UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 3, 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 001-37502
MASTERCRAFT BOAT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
06-1571747
(State or Other Jurisdiction
(I.R.S. Employer
of Incorporation or Organization)
Identification No.)
100 Cherokee Cove Drive, Vonore, TN 37885
(Address of Principal Executive Office) (Zip Code)
(423) 884-2221
(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
Common Stock
MCFT
NASDAQ
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, a 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
As of May 6, 2022, there were 18,044,250 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding.
TABLE OF CONTENTS
Page
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited Condensed Consolidated Statements of Operations
4
Unaudited Condensed Consolidated Balance Sheets
5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
6
Unaudited Condensed Consolidated Statements of Cash Flows
7
Notes to Unaudited Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
Legal Proceedings
29
Item 1A.
Risk Factors
Unregistered Sales of Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits, Financial Statement Schedules
30
SIGNATURES
31
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements can generally be identified by the use of statements that include words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar words or phrases. Forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on assumptions that we have made considering our industry experience and our perceptions of historical trends, current conditions, expected future developments and other important factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements, including but not limited to the following: the potential effects of supply chain disruptions and production inefficiencies as a result of the coronavirus (“COVID-19”) pandemic on the Company, general economic conditions, demand for our products, inflation, changes in consumer preferences, competition within our industry, our reliance on our network of independent dealers, our ability to manage our manufacturing levels and our fixed cost base, the successful introduction of our new products, geopolitical conflicts and the other important factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the Securities and Exchange Commission (“SEC”) on September 2, 2021 (our “2021 Annual Report”). Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could cause our business not to develop as we expect may emerge from time to time, and it is not possible for us to predict all of them.
3
MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
April 3,
April 4,
2022
2021
NET SALES
$
186,735
147,854
490,210
370,276
COST OF SALES
144,702
110,627
382,857
277,546
GROSS PROFIT
42,033
37,227
107,353
92,730
OPERATING EXPENSES:
Selling and marketing
3,611
3,693
11,288
9,589
General and administrative
9,948
9,984
29,881
27,268
Amortization of other intangible assets
987
3,000
2,961
Goodwill impairment
—
1,100
Total operating expenses
14,546
14,664
45,269
39,818
OPERATING INCOME
27,487
22,563
62,084
52,912
OTHER EXPENSE:
Interest expense
341
755
1,080
2,644
INCOME BEFORE INCOME TAX EXPENSE
27,146
21,808
61,004
50,268
INCOME TAX EXPENSE
6,211
4,240
14,281
10,632
NET INCOME
20,935
17,568
46,723
39,636
NET INCOME PER SHARE:
Basic
1.14
0.93
2.51
2.11
Diluted
1.13
2.49
2.09
WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:
Basic earnings per share
18,295,949
18,817,975
18,622,878
18,799,875
Diluted earnings per share
18,487,346
18,989,629
18,796,867
18,928,288
Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
13,766
39,252
Accounts receivable, net of allowance of $262 and $115, respectively
20,898
12,080
Income tax receivable
450
355
Inventories, net (Note 3)
82,353
53,481
Prepaid expenses and other current assets
8,994
5,059
Total current assets
126,461
110,227
Property, plant and equipment, net
64,310
60,495
Goodwill (Note 4)
28,493
29,593
Other intangible assets, net (Note 4)
56,899
59,899
Deferred income taxes
15,133
15,130
Deferred debt issuance costs, net
431
507
Other long-term assets
487
609
Total assets
292,214
276,460
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
29,603
23,861
Income tax payable
1,487
726
Accrued expenses and other current liabilities (Note 5)
55,069
46,836
Current portion of long-term debt, net of unamortized debt issuance costs (Note 7)
2,872
2,866
Total current liabilities
89,031
74,289
Long-term debt, net of unamortized debt issuance costs (Note 7)
62,123
90,277
Unrecognized tax positions
5,170
3,830
Other long-term liabilities
202
276
Total liabilities
156,526
168,672
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,208,788 shares at April 3, 2022 and 18,956,719 shares at June 30, 2021
182
189
Additional paid-in capital
100,114
118,930
Retained earnings / (accumulated deficit)
35,392
(11,331
)
Total stockholders' equity
135,688
107,788
Total liabilities and stockholders' equity
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Additional
Retained Earnings/
Paid-in
(Accumulated
Shares
Amount
Capital
Deficit)
Total
Balance at June 30, 2021
18,956,719
Share-based compensation activity
62,865
1
705
706
Repurchase and retirement of common stock
(58,379
(1
(1,486
(1,487
Net income
10,386
Balance at October 3, 2021
18,961,205
118,149
(945
117,393
5,913
1,159
(356,296
(3
(9,885
(9,888
15,402
Balance at January 2, 2022
18,610,822
186
109,423
14,457
124,066
(6,086
766
(395,948
(4
(10,075
(10,079
Balance at April 3, 2022
18,208,788
Accumulated
Deficit
Balance at June 30, 2020
18,871,637
116,182
(67,501
48,870
80,701
486
9,567
Balance at October 4, 2020
18,952,338
116,668
(57,934
58,923
(3,043
577
12,501
Balance at January 3, 2021
18,949,295
117,245
(45,433
72,001
2,853
885
Balance at April 4, 2021
18,952,148
118,130
(27,865
90,454
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
10,153
8,547
Share-based compensation
2,876
2,184
Unrecognized tax benefits
1,340
38
Amortization of debt issuance costs
178
469
Changes in certain operating assets and liabilities
(27,389
1,454
Other, net
321
2,065
Net cash provided by operating activities
35,302
54,393
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
(10,839
(23,779
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on revolving credit facility
(38,000
(32,500
Borrowings on revolving credit facility
12,000
22,500
Principal payments on long-term debt
(2,250
(7,065
(21,454
(245
(898
Net cash used in financing activities
(49,949
(17,963
NET CHANGE IN CASH AND CASH EQUIVALENTS
(25,486
12,651
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD
16,319
CASH AND CASH EQUIVALENTS — END OF PERIOD
28,970
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest
874
2,147
Cash payments for income taxes
13,139
SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures in accounts payable and accrued expenses
421
157
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless stated otherwise dollars in thousands, except per share data)
1.ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
Organization — MasterCraft Boat Holdings, Inc. (“Holdings”) was formed on January 28, 2000, as a Delaware holding company and operates primarily through its wholly owned subsidiaries, MasterCraft Boat Company, LLC; MasterCraft Services, LLC; MasterCraft Parts, Ltd.; MasterCraft International Sales Administration, Inc.; Aviara Boats, LLC; Nautic Star, LLC; NS Transport, LLC; and Crest Marine, LLC. Holdings and its subsidiaries collectively are referred to herein as the “Company.”
