Malibu’s IPO is a well-timed leapPosted on Written by Reagan Haynes
High-performance builder Malibu Boats has entered a bid to go public, a move some analysts say is perfectly timed with a Wall Street trading trend toward the leisure space.
Malibu’s filing for an initial public offering with the Securities and Exchange Commission on Dec. 13 said the company has held the No. 1 market share position among U.S. performance sportboat manufacturers for nearly four years.
The Knoxville, Tenn., company, although legally prohibited from commenting on the bid to go public, outlined its strengths, strategies and risks in its SEC filing, saying it had grown its market share from 23.2 percent in 2008 to 32.9 percent for the first nine months of 2013. It included a breakdown that it claims shows the nine-month 2013 share for its two major competitors — MasterCraft, 19.7 percent, and Correct Craft/Nautique, 15.5 percent.
B. Riley analyst Jimmy Baker says his firm is bullish on recovery prospects in the tournament ski and wakeboard market. “It’s a favorable time to be IPO-ing in the leisure space. The sector is very much en vogue [and] is offering attractive valuations for issuers.”
It’s also a particularly attractive segment because three top players — Malibu, MasterCraft and Nautique — control nearly 70 percent of the market while most other powerboat categories tend to be much more fragmented, Baker says. “The concentrated nature of the market lends itself to more favorable pricing, which of course helps profit margins.”
Malibu’s 40.1 percent market share of performance sportboat exports to international markets in the 12 months that ended Sept. 30, 2013, was the highest among U.S. manufacturers, the company said in its SEC filing.
The company’s brands include Malibu and Axis Wake Research, or Axis. Malibu boats typically range in price from $55,000 to $120,000. The Axis brand, launched in 2009 to appeal to buyers looking for an affordable product while still seeking high performance, typically ranges from $40,000 to $75,000.
Boats built by Malibu, which was founded in 1982, are typically used for water skiing, wakeboarding and wake surfing. The company’s proprietary Surf Gate technology, launched in 2012, helps wakeboarders shape and create surfable waves.
The company cited its strengths as industry-leading product design and innovation, a strong dealer network, highly recognized brands, compelling margins and cash flow and a “highly experienced management team,” which includes CEO Jack Springer.
“There’s a lot of headroom to grow before we get anywhere near pre-recession levels in most leisure product categories,” says analyst Baker. “And within the overall consumer space, leisure companies have generally been seeing strong relative growth in recent years. Job growth out of the recession has been sluggish, but it’s still a low-interest-rate environment, coupled with rising asset values. Home prices are recovering and the stock market is at an all-time high.”
Baker listed examples of other companies with sales growth in 2012 in the leisure space:
• Marine Products Corp.: 40 percent
• Polaris Industries: 21 percent
• Winnebago Industries: 17 percent
• Arctic Cat: 15 percent
• MarineMax: 9 percent
• Harley-Davidson: 5 percent
The performance sportboat category is also taking share from others in the uneven recovery the boating industry is experiencing, according to Malibu’s filing, which indicates that the trend has been fueled by big innovations in the ski and wake segment.
“We believe innovation has been significant in this category, which helps differentiate current product from used alternatives,” Baker says. “And yet, the category is in such high demand that used tournament ski [and] wakeboard boat prices remain relatively firm.”
The performance sportboat category has experienced one of the highest growth rates of any segment coming out of the recession, Malibu said. “New unit sales of performance sportboats in the United States increased by 13 percent from 2011 to 2012 while new unit sales of all other powerboats in the United States increased 10 percent over the same period.”
The company said it was poised to take advantage of the segment’s recovery because of investments it has already made.
For the three months that ended Sept. 30, Malibu’s gross profit increased 40.1 percent, to $11 million, compared with the same period in 2012. Gross profit, as a percentage of net sales, increased by 170 basis points, to 25.5 percent, during that time frame. The increases resulted primarily from continued production efficiencies on increased volumes, higher average selling prices driven by price increases and increased sales of larger boats and optional features and continued product-cost-reduction efforts.
“Malibu’s performance out of the recession is impressive, as it generated a 19 percent adjusted EBITDA [earnings before interest, tax, depreciation and amortization] margin in its most recent fiscal year,” Baker says, adding that by comparison the Brunswick Boat Group is generating a margin of about 2 percent and Marine Products Corp. — the builder of Chaparral and Robalo boats — is generating about 6 percent.
“It’s very impressive that Malibu has already reached this level of profitability, considering the tournament ski/wakeboard boat market is still about 50 percent below pre-recession levels,” he says.
Among Malibu’s future strategies are to continue to develop new and innovative products in its core markets, capture additional share from adjacent categories, further strengthen the dealer network and accelerate international expansion.
Malibu already has a 40.1 percent market share of performance sportboat exports to international markets — the highest among all U.S. manufacturers, according to the filing.
The company expects to grow by crossing over into other core markets that are adjacent to the high-performance segment.
“We believe our addressable market also includes similar and adjacent powerboat categories identified by the [National Marine Manufacturers Association], including sterndrive boats, outboard boats and jetboats,” the company wrote in its filing.
“For 2012, retail sales of new performance sportboats, sterndrive boats, outboard boats and jetboats in the United States were $375 million, $883 million, $2.6 billion and $160 million, respectively. As a result, we believe the total addressable market for our products in the United States alone is over $4 billion.
“For example, we believe that one of our newest boat models, the Wakesetter 24MXZ, appeals to a broader range of recreational boaters by offering the performance benefits of our products, including superior drivability and water sports versatility, while also providing greater seating capacity, a roomy, plush interior and extensive storage space to allow an increased number of family and friends to spend time together on the water,” the company said.
The company highlighted several risk factors in the SEC filing, many of which are universal to the boating industry — for example, the seasonal nature of boating; balancing inventory with demand; competition among other leisure activities; unfavorable weather conditions; and fluctuations in discretionary spending habits in a teetering economy.
As a result of those challenges, operating and earning results “may decline quickly and significantly in response to changes in order patterns or rapid decreases in demand for our products,” Malibu said. “We anticipate that fluctuations in operating results will continue in the future.”
The availability of financing for dealers and consumers is also a crucial element of success.
“Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to adequate financing sources on a timely basis on reasonable terms,” the company said.
“These sources of financing are vital to our ability to sell products through our distribution network. Access to floorplan financing generally facilitates our dealers’ ability to purchase boats from us, and their financed purchases reduce our working capital requirements. If floorplan financing were not available to our dealers, our sales and our working capital levels would be adversely affected.”
Sales and profitability depend, in part, on the successful introduction of new products, the company said. That helps builders stand out from “intense competition” and helps Malibu compete with other activities vying for consumers’ scarce leisure time.
This article originally appeared in the February 2014 issue.
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