MALIBU BOATS, INC. Q4 FY2025 earnings call

• Fiscal year 2025 was a challenging period for the marine industry, but the team navigated well and outpaced the market. - Led dealers' inventory alignment in fiscal 2024, positioning for 2025's outperformance. - Will introduce 11 new model year '26 boats, maintaining quality and safety. - Generated $29 million in free cash flow in 2025, reduced CapEx spending, and returned $36 million to shareholders through share repurchases. - Remain committed to dealers, with promotions now more normalized. - Made progress upgrading dealer network, and introduced new boat models across portfolios. - Committed to community and safe boating, pushing innovation with environmental impact in mind.

In the fourth quarter, net sales increased 30.4% to $207 million, and unit volume increased 16.8% to 1,221 boats. The Malibu and Axis brands represented approximately 46.6% of unit sales, Cobalt represented 26.9%, and Saltwater Fishing represented the remaining 26.5%. Consolidated net sales per unit increased 11.6% to $169,565 per unit. Gross profit increased 162.1% to $32.7 million, and gross margin was 15.8%. For the full fiscal year 2025, net sales decreased 2.6% to $807.6 million, and unit volume decreased 9% to 4,898 boats. Consolidated net sales per unit increased 7.1% to $164,876 per unit. Adjusted EBITDA margin for the Malibu segment increased to 19.4% for fiscal year 2025 from 15.3% in fiscal 2024. For the same periods, adjusted EBITDA margin for the Saltwater Fishing segment decreased to 9.5% from 10.8% and adjusted EBITDA margin for the Cobalt segment decreased to 8.3% from 10.2%.

• Anticipates markets will decline in the range of mid- to high single digits for fiscal year 2026. - Expects net sales to be flat to down mid-single-digit percentage points year-over-year for 2026. - For Q1, expects net sales to be up high single digits. - Anticipates consolidated adjusted EBITDA margins ranging from 8% to 9% for the fiscal year 2026, and between 5% to 6% for Q1. This guidance incorporates expected increased tariff costs and associated mitigations, including pricing.

• Macro-economic uncertainty weighing on retail demand. - Tariffs will continue to create uncertainty in the general market, anticipated to have a modest direct impact on fiscal 2026 cost structure, estimated between 1.5% to 3% of cost of sales.

Q: Wanted to quickly touch on sort of inventory levels, which I believe you said were elevated at year end. Just trying to get an idea of how much is that we expect further destocking this year. And sort of is it across the board? Or is it mostly in the Saltwater and Cobalt segments?

A: What I would say is it's across the board, it's not in any one given segment. I think all the segments were affected by the macroeconomic uncertainty that we experienced. And it's not a, I would say, a large amount of excess inventory, it's more modest, it's in the 1 to 2 weeks range. But certainly something as we maintain our focus on dealer health and dealer inventories, is something that we are going to address in our fiscal '26 guidance.

Q: And I just want to really quickly touch on tariffs and how that might affect pricing. Will that just go directly into MSRP? Or could you be looking at a surcharge?

A: We haven't necessarily decided on exactly which mitigation and how exactly we're going to mitigate it. We're looking at multiple forms of mitigation from supply chain strategies, changing sourcing patterns and a number of potential mitigations in an attempt to minimize the need for price increases. But we have incorporated to get that increase in cost and -- into our guidance.

Q: One quick kind of just a clarification question on the guidance and then kind of a follow-up on that. I guess, one, does your guidance assume any interest rate cuts during the fiscal year? And then should we start to see some interest rate relief this fall as is now kind of more widely anticipated? You mentioned that you kind of -- your promotional and kind of discounting is kind of -- you're kind of leaning back on it a little bit. If we start to see some promotion or some interest rate relief around the boat show, would you expect to kind of lean more or dealers to lean more into promotions to kind of jump-start demand during that important kind of boat show season and to get people into boats to kind of maybe not "miss" a boat show season before next year? And then kind of how much rate -- from talking to your dealers, how much rate relief do you think those payment buyers really need at this point to kind of drive affordability into your key segments?

A: No, our guidance did not include any rate cuts. That was your first question. Your second question around where are the dealers feeling -- how are the dealers feeling, what's our promo and so forth? Like we said, we're kind of in that normalized consumer discount versus an inventory reduction phase, right? So with our dealers, we're working to make sure that we can capture every sale that we can drive market share. We have the new models. Like we said, we've only introduced about 5 of the 11 new models. We have new models coming out that will help us through the boat show season. As well as if there are rate cuts to happen, that could provide some wind to our back as we go through the boat show season.