Basis of Presentation — The Company’s fiscal year begins July 1 and ends June 30, with the interim quarterly reporting periods consisting of 13 weeks. Therefore, the fiscal quarter end will not always coincide with the date of the end of a calendar month.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the year ended June 30, 2021 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of April 3, 2022, its results of operations for the three and nine months ended April 3, 2022 and April 4, 2021, its cash flows for the nine months ended April 3, 2022 and April 4, 2021, and its statements of stockholders’ equity for the three and nine months ended April 3, 2022 and April 4, 2021. All adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the SEC for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2021 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP for complete financial statements. However, management believes that the disclosures in these condensed consolidated financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our 2021 Annual Report on Form 10-K.
Due to the seasonality of the Company’s business, the interim results are not necessarily indicative of the results that may be expected for the remainder of the fiscal year.
There were no significant changes in or changes to the application of the Company’s significant or critical accounting policies or estimation procedures for the three and nine months ended April 3, 2022 as compared with those described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2021.
Change in Reportable Segments — Beginning with the first quarter of fiscal 2022, our chief operating decision maker (“CODM”) began to manage our business, allocate resources, and evaluate performance based on the changes that have been made in the Company’s management structure in connection with the transition of Aviara production to our Merritt Island facility. As a result, the Company has realigned its reportable segments to MasterCraft, Crest, NauticStar, and Aviara. The Company has recast segment information for all prior periods presented. Refer to Note 11 – Segment Information for further information on the Company’s reportable segments.
Reclassifications — Certain historical amounts have been reclassified in these condensed consolidated financial statements and the accompanying notes herewith to conform to the current presentation.
Recently Adopted Accounting Standards
Income Taxes —In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
Reference Rate Reform — In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. An entity may apply ASU 2020-04 as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
2.
REVENUE RECOGNITION
Consistent with the Company’s change in reportable segments described in Note 11—Segment Information, the Company has changed its presentation of disaggregated revenue to align with the new segment structure. The following tables present the Company’s revenue by major product category for each reportable segment.
Three Months Ended April 3, 2022
MasterCraft
Crest
NauticStar
Aviara
Major Product Categories:
Boats and trailers
116,964
38,351
17,275
10,428
183,018
Parts
2,742
262
115
3,119
Other revenue
250
346
598
119,956
38,959
17,392
Nine Months Ended April 3, 2022
309,356
100,088
45,511
24,192
479,147
8,625
649
295
9,569
763
720
11
1,494
318,744
101,457
45,817
Three Months Ended April 4, 2021
93,771
29,973
17,913
2,424
144,081
2,973
274
129
3,376
279
397
97,023
30,362
18,045
9
Nine Months Ended April 4, 2021
236,138
68,341
44,986
9,445
358,910
9,244
803
340
10,387
743
226
10
979
246,125
69,370
45,336
Contract Liabilities
As of June 30, 2021, the Company had $1.8 million of contract liabilities associated with customer deposits. During the nine months ended April 3, 2022, all of this amount was recognized as revenue. As of April 3, 2022, total contract liabilities associated with customer deposits were $2.2 million, were reported in Accrued expenses and other current liabilities on the condensed consolidated balance sheet, and substantially all of the amounts are expected to be recognized as revenue during the remainder of the year ending June 30, 2022.
3.
INVENTORIES
Inventories consisted of the following:
Raw materials and supplies
60,026
37,089
Work in process
15,818
10,171
Finished goods
9,183
8,362
Obsolescence reserve
(2,674
(2,141
Total inventories
Raw materials and supplies have increased to support higher production volumes and to increase safety stock to manage supply chain risk. Work in process has increased due to supply chain disruptions.
4.GOODWILL AND OTHER INTANGIBLE ASSETS
Beginning with the first quarter of fiscal 2022, the Company realigned its reportable segments to MasterCraft, Crest, NauticStar, and Aviara. Refer to Note 11 – Segment Information for further information on the Company’s reportable segments. As a result of the change in segments, in accordance with ASC 350, Intangibles-Goodwill and Other, the Company reallocated the goodwill recorded in the MasterCraft reporting unit to the two separate MasterCraft and Aviara reporting units using a relative fair value approach.
