean they're dealing with Wells Fargo, just like all of our other companies are. And then there are dealers if they're not dealing with Wells Fargo, they may have local financing.

And there's no other questions in the queue. I'd like to turn the call back to Mr. Jack Springer for any closing remarks.

All right. Thank you very much for joining us today as we've shared this exciting news, and we want to thank you also for your continued support. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.