MasterCraft Boat Holdings, Inc. - Quarter Report: 2020 March (Form 10-Q)

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: March 29, 2020


☐	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 Act). ☐ Yes ☑ No

As of May 4, 2020, there were 18,872,119 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits, Financial Statement Schedules	38

SIGNATURES		39

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 the coronavirus (“COVID-19”) pandemic on the Company, general economic conditions, demand for our products, 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 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, 2019, filed with the Securities and Exchange Commission (the “SEC”) on September 13, 2019 (our “2019 Annual Report”), our Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, filed with the SEC on February 5, 2020 (our “Fiscal Second Quarter Quarterly Report”), and this Quarterly Report on Form 10-Q (this “Quarterly 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.

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

	Three Months Ended					Nine Months Ended
	March 29,			March 31,		March 29,			March 31,
	2020			2019		2020			2019
NET SALES	$	102,562		$	128,390	$	311,979		$	343,572
COST OF SALES		81,288			97,033		244,030			261,939
GROSS PROFIT		21,274			31,357		67,949			81,633
OPERATING EXPENSES:
Selling and marketing		4,933			5,210		13,340			13,757
General and administrative		6,094			6,696		19,356			20,576
Amortization of other intangible assets		987			987		2,961			2,504
Goodwill and other intangible asset impairment		56,437			-		56,437			-
Total operating expenses		68,451			12,893		92,094			36,837
OPERATING INCOME (LOSS)		(47,177	)		18,464		(24,145	)		44,796
OTHER EXPENSE:
Interest expense		1,086			1,867		3,667			4,829
INCOME (LOSS) BEFORE INCOME TAX EXPENSE		(48,263	)		16,597		(27,812	)		39,967
INCOME TAX EXPENSE (BENEFIT)		(11,550	)		3,834		(6,601	)		8,552
NET INCOME (LOSS)	$	(36,713	)	$	12,763	$	(21,211	)	$	31,415

NET INCOME (LOSS) PER SHARE:
Basic	$	(1.96	)	$	0.68	$	(1.13	)	$	1.68
Diluted	$	(1.96	)	$	0.68	$	(1.13	)	$	1.67
WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:
Basic earnings per share		18,739,480			18,657,719		18,731,338			18,652,289
Diluted earnings per share		18,739,480			18,756,605		18,731,338			18,765,897

Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

	March 29,			June 30,
	2020			2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	40,991		$	5,826
Accounts receivable, net of allowances of $340 and $281, respectively		10,148			12,463
Income tax receivable		5,703			951
Inventories, net (Note 4)		37,159			30,660
Prepaid expenses and other current assets		4,979			4,464
Total current assets		98,980			54,364
Property, plant and equipment, net		41,669			33,636
Goodwill (Note 6)		29,593			74,030
Other intangible assets, net (Note 6)		64,836			79,799
Deferred income taxes		13,792			6,240
Deferred debt issuance costs, net		371			451
Operating lease assets (Note 8)		779			—
Other long-term assets		248			253
Total assets	$	250,268		$	248,773
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	14,008		$	17,974
Income tax payable		—			426
Accrued expenses and other current liabilities (Note 5)		42,912			41,421
Current portion of long-term debt, net of unamortized debt issuance costs (Note 7)		9,004			8,725
Total current liabilities		65,924			68,546
Long-term debt, net of unamortized debt issuance costs (Note 7)		129,429			105,016
Operating lease liabilities (Note 8)		445			—
Unrecognized tax positions		3,114			2,895
Total liabilities		198,912			176,457
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,872,119 shares at March 29, 2020 and 18,764,037 shares at June 30, 2019		189			188
Additional paid-in capital		115,832			115,582
Accumulated deficit		(64,665	)		(43,454	)
Total stockholders' equity		51,356			72,316
Total liabilities and stockholders' equity	$	250,268		$	248,773

Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share data)