Prior to realigning our segments, we evaluated our goodwill for impairment and determined no impairment existed as the fair value of our MasterCraft reporting unit, which was the only reporting unit containing goodwill, was in excess of its carrying amount. In conjunction with the reallocation of goodwill, we tested the goodwill at our MasterCraft and Aviara reporting units for impairment using an income-based approach, specifically a discounted cash flow model. The cash flow model included significant judgements and assumptions related to revenue growth and discount rates. At the time of the impairment test, near-term operating losses generated by start-up inefficiencies had negatively impacted the fair value of Aviara, causing the carrying value of the reporting unit to be in excess of the fair value. Consequently, a $1.1 million impairment charge was recognized in the first quarter of fiscal 2022.
The carrying amounts of goodwill attributable to each of the Company’s reportable segments, were as follows:
Goodwill
36,238
36,199
102,030
Accumulated impairment losses
(36,238
(36,199
(72,437
Goodwill, net at June 30, 2021
Goodwill reallocation
(1,100
Impairment
Goodwill, net at April 3, 2022
During the three and nine months ended April 3, 2022 and April 4, 2021, the Company did not record impairment charges related to its Other intangible assets. Given current period operating losses combined with a history of operating losses and operational inefficiencies, the Company continues to monitor the NauticStar segment’s outlook for sales and operating performance relative to the forecasts of expected future cash flows used in the Company’s previous impairment tests in order to evaluate whether the carrying value of the segment’s intangible assets remain above fair value. Should economic conditions, such as supply chain disruptions, labor challenges, and inflationary pressures, deteriorate in future periods or remain depressed for a prolonged period of time, or operational inefficiencies grow, estimates of future cash flows may not be sufficient to support the carrying value of NauticStar’s intangible assets.
For more information related to the Company’s Other intangible assets and our accounting policies related to determining fair values of our intangible assets and impairment evaluations, see Notes 1 and 6 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the fiscal year ended June 30, 2021.
The following table presents the carrying amount of Other intangible assets, net:
Gross Amount
Accumulated Amortization / Impairment
Other intangible assets, net
Amortized intangible assets
Dealer networks
39,500
(16,675
22,825
(13,711
25,789
Software
245
(171
74
(135
110
39,745
(16,846
22,899
(13,846
25,899
Unamortized intangible assets
Trade names
49,000
(15,000
34,000
Total other intangible assets
88,745
(31,846
(28,846
Amortization expense related to Other intangible assets, net for both the three and nine months ended April 3, 2022 and April 4, 2021 was $1.0 million and $3.0 million, respectively. Estimated amortization expense for the fiscal year ending June 30, 2022 is $4.0 million.
5.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
Warranty
25,681
22,329
Dealer incentives
13,227
10,634
Contract liabilities
2,151
1,848
Compensation and related accruals
6,487
6,046
Freight
1,163
778
Self-insurance
1,347
865
Inventory repurchase contingent obligation
1,279
471
Other
3,734
3,865
Total accrued expenses and other current liabilities
Accrued warranty liability activity was as follows for the nine months ended:
Balance at the beginning of the period
20,004
Provisions
9,435
7,158
Payments made
(7,444
(6,328
Aggregate changes for preexisting warranties
1,361
1,135
Balance at the end of the period
21,969
12
6. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
In October 2021, the Company entered into a new supplier agreement to purchase marine outboard engines during fiscal 2022. During the term of the agreement, the Company is committed to purchasing a minimum annual gross dollar value of $27.0 million in engines.
The Company is subject to various litigation, claims and proceedings, which have arisen in the ordinary course of business. The Company accrues for litigation, claims and proceedings when a liability is both probable and the amount can be reasonably estimated.
As of April 3, 2022, the Company’s accruals for litigation matters are not material. While these matters are subject to inherent uncertainties, management believes that current litigation, claims and proceedings, individually and in the aggregate, and after considering expected insurance reimbursements, are not likely to have a material adverse impact on the Company’s financial position, results of operations or cash flows.
7.LONG-TERM DEBT
Long-term debt is as follows:
Revolving credit facility
7,728
33,728
Term loans
57,750
60,000
Debt issuance costs on term loans
(483
(585
Total debt
64,995
93,143
Less current portion of long-term debt
Less current portion of debt issuance costs on term loans
(128
(134
Long-term debt, net of current portion
On June 28, 2021, the Company entered into a credit agreement with a syndicate of certain financial institutions (the “Credit Agreement”). The Credit Agreement provides the Company with a $160.0 million senior secured credit facility, consisting of a $60.0 million term loan (the “Term Loan”) and a $100.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Agreement refinanced and replaced the previously existing credit agreement. The Credit Agreement is secured by a first priority security interest in substantially all of the Company’s assets.
The Credit Agreement contains a number of covenants that, among other things, restrict the Company’s ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve; engage in businesses that are not in a related line of business; make loans, advances or guarantees; pay dividends or make other distributions; engage in transactions with affiliates; and make investments. The Company is also required to maintain a minimum fixed charge coverage ratio and a maximum net leverage ratio.
13
The Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.25% to 1.00% or at an adjusted LIBOR rate plus an applicable margin ranging from 1.25% to 2.00%, in each case based on the Company’s net leverage ratio. The Company is also required to pay a commitment fee for any unused portion of the revolving credit facility ranging from 0.15% to 0.30% based on the Company’s net leverage ratio. Effective during the three and nine months ended April 3, 2022, the applicable margin for loans accruing at the prime rate was 0.25% and the applicable margin for loans accruing interest at LIBOR was 1.25%. As of April 3, 2022, the interest rates on the Company’s term loan and revolving credit facility were 1.75% and 3.75%, respectively.
