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Malibu Boats, Inc. Announces Third Quarter Fiscal 2020 Results

May 07, 2020

LOUDON, Tenn., May 07, 2020 (GLOBE NEWSWIRE) -- Malibu Boats, Inc. (Nasdaq: MBUU) today announced its financial results for the third quarter ended March 31, 2020.

Highlights for the Third Quarter of Fiscal Year 2020

  • Net sales decreased 8.8% to $182.3 million compared to the third quarter of fiscal year 2019.

  • Unit volume decreased 14.2% to 1,796 boats compared to the third quarter of fiscal year 2019.

  • Net sales per unit increased 6.3% to $101,509 per unit compared to the third quarter of fiscal year 2019.

  • Gross profit decreased 7.8% to $45.8 million compared to the third quarter of fiscal year 2019.

  • Net income increased 7.5% to $23.9 million, or $1.11 per share compared to the third quarter of fiscal year 2019.

  • Adjusted EBITDA decreased 3.7% to $36.4 million compared to the third quarter of fiscal year 2019.

  • Adjusted fully distributed net income decreased 2.0% to $24.5 million compared to the third quarter of fiscal year 2019.

  • Adjusted fully distributed net income per share decreased 1.7% to $1.13 on a fully distributed weighted average share count of 21.6 million shares of Class A Common Stock as compared to the third quarter of fiscal year 2019.

“The fiscal third quarter of 2020 was a tale of two environments. Through the greater part of the quarter, we delivered strong performance, as early boat show season momentum extended into March. However, retail strength shifted nearly overnight as the COVID-19 virus ravaged the U.S. late in the quarter. I was incredibly proud of our team, as we adapted quickly to these unforeseen challenges. To prioritize the health and safety of our employees and align production to slowing demand levels, we suspended operations at our facilities in the last week of the quarter. Once again, the operational prowess of our team, coupled with our operational excellence and vertical integration infrastructure, allowed us to somewhat mitigate the substantial headwinds we faced, and deliver operating margins ahead of expectations,” commented Jack Springer, Chief Executive Officer of Malibu Boats Inc.  

“We have the right team in place to navigate through an unprecedented macro-economic landscape and have taken swift action to ensure we have the financial flexibility to support our operations and strategic investments. The core pillars of our business – operational excellence, vertical integration and industry-leading new product innovation – remain unchanged throughout a cycle and allow us to flex our cost structure and preserve our margins in the event of a prolonged lower demand environment. As we progress through murky waters, the extensive leadership experience of our management team through down cycles and our operational excellence will allow Malibu to further bolster our leadership position in marine,” concluded Mr. Springer.


Results of Operations for the Third Quarter of Fiscal Year 2020 (Unaudited)

  Three Months Ended 
March 31,
  Nine Months Ended 
March 31,
  2020   2019   2020   2019
               
  (In thousands, except unit and per unit data)
Net sales $ 182,310     $ 199,918     $ 534,502     $ 489,194  
Cost of sales 136,461     150,196     408,784     370,656  
Gross profit 45,849     49,722     125,718     118,538  
Operating expenses:              
Selling and marketing 4,572     5,273     14,304     13,372  
General and administrative 9,643     12,324     30,389     32,527  
Amortization 1,501     1,563     4,622     4,381  
Operating income 30,133     30,562     76,403     68,258  
Other (income) expense, net:              
Other income, net (1,660 )   (712 )   (1,679 )   (746 )
Interest expense 940     1,750     3,064     4,765  
Other (income) expense, net (720 )   1,038     1,385     4,019  
Income before provision for income taxes 30,853     29,524     75,018     64,239  
Provision for income taxes 6,987     7,321     16,872     15,023  
Net income 23,866     22,203     58,146     49,216  
Net income attributable to non-controlling interest 1,088     1,104     2,787     2,562  
Net income attributable to Malibu Boats, Inc. $ 22,778     $ 21,099     $ 55,359     $ 46,654  
               
Unit volumes 1,796     2,094     5,327     5,370  
Net sales per unit $ 101,509     $ 95,472     $ 100,338     $ 91,098  


Effective July 1, 2019, we revised our segment reporting to conform to changes in our internal management reporting based on our boat manufacturing operations.  Segment information has been revised for comparison purposes for all periods presented in the condensed consolidated financial statements.  We previously had four reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit.  We now aggregate Malibu U.S. and Malibu Australia into one reportable segment as they have similar economic characteristics and qualitative factors. As a result we now have three reportable segments, Malibu, Cobalt and Pursuit.

