MasterCraft Boat Holdings Inc

Previous wording

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 2023 Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Current wording

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 2023 Annual Report and in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Previous wording

As anticipated, general market volatility and economic headwinds continue to create uncertainty and softness in the retail environment. As previously disclosed, because of the anticipated softness in retail demand, the Company has approached its wholesale production plan for fiscal 2024 with a prudent level of caution and a focus on rebalancing dealer inventories consistent with the expected retail demand. As a result, net sales decreased $125.0 million, or 38.0 percent, for the first half of fiscal 2024 compared to the same prior-year period. Gross margin declined in the quarter as a result of lower cost absorption due to decreased sales volumes and higher dealer incentives, partially offset by higher prices and favorable mix and options. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains competitive.

Current wording

As anticipated, general market volatility and economic headwinds continue to create uncertainty and softness in the retail environment. As previously disclosed, because of the anticipated softness in retail demand, the Company has approached its wholesale production plan for fiscal 2024 with a prudent level of caution and a focus on rebalancing dealer inventories consistent with the expected retail demand. As a result, net sales decreased and gross margin declined as a result of lower cost absorption due to decreased sales volumes.

Previous wording

The table below presents our consolidated results of operations for the three and six months ended:

Current wording

The table below presents our consolidated results of operations for the three and nine months ended:

Previous wording

Net sales decreased $59.7 million and $125.0 million during the second quarter and first six months of fiscal 2024, respectively, when compared with the same prior-year periods. The decrease in net sales is due to lower unit volume and an increase in dealer incentives, partially offset by higher prices and favorable mix and options. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains competitive.

Current wording

Net sales decreased $71.1 million and $196.1 million during the third quarter and first nine months of fiscal 2024 when compared with the same prior-year periods. The decreases in net sales were due to lower unit volume and an increase in dealer incentives, partially offset by higher prices and favorable model mix and options. Dealer incentives include measures taken by the Company to assist dealers as the retail environment remains competitive.

Previous wording

Gross margin percentage declined 520 and 570 basis points during the second quarter and first half of fiscal 2024, respectively, when compared to the same prior-year periods. Lower margins were the result of lower cost absorption due to planned decreased sales volume, higher dealer incentives, and higher costs related to material, labor and overhead inflation, partially offset by higher prices.

Current wording

Gross margin percentage declined 630 basis points and 590 basis points during the third quarter and first nine months of fiscal 2024, respectively, when compared with the same prior-year periods. Lower margins were the result of lower cost absorption due to planned decreased unit volume and higher dealer incentives, partially offset by higher prices and favorable model mix and options.

Previous wording

The following table sets forth MasterCraft segment results for the three and six months ended:

Current wording

The following table sets forth MasterCraft segment results for the three and nine months ended:

Previous wording

Net sales decreased $36.0 million and $73.2 million during the second quarter and first six months of fiscal 2024, respectively, when compared with the same prior-year periods. The decrease was driven by lower unit volume and increased dealer incentives, partially offset by higher prices and favorable mix and options. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains competitive.

Current wording

Net sales decreased $121.0 million during the first nine months of fiscal 2024 when compared with the same prior-year period. The decrease was driven by lower unit volume and increased dealer incentives, partially offset by higher prices and favorable model mix and options. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains competitive.

Previous wording

Operating income decreased $12.6 million and $26.4 million during the second quarter and first half of fiscal 2024, respectively, when compared to the same prior-year periods. The decrease was driven by decreased sales volume, higher dealer incentives, and higher costs related to material, labor and overhead inflation, partially offset by higher prices.

Current wording

Operating income decreased $17.7 million and $44.1 million during third quarter and first nine months of fiscal 2024, respectively, when compared with the same prior-year periods. The decreases were driven by decreased sales volume, higher dealer incentives, and CEO transition and related share-based compensation costs, partially offset by higher prices and favorable model mix and options.

Previous wording

The following table sets forth Crest segment results for the three and six months ended:

Current wording

The following table sets forth Crest segment results for the three and nine months ended:

Previous wording

Net sales decreased $4.1 million and $7.2 million during the second quarter and first six months of fiscal 2024, respectively, when compared to the same prior-year periods, due to decreased unit volume, unfavorable mix and higher dealer incentives, partially offset by higher prices and lower warranty costs.

Current wording

Net sales decreased $22.2 million and $66.9 million during the third quarter and first nine months of fiscal 2024, respectively, when compared to the same prior-year periods, due to decreased volume and unfavorable model mix and options, partially offset by higher prices.