						Additional
	Common Stock					Paid-in			Accumulated
	Shares			Amount		Capital			Deficit			Total
Balance at June 30, 2019		18,764,037		$	188	$	115,582		$	(43,454	)	$	72,316
Share-based compensation activity		74,960			1		169			—			170
Net income		—			—		—			8,623			8,623
Balance at September 29, 2019		18,838,997			189		115,751			(34,831	)		81,109
Share-based compensation activity		33,169			—		(78	)		—			(78	)
Net income		—			—		—			6,879			6,879
Balance at December 29, 2019		18,872,166			189		115,673			(27,952	)		87,910
Share-based compensation activity		(47	)		—		159			—			159
Net loss		—			—		—			(36,713	)		(36,713	)
Balance at March 29, 2020		18,872,119		$	189	$	115,832		$	(64,665	)	$	51,356

						Additional
	Common Stock					Paid-in		Accumulated
	Shares			Amount		Capital		Deficit			Total
Balance at June 30, 2018		18,682,338		$	187	$	114,052	$	(61,717	)	$	52,522
Adoption of accounting standards		—			—		—		(3,091	)		(3,091	)
Share-based compensation activity		39,082			—		279		—			279
Net income		—			—		—		8,465			8,465
Balance at September 30, 2018		18,721,420			187		114,331		(56,343	)		58,175
Share-based compensation activity		4,770			—		363		(1	)		362
Net income		—			—		—		10,188			10,188
Balance at December 30, 2018		18,726,190			187		114,694		(46,156	)		68,725
Share-based compensation activity		(2,196	)		—		371		—			371
Net income		—			—		—		12,763			12,763
Balance at March 31, 2019		18,723,994		$	187	$	115,065	$	(33,393	)	$	81,859

Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Nine Months Ended
	March 29,			March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(21,211	)	$	31,415
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		7,686			5,450
Share-based compensation		703			1,159
Deferred income taxes		(7,552	)		62
Unrecognized tax benefits		219			646
Amortization of debt issuance costs		420			410
Goodwill and other intangible asset impairment		56,437			—
Changes in certain operating assets and liabilities		(13,657	)		(382	)
Other, net		855			792
Net cash provided by operating activities		23,900			39,552

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired		—			(81,729	)
Purchases of property, plant and equipment		(13,601	)		(10,387	)
Proceeds from disposal of property, plant and equipment		25			5
Net cash used in investing activities		(13,576	)		(92,111	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		—			80,000
Principal payments on long-term debt		(10,647	)		(29,015	)
Borrowings on revolving credit facility		35,000			—
Proceeds from insurance premium financing		1,130			—
Principal payments on insurance premium financing		(189	)		—
Payments of debt issuance costs		—			(146	)
Cash paid for withholding taxes on vested stock		(453	)		(728	)
Net cash provided by financing activities		24,841			50,111
NET CHANGE IN CASH AND CASH EQUIVALENTS		35,165			(2,448	)

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		5,826			7,909
CASH AND CASH EQUIVALENTS — END OF PERIOD	$	40,991		$	5,461
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest	$	3,263		$	3,957
Cash payments for income taxes		6,146			7,765
SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures in accounts payable and accrued expenses		80			399

Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless stated otherwise dollars in thousands, except share and 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., and MasterCraft International Sales Administration, Inc. (collectively, “MasterCraft”); Nautic Star, LLC and NS Transport, LLC (collectively, “NauticStar”); and Crest Marine LLC (“Crest”). Holdings and its subsidiaries collectively are referred to herein as the “Company”.

The Company is a leading innovator, designer, manufacturer, and marketer of recreational powerboats that operates in three reportable segments: MasterCraft, NauticStar and Crest. See Note 12 for information regarding the Company’s reportable segments.

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, 2019 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of March 29, 2020, its results of operations for the three and nine months ended March 29, 2020 and March 31, 2019, its cash flows for the nine months ended March 29, 2020 and March 31, 2019, and its statements of stockholders’ equity for the three and nine months ended March 29, 2020 and March 31, 2019. 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 U.S. Securities and Exchange Commission (“SEC”) for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2019 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on September 13, 2019 (our “2019 Annual Report”).

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.