Comparison of the Third Quarter Ended March 31, 2020 to the Third Quarter Ended March 31, 2019

In the fiscal third quarter of 2020, the COVID-19 pandemic has impacted our operations and financial results and we expect it to continue to impact our operations and financial results, including during any recovery period. On March 24, 2020, we elected to suspend operations at all of our facilities due to the impact of the COVID-19 pandemic, which impacted the last week of fiscal third quarter of 2020. The shut-down continued into the fiscal fourth quarter of 2020 with operations resuming in late April and early May 2020, depending on the facility. 

Net sales for the three months ended March 31, 2020 decreased $17.6 million, or 8.8%, to $182.3 million as compared to the three months ended March 31, 2019. Unit volume for the three months ended March 31, 2020, decreased 298 units, or 14.2%, to 1,796 units as compared to the three months ended March 31, 2019. The decrease in net sales and unit volumes was driven primarily by the precautionary suspension of operations at all of our manufacturing facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic. As a result of our suspension of operations, we were not able to ship boats to our dealers during the last week of the fiscal quarter, which negatively impacted our net sales for the quarter. In addition to the pandemic, but to a lesser effect, we also had planned lower production rates at Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year period.  This decrease was partially offset by a higher average selling price due to model mix and year-over-year price increases.

Net sales attributable to our Malibu segment decreased $4.8 million, or 4.5%, to $102.6 million for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Unit volumes attributable to our Malibu segment decreased 167 units for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The decrease in net sales and unit volumes was driven primarily by the precautionary suspension of operations at our Malibu and Axis facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic. This decrease was partially offset by mix of our new larger models and year-over-year price increases on all of our Malibu and Axis models.

Net sales from our Cobalt segment decreased $10.0 million, or 17.9%, to $46.0 million for the three months ended March 31, 2020, compared to the three months ended March 31, 2019.  Unit volumes attributable to Cobalt decreased 124 units for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The decrease in net sales and unit volumes were driven primarily by the precautionary suspension of operations at our Cobalt facility commencing on March 24, 2020 as a result of the COVID-19 pandemic. In addition to the pandemic, but to a lesser effect, we also had planned lower production rates at Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year period.  The decrease was partially offset by year-over-year price increases on our Cobalt models.

Net sales from our Pursuit segment decreased $2.8 million, or 7.6%, to $33.7 million, for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Unit volumes attributable to Pursuit decreased seven units for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The decrease in net sales and unit volumes were driven primarily by the precautionary suspension of operations at our Pursuit facility commencing on March 24, 2020 as a result of the COVID-19 pandemic. Additionally, the decrease in Pursuit net sales was driven by  the lower average selling price due to the mix of models sold partially offset by year-over-year price increases on our Pursuit models.

Overall consolidated net sales per unit increased 6.3% to $101,509 per unit for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Net sales per unit for our Malibu segment increased 9.5% to $90,083 per unit for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, driven by higher sales of new, more expensive models and optional features and year-over-year price increases. Net sales per unit for our Cobalt segment increased 1.7% to $88,345 per unit for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, driven by year-over-year price increases. Net sales per unit for Pursuit segment decreased 2.9% to $247,632 for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, driven by a lower average selling price due to the mix of models sold offset slightly by year-over-year price increases.

Cost of sales for the three months ended March 31, 2020 decreased $13.7 million, or 9.1%, to $136.5 million as compared to the three months ended March 31, 2019. The decrease in cost of sales was driven primarily by the precautionary suspension of operations at all of our manufacturing facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic. 

