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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q | | | | | | | | | | | | | | |
| (Mark One) | | | | |
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2022
OR | | | | | | | | | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
Commission file number: 001-36290
MALIBU BOATS, INC.
(Exact Name of Registrant as specified in its charter) | | | | | | | | | | | | | | | | | | | | | | | |
| Delaware | | 5075 Kimberly Way, Loudon, Tennessee 37774 | | 46-4024640 |
(State or other jurisdiction of
incorporation or organization) | | (Address of principal executive offices,
including zip code) | | (I.R.S. Employer
Identification No.) |
| | | | | | | |
| | (865) 458-5478 | | |
| | (Registrant’s telephone number,
including area code) | | |
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, par value $0.01 | MBUU | Nasdaq Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: | | | | | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | | ☑ | | Accelerated filer | | ☐ |
| | | |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | | | |
| | | | Emerging growth company | | ☐ |
| | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
| | | | | | |
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
| Yes | | ☐ | | No | | ☑ |
| | | | | | | | |
Class A Common Stock, par value $0.01, outstanding as of February 3, 2023: | 20,476,587 | | shares |
Class B Common Stock, par value $0.01, outstanding as of February 3, 2023: | 10 | | shares |
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Form 10-Q are forward-looking statements, including statements regarding demand for our products and expected industry trends, our business strategy and plans, our prospective products or products under development, our vertical integration initiatives, our acquisition strategy; the effects of macroeconomic conditions and the COVID-19 pandemic on us. In particular, many of the statements under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” the negative of these terms, or by other similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. These statements are only predictions, involving known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Such factors include, but are not limited to: general industry, economic and business conditions; our large fixed cost base; increases in the cost of, or unavailability of, raw materials, component parts and transportation costs; disruptions in our suppliers’ operations; our reliance on third-party suppliers for raw materials and components and any interruption of our informal supply arrangements; our reliance on certain suppliers for our engines and outboard motors; our ability to meet our manufacturing workforce needs; exposure to workers' compensation claims and other workplace liabilities; our ability to grow our business through acquisitions and integrate such acquisitions to fully realize their expected benefits; our growth strategy which may require us to secure significant additional capital; our ability to protect our intellectual property; disruptions to our network and information systems; our success at developing and implementing a new enterprise resource planning system; risks inherent in operating in foreign jurisdictions; the effects of the COVID-19 pandemic on us; a natural disaster, global pandemic or other disruption at our manufacturing facilities; increases in income tax rates or changes in income tax laws; our dependence on key personnel; our ability to enhance existing products and market new or enhanced products; the continued strength of our brands; the seasonality of our business; intense competition within our industry; increased consumer preference for used boats or the supply of new boats by competitors in excess of demand; competition with other activities for consumers’ scarce leisure time; changes in currency exchange rates; inflation and increases in interest rates; an increase in energy and fuel costs; our reliance on our network of independent dealers and increasing competition for dealers; the financial health of our dealers and their continued access to financing; our obligation to repurchase inventory of certain dealers; our exposure to claims for product liability and warranty claims; changes to U.S. trade policy, tariffs and import/export regulations; any failure to comply with laws and regulations including environmental, workplace safety and other regulatory requirements; our holding company structure; covenants in our credit agreement governing our revolving credit facility which may limit our operating flexibility; our variable rate indebtedness which subjects us to interest rate risk; our obligation to make certain payments under a tax receivables agreement; and any failure to maintain effective internal control over financial reporting or disclosure controls or procedures. We discuss many of these factors, risks and uncertainties in greater detail under the heading “Item 1A. Risk Factors” in our Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on August 25, 2022, as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission, including subsequent annual reports on Form 10-K and quarterly reports on Form 10-Q.
You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from those suggested by the forward-looking statements for various reasons. Except as required by law, we assume no obligation to update forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.