COVID-19 Pandemic — The outbreak of a novel coronavirus throughout the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that many of the Company's customers, dealers, and suppliers could be impacted by these closings and restrictions which could materially and adversely affect demand for our products, our ability to obtain or deliver inventory, and our ability to collect accounts receivables as customers face higher liquidity and solvency risk. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 Pandemic, and it is possible that it could cause an economic downturn, recession, or depression. Such economic disruption could have a material adverse effect on our business as retail demand for our products could decline which would in-turn reduce wholesale demand from our dealers. Policymakers around the world have responded with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remains uncertain.

To protect the health of its manufacturing employees and to balance wholesale production with retail demand, the Company suspended operations at its manufacturing facilities for all of its brands in late March 2020. As a result of this action, the Company temporarily laid off nearly all of its hourly workforce. After further evaluation, the Company intends to resume operations at its Owosso, Michigan facility (Crest Marine boats) on May 11, 2020, its Amory, Mississippi facility (NauticStar boats) on May 11, 2020, and its Vonore, Tennessee facility (MasterCraft and Aviara boats) on May 12, 2020. As the Company resumes its operations, it will continue to evaluate and monitor the health and safety of its employees and will adhere to federal and local government mandates and guidelines.

The severity of the impact of the COVID-19 Pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration, spread, severity, and impact of the pandemic, the remedial actions and stimulus measures adopted by local and federal governments, the effects of the pandemic on the Company's customers, dealers and suppliers, and to the extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted. The Company's future results of operations, cash flows, and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, additional goodwill and intangible impairment charges (see Note 6), and the impact of any initiatives that the Company may undertake to address financial and operational challenges faced by it and its customers, dealers, and suppliers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 Pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

With the exception of Accounting Standards Codification (“ASC”) 842 discussed below, there were no significant changes in or changes in the application of the Company’s significant or critical accounting policies or estimation procedures for the nine months ended March 29, 2020 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2019.

Recently Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, (“ASC 842”) which requires lessees to recognize assets and liabilities on the balance sheet for all leases with terms greater than twelve months. On July 1, 2019, the Company adopted ASC 842 and all related amendments. The Company elected the optional transition method provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements, and as a result, has not restated its condensed consolidated financial statements for prior periods presented. The Company has elected the package of practical expedients upon transition which allowed the Company to retain the lease classification for any leases that existed prior to adoption, to not reassess whether any contracts entered into prior to adoption are leases, and to not reassess initial direct costs for any leases that existed prior to adoption.

ASC 842 did not have a material impact on the Company's condensed consolidated statements of operations. The cumulative effect of the changes made to the Company's consolidated balance sheet as of July 1, 2019 for the adoption of ASC 842 was as follows:

	Balance as of		Adjustments		Balance as of
	June 30, 2019		Due to ASC 842		July 1, 2019
Assets
Operating lease assets	$	-	$	3,931	$	3,931

Current liabilities
Accrued expenses and other current liabilities		41,421		547		41,968

Long-term liabilities
Operating lease liabilities		-		3,384		3,384

The Company determines if an arrangement is a lease at lease inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the Company's lease contracts generally do not include an implicit rate, the Company uses its incremental

borrowing rate based on information available at commencement date in determining the present value of future payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The operating lease ROU asset also includes any initial direct costs and lease payments made prior to lease commencement and excludes lease incentives incurred.

The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company may enter into lease agreements that contain both lease and non-lease components, which it has elected to account for as a single lease component for all asset classes. See Note 8 for information regarding the Company’s leases.

Share-Based Compensation

In June 2018, the Financial Accounting Standards Board issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This guidance provides clarity and reduces complexity when applying the guidance in Topic 718, Compensation—Stock Compensation to the term or condition of share-based payments to nonemployees. ASU 2018-07 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. The Company adopted this guidance for its fiscal year beginning July 1, 2019. The adoption of this standard did not have a material impact on its financial statements.

Recently Issued Accounting Standards

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This guidance modifies the disclosure requirements on fair value measurements in Topic 820 by removing disclosures regarding transfers between Level 1 and Level 2 of the fair value hierarchy, by modifying the measurement uncertainty disclosure, and by requiring additional disclosures for Level 3 fair value measurements, among others. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

2.	REVENUE RECOGNITION

The following tables present the Company’s revenue from contracts with customers by major product category and reportable segment.