Gross profit for the three months ended March 31, 2020 decreased $3.9 million, or 7.8%, to $45.8 million compared to the three months ended March 31, 2019. The decrease in gross profit was driven primarily by lower sales revenue due to the precautionary suspension of operations at all of our manufacturing facilities commencing on March 24, 2020 as a result of the COVID-19 pandemic.  Gross margin for the three months ended March 31, 2020 increased 20 basis points from 24.9% to 25.1%.

Selling and marketing expenses for the three months ended March 31, 2020, decreased $0.7 million, or 13.3% to $4.6 million compared to the three months ended March 31, 2019. As a percentage of sales, selling and marketing expenses decreased 10 basis points compared to the same period in the prior fiscal year. General and administrative expenses for the three months ended March 31, 2020, decreased $2.7 million, or 21.8%, to $9.6 million as compared to the three months ended March 31, 2019, due primarily to a decrease in incentive compensation for the three months ended March 31, 2020. In addition, we incurred acquisition related expenses in the three months ended March 31, 2019 for our acquisition of Pursuit. As a percentage of sales, general and administrative expenses decreased 90 basis points to 5.3% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Amortization expense for the three months ended March 31, 2020 remained flat at $1.5 million compared to the three months ended March 31, 2019. 

Operating income for the third quarter of fiscal year 2020 decreased to $30.1 million from $30.6 million in the third quarter of fiscal year 2019. Net income for the third quarter of fiscal year 2020 increased 7.5% to net income of $23.9 million from $22.2 million and net income margin increased to 13.1% in the third quarter of fiscal year 2020 from 11.1% in the third quarter of fiscal year 2019. Adjusted EBITDA in the third quarter of fiscal year 2020 decreased 3.7% to $36.4 million from $37.8 million, while Adjusted EBITDA margin increased to 20.0% from 18.9% in the third quarter of fiscal year 2019.

We believe we are well-positioned to withstand the current economic environment, given our flexible cost structure and ample liquidity after having drawn fully on our revolving credit facility. This resulted in approximately $113.0 million of cash on hand as of May 5, 2020. However, due to the heightened degree of uncertainty resulting from COVID-19, we cannot estimate the long-term impact of COVID-19 on our liquidity, results of operations, and financial condition.

Webcast and Conference Call Information

The Company will host a webcast and conference call to discuss third quarter of fiscal year 2020 results on Thursday, May 7, 2020, at 8:30 a.m. Eastern Time. Investors and analysts can participate on the conference call by dialing (855) 433-0928 or (484) 756-4263 and using Conference ID #4366818. 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.

About Malibu Boats, Inc.

Based in Loudon, Tennessee, Malibu Boats, Inc. (MBUU) is a leading designer, manufacturer and marketer of a diverse range of recreational powerboats, including performance sport, sterndrive and outboard boats. Malibu Boats, Inc. is the commanding market leader in the performance sport boat category through its Malibu and Axis Wake Research boat brands, the leader in the 20’ - 40’ segment of the sterndrive boat category through its Cobalt brand and in a leading position in the offshore fishing boat market with its Pursuit brand. A pre-eminent innovator in the powerboat industry, Malibu Boats, Inc. designs products that appeal to an expanding range of recreational boaters, fisherman and water sports enthusiasts whose passion for boating is a key component of their active lifestyles.