Part I - Financial Information
Item 1. Financial Statements
MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
December 31, | | Six Months Ended
December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | $ | 338,732 | | | $ | 263,887 | | | $ | 640,943 | | | $ | 517,384 | |
| Cost of sales | 263,078 | | | 200,336 | | | 490,684 | | | 394,081 | |
| Gross profit | 75,654 | | | 63,551 | | | 150,259 | | | 123,303 | |
| Operating expenses: | | | | | | | |
| Selling and marketing | 6,198 | | | 5,658 | | | 11,384 | | | 10,775 | |
| General and administrative | 19,057 | | | 15,987 | | | 38,277 | | | 32,078 | |
| Amortization | 1,715 | | | 1,719 | | | 3,431 | | | 3,575 | |
| Operating income | 48,684 | | | 40,187 | | | 97,167 | | | 76,875 | |
| Other expense, net: | | | | | | | |
| Other expense (income), net | 193 | | | (10) | | | 263 | | | (23) | |
| Interest expense | 910 | | | 656 | | | 2,195 | | | 1,340 | |
| Other expense, net | 1,103 | | | 646 | | | 2,458 | | | 1,317 | |
| Income before provision for income taxes | 47,581 | | | 39,541 | | | 94,709 | | | 75,558 | |
| Provision for income taxes | 11,185 | | | 8,562 | | | 22,208 | | | 16,646 | |
| Net income | 36,396 | | | 30,979 | | | 72,501 | | | 58,912 | |
| Net income attributable to non-controlling interest | 1,234 | | | 1,088 | | | 2,456 | | | 2,077 | |
| Net income attributable to Malibu Boats, Inc. | $ | 35,162 | | | $ | 29,891 | | | $ | 70,045 | | | $ | 56,835 | |
| | | | | | | |
| Comprehensive income: |
| Net income | $ | 36,396 | | | $ | 30,979 | | | $ | 72,501 | | | $ | 58,912 | |
| Other comprehensive income (loss): | | | | | | | |
| Change in cumulative translation adjustment | 1,227 | | | 138 | | | (209) | | | (697) | |
| Other comprehensive income (loss) | 1,227 | | | 138 | | | (209) | | | (697) | |
| Comprehensive income | 37,623 | | | 31,117 | | | 72,292 | | | 58,215 | |
| Less: comprehensive income attributable to non-controlling interest | 1,276 | | | 1,093 | | | 2,449 | | | 2,052 | |
| Comprehensive income attributable to Malibu Boats, Inc. | $ | 36,347 | | | $ | 30,024 | | | $ | 69,843 | | | $ | 56,163 | |
| | | | | | | |
| Weighted-average shares outstanding used in computing net income per share: |
| Basic | 20,404,583 | | | 20,900,201 | | | 20,432,216 | | | 20,875,091 | |
| Diluted | 20,516,025 | | | 21,148,871 | | | 20,559,752 | | | 21,133,413 | |
| Net income available to Class A Common Stock per share: | | | | | | | |
| Basic | $ | 1.73 | | | $ | 1.43 | | | $ | 3.43 | | | $ | 2.72 | |
| Diluted | $ | 1.72 | | | $ | 1.41 | | | $ | 3.41 | | | $ | 2.69 | |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, 2022 | | June 30, 2022 |
| Assets | | | |
| Current assets | | | |
| Cash | $ | 49,848 | | | $ | 83,744 | |
| Trade receivables, net | 55,444 | | | 51,598 | |
| Inventories, net | 185,553 | | | 157,002 | |
| Prepaid expenses and other current assets | 10,772 | | | 6,155 | |
| | | |
| Total current assets | 301,617 | | | 298,499 | |
| Property, plant and equipment, net | 183,305 | | | 170,718 | |
| Goodwill | 100,737 | | | 100,804 | |
| Other intangible assets, net | 224,860 | | | 228,304 | |
| Deferred tax assets | 40,441 | | | 42,314 | |
| Other assets | 9,706 | | | 10,687 | |
| Total assets | $ | 860,666 | | | $ | 851,326 | |
| Liabilities | | | |
| Current liabilities | | | |
| Current maturities of long-term obligations | $ | — | | | $ | 1,563 | |
| Accounts payable | 41,052 | | | 44,368 | |
| Accrued expenses | 85,823 | | | 87,742 | |
| Income taxes and tax distribution payable | 1,276 | | | 1,670 | |
| Payable pursuant to tax receivable agreement, current portion | 3,958 | | | 3,958 | |
| Total current liabilities | 132,109 | | | 139,301 | |
| Deferred tax liabilities | 27,647 | | | 26,965 | |
| Other liabilities | 10,766 | | | 11,855 | |