Previous wording

Operating income for the second quarter of fiscal 2024 decreased $4.6 million when compared to the same prior-year period. The decrease is primarily the result of decreased net sales, as discussed above.

Current wording

Operating income for the third quarter of fiscal 2024 decreased $5.8 million when compared to the same prior-year period. The decrease was primarily the result of decreased net sales, as discussed above.

Previous wording

Operating income for the first half of fiscal 2024 decreased $11.9 million when compared to the same prior-year period. The decrease is primarily the result of lower net sales, as discussed above, and higher warranty costs related to prior model year expenses.

Current wording

Operating income for the first nine months of fiscal 2024 decreased $17.7 million when compared to the same prior-year period. The decrease was primarily the result of decreased net sales, as discussed above, and increased dealer incentives.

Previous wording

The following table sets forth Aviara segment results for the three and six months ended:

Current wording

The following table sets forth Aviara segment results for the three and nine months ended:

Previous wording

We define EBITDA as net income from continuing operations, before interest, 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, the adjustment is for share-based compensation. We define EBITDA margin and Adjusted EBITDA margin as EBITDA and Adjusted EBITDA, respectively, each expressed as a percentage of Net sales.

Current wording

We define EBITDA as net income from continuing operations, before interest, 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 share-based compensation, business development consulting costs, and CEO transition costs. We define EBITDA margin and Adjusted EBITDA margin as EBITDA and Adjusted EBITDA, respectively, each expressed as a percentage of Net sales.

Previous wording

We define Adjusted Net Income and Adjusted Net Income per share as net income from continuing operations, 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 other intangible asset amortization and share-based compensation.

Current wording

We define Adjusted Net Income and Adjusted Net Income per share as net income from continuing operations, 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 other intangible asset amortization, share-based compensation, business development consulting costs, and CEO transition costs.

Previous wording

For fiscal 2024 and 2023, income tax expense reflects an income tax rate of 22.0% and 23.0%, respectively, for each period presented.

Current wording

For fiscal 2024 and 2023, income tax expense reflects an income tax rate of 20.0% and 23.0%, respectively, for each period presented.

Previous wording

Cash and cash equivalents totaled $36.2 million as of December 31, 2023, an increase of $16.4 million from $19.8 million as of June 30, 2023. Held-to-maturity securities totaled $72.5 million as of December 31, 2023, a decrease of $19.1 million from $91.6 million as of June 30, 2023. Total debt as of December 31, 2023 and June 30, 2023, was $51.4 million and $53.7 million, respectively.

Current wording

Cash and cash equivalents totaled $22.5 million as of March 31, 2024, an increase of $2.7 million from $19.8 million as of June 30, 2023. Held-to-maturity securities totaled $83.2 million as of March 31, 2024, a decrease of $8.4 million from $91.6 million as of June 30, 2023. Total debt as of March 31, 2024 and June 30, 2023, was $50.4 million and $53.7 million, respectively.

Previous wording

During the six months ended December 31, 2023, the Company repurchased 455,983 shares of common stock for $10.2 million in cash, excluding related fees and expenses under both plans.

Current wording

During the nine months ended March 31, 2024, the Company repurchased 529,545 shares of common stock for $11.7 million in cash, excluding related fees and expenses under both plans.

Previous wording

Six Months Ended December 31, 2023 Cash Flows from Continuing Operations

Current wording

Nine Months Ended March 31, 2024 Cash Flows from Continuing Operations

Previous wording

Net cash provided by operating activities for the six months ended December 31, 2023 was $19.2 million, primarily due to net income. Working capital had a net nominal effect on cash provided by operating activities. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets. Favorable changes in working capital primarily consisted of a decrease in accounts receivable, inventories and prepaid expenses. Partially offsetting favorable changes in working capital was a decrease in accounts payable, accrued expenses and other current liabilities and income tax payable. Accounts receivable decreased primarily as a result of timing of collections and lower sales at the end of the period compared to the end of the prior-year period. Inventories decreased as we continue to rebalance inventory levels to align with lower production levels, partially offset by increased materials costs from inflation. Accrued expenses and other current liabilities primarily decreased due to payment of dealer incentives and lower compensation related accruals, partially offset by an increase in contract liabilities. Accounts payable decreased as a result of decreased production levels as well as timing associated with the holiday season. Income tax payable decreased due to the timing of payments.