Forward Looking Statements

This press release includes forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Forward-looking statements can be identified by such words and phrases as “believes,” “anticipates,” “expects,” “intends,” “estimates,” “may,” “will,” “should,” “continue” and similar expressions, comparable terminology or the negative thereof, and includes the statements in this press release regarding our ability to navigate, withstand and progress through the environment created by the COVID-19 pandemic, preserve our margins and bolster our leadership position in marine.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including, but not limited to: the effects of the COVID-19 pandemic on us; general industry, economic and business conditions; our ability to grow our business through acquisitions and integrate such acquisitions to fully realize their expected benefits; our reliance on our network of independent dealers and increasing competition for dealers; our large fixed cost base; intense competition within our industry; increased consumer preference for used boats or the supply of new boats by competitors in excess of demand; the successful introduction of new products; our ability to execute our manufacturing strategy successfully; the success of our engines integration strategy; and other factors affecting us detailed from time to time in our filings with the Securities and Exchange Commission. Many of these risks and uncertainties are outside our control, and there may be other risks and uncertainties which we do not currently anticipate because they relate to events and depend on circumstances that may or may not occur in the future. Although we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that our expectations will be achieved. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation (and we expressly disclaim any obligation) to update or supplement any forward-looking statements that may become untrue because of subsequent events, whether because of new information, future events, changes in assumptions or otherwise. Comparison of results for current and prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Use and Definition of Non-GAAP Financial Measures

This release includes the following financial measures defined as non-GAAP financial measures by the SEC: Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Net Income per Share. These measures have limitations as analytical tools and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity. Our presentation of these non-GAAP financial measures should also not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of these non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.

We define Adjusted EBITDA as net income before interest expense, income taxes, depreciation, amortization and non-cash, non-recurring or non-operating expenses, including certain professional fees, acquisition and integration related expenses, non-cash compensation expense, expenses related to our engine development initiative, expenses related to interruption to our engine supply during the labor strike by United Auto Workers' ("UAW") against General Motors and adjustments to our tax receivable agreement liability. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales. Adjusted EBITDA and Adjusted EBITDA Margin are not measures of net income as determined by GAAP. Management believes Adjusted EBITDA and Adjusted EBITDA Margin allow investors to evaluate our operating performance and compare our results of operations from period to period on a consistent basis by excluding items that management does not believe are indicative of core operating performance. Management uses Adjusted EBITDA to assist in highlighting trends in our operating results without regard to our financing methods, capital structures, and non-recurring or non-operating expenses. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, the methods by which assets were acquired and other factors.

Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets.

We define Adjusted Fully Distributed Net Income as net income attributable to Malibu Boats, Inc. (i) excluding income tax expense, (ii) excluding the effect of non-recurring or non-cash items, (iii) assuming the exchange of all LLC units into shares of Class A Common Stock, which results in the elimination of non-controlling interest in Malibu Boats Holdings, LLC (the "LLC"), and (iv) reflecting an adjustment for income tax expense on fully distributed net income before income taxes at our estimated effective income tax rate. Adjusted Fully Distributed Net Income is a non-GAAP financial measure because it represents net income attributable to Malibu Boats, Inc., before non-recurring or non-cash items and the effects of non-controlling interests in the LLC. We use Adjusted Fully Distributed Net Income to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash or non-recurring items, and eliminates the variability of non-controlling interest as a result of member owner exchanges of LLC units into shares of Class A Common Stock. In addition, because Adjusted Fully Distributed Net Income is susceptible to varying calculations, the Adjusted Fully Distributed Net Income measures, as presented in this release, may differ from and may, therefore, not be comparable to similarly titled measures used by other companies.

A reconciliation of our net income as determined in accordance with GAAP to Adjusted EBITDA and Adjusted EBITDA Margin, and the numerator and denominator for our net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per share of Class A Common Stock is provided under "Reconciliation of Non-GAAP Financial Measures".