| Payable pursuant to tax receivable agreement, less current portion | 41,583 | | | 41,583 | |
| Long-term debt | 70,179 | | | 118,054 | |
| Total liabilities | 282,284 | | | 337,758 | |
Commitments and contingencies (See Note 15) | | | |
| Stockholders' Equity | | | |
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 20,475,418 shares issued and outstanding as of December 31, 2022; 20,501,081 issued and outstanding as of June 30, 2022 | 203 | | | 203 | |
Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 10 shares issued and outstanding as of December 31, 2022; 10 shares issued and outstanding as of June 30, 2022 | — | | | — | |
Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; no shares issued and outstanding as of December 31, 2022 and June 30, 2022 | — | | | — | |
| Additional paid in capital | 79,207 | | | 85,294 | |
| Accumulated other comprehensive loss | (3,716) | | | (3,507) | |
| Accumulated earnings | 491,229 | | | 421,184 | |
| Total stockholders' equity attributable to Malibu Boats, Inc. | 566,923 | | | 503,174 | |
| Non-controlling interest | 11,459 | | | 10,394 | |
| Total stockholders’ equity | 578,382 | | | 513,568 | |
| Total liabilities and stockholders' equity | $ | 860,666 | | | $ | 851,326 | |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(In thousands, except number of Class B shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Earnings | | Non-controlling Interest in LLC | | Total Stockholders' Equity | |
| | Shares | Amount | | Shares | Amount | | | | | | |
| Balance at June 30, 2022 | | 20,501 | | $ | 203 | | | 10 | | $ | — | | | $ | 85,294 | | | $ | (3,507) | | | $ | 421,184 | | | $ | 10,394 | | | $ | 513,568 | | |
| Net income | | — | | — | | | — | | — | | | — | | | — | | | 34,883 | | | 1,222 | | | 36,105 | | |
| Stock based compensation, net of withholding taxes on vested equity awards | | (12) | | — | | | — | | — | | | 743 | | | — | | | — | | | — | | | 743 | | |
| Issuances of equity for services | | — | | — | | | — | | — | | | 67 | | | — | | | — | | | — | | | 67 | | |
| | | | | | | | | | | | | | | | | |
| Repurchase and retirement of common stock | | (144) | | (1) | | | — | | — | | | (7,867) | | | — | | | — | | | — | | | (7,868) | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Distributions to LLC Unit holders | | — | | — | | | — | | — | | | — | | | — | | | — | | | (696) | | | (696) | | |
| Foreign currency translation adjustment | | — | | — | | | — | | — | | | — | | | (1,436) | | | — | | | (43) | | | (1,479) | | |
| Balance at September 30, 2022 | | 20,345 | | $ | 202 | | | 10 | | $ | — | | | $ | 78,237 | | | $ | (4,943) | | | $ | 456,067 | | | $ | 10,877 | | | $ | 540,440 | | |
| Net income | | — | | — | | | — | | — | | | — | | | — | | | 35,162 | | | 1,234 | | | 36,396 | | |
| Stock based compensation, net of withholding taxes on vested equity awards | | 128 | | 1 | | | — | | — | | | 22 | | | — | | | — | | | — | | | 23 | | |
| Issuances of equity for services | | 2 | | — | | | — | | — | | | 948 | | | — | | | — | | | — | | | 948 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Distributions to LLC Unit holders | | — | | — | | | — | | — | | | — | | | — | | | — | | | (688) | | | (688) | | |
| Foreign currency translation adjustment | | — | | — | | | — | | — | | | — | | | 1,227 | | | — | | | 36 | | | 1,263 | | |
| Balance at December 31, 2022 | | 20,475 | | $ | 203 | | | 10 | | $ | — | | | $ | 79,207 | | | $ | (3,716) | | | $ | 491,229 | | | $ | 11,459 | | | $ | 578,382 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Earnings | | Non-controlling Interest in LLC | | Total Stockholders' Equity | | | | |
| | Shares | Amount | | Shares | Amount | | | | | | | | | |
| Balance at June 30, 2021 | | 20,847 | | $ | 207 | | | 10 | | $ | — | | | $ | 111,308 | | | $ | (1,639) | | | $ | 263,552 | | | $ | 7,726 | | | $ | 381,154 | | | | | |