The Credit Agreement will mature and all remaining amounts outstanding thereunder will be due and payable on June 28, 2026. As of April 3, 2022, the Company was in compliance with its financial covenants under the Credit Agreement.
Revolving Credit Facility
As of April 3, 2022, the Company had $7.7 million of borrowings outstanding on its Revolving Credit Facility and had remaining availability of $92.3 million. Subsequent to April 3, 2022, the Company repaid all outstanding borrowings and availability under the Revolving Credit Facility was $100.0 million.
8.
INCOME TAXES
The Company’s consolidated interim effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The differences between the Company’s effective tax rates and the statutory federal tax rate of 21.0% primarily relate to the inclusion of the state tax rate in the overall effective rate, the benefit of federal and state credits, and a permanent benefit associated with the foreign derived intangible income deduction, partially offset by a permanent add-back for Section 162(m) limitations. During the three months ended April 3, 2022 and April 4, 2021, the Company’s effective tax rate was 22.9% and 19.4%, respectively. During the nine months ended April 3, 2022 and April 4, 2021, the Company’s effective tax rate was 23.4% and 21.2%, respectively. The Company’s effective tax rate for the three and nine months ended April 3, 2022 is higher compared to the effective tax rate for the three and nine months ended April 4, 2021, primarily due to an increase in the tax impact of uncertain state tax positions and the increase in the effective state tax rate.
9.
SHARE-BASED COMPENSATION
The following table presents the components of share-based compensation expense by award type.
Restricted stock awards
417
377
1,402
1,182
Performance stock units
525
1,474
1,003
Share-based compensation expense
772
902
2,185
Restricted Stock Awards
During the nine months ended April 3, 2022, the Company granted 74,961 restricted stock awards (“RSAs”) to the Company’s non-executive directors, officers and certain other key employees. Generally, the shares of restricted stock granted during the nine months ended April 3, 2022, vest pro-rata over three years for officers and certain other key employees and over one year for non-executive directors. The Company determined the fair value of the shares awarded by using the close price of our common stock as of the date of grant. The weighted average grant date fair value of RSAs granted in the nine months ended April 3, 2022, was $26.14 per share.
14
The following table summarizes the status of nonvested RSAs as of April 3, 2022, and changes during the nine months then ended.
Average
Nonvested
Grant-Date
Restricted
Fair Value
(per share)
Nonvested at June 30, 2021
118,193
19.42
Granted
74,961
26.14
Vested
(58,803
19.24
Forfeited
(8,534
24.65
Nonvested at April 3, 2022
125,817
23.16
As of April 3, 2022, there was $1.7 million of total unrecognized compensation expense related to nonvested RSAs. The Company expects this expense to be recognized over a weighted average period of 1.7 years.
Performance Stock Units
Performance stock units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of the Company’s stockholders, and to create long-term stockholder value. The awards will be earned based on the Company’s achievement of certain performance criteria over a three-year performance period. The performance period for the awards commences on July 1 of the fiscal year in which they were granted and continue for a three-year period, ending on June 30 of the applicable year. The probability of achieving the performance criteria is assessed quarterly. Following the determination of the Company’s achievement with respect to the performance criteria, the number of shares awarded is subject to further adjustment based on the application of a total shareholder return (“TSR”) modifier. The grant date fair value is determined based on both the probability assessment of the Company achieving the performance criteria and an estimate of the expected TSR modifier. The TSR modifier estimate is determined using a Monte Carlo Simulation model, which considers the likelihood of numerous possible outcomes of long-term market performance. Compensation expense related to nonvested PSUs is recognized ratably over the performance period.
The following table summarizes the status of nonvested PSUs as of April 3, 2022, and changes during the nine months then ended.
Performance
Stock Units
160,285
21.03
53,842
28.73
(9,077
26.71
205,050
22.80
As of April 3, 2022, there was $2.3 million of total unrecognized compensation expense related to nonvested PSUs. The Company expects this expense to be recognized over a weighted average period of 1.7 years.
15
10.
EARNINGS PER SHARE AND COMMON STOCK
The following table sets forth the computation of the Company’s net income per share:
Weighted average shares — basic
Dilutive effect of assumed exercises of stock options
9,044
16,133
12,093
14,728
Dilutive effect of assumed restricted share awards/units
182,353
155,521
161,896
113,685
Weighted average outstanding shares — diluted
Basic net income per share
Diluted net income per share
For the three and nine months ended April 3, 2022 and April 4, 2021, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive.
Stock Repurchase Program
On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of the Company’s common stock during the three-year period ending June 24, 2024. During the three months ended April 3, 2022, the Company repurchased 395,948 shares of common stock for $10.1 million in cash, including related fees and expenses. During the nine months ended April 3, 2022, the Company repurchased 810,623 shares of common stock for $21.5 million in cash, including related fees and expenses. As of April 3, 2022, $28.5 million remained available under the program.
11.SEGMENT INFORMATION
Change in Reportable Segments
Beginning with the first quarter of fiscal 2022 and as discussed in Note 1, our CODM began to manage our business, allocate resources, and evaluate performance based on the reportable segments of MasterCraft, Crest, NauticStar, and Aviara.
Reportable Segments
Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the CODM in making decisions on how to allocate resources and assess performance. For the three and nine months ended April 3, 2022, the Company’s CODM regularly assessed the operating performance of the Company’s boat brands under four operating and reportable segments:
•
The MasterCraft segment produces boats at its Vonore, Tennessee facility. These are premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating.
