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 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.

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 2024 Annual Report. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Previous wording

The Company's results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a continuing operations basis. Results related to our former NauticStar business that was sold on September 2, 2022 are reported as discontinued operations for all periods presented. See Note 3 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on Discontinued Operations.

Current wording

The Company's results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a continuing operations basis. Results related to our Aviara and NauticStar reporting units are reported as discontinued operations for all periods presented. See Note 3 in Notes to unaudited condensed consolidated financial statements for more information on discontinued operations.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Gross margin percentage declined 570 basis points during the first quarter of fiscal 2025 when compared with the same prior-year period. Lower margins were the result of lower cost absorption due to decreased production volume and higher dealer incentives as a percentage of net sales. Dealer incentives include measures taken by the Company to assist dealers as the retail environment remains competitive.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Net sales decreased $20.3 million during the first quarter of fiscal 2025 when compared with the same prior-year period. The decrease was driven by lower unit volume and unfavorable model mix.

Previous 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.

Current wording

Operating income decreased $6.6 million during first quarter of fiscal 2025 when compared with the same prior-year period. The change was primarily the result of decreased net sales, as discussed above.

Previous 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.

Current wording

Operating loss for the first quarter of fiscal 2025 was $2.7 million compared to operating income of $0.3 million in the same prior-year period. The change was primarily the result of decreased net sales, as discussed above.

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, 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.

Current wording

We define EBITDA as 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 adjustments are for share-based compensation, and CEO transition and organizational realignment 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, share-based compensation, business development consulting costs, and CEO transition costs.

Current wording

We define Adjusted Net Income and Adjusted Net Income per share as 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, and CEO transition and organizational realignment costs.

Previous wording

EBITDA, Adjusted EBITDA, EBITDA margin, 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:

Current wording

EBITDA, Adjusted EBITDA, EBITDA margin, 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, 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:

Previous wording

The following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and net income from continuing operations margin (expressed as a percentage of net sales) to EBITDA margin and Adjusted EBITDA margin (each expressed as a percentage of net sales) for the periods indicated:

Current wording

The following table presents a reconciliation of income from continuing operations as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and income from continuing operations margin (expressed as a percentage of net sales) to EBITDA margin and Adjusted EBITDA margin (each expressed as a percentage of net sales) for the periods indicated:

Previous wording

The following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated:

Current wording

The following table presents a reconciliation of income from continuing operations as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated:

Previous wording

The following table presents the reconciliation of net income from continuing operations per diluted share to Adjusted Net Income per diluted share for the periods indicated:

Current wording

The following table presents the reconciliation of income from continuing operations per diluted share to Adjusted Net Income per diluted share for the periods indicated:

Previous 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.

Current wording

For fiscal 2025 and 2024, income tax expense reflects an income tax rate of 20.0% for each period presented.

Previous 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.

Current wording

Cash and cash equivalents totaled $14.2 million as of September 29, 2024, an increase of $6.8 million from $7.4 million as of June 30, 2024. Held-to-maturity securities totaled $68.6 million as of September 29, 2024, a decrease of $10.3 million from $78.9 million as of June 30, 2024. Total debt as of September 29, 2024 and June 30, 2024, was $49.5 million and $49.3 million, respectively.

Previous wording

As of March 31, 2024, we had no amounts outstanding under the Revolving Credit Facility, leaving $100.0 million of available borrowing capacity. Refer to Note 10 — Long Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.

Current wording

As of September 29, 2024, we had $49.5 million outstanding under the Revolving Credit Facility, leaving $50.5 million of available borrowing capacity. Refer to Note 9 — Long Term Debt in the Notes to unaudited condensed consolidated financial statements for further details.

Previous wording

On July 24, 2023, the board of directors of the Company authorized a new share repurchase program under which the Company may repurchase up to $50 million of its outstanding shares of common stock. The new authorization became effective upon the completion of the Company's prior $50 million stock repurchase authorization.

Current wording

On July 24, 2023, the Board of the Company authorized a share repurchase program under which the Company may repurchase up to $50 million of its outstanding shares of common stock. The authorization became effective upon the completion of the Company's previously existing $50 million stock repurchase authorization.

Previous 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.

Current wording

During the three months ended September 29, 2024, the Company repurchased 183,629 shares of common stock for $3.5 million in cash, excluding related fees and expenses under both plans.

Previous wording

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

Current wording

Three Months Ended September 29, 2024 Cash Flows from Continuing Operations

Previous 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.

Current wording

Net cash used in operating activities for the three months ended September 29, 2024 was $0.5 million, primarily due to working capital usage, partially offset by net income. 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 and an increase in accounts receivable. Partially offsetting the working capital usage was an increase in accounts payables and a decrease in prepaid expenses and other current assets. Accrued expenses and other current liabilities decreased due to payment of dealer incentives and variable compensation. Accounts receivable increased due to timing of sales and collections at the end of the period compared to the end of the prior-year period. Accounts payables increased due to increased production compared to the prior-year period. Prepaid and other current assets decreased due to amortization of insurance premiums.

Previous 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.

Current wording

Net cash provided by investing activities was $8.4 million, which included $10.6 million of proceeds in held-to-maturity securities, partially offset by $2.2 million in capital expenditures. Our capital spending was primarily focused on information technology, machinery and equipment, and tooling.

Previous wording

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

Current wording

Three Months Ended October 1, 2023 Cash Flows from Continuing Operations

Previous 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.

Current wording

Net cash used in operating activities for the three months ended October 1, 2023 was $4.8 million, primarily due to unfavorable changes in working capital, partially offset by net income. Working capital usage primarily consisted of decreases in accrued expenses and other current liabilities, income tax payable, and accounts payable, and an increase in prepaid expenses and other current assets. Partially offsetting the working capital usage was a decrease in inventories. Accrued expenses and other current liabilities decreased due to payment of dealer incentives and variable compensation. Income tax payable decreased due to tax payments within the quarter. Accounts payable decreased due to lower production at the end of the period compared to the end of the prior year period. Prepaid expenses and other current assets increased due to an increase in prepaid expenses, partially offset by amortization of insurance premiums. Inventories decreased as we adjust inventory levels to align with lower production levels.

Previous 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.

Current wording

Net cash provided by investing activities was $22.5 million, due to net changes in held-to-maturity securities of $25.6 million, partially offset by $3.1 million of capital expenditures. Our capital spending was mainly focused on tooling, facility enhancements, and information technology.

Previous 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.

Current wording

Net cash used in financing activities was $8.4 million, which included net payments of $1.1 million on long-term debt and $5.8 million of stock repurchases.