| Net income | | — | | — | | | — | | — | | | — | | | — | | | 26,944 | | | 989 | | | 27,933 | | | | | |
| Stock based compensation, net of withholding taxes on vested equity awards | | (7) | | — | | | — | | — | | | 728 | | | — | | | — | | | — | | | 728 | | | | | |
| Issuances of equity for services | | — | | — | | | — | | — | | | 58 | | | — | | | — | | | — | | | 58 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Distributions to LLC Unit holders | | — | | — | | | — | | — | | | — | | | — | | | — | | | (558) | | | (558) | | | | | |
| Foreign currency translation adjustment | | — | | — | | | — | | — | | | — | | | (835) | | | — | | | (24) | | | (859) | | | | | |
| Balance at September 30, 2021 | | 20,840 | | $ | 207 | | | 10 | | $ | — | | | $ | 112,094 | | | $ | (2,474) | | | $ | 290,496 | | | $ | 8,133 | | | $ | 408,456 | | | | | |
| Net income | | — | | — | | | — | | — | | | — | | | — | | | 29,891 | | | 1,088 | | | 30,979 | | | | | |
| Stock based compensation, net of withholding taxes on vested equity awards | | 101 | | 1 | | | — | | — | | | 53 | | | — | | | — | | | — | | | 54 | | | | | |
| Issuances of equity for services | | 1 | | — | | | — | | — | | | 948 | | | — | | | — | | | — | | | 948 | | | | | |
| Issuances of equity for exercise of stock options | | 35 | | — | | | — | | — | | | 971 | | | — | | | — | | | — | | | 971 | | | | | |
| Repurchase and retirement of common stock | | (78) | | (1) | | | — | | — | | | (5,227) | | | — | | | — | | | — | | | (5,228) | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Distributions to LLC Unit Holders | | — | | — | | | — | | — | | | — | | | — | | | — | | | (452) | | | (452) | | | | | |
| Foreign currency translation adjustment | | — | | — | | | — | | — | | | — | | | 138 | | | — | | | 4 | | | 142 | | | | | |
| Balance at December 31, 2021 | | 20,899 | | $ | 207 | | | 10 | | $ | — | | | $ | 108,839 | | | $ | (2,336) | | | $ | 320,387 | | | $ | 8,773 | | | $ | 435,870 | | | | | |
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| | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
MALIBU BOATS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| | | | | | | | | | | | |
| | | Six Months Ended December 31, |
| | | 2022 | | 2021 |
| Operating activities: | | | | |
| Net income | | $ | 72,501 | | | $ | 58,912 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| | | | |
| Non-cash compensation expense | | 3,651 | | | 2,856 | |
| Non-cash compensation to directors | | 579 | | | 485 | |
| Depreciation | | 10,684 | | | 9,531 | |
| Amortization | | 3,431 | | | 3,575 | |
| Deferred income taxes | | 2,556 | | | 3,665 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Other items, net | | 792 | | | 344 | |
| Change in operating assets and liabilities: | | | | |
| Trade receivables | | (3,846) | | | 28,057 | |
| Inventories | | (28,569) | | | (35,613) | |
| Prepaid expenses and other assets | | (4,287) | | | (5,473) | |
| Accounts payable | | (4,151) | | | (2,788) | |
| Income taxes payable | | 501 | | | (2,899) | |
| Accrued expenses | | (1,924) | | | 289 | |
| Other liabilities | | (1,106) | | | (2,975) | |
| Net cash provided by operating activities | | 50,812 | | | 57,966 | |
| Investing activities: | | | | |
| Purchases of property, plant and equipment | | (22,339) | | | (26,226) | |
| | | | |
| | | | |
| Net cash used in investing activities | | (22,339) | | | (26,226) | |
| Financing activities: | | | | |
| | | | |
| Proceeds from revolving credit facility | | 141,700 | | | — | |
| Principal payments on long-term borrowings | | (23,125) | | | (625) | |
| Payments on revolving credit facility | | (167,000) | | | (20,000) | |
| Payment of deferred financing costs | | (1,362) | | | — | |
| | | | |
| | | | |