The Crest segment produces pontoon boats at its Owosso, Michigan facility. Crest’s boats are primarily used for general recreational boating.
The NauticStar segment produces boats at its Amory, Mississippi facility. NauticStar’s boats are primarily used for saltwater fishing and general recreational boating.
16
The Aviara segment produces luxury day boats at its Merritt Island, Florida facility. Aviara boats are primarily used for general recreational boating. Beginning in fiscal 2022, the CODM has begun to assess Aviara’s performance on a stand-alone basis using criteria consistent with our other operating and reportable segments.
Each segment distributes its products through its own independent dealer network. Each segment also has its own management structure which is responsible for the operations of the segment and is directly accountable to the CODM for the operating performance of the segment, which is regularly assessed by the CODM who allocates resources based on that performance, including using measures of performance based operating income.
The Company files a consolidated income tax return and does not allocate income taxes and other corporate-level expenses, including interest, to operating segments. All material corporate costs are included in the MasterCraft segment.
Selected financial information for the Company’s reportable segments was as follows:
For the Three Months Ended April 3, 2022
Consolidated
Net sales
Operating income (loss)
28,051
5,568
(4,117
(2,015
1,248
657
1,052
602
3,559
1,434
1,146
1,047
496
4,123
For the Nine Months Ended April 3, 2022
65,533
14,004
(9,519
(7,934
3,762
1,998
2,824
1,569
4,966
2,190
2,818
10,839
For the Three Months Ended April 4, 2021
20,813
4,150
331
(2,731
1,089
626
817
416
2,948
1,109
320
958
2,489
4,876
For the Nine Months Ended April 4, 2021
51,840
8,462
(1,614
(5,776
3,299
1,874
2,433
941
3,807
344
1,717
17,911
23,779
17
The following table presents total assets for the Company’s reportable segments.
April 3, 2022
June 30, 2021
Assets:
154,078
158,610
47,527
42,204
56,012
44,181
34,597
31,465
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition, the statements in this discussion and analysis regarding our expectations concerning the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” above and in “Risk Factors” set forth in our 2021 Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in the statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures do not include operating and statistical measures. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to users of the financial statements, including investors, because they permit users of the financial statements to view the Company’s performance using the same tools that management utilizes and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to business acquisitions.
Overview
Dealer inventory levels remain low compared to pre-pandemic levels, which has sustained the increased wholesale demand for our product. Year over year, we have increased production rates to address wholesale demand, yet supply chain and labor challenges have disrupted our efforts to replenish dealer inventory levels. Furthermore, these challenges, coupled with inflationary pressures, have increased costs and reduced our margins. To mitigate the impact of these challenges on our business, we have increased raw material safety stock, pursued alternative sourcing, altered business processes, and phased in additional mid-cycle price increases. However, the full extent of the impact on our business, operations, and financial results will depend on evolving factors that we cannot predict. See Part I. Item 1A. Risk Factors set forth in our 2021 Annual Report on Form 10-K.
Macroeconomic Events
We are actively monitoring the impact of changing macroeconomic conditions on our business, including geopolitical events, disrupted global supply chains, and inflation. The impact of these factors has affected many manufacturers across various industries including ours. Supply chain challenges continue to evolve, driven by increased demand, labor shortages, logistical constraints, and rising prices to our suppliers, creating inefficiencies and shipping delays. Rapidly increasing material and overhead costs are outpacing price increases as we try to mitigate the impact. Furthermore, the uncertainty associated with the COVID-19 pandemic remains, which we continue to actively monitor in terms of its potential impact on our results of operations. The extent to which our operations will be impacted by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted.
Results of Operations
Consolidated Results
The table below presents our consolidated results of operations for the three and nine months ended:
2022 vs. 2021
%
Change
Consolidated statements of operations:
38,881
26.3
119,934
32.4
34,075
30.8
105,311
37.9
4,806
12.9
14,623
15.8
(82
(2.2
%)
1,699
17.7
(36
(0.4
2,613
9.6
0.0
39
1.3
(118
(0.8
5,451
13.7
4,924
21.8
9,172
17.3
(414
(54.8
(1,564
(59.2
5,338
24.5
10,736
21.4
1,971
46.5
3,649
34.3
3,367
19.2
7,087
17.9
Additional financial and other data:
Unit sales volume:
900
933
(33
(3.5
2,569
2,346
223
9.5
855
731
124
17.0
2,261
1,759
502
28.5
348
426
(78
(18.3
949
1,067
(11.1
21
262.5
71
32
121.9
Consolidated unit sales volume
2,132
2,098
34
1.6
5,850
5,204
646
12.4
Net sales:
22,933
23.6
72,619
29.5
8,597
28.3
32,087
46.3
(653
(3.6
481
1.1
8,004
330.2
14,747
156.1
Consolidated net sales
Net sales per unit:
133
104
27.9
105
18.1
46
42
45
15.4
50
19.0
48
14.3
360
303
57
18.8
15.6
Consolidated net sales per unit
88
70
25.7
84
18.3
Gross margin
22.5
25.2
(270) bps
21.9
25.0
(310) bps
20
Net sales increased 26.3 percent and 32.4 percent during the third quarter and first nine months of fiscal 2022, respectively, when compared with the same prior year periods. Net sales benefited from increased sales volume as our dealers continue to restock their inventories. Higher prices, favorable model mix, and higher option sales were also favorable compared to the prior period. Refer to the MasterCraft, Crest, NauticStar, and Aviara segments for further details on the drivers of net sales changes.