Q: Wanted to understand the retail outlook that is embedded in your fiscal '26 guidance.

A: I think the easiest way, Craig, is to think about it is at this point, we're kind of seeing more of the same. There's nothing that says there's going to be this wild ride up yet that we're at the beginning of the next up cycle. So we've kind of looked at it and positioned it as more of the same. So it's still the focus on how do we gain share in a mid-single to upper single digit down market. So we're going to be focused on the new products, how do we work with our dealers to be better retailers and what we can do to support that. So that's kind of where we continue to see the market until we see some point that says, "Hey, this thing is going to turn for the better." If you were to summarize it, Craig, we we're kind of expecting next year to play out very similarly to the way this year played out. And if there's an inflection change in the market, we'll be ready to capitalize on that inflection change. But as of right now, it's probably more prudent to assume it's going to be similar to last year.

Q: That's helpful. And so fiscal '25 included retail being down, but then also some destocking activity. Would you say you would also expect, again, you made the comment on retail, but then you would also reduce inventory in the channel?

A: Exactly, yes. And it would likely be a little bit more destocking than we had this year because again, we've got a little bit heavier coming into the year than we would have anticipated 3 months ago just because of how soft retail was in Q4.

Q: Got it. That's helpful. And then just thinking about your dealer network, you've made some changes and upgrades. Does that have any impact on your stocking plans? Or is it fairly immaterial, given the size of your whole network?

A: I would say it's fairly immaterial, Craig.

Q: I guess first, just hoping you could kind of comment on the health of the dealer base, both for you guys and for the broader industry. And then in terms of inventory levels, like what's your sense of, from an industry perspective, how inventory levels are?

A: From the health of our dealer network, and I think we've said this on ongoing basis, we check in with our floor plan supplier every month, we have our fingers on the pulse of what's going on. They're pretty healthy, no big issues. However, as Bruce stated, with the softer Q4, maybe 1 or 2 weeks heavier than inventory than we wanted. And as we kind of look at '26, we want to be prudent and making sure we continue to stay disciplined to watching our dealer health. So I think our MBI dealers are in good shape, Like any other manufacturer, we'll have a pocket here or there that we're always cleaning up regionally or so forth. So always got our eye on that. Industry-wise, I think the overall industry got better in inventory. I know some of our competitors are still working through, we were the first ones to kind of go. So there's still some folks working through their inventory challenges. But we're going to remain disciplined and continue to have that finger on the pulse to really support our dealers.

Q: The other thing I would add to that is just the level of noncurrent in the system for us is in a healthy spot and better than what we understand the industry to be. So we feel good about that. And again, that's, I think, a result of the focus that we've put on dealer health.

Q: I did notice there was some long-term debt on the balance sheet this morning. I'm not sure that is the change in how you guys are thinking about capitalizing the balance sheet or if there was something else I missed. But can you talk to that first?

A: No. There's no long-term change, Jaime. I mean we have a credit facility. And from time to time, we pull on that credit facility to be able to ensure that we have the working capital to run our business. We ended up in a good spot from a net cash position. I mean, we have $19 million of net cash. So still strong positive cash. And that's after returning $36 million to shareholders in the form of share repurchases. So no change in the strategy there.

Q: Okay. And then I understand we're in this really difficult period. But could you give us or walk us through maybe a sensitivity analysis on how we get back to a double-digit EBITDA margin? What sort of sales growth would we need to get there? And has the promotional cadence changed as we have gone through the last 2 months, I guess? Or does that give us some hope that maybe there is some upside to the initial EBITDA margin we're looking at for the year ahead?

A: Well, maybe the first thing I'll say, Jaime, is that if we can get the market to stabilize, then we no longer have to destock to keep the dealers healthy from a weeks-on-hand standpoint. So we've been in the process of destocking now for the last 2 fiscal years. It would be great if we could get that in the rearview mirror, and that alone would allow us to post a revenue unit, stabilize our units and allow us to drive revenue and profit growth. So that would be the first thing. We have seen promotions, I would say, normalize, where you see the spike in promotional activity is when there is a high level of dealer inventories, noncurrents, and there's problems to be cleaned up. And that's not just for us, it's for the industry. And as Steve mentioned, the industry is getting healthier. So I think that will help the industry normalize those promotions going forward. And then, of course, I mean, we are undershipping as an industry kind of the long-term kind of replacement level of units for the industry. So this industry will bounce back. And when it does, we have the capacity and the team in place to be able to support that next upturn in the market. Steve...