| | | | |
| Proceeds received from exercise of stock options | | — | | | 971 | |
| Cash paid for withholding taxes on vested restricted stock | | (2,866) | | | (2,027) | |
| Distributions to LLC Unit holders | | (1,741) | | | (1,244) | |
| Repurchase and retirement of common stock | | (7,868) | | | (5,228) | |
| Net cash used in financing activities | | (62,262) | | | (28,153) | |
| Effect of exchange rate changes on cash | | (107) | | | (231) | |
| Changes in cash | | (33,896) | | | 3,356 | |
| Cash—Beginning of period | | 83,744 | | | 41,479 | |
| Cash—End of period | | $ | 49,848 | | | $ | 44,835 | |
| | | | |
| Supplemental cash flow information: | | | | |
| Cash paid for interest | | $ | 1,219 | | | $ | 1,043 | |
| Cash paid for income taxes | | 20,168 | | | 16,655 | |
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| | | | |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).
MALIBU BOATS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per unit and per share data)
1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization
Malibu Boats, Inc. (together with its subsidiaries, the “Company” or "Malibu"), a Delaware corporation formed on November 1, 2013, is the sole managing member of Malibu Boats Holdings, LLC, a Delaware limited liability company (the "LLC"). The Company operates and controls all of the LLC's business and affairs and, therefore, pursuant to Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 810, Consolidation, consolidates the financial results of the LLC and its subsidiaries, and records a non-controlling interest for the economic interest in the Company held by the non-controlling holders of units in the LLC ("LLC Units"). The LLC was formed in 2006. The LLC, through its wholly owned subsidiary, Malibu Boats, LLC, (“Boats LLC”), is engaged in the design, engineering, manufacturing and marketing of innovative, high-quality, recreational powerboats that are sold through a world-wide network of independent dealers. The Company sells its boats under eight brands -- Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes and Cobalt brands. The Company reports its results of operations under three reportable segments -- Malibu, Saltwater Fishing and Cobalt.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim condensed financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures of results of operations, financial position and changes in cash flow in conformity with GAAP for complete financial statements. Such statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Malibu and subsidiaries for the year ended June 30, 2022, included in the Company's Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Units and shares are presented as whole numbers while all dollar amounts are presented in thousands, unless otherwise noted.
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the operations and accounts of the Company and all subsidiaries thereof. All intercompany balances and transactions have been eliminated upon consolidation.
Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The elective amendments provide expedients to contract modification, affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. Per ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, this guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024. The guidance can be applied immediately through December 31, 2024. The Company will adopt this standard when LIBOR is discontinued and does not expect a material impact to its financial condition, results of operations or disclosures based on the current debt portfolio and capital structure.
There are no other new accounting pronouncements that are expected to have a significant impact on the Company's consolidated financial statements and related disclosures.