	Three Months Ended March 29, 2020
	MasterCraft		NauticStar		Crest		Total
Major Product Categories:
Boats and trailers	$	68,684	$	14,053	$	17,696	$	100,433
Parts		1,705		103		136		1,944
Other revenue		142		—		43		185
Total	$	70,531	$	14,156	$	17,875	$	102,562

	Nine Months Ended March 29, 2020
	MasterCraft		NauticStar		Crest^(a)		Total
Major Product Categories:
Boats and trailers	$	204,303	$	47,372	$	52,417	$	304,092
Parts		6,411		349		437		7,197
Other revenue		487		6		197		690
Total	$	211,201	$	47,727	$	53,051	$	311,979

	Three Months Ended March 31, 2019
	MasterCraft		NauticStar		Crest		Total
Major Product Categories:
Boats and trailers	$	77,329	$	21,624	$	27,065	$	126,018
Parts		1,798		22		166		1,986
Other revenue		304		6		76		386
Total	$	79,431	$	21,652	$	27,307	$	128,390

	Nine Months Ended March 31, 2019
	MasterCraft		NauticStar		Crest^(a)		Total
Major Product Categories:
Boats and trailers	$	224,604	$	58,187	$	52,819	$	335,610
Parts		6,464		57		252		6,773
Other revenue		994		11		184		1,189
Total	$	232,062	$	58,255	$	53,255	$	343,572

(a)	Crest was acquired on October 1, 2018.

Contract Liabilities

As of June 30, 2019, the Company had $0.8 million of contract liabilities associated with customer deposits. During the nine months ended March 29, 2020, all of this amount was recognized as revenue. As of March 29, 2020, total contract liabilities associated with customer deposits were $0.4 million, were reported in Accrued expenses and other current liabilities on the condensed consolidated balance sheet, and are expected to be recognized as revenue during the remainder of the year ended June 30, 2020.

3.	RELATED PARTY TRANSACTIONS

Crest Facility Lease

In connection with the operations of Crest, the Company made rental payments to Crest Marine Real Estate LLC (“Real Estate”) for a manufacturing facility, storage and office building (the “Crest Facility”). One of the minority owners of Real Estate is a member of the Crest management team. The lease was to expire on September 30, 2028, and was subject to four consecutive, five-year renewal periods. The lease terms included an option for the Company to purchase the Crest Facility for an amount equal to its fair market value, as determined by appraisals and negotiation between the Company and Real Estate (the “Purchase Option”). The annual rent under the lease was $0.3 million for the first five years of the lease term, and was to increase to $0.4 million for the remaining five years. Additionally, at the beginning of each of the optional renewal terms the rent was to be adjusted based on the change in the Consumer Price Index. In accordance with the Purchase Option, on October 24, 2019 the Company purchased the Crest Facility for $4.1 million. See Note 8 for additional information regarding the purchase.

Crest Supplier Relationship

Crest purchases fiberglass component parts from a supplier whose minority owner was the same member of the Crest management team that has a minority ownership interest in Real Estate. On January 31, 2020 this minority ownership interest was divested and this supplier ceased being a related party. During the period beginning July 1, 2019 and ending January 31, 2020, the Company purchased $1.8 million of products from the supplier.

4.	INVENTORIES

Inventories consisted of the following:

	March 29,			June 30,
	2020			2019
Raw materials and supplies	$	24,028		$	20,034
Work in process		5,898			4,571
Finished goods		8,982			7,207
Obsolescence reserve		(1,749	)		(1,152	)
Total inventories	$	37,159		$	30,660

5.	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

	March 29,		June 30,
	2020		2019
Warranty	$	19,318	$	17,205
Dealer incentives		11,172		12,623
Compensation and related accruals		2,757		3,494
Floor plan interest		2,570		2,060
Inventory repurchase contingent obligation		1,779		1,936
Insurance premium financing		941		—
Self-insurance		1,027		606
Debt interest		342		405
Current operating lease liabilities		334		—
Other		2,672		3,092
Total accrued expenses and other current liabilities	$	42,912	$	41,421