Gross margin percentage declined 270 basis points and 310 basis points during the third quarter and first nine months of fiscal 2022, respectively, compared to the same prior year periods. Lower margins were the result of supply chain disruptions and inflationary pressures that drove material and overhead costs higher and were most pronounced at the NauticStar segment. Though we implemented mitigating procedures and phased in mid-cycle price increases to offset these headwinds, supply chain disruptions and inflationary pressures continued to impact our margins.
Operating expenses were flat during the third quarter and increased 13.7 percent during the first nine months of fiscal 2022 when compared to the same prior year periods. Despite our increased costs during the first nine months, selling, general, and administrative expenses as a percentage of sales have decreased when compared to the same prior-year period. Selling and marketing expense increased due to timing of prior-year expenses being impacted by the COVID-19 pandemic, resulting in lower costs for the first nine months of fiscal 2021. General and administrative expenses increased during the first nine months as a result of continued investments in information technology. Additionally, an impairment charge related to the allocated goodwill associated with the Aviara segment was recorded in the first quarter of fiscal 2022, as discussed in Note 4 to the Unaudited Condensed Consolidated Financial Statements.
Interest expense decreased due to lower effective interest rates and lower average outstanding debt balances during the current year periods compared to the prior year periods.
Segment Results
As discussed in Note 1 to our Unaudited Condensed Consolidated Financial Statements and beginning with the first quarter of fiscal 2022, our CODM began to manage our business, allocate resources, and evaluate performance based on the reportable segments of MasterCraft, Crest, NauticStar, and Aviara.
MasterCraft Segment
The following table sets forth MasterCraft segment results for the three and nine months ended:
Operating income
7,238
34.8
13,693
26.4
325
29.3
30.4
Unit sales volume
Net sales per unit
Net sales increased 23.6 percent and 29.5 percent during the third quarter and first nine months of fiscal 2022, respectively, when compared with the same prior year periods. The increase was primarily driven by favorable model mix, higher prices, and higher option sales. For the third quarter, the increase was partially offset by decreased sales volumes. Lower sales volume for the quarter was driven by supply chain disruptions and absenteeism due to COVID-19, which created inefficiencies and shipping delays. In contrast to the third quarter, the first nine months benefited from increased sales volumes.
Operating income increased $7.2 million and $13.7 million during the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods. The increase was driven by higher net sales, offset by inflationary pressures and production inefficiencies from supply chain disruptions and labor challenges. Additionally, for the first nine months of fiscal 2022, Selling and marketing expense increased due to timing of prior-year expenses being impacted by the COVID-19 pandemic, resulting in lower costs for the first nine months of fiscal 2021. Also, General and administrative expenses increased as a result of continued investments in product development and information technology.
Crest Segment
The following table sets forth Crest segment results for the three and nine months ended:
1,418
34.2
5,542
65.5
826
258.1
1,846
536.6
Net sales increased $8.6 million and $32.1 million during the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods, as a result of higher sales volumes and higher prices.
Operating income for the third quarter and first nine months of fiscal 2022 increased 34.2 percent and 65.5 percent, respectively, when compared to the same prior year periods. The increase is primarily the result of higher net sales, partially offset by higher costs from inflationary pressures.
Purchases of property, plant, and equipment increased $0.8 million and $1.8 million for the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods due to investments in manufacturing capacity expansion and maintenance capital.
NauticStar Segment
The following table sets forth NauticStar segment results for the three and nine months ended:
Operating (loss) / income
(4,448
(1343.8
(7,905
489.8
89
9.3
1,101
64.1
Net sales decreased $0.7 million for the third quarter of fiscal 2022 when compared to the same prior-year period. The benefits of higher prices and favorable model mix did not overcome the decreased sales volume during the third quarter. Lower sales volume was driven by supply chain disruptions and production inefficiencies, which created shipping delays. Net sales increased $0.5 million for the first
22
nine months of fiscal 2022, due to higher prices, favorable model mix, and higher option sales, partially offset by decreased sales volumes.
Operating loss was $4.1 million and $9.5 million for the third quarter and first nine months of fiscal 2022, respectively. Supply chain disruptions, labor challenges, and higher costs from inflationary pressures, offset benefits from higher sales prices. Additionally, for the third quarter of fiscal 2022, $0.2 million in expense was recognized for third-party consulting fees in an effort to improve operational efficiency and increase throughput at the NauticStar segment.
Aviara Segment
The following table sets forth Aviara segment results for the three and nine months ended:
Operating loss
716
(26.2
(2,158
37.4
(1,993
(80.1
(17,046
(95.2
Net sales increased $8.0 million and $14.7 million during the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods, due to an increase in sales volume, favorable model mix, and higher prices.
During fiscal 2022, all Aviara boats were manufactured in our 140,000 square foot Merritt Island, Florida facility, which we purchased in October 2020. During the first six months of 2021, the production of Aviara boats at our MasterCraft facility in Vonore, Tennessee, was winding down and transitioning to the Merritt Island facility. As a result of this transition, overhead costs attributable to Aviara increased significantly which created a dilutive near-term impact on Aviara’s margins and profitability.
Operating loss decreased $0.7 million for the third quarter of fiscal 2022 as a result of increased production, partially offset by inflationary pressures when compared to the third quarter of fiscal 2021. Operating loss increased $2.2 million for the first nine months of fiscal 2022, compared to the same prior-year period due to inflation, ramp up related inefficiencies at the Merritt Island facility, including higher overhead costs associated with the new facility, and a goodwill impairment charge recorded during the first quarter of fiscal 2022. See Note 4 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on the impairment charge.