2. Revenue Recognition
The following tables disaggregate the Company's revenue by major product type and geography:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2022 | | Six Months Ended December 31, 2022 |
| Malibu | | Saltwater Fishing | | Cobalt | | Consolidated | | Malibu | | Saltwater Fishing | | Cobalt | | Consolidated |
| Revenue by product: | | | | | | | | | | | | | | | |
| Boat and trailer sales | $ | 155,011 | | | $ | 105,363 | | | $ | 73,830 | | | $ | 334,204 | | | $ | 295,174 | | | $ | 197,256 | | | $ | 137,460 | | | $ | 629,890 | |
| Part and other sales | 3,155 | | | 222 | | | 1,151 | | | 4,528 | | | 8,160 | | | 562 | | | 2,331 | | | 11,053 | |
| Net Sales | $ | 158,166 | | | $ | 105,585 | | | $ | 74,981 | | | $ | 338,732 | | | $ | 303,334 | | | $ | 197,818 | | | $ | 139,791 | | | $ | 640,943 | |
| | | | | | | | | | | | | | | |
| Revenue by geography: | | | | | | | | | | | | | | | |
| North America | $ | 140,924 | | | $ | 104,154 | | | $ | 71,986 | | | $ | 317,064 | | | $ | 271,574 | | | $ | 193,095 | | | $ | 134,267 | | | $ | 598,936 | |
| International | 17,242 | | | 1,431 | | | 2,995 | | | 21,668 | | | 31,760 | | | 4,723 | | | 5,524 | | | 42,007 | |
| Net Sales | $ | 158,166 | | | $ | 105,585 | | | $ | 74,981 | | | $ | 338,732 | | | $ | 303,334 | | | $ | 197,818 | | | $ | 139,791 | | | $ | 640,943 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2021 | | Six Months Ended December 31, 2021 |
| Malibu | | Saltwater Fishing | | Cobalt | | Consolidated | | Malibu | | Saltwater Fishing | | Cobalt | | Consolidated |
| Revenue by product: | | | | | | | | | | | | | | | |
| Boat and trailer sales | $ | 130,351 | | | $ | 75,012 | | | $ | 54,667 | | | $ | 260,030 | | | $ | 243,962 | | | $ | 151,421 | | | $ | 112,500 | | | $ | 507,883 | |
| Part and other sales | 3,102 | | | 229 | | | 526 | | | 3,857 | | | 7,743 | | | 547 | | | 1,211 | | | 9,501 | |
| Net Sales | $ | 133,453 | | | $ | 75,241 | | | $ | 55,193 | | | $ | 263,887 | | | $ | 251,705 | | | $ | 151,968 | | | $ | 113,711 | | | $ | 517,384 | |
| | | | | | | | | | | | | | | |
| Revenue by geography: | | | | | | | | | | | | | | | |
| North America | $ | 115,273 | | | $ | 74,203 | | | $ | 51,801 | | | $ | 241,277 | | | $ | 218,492 | | | $ | 147,915 | | | $ | 106,440 | | | $ | 472,847 | |
| International | 18,180 | | | 1,038 | | | 3,392 | | | 22,610 | | | 33,213 | | | 4,053 | | | 7,271 | | | 44,537 | |
| Net Sales | $ | 133,453 | | | $ | 75,241 | | | $ | 55,193 | | | $ | 263,887 | | | $ | 251,705 | | | $ | 151,968 | | | $ | 113,711 | | | $ | 517,384 | |
Boat and Trailer Sales
Consists of sales of boats and trailers to the Company's dealer network, net of sales returns, discounts, rebates and free flooring incentives. Boat and trailer sales also includes optional boat features. Sales returns consist of boats returned by dealers under the Company's warranty program. Rebates, free flooring and discounts are incentives that the Company provides to its dealers based on sales of eligible products.
Part and Other Sales
Consists primarily of parts and accessories sales, royalty income and clothing sales. Parts and accessories sales include replacement and aftermarket boat parts and accessories sold to the Company's dealer network. Royalty income is earned from license agreements with various boat manufacturers, including Nautique, Chaparral, Mastercraft, and Tige related to the use of the Company's intellectual property.