The following activity related to warranty liabilities was recorded in Accrued expenses and other current liabilities during the nine months ended March 29, 2020 and March 31, 2019:

	Nine Months Ended
	March 29,			March 31,
	2020			2019
Balance at the beginning of the period	$	17,205		$	13,077
Provisions		5,828			5,735
Additions for Crest acquisition		—			727
Payments made		(5,921	)		(5,223	)
Aggregate changes for preexisting warranties		2,206			2,417
Balance at the end of the period	$	19,318		$	16,733

6.GOODWILL AND OTHER INTANGIBLE ASSETS

Impairment

The current economic environment, including the significant declines in share price, market volatility and the disruption to the Company’s supply chain resulting from the COVID-19 Pandemic, triggered an interim impairment analysis for the Company’s intangible assets including goodwill. Holistically, the Company evaluated the events and changes in circumstances since the most recent quantitative impairment test performed as of June 30, 2019 and determined that is more likely than not that our trade names and goodwill at certain reporting units were impaired.

Determining the fair value of trade names and goodwill required the use of significant judgement, including estimation of cash flows, which are dependent on internal forecasts, estimation of long-term growth rate for each reporting unit, and determination of the weighted average cost of capital. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, production costs, discount rate, and estimated capital needs. Management considers historical experience and all available information at the time that the fair values of the Company’s reporting units are estimated. Inputs used to estimate these fair values included significant unobservable inputs that reflect the Company’s assumptions about the inputs that market participants would use and, therefore, the fair value assessments are classified within Level 3 of the fair value hierarchy.

If the carrying amount of trade names or goodwill exceed their fair value, then they are considered impaired and an impairment loss is recognized in an amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the carrying amount of the trade name or goodwill allocated to that reporting unit. As a result of this analysis, the Company recorded impairment charges totaling $56.4 million during the three months ended March 29, 2020 related to the NauticStar and Crest segments. The charges recorded to each segment are detailed below, and are included in Goodwill and other intangible asset impairment on the condensed consolidated statements of operations. The impairment was principally a result of a decline, in the fiscal third quarter, in market conditions, including our share price, and the outlook for sales and operating performance relative to the Company’s acquisition plans and impairment test performed as of June 30, 2019.

Goodwill and other intangible asset impairment for the three and nine months ended March 29, 2020 was as follows:

	NauticStar		Crest		Consolidated
Goodwill	$	8,199	$	36,238	$	44,437
Trade name		5,000		7,000		12,000
Total	$	13,199	$	43,238	$	56,437

While the extent and duration of the economic impact from the COVID-19 pandemic remain unclear, changes in assumptions and estimates may affect the fair value of goodwill and other intangibles and could result in additional impairment charges in future periods.

The carrying amounts of goodwill as of March 29, 2020 and June 30, 2019, attributable to each of the Company’s reportable segments, were as follows:

Balance as of March 29, 2020	Gross Amount		Accumulated Impairment Losses			Total
MasterCraft	$	29,593	$	-		$	29,593
NauticStar		36,199		(36,199	)		-
Crest		36,238		(36,238	)		-
Total	$	102,030	$	(72,437	)	$	29,593

Balance as of June 30, 2019	Gross Amount		Accumulated Impairment Losses			Total
MasterCraft	$	29,593	$	-		$	29,593
NauticStar		36,199		(28,000	)		8,199
Crest		36,238		-			36,238
Total	$	102,030	$	(28,000	)	$	74,030

The following table presents the carrying amount of Other intangible assets, net as of March 29, 2020 and June 30, 2019.