Non-GAAP Measures
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We define EBITDA as earnings before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations. For the periods presented herein, these adjustments include operational improvement initiative costs, Aviara transition costs, and certain non-cash items including goodwill impairment and share-based compensation. We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of Net sales.
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Adjusted Net Income and Adjusted Net Income Per Share
We define Adjusted Net Income and Adjusted Net Income per share as net income adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. For the periods presented herein, these adjustments include operational improvement initiative costs, Aviara transition costs, and certain non-cash items including goodwill impairment, other intangible asset amortization, and share-based compensation.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share, which we refer to collectively as the Non-GAAP Measures, are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, or U.S. GAAP. The Non-GAAP Measures are not measures of performance in accordance with U.S. GAAP and should not be considered as an alternative to net income, net income per share, or operating cash flows determined in accordance with U.S. GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow. We believe that the inclusion of the Non-GAAP Measures is appropriate to provide additional information to investors because securities analysts and investors use the Non-GAAP Measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted Net Income and Adjusted Net Income per share 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 U.S. GAAP, provides a more complete understanding of factors and trends affecting our business than does U.S. GAAP measures alone. We believe Adjusted Net Income and Adjusted Net Income per share assists our board of directors, management, investors, and other users of the financial statements in comparing our net income on a consistent basis from period to period because it removes certain non-cash items and other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. The Non-GAAP Measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements;
Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not reflect our tax expense or any cash requirements to pay income taxes;
Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and
Adjusted Net Income, Adjusted Net Income per share, and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our core and/or ongoing operations, but may nonetheless have a material impact on our results of operations.
In addition, because not all companies use identical calculations, our presentation of the Non-GAAP Measures may not be comparable to similarly titled measures of other companies, including companies in our industry.
24
The following table presents a reconciliation of net income as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and net income margin (expressed as a percentage of net sales) to Adjusted EBITDA Margin (expressed as a percentage of net sales) for the periods indicated:
% of Net
sales
11.2%
11.9%
9.5%
10.7%
Income tax expense
EBITDA
31,046
16.6%
25,511
17.3%
72,237
14.7%
61,459
Operational improvement initiative(a)
232
Goodwill impairment(b)
Aviara transition costs(c)
1,125
2,149
Adjusted EBITDA
32,050
17.2%
27,538
18.6%
76,445
15.6%
65,793
17.8%
(a)
Represents third-party consulting fees associated with the operational improvement initiative at our NauticStar segment.
(b)
Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge.
(c)
Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).
The following table presents a reconciliation of net income as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated:
(Dollars in thousands, except per share data)
Amortization of acquisition intangibles
960
2,920
2,882
Adjusted Net Income before income taxes
29,110
24,795
68,132
57,484
Adjusted income tax expense(d)
6,695
5,703
15,670
13,221
Adjusted Net Income
22,415
19,092
52,462
44,263
Adjusted Net Income per share:
1.23
1.01
2.82
2.35
1.21
2.79
2.34
Weighted average shares used for the computation of(e):
Basic Adjusted Net Income per share
Diluted Adjusted Net Income per share
(d)
Reflects income tax expense at an income tax rate of 23.0% for each period presented.
25
(e)
Represents the Weighted Average Shares used for the computation of Basic and Diluted earnings per share as presented on the Consolidated Statements of Operations to calculate Adjusted Net Income per diluted share for all periods presented herein.
The following table presents the reconciliation of net income per diluted share to Adjusted Net Income per diluted share for the periods presented:
Net income per diluted share
Impact of adjustments:
0.34
0.22
0.76
0.57
0.05
0.16
0.15
0.04
0.12
0.01
0.06
0.11
Adjusted Net Income per diluted share before income taxes
1.57
1.31
3.63
3.04
Impact of adjusted income tax expense on net income per diluted share before income taxes(d)
(0.36
(0.30
(0.84
(0.70
Adjusted Net Income per diluted share
Liquidity and Capital Resources
Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, service our debt, and fund our stock repurchase program. Our principal sources of liquidity are our cash balance, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt.
Cash and cash equivalents totaled $13.8 million as of April 3, 2022, a decrease of $25.5 million from $39.3 million as of June 30, 2021. Total debt as of April 3, 2022 and June 30, 2021 was $65.0 million and $93.1 million, respectively.
Our working capital was impacted by the $28.9 million increase in inventory during the first nine months of fiscal 2022 mainly due to an increase in raw materials to support higher production volumes and to increase safety stock to manage supply chain risk. Work in process has increased due to supply chain disruptions.
As of April 3, 2022, we had $7.7 million outstanding under the Revolving Credit Facility, leaving $92.3 million of available borrowing capacity. Refer to Note 7 — Long Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.
On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. During the nine months ending April 3, 2022, the Company repurchased 810,623 shares of common stock for $21.5 million in cash, including related fees and expenses.
We are continuing to monitor the impact of supply chain disruptions, production inefficiencies, and inflationary pressures on our business. However, we believe our cash balance, cash from operations, and our ability to borrow will be sufficient to provide for our liquidity and capital resource needs, including authorized stock repurchases.