Investor Contacts                                                      

Malibu Boats, Inc.
Wayne Wilson
Chief Financial Officer
(865) 458-5478
InvestorRelations@MalibuBoats.com


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 
March 31,
  Nine Months Ended 
March 31,
  2020   2019   2020   2019
Net sales $ 182,310     $ 199,918     $ 534,502     $ 489,194  
Cost of sales 136,461     150,196     408,784     370,656  
Gross profit 45,849     49,722     125,718     118,538  
Operating expenses:              
Selling and marketing 4,572     5,273     14,304     13,372  
General and administrative 9,643     12,324     30,389     32,527  
Amortization 1,501     1,563     4,622     4,381  
Operating income 30,133     30,562     76,403     68,258  
Other (income) expense, net:              
Other income, net (1,660 )   (712 )   (1,679 )   (746 )
Interest expense 940     1,750     3,064     4,765  
Other (income) expense, net (720 )   1,038     1,385     4,019  
Income before provision for income taxes 30,853     29,524     75,018     64,239  
Provision for income taxes 6,987     7,321     16,872     15,023  
Net income 23,866     22,203     58,146     49,216  
Net income attributable to non-controlling interest 1,088     1,104     2,787     2,562  
Net income attributable to Malibu Boats, Inc. $ 22,778     $ 21,099     $ 55,359     $ 46,654  
               
Comprehensive income:              
Net income $ 23,866     $ 22,203     $ 58,146     $ 49,216  
Other comprehensive income (loss), net of tax:              
Change in cumulative translation adjustment (2,078 )   99     (2,086 )   (672 )
Other comprehensive loss, net of tax (2,078 )   99     (2,086 )   (672 )
Comprehensive income, net of tax 21,788     22,302     56,060     48,544  
Less: comprehensive income attributable to non-controlling interest, net of tax 993     1,111     2,692     2,527  
Comprehensive income attributable to Malibu Boats, Inc., net of tax $ 20,795     $ 21,191     $ 53,368     $ 46,017  
               
Weighted average shares outstanding used in computing net income per share:              
Basic 20,630,741     20,901,547     20,684,034     20,805,912  
Diluted 20,775,108     21,007,933     20,827,958     20,943,548  
Net income available to Class A Common Stock per share:              
Basic $ 1.11     $ 1.01     $ 2.68     $ 2.24  
Diluted $ 1.09     $ 1.01     $ 2.66     $ 2.23  


MALIBU BOATS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)

  March 31, 2020   June 30, 2019
Assets      
Current assets      
Cash $ 134,162     $ 27,392  
Trade receivables, net 21,722     27,961  
Inventories, net 88,865     67,768  
Prepaid expenses and other current assets 6,018     4,530  
Total current assets 250,767     127,651  
Property, plant and equipment, net 88,320     65,756  
Goodwill 50,605     51,404  
Other intangible assets, net 141,249     146,061  
Deferred tax asset 53,016     60,407  
Other assets 14,707     35  
Total assets $ 598,664     $ 451,314  
Liabilities      
Current liabilities      
Accounts payable $ 31,507     $ 21,174  
Accrued expenses 53,001     49,097  
Income taxes and tax distribution payable 639     1,469  
Payable pursuant to tax receivable agreement, current portion 3,477     3,592  
Total current liabilities 88,624     75,332  
Deferred tax liabilities 41     145  
Other liabilities 15,901     1,689  
Payable pursuant to tax receivable agreement, less current portion 49,067     50,162  
Long-term debt 192,738     113,633  
Total liabilities 346,371     240,961  
       
Stockholders' Equity      
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized; 20,537,469 shares issued and outstanding as of March 31, 2020; 20,852,640 issued and outstanding as of June 30, 2019 204     207  
Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 15 shares issued and outstanding as of March 31, 2020; 15 shares issued and outstanding as of June 30, 2019      
Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; no shares issued and outstanding as of March 31, 2020 and June 30, 2019      
Additional paid in capital 102,284     113,004  
Accumulated other comprehensive loss (4,914 )   (2,828 )
Accumulated earnings 147,508     93,852  
Total stockholders' equity attributable to Malibu Boats, Inc. 245,082     204,235  
Non-controlling interest 7,211     6,118  
Total stockholders’ equity 252,293     210,353  
Total liabilities and stockholders' equity $ 598,664     $ 451,314  


MALIBU BOATS, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

Reconciliation of Net Income to Non-GAAP Adjusted EBITDA and Adjusted EBITDA Margin (Unaudited):