	March 29,							June 30,
	2020							2019
	Gross Amount		Accumulated Amortization / Impairment			Other intangible assets, net		Gross Amount		Accumulated Amortization / Impairment			Other intangible assets, net
Amortized intangible assets
Dealer networks	$	39,500	$	(8,835	)	$	30,665	$	39,500	$	(5,909	)	$	33,591
Software		245		(74	)		171		245		(37	)		208
		39,745		(8,909	)		30,836		39,745		(5,946	)		33,799

Unamortized intangible assets
Trade names		49,000		(15,000	)		34,000		49,000		(3,000	)		46,000
Total other intangible assets	$	88,745	$	(23,909	)	$	64,836	$	88,745	$	(8,946	)	$	79,799

Amortization expense related to Other intangible assets, net for the three and nine months ended March 29, 2020 was $1.0 and $3.0 million, respectively. Amortization expense related to Other intangible assets, net for the three and nine months ended March 31, 2019 was $1.0 and $2.5, respectively. Estimated amortization expense for the fiscal year ended June 30, 2020 is $4.0 million.

7.LONG-TERM DEBT

Long-term debt is as follows:

	March 29,			June 30,
	2020			2019
Revolver	$	35,000		$	-
Senior secured term loans		104,703			115,349
Debt issuance costs on term loans		(1,270	)		(1,608	)
Total debt		138,433			113,741
Less current portion of long-term debt		9,420			9,167
Less current portion of debt issuance costs on term loans		(416	)		(442	)
Long-term debt, net of current portion	$	129,429		$	105,016

On October 1, 2018, the Company entered into the Fourth Amended and Restated Credit and Guaranty Agreement with a syndicate of certain financial institutions (the “Fourth Amended Credit Agreement”). The Fourth Amended Credit Agreement replaced the Company’s Third Amended and Restated Credit Agreement, dated October 2, 2017. The Fourth Amended Credit Agreement provides the Company with a $190.0 million senior secured credit facility, consisting of a $75.0 million term loan, and an $80.0 million term loan (together, the “Term Loans”), and a $35.0 million revolving credit facility (the “Revolving Credit Facility”).

The Fourth Amended Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.5% to 1.5% or at an adjusted LIBOR rate plus an applicable margin ranging from 1.5% to 2.5%, in each case based on

the Company’s Total Net Leverage Ratio, as defined under the Fourth Amended Credit Agreement. Based on the Company’s Total Net Leverage Ratio as of March 29, 2020, the applicable margin for loans accruing interest at the prime rate is 0.75% and the applicable margin for loans accruing interest at LIBOR is 1.75%.

As of March 19, 2020, the Company drew $35.0 million on its revolving credit agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 Pandemic. As of March 29, 2020, the Company had $35.0 million of borrowings outstanding on its Revolving Credit Facility. The Company’s unamortized debt issuance costs related to the Revolving Credit Facility were $0.4 million and $0.5 million as of March 29, 2020 and June 30, 2019, respectively. All amounts outstanding under the Fourth Amended Credit Agreement mature in October 2023. As of March 29, 2020, the Company was in compliance with its financial covenants under the Fourth Amended Credit Agreement.

Amendment to Fourth Amended Credit Agreement

On May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended Credit Agreement (the “Amendment”). The changes effected by the Amendment include, among others, the temporary removal and replacement of the Company’s financial covenants, the addition of a 50 basis point floor on LIBOR, modifications to the range of applicable LIBOR and prime interest rate margins, and a revision of the Total Net Leverage Ratio calculation. Under the Amendment, the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant of the Fourth Amended Credit Agreement are temporarily replaced with three separate covenants: (i) an Interest Coverage Ratio, (ii) a Minimum Liquidity threshold, and (iii) a Maximum Unfinanced Capital Expenditures limitation (the “Package of Financial Covenants”). The Package of Financial Covenants are in place through the quarter ended March 31, 2021, at which time the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant will be reinstated and the Package of Financial Covenants will sunset, and with the minimum liquidity covenant being tested on the last day of each fiscal month through May 31, 2021. In addition, the Total Net Leverage Ratio calculation was temporarily revised to include all unrestricted cash balances, without limitation, until June 30, 2021.

Pursuant to the Amendment, the applicable interest, at the Company’s option, is at either the prime rate plus an applicable margin ranging from 0.5% to 2.25% or at an adjusted LIBOR rate plus an applicable margin ranging from 1.5% to 3.25%, in each case based on the Company’s Total Net Leverage Ratio.