26
The following table summarizes our cash flows from operating, investing, and financing activities:
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net change in cash
Nine Months Ended April 3, 2022 Cash Flow
Net cash provided by operating activities for the nine months ended April 3, 2022 totaled $35.3 million versus $54.4 million compared to the same prior-year period. The decrease is primarily due to working capital usage, partially offset by higher net earnings during fiscal 2022. Working capital usage primarily consisted of an increase in inventory, accounts receivable, and prepaid expenses and other current assets. Partially offsetting the working capital usage was an increase in accounts payable and accrued expenses and other current liabilities. As discussed above, inventory increased $28.9 million for first nine months of 2022. Accounts receivable increased as a result of timing of shipments. Prepaid expenses and other current assets increased due to higher general insurance premiums. Accounts payable increased as a result of increased production levels. Accrued expenses and other current liabilities increased due to an increase in warranty costs and dealer incentives.
Net cash used for investing activities was $10.8 million, which included capital expenditures. Our capital spending was focused on expanding our capacity and maintenance capital.
Net cash used for financing activities was $49.9 million, which included net payments of $28.3 million on long-term debt and stock repurchases totaling $21.5 million.
Nine Months Ended April 4, 2021 Cash Flow
Net cash provided by operating activities for the nine months ended April 4, 2021 totaled $54.4 million primarily due to net income net of non-cash expense items, an increase in accounts payable and accrued expenses and other current liabilities, and a decrease in income tax receivable, partially offset by an increase in inventory, accounts receivable, and prepaid expenses and other current assets. Accounts payable and inventory increased as a result of increased production. Accrued expenses and other current liabilities increased due to timing of variable compensation costs, increased warranty, dealer incentive, and transportation costs, and an increase in customer deposits. Income tax receivable decreased due to a receipt of a tax refund associated with fiscal 2020. Accounts receivable increased as a result of increased sales. Prepaid expenses and other current assets increased due to payment of annual insurance premiums during the third quarter of fiscal 2021.
Net cash used for investing activities was $23.8 million, which consisted of capital expenditures, including the purchase of the Merritt Island, Florida manufacturing facility.
Net cash used for financing activities was $18.0 million and related primarily to net payments of long-term debt.
Contractual Obligations
In October 2021, we entered into a new supplier agreement to purchase marine outboard engines during fiscal 2022. During the term of the agreement, we committed to purchasing a minimum annual gross dollar value of $27.0 million in engines. Except for the new purchase agreement and the net repayment of debt of $28.3 million during the nine months ended April 3, 2022, there were no material changes to our contractual obligations disclosed in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
27
Off Balance Sheet Arrangements
The Company did not have any off balance sheet financing arrangements as of April 3, 2022.
Critical Accounting Policies
Except as noted below, as of April 3, 2022 there were no significant changes in or changes to the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, which was filed with the SEC on September 2, 2021.
Other Intangible Assets
During the three and nine months ended April 3, 2022 and April 4, 2021, the Company did not record impairment charges related to its Other intangible assets. Given current period operating losses combined with a history of operating losses and operational inefficiencies, the Company continues to monitor the NauticStar segment’s outlook for sales and operating performance relative to the forecasts of expected future cash flows used in the Company’s previous impairment tests in order to evaluate whether the carrying value of the segment’s intangible assets remain above fair value. Should economic conditions, such as supply chain disruptions, labor challenges, and inflationary pressures, deteriorate in future periods or remain depressed for a prolonged period of time, or operational inefficiencies grow, estimates of future cash flows may not be sufficient to support the carrying value of NauticStar’s intangible assets. See Note 4 in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Refer to our 2021 Annual Report for a complete discussion of the Company’s market risk. There have been no material changes in market risk from those disclosed therein.
ITEM 4.CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) (of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of April 3, 2022.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended April 3, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
For a discussion of the Company’s legal proceedings, see Part I – Item 1. – Note 6 Commitments and Contingencies to the Company’s unaudited condensed consolidated financial statements.
ITEM 1A.
RISK FACTORS.
During the nine months ended April 3, 2022, there were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
ITEM 2.
UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.
On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. During the first nine months of fiscal 2022, we repurchased approximately $21.5 million of our common stock, including approximately $10.1 million during the three months ended April 3, 2022. The remaining authorization under the program was approximately $28.5 million.
During the three months ended April 3, 2022, the Company repurchased the following shares of common stock:
Period
Total Number of Shares Purchased
Average Price Paid Per Share(a)
Total Number of Shares Purchased as part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (dollars in thousands)
January 3, 2022 - January 30, 2022
153,787
24.19
34,902
January 31, 2022 - February 27, 2022
42,687
27.09
33,745
February 28, 2022 - April 3, 2022
199,474
26.04
28,546
395,948
25.43
Represents weighted average price paid per share excluding commissions paid.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
MINE SAFETY DISCLOSURES.
ITEM 5.
OTHER INFORMATION.
ITEM 6.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Incorporated by Reference
ExhibitNo.
Description
Form
File No.
Exhibit
Filing Date
FiledHerewith
3.1
Amended and Restated Certificate of Incorporation of MCBC Holdings, Inc.
10-K
001-37502
9/18/15
3.2
Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc.
10-Q
11/9/18
3.3
8-K
10/25/19
3.4
Fourth Amended and Restated By-laws of MasterCraft Boat Holdings, Inc.
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
*
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1
Section 1350 Certification of Chief Executive Officer
**
32.2
Section 1350 Certification of Chief Financial Officer
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Filed herewith.
Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date:
May 11, 2022
By:
/s/ FREDERICK A. BRIGHTBILL
Frederick A. Brightbill
Chief Executive Officer (Principal Executive Officer) and Chairman of the Board
/s/ TIMOTHY M. OXLEY
Timothy M. Oxley
Chief Financial Officer (Principal Financial and Accounting Officer),
Treasurer and Secretary