Current wording

Net cash provided by operating activities for the nine months ended March 31, 2024 was $22.9 million, primarily due to net income, partially offset by working capital usage. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets. Working capital usage primarily consisted of a decrease in accrued expenses and other current liabilities, accounts payable and income tax payable and an increase in prepaid expenses and other current assets. Partially offsetting the working capital usage was a decrease in inventories. Inventories decreased as we continue to rebalance inventory levels to align with lower production levels, partially offset by increased materials costs from inflation. Accrued expenses and other current liabilities decreased primarily due to payment of dealer incentives and lower compensation related accruals, partially offset by an increase in repurchase obligations. Accounts payable decreased as a result of decreased production levels. Income tax payable decreased due to the lower earnings compared to the prior year.

Previous wording

Net cash provided by investing activities was $11.8 million, which included net changes of $20.0 million in held-to maturity securities, partially offset by $8.1 million in net capital expenditures. Our capital spending was primarily focused on tooling, facility enhancements and information technology.

Current wording

Net cash used in investing activities was $2.8 million, which included $12.6 million in net capital expenditures, partially offset by net changes of $9.8 million in held-to maturity securities. Our capital spending was primarily focused on tooling, facility enhancements and information technology.

Previous wording

Net cash used in financing activities was $14.1 million, which included net payments of $2.3 million on long-term debt and stock repurchases totaling $10.2 million.

Current wording

Net cash used in financing activities was $16.8 million, which included net payments of $3.4 million on long-term debt and stock repurchases totaling $11.7 million.

Previous wording

Six Months Ended January 1, 2023 Cash Flows from Continuing Operations

Current wording

Nine Months Ended April 2, 2023 Cash Flows from Continuing Operations

Previous wording

Net cash provided by operating activities for the six months ended January 1, 2023 was $79.8 million, primarily due to net income and cash provided by favorable changes in working capital. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Favorable changes in working capital primarily consisted of a decrease in accounts receivable and inventories, and an increase in accrued expenses and other current liabilities. Partially offsetting favorable changes in working capital was a decrease in accounts payable and income tax payable. Accounts receivable decreased primarily as a result of lower sales at the end of the period compared to the end of the prior-year period. Inventories decreased as we rebalanced inventory levels after the summer selling season, partially offset by increased materials costs from inflation. Accrued expenses and other current liabilities primarily increased due to increased warranty and floor plan interest costs, offset by payments of other dealer incentives. Accounts payable decreased as a result of decreased production levels during the holiday season. Income tax payable decreased due to the tax benefit generated from the sale of NauticStar.

Current wording

Net cash provided by operating activities for the nine months ended April 2, 2023 was $107.4 million, primarily due to net income and cash provided by favorable changes in working capital. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Favorable changes in working capital primarily consisted of an increase in accrued expenses and other current liabilities and accounts payable, and a decrease in accounts receivable and inventories. Partially offsetting favorable changes in working capital was an increase in prepaid expenses and other current assets. Accrued expenses and other current liabilities primarily increased due to increased warranty, floor plan interest, and retail rebate costs. Accounts payable increased mainly due to increased payables related to capital spending. Accounts receivable decreased primarily as a result of lower sales at the end of the period compared to the end of the prior-year period. Inventories decreased as we maintain rebalanced inventory levels after the prior summer selling season, partially offset by increased materials costs from inflation. Prepaid expenses and other current assets increased due to payment of annual general insurance premiums which have increased since the prior-year period.

Previous wording

Net cash used in investing activities was $71.6 million, due to investments in held-to-maturity securities of $59.7 million and $11.9 million of capital expenditures. Our capital spending was focused on expanding our capacity, maintenance capital, and information technology.

Current wording

Net cash used in investing activities was $92.4 million, due to net investments in held-to-maturity securities of $73.5 million and $18.9 million of capital expenditures. Our capital spending was focused on maintenance capital, which includes tooling, expanding our capacity, and information technology.

Previous wording

Net cash used in financing activities was $10.9 million, which included net payments of $1.5 million on long-term debt and stock repurchases totaling $9.0 million.

Current wording

Net cash used in financing activities was $18.8 million, which included net payments of $2.3 million on long-term debt and $16.0 million of stock repurchases.

Previous wording

As of December 31, 2023, 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, 2023, which was filed with the SEC on August 30, 2023.

Current wording

As of March 31, 2024, there were no significant changes in or changes to the application of our critical accounting policies or estimation procedures from those presented in our 2023 Annual Report.