3. Non-controlling Interest
The non-controlling interest on the unaudited interim condensed consolidated statements of operations and comprehensive income represents the portion of earnings or loss attributable to the economic interest in the Company's subsidiary, the LLC, held by the non-controlling LLC Unit holders. Non-controlling interest on the unaudited interim condensed consolidated balance sheets represents the portion of net assets of the Company attributable to the non-controlling LLC Unit holders, based
on the portion of the LLC Units owned by such Unit holders. The ownership of the LLC is summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | As of June 30, 2022 |
| Units | | Ownership % | | Units | | Ownership % |
| Non-controlling LLC Unit holders ownership in Malibu Boats Holdings, LLC | 600,919 | | | 2.9 | % | | 600,919 | | | 2.8 | % |
| Malibu Boats, Inc. ownership in Malibu Boats Holdings, LLC | 20,475,418 | | | 97.1 | % | | 20,501,081 | | | 97.2 | % |
| 21,076,337 | | | 100.0 | % | | 21,102,000 | | | 100.0 | % |
Issuance of Additional LLC Units
Under the first amended and restated limited liability company agreement of the LLC, as amended (the "LLC Agreement"), the Company is required to cause the LLC to issue additional LLC Units to the Company when the Company issues additional shares of Class A Common Stock. Other than in connection with the issuance of Class A Common Stock in connection with an equity incentive program, the Company must contribute to the LLC net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A Common Stock. The Company must cause the LLC to issue a number of LLC Units equal to the number of shares of Class A Common Stock issued such that, at all times, the number of LLC Units held by the Company equals the number of outstanding shares of Class A Common Stock. During the six months ended December 31, 2022, the Company caused the LLC to issue a total of 160,100 LLC Units to the Company in connection with (i) the Company's issuance of Class A Common Stock to a non-employee director for her services, (ii) the issuance of Class A Common Stock for the vesting of awards granted under the Malibu Boats, Inc. Long-Term Incentive Plan (the "Incentive Plan") and (iii) the issuance of restricted Class A Common Stock granted under the Incentive Plan. During the six months ended December 31, 2022, 38,598 LLC Units were canceled in connection with the vesting of share-based equity awards to satisfy employee tax withholding requirements, 3,406 LLC Units were canceled in connection with the vesting of stock awards with a market condition that were deemed to not be achieved and the retirement of 42,004 treasury shares in accordance with the LLC Agreement. Also during the six months ended December 31, 2022, 143,759 LLC Units were redeemed and canceled by the LLC in connection with the purchase and retirement of 143,759 treasury shares under the Company's stock repurchase program that expired on November 8, 2022.
Distributions and Other Payments to Non-controlling Unit Holders
Distributions for Taxes
As a limited liability company (treated as a partnership for income tax purposes), the LLC does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. As authorized by the LLC Agreement, the LLC is required to distribute cash, to the extent that the LLC has cash available, on a pro rata basis, to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to their share of LLC earnings. The LLC makes such tax distributions to its members based on an estimated tax rate and projections of taxable income. If the actual taxable income of the LLC multiplied by the estimated tax rate exceeds the tax distributions made in a calendar year, the LLC may make true-up distributions to its members, if cash or borrowings are available for such purposes. As of December 31, 2022 and June 30, 2022, tax distributions payable to non-controlling LLC Unit holders were $688 and $1,045, respectively. During the six months ended December 31, 2022 and 2021, tax distributions paid to the non-controlling LLC Unit holders were $1,741 and $1,244, respectively.
Other Distributions
Pursuant to the LLC Agreement, the Company has the right to determine when distributions will be made to LLC members and the amount of any such distributions. If the Company authorizes a distribution, such distribution will be made to the members of the LLC (including the Company) pro rata in accordance with the percentages of their respective LLC Units.
4. Inventories
Inventories, net consisted of the following: | | | | | | | | | | | |
| | As of December 31, 2022 | | As of June 30, 2022 |
| Raw materials | $ | 153,505 | | | $ | 129,233 | |
| Work in progress | 24,301 | | | 20,929 | |
| Finished goods | 7,747 | | | 6,840 | |
| Total inventories | $ | 185,553 | | | $ | 157,002 | |
5. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following: | | | | | | | | | | | |
| | As of December 31, 2022 | | As of June 30, 2022 |
| Land | $ | 4,905 | | | $ | 4,905 | |
| Building and leasehold improvements | 98,706 | | | 81,030 | |
| Machinery and equipment | 87,515 | | | 82,469 | |
| Furniture and fixtures | 11,847 | | | 10,805 | |
| Construction in process | 52,181 | | | 52,852 | |
| 255,154 | | | 232,061 | |
| Less: Accumulated depreciation | (71,849) | | | (61,343) | |
| Property, plant and equipment, net | $ | 183,305 | | | $ | 170,718 | |
Depreciation expense was $5,388 and $4,613 for the three months ended December 31, 2022 and 2021, respectively, and $10,684 and $9,531 for the six months ended December 31, 2022 and 2021, respectively, substantially all of which was recorded in cost of sales.
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