The following table sets forth a reconciliation of net income as determined in accordance with GAAP to Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated (dollars in thousands):   

  Three Months Ended March 31,   Nine Months Ended March 31,
  2020   2019   2020   2019
Net income $ 23,866       $ 22,203       $ 58,146       $ 49,216    
Provision for income taxes 6,987       7,321       16,872       15,023    
Interest expense 940       1,750       3,064       4,765    
Depreciation 2,938       2,744       9,040       7,102    
Amortization 1,501       1,563       4,622       4,381    
Professional fees 1 124       189       500       572    
Acquisition and integration related expenses 2       1,051             4,960    
Stock-based compensation expense 3 816       735       2,306       1,866    
Engine development 4       932             2,871    
UAW strike impact 5 877             2,564          
Adjustments to tax receivable agreement liability 6 (1,650 )     (707 )     (1,650 )     (707 )  
Adjusted EBITDA $ 36,399       $ 37,781       $ 95,464       $ 90,049    
Adjusted EBITDA margin 20.0   %   18.9   %   17.9   %   18.4   %


(1 ) Represents legal and advisory fees related to our litigation with Skier's Choice, Inc.

(2 ) For the three months and nine months ended March 31, 2019, represents legal and advisory fees incurred in connection with our acquisition of Pursuit on October 15, 2018 and integration costs related to our acquisitions of Pursuit and Cobalt. Integration related expenses for the nine months ended March 31, 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of Pursuit inventory acquired, most of which was sold during the second quarter of fiscal 2019.

(3 ) Represents equity-based incentives awarded to key employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC.

(4 ) Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives.

(5 ) For the three and nine months ended March 31, 2020, represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors. We purchase engines from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats. During the UAW strike, General Motors suspended delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.

(6 ) For the three and nine months ended March 31, 2020 and March 31, 2019 we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.


Reconciliation of Non-GAAP Adjusted Fully Distributed Net Income (Unaudited):

The following table shows the reconciliation of the numerator and denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented (in thousands except share and per share data):

  Three Months Ended March 31,   Nine Months Ended March 31,
  2020   2019   2020   2019
Reconciliation of numerator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock:              
Net income attributable to Malibu Boats, Inc. $ 22,778     $ 21,099     $ 55,359     $ 46,654  
Provision for income taxes 6,987     7,321     16,872     15,023  
Professional fees 1 124     189     500     572  
Acquisition and integration related expenses 2 1,053     2,217     3,200     8,015  
Fair market value adjustment for interest rate swap 3 10     93     68     225  
Stock-based compensation expense 4 816     735     2,306     1,866  
Engine development 5     932         2,871  
UAW strike impact 6 877         2,564      
Adjustments to tax receivable agreement liability 7 (1,650 )   (707 )   (1,650 )   (707 )
Net income attributable to non-controlling interest 8 1,088     1,104     2,787     2,562  
Fully distributed net income before income taxes 32,083     32,983     82,006     77,081  
Income tax expense on fully distributed income before income taxes 9 7,539     7,949     19,271     18,577  
Adjusted fully distributed net income $ 24,544     $ 25,034     $ 62,735     $ 58,504  



  Three Months Ended March 31,   Nine Months Ended March 31,
  2020   2019   2020   2019
Reconciliation of denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock:              
Weighted average shares outstanding of Class A Common Stock used for basic net income per share: 20,630,741     20,901,547     20,684,034     20,805,912  
Adjustments to weighted average shares of Class A Common Stock:              
Weighted-average LLC units held by non-controlling unit holders 10 805,822     838,496     822,042     896,808  
Weighted-average unvested restricted stock awards issued to management 11 181,015     132,549     146,905     129,844  
Adjusted weighted average shares of Class A Common Stock outstanding used in computing Adjusted Fully Distributed Net Income per Share of Class A Common Stock: 21,617,578     21,872,592     21,652,981     21,832,564  


The following table shows the reconciliation of net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented:

  Three Months Ended March 31,   Nine Months Ended March 31,
  2020   2019   2020   2019
Net income available to Class A Common Stock per share $ 1.11     $ 1.01     $ 2.68     $ 2.24  
Impact of adjustments:              
Provision for income taxes 0.34     0.35     0.82     0.72  
Professional fees 1     0.01     0.02     0.03  
Acquisition and integration related expenses 2 0.05     0.11     0.15     0.39  
Fair market value adjustment for interest rate swap 3             0.01  
Stock-based compensation expense 4 0.04     0.04     0.11     0.09  
Engine development 5     0.05         0.14  
UAW strike impact 6 0.04         0.12      
Adjustment to tax receivable agreement liability 7 (0.08 )   (0.03 )   (0.08 )   (0.03 )
Net income attributable to non-controlling interest 8 0.05     0.05     0.13     0.12  
Fully distributed net income per share before income taxes 1.55     1.59     3.95     3.71  
Impact of income tax expense on fully distributed income before income taxes 9 (0.37 )   (0.38 )   (0.94 )   (0.89 )
Impact of increased share count 12 (0.05 )   (0.06 )   (0.12 )   (0.14 )
Adjusted Fully Distributed Net Income per Share of Class A Common Stock $ 1.13     $ 1.15     $ 2.89     $ 2.68  


(1 ) Represents legal and advisory fees related to our litigation with Skier's Choice, Inc.

(2 ) For the three months and nine months ended March 31, 2020, represents amortization of intangibles acquired in connection with the acquisition of Pursuit and Cobalt. For the three and nine months ended March 31, 2019, represents legal and advisory fees incurred in connection with our acquisition of Pursuit on October 15, 2018 and integration costs related to our acquisitions of Pursuit and Cobalt. Integration related expenses for the nine months ended March 31, 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of inventory acquired at Pursuit, most of which was sold during the second quarter of fiscal 2019. In addition, for the three and nine months ended March 31, 2019, integration related expenses includes $0.4 million and $0.8 million respectively, in depreciation and amortization associated with our fair value step up of property, plant and equipment and intangibles acquired in connection with the acquisition of Pursuit. Also, for the three and nine months ended March 31, 2019,  integration related expenses includes $0.7 million and $2.2 million, respectively, in amortization associated with our fair value step up of intangibles acquired in connection with the acquisition of Cobalt.

(3 ) Represents the change in the fair value of our interest rate swap entered into on July 1, 2015. The swap matured on March 31, 2020.

(4 ) Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC.

(5 ) Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives.

(6 ) For the three and nine months ended March 31, 2020, represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors. We purchase engines from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats. During the UAW strike, General Motors suspended delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.

(7 ) For the three and nine months ended March 31, 2020 and March 31, 2019 we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.

(8 ) Reflects the elimination of the non-controlling interest in the LLC as if all LLC members had fully exchanged their LLC Units for shares of Class A Common Stock.

(9 ) Reflects income tax expense at an estimated normalized annual effective income tax rate of 23.5% and 24.1% of income before income taxes for the three months and nine months ended March 31, 2020 and 2019, respectively, assuming the conversion of all LLC Units into shares of Class A Common Stock. The estimated normalized annual effective income tax rate for fiscal year 2020 is based on the federal statutory rate plus a blended state rate adjusted for the research and development tax credit, the foreign derived intangible income deduction, and foreign income taxes attributable to our Australian subsidiary.

(10 ) Represents the weighted average shares outstanding of LLC Units held by non-controlling interests assuming they were exchanged into Class A Common Stock on a one-for-one basis.

(11 ) Represents the weighted average unvested restricted stock awards included in outstanding shares during the applicable period that were convertible into Class A Common Stock and granted to members of management.

(12 ) Reflects impact of increased share counts assuming the exchange of all weighted average shares outstanding of LLC Units into shares of Class A Common Stock and the conversion of all weighted average unvested restricted stock awards included in outstanding shares granted to members of management.


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Source: Malibu Boats, Inc.

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