Insurance Premium Financing

On March 27, 2020, the Company executed an insurance premium financing agreement of $1.1 million with a premium finance company in order to finance certain of its annual insurance premiums. Beginning on April 1, 2020, the financing agreement is payable in eleven monthly installments of principal and interest of approximately $0.1 million. The agreement bears interest at 3.6%. The balance of the insurance premium financing as of March 29, 2020 was $0.9 million and is recorded in Accrued expenses and other current liabilities.

8.LEASES

The Company has lease agreements for certain personal and real property. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not include any significant renewal options. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Upon adoption of ASC 842 on July 1, 2019, the Company’s most significant lease was for the Crest Facility, which was classified as an operating lease. This lease included the Purchase Option for the Company to acquire the premises. During the three months ended September 29, 2019, the decision was made to exercise the Purchase Option which resulted in $2.8 million of operating lease assets and liabilities being reclassified to finance lease assets and liabilities on the September 29, 2019 condensed consolidated balance sheet. In addition, the decision to exercise the Purchase Option resulted in the remeasurement of the related lease balances which added $1.3 million of additional finance lease assets and finance lease liabilities to the September 29, 2019 condensed consolidated balance sheet.

In accordance with the Purchase Option, on October 24, 2019 the Company completed the purchase of the Crest Facility for $4.1 million. Upon completion of this purchase, the Company recognized approximately $4.1 million in Property, plant and equipment, net and derecognized approximately $4.1 million of both Finance lease assets and Accrued expenses and other current liabilities on the condensed consolidated balance sheet.

The purchase price of the Crest Facility was determined by appraisal and negotiation between the Company and Real Estate. The Company funded the purchase by utilizing cash from operations.

A summary of the Company's lease assets and lease liabilities as of March 29, 2020 is as follows:

		March 29,
	Classification	2020
Lease Assets
Operating lease assets	Operating lease assets	$	779

Lease Liabilities
Current operating lease liabilities	Accrued expenses and other current liabilities		334
Non-current operating lease liabilities	Operating lease liabilities		445
Total lease liabilities		$	779

A summary of the Company's total lease cost for the three and nine months ended March 29, 2020 is as follows:

	Classification	Three Months Ended		Nine Months Ended
Operating lease cost	Cost of sales	$	93	$	382
	General and administrative		9		25
Total lease cost^(a)		$	102	$	407

(a)	Includes total variable lease cost and total short-term lease cost, both of which were immaterial.

The Company's maturity analysis of its operating lease liabilities as of March 29, 2020 is as follows:

Remainder of 2020	$	92
2021		359
2022		298
2023		72
2024		1
Total lease payments		822
Less: Interest		(43	)
Present value of lease payments	$	779

The total weighted-average discount rate and remaining lease term for the Company's operating leases were 4.73% and 2.36 years, respectively, as of March 29, 2020. For the nine months ended March 29, 2020, total operating cash flows related to operating leases were $0.4 million.

Future minimum rental payments under all non-cancelable operating leases with remaining lease terms in excess of one year at June 30, 2019, were as follows:

2020	$	703
2021		690
2022		628
2023		402
2024		402
Thereafter		1,806
Total	$	4,631

9.	INCOME TAXES

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (the “CARES Act”). Among the changes to the U.S. federal income tax rules, the CARES Act restored net operating loss carryback rules that were eliminated by the Tax Cuts and Jobs Act (the “Tax Reform Act”), modified the limit on the deduction for net interest expense and accelerated the timeframe for refunds of AMT credits. The Company has evaluated the impact of the CARES Act and has not identified any material effect on its results of operations, financial condition, or cash flows.

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 offset by a permanent benefit associated with the foreign derived intangible income deduction. During the three months ended March 29, 2020 and March 31, 2019, the Company’s effective tax rates were 23.9% and 23.1%, respectively. During the nine months ended March 29, 2020 and March 31, 2019, the Company’s effective tax rates were 23.7% and 21.4%, respectively. The Company’s effective tax rates for the three and nine months ended March 29, 2020 are higher compared to the effective tax rates for the three and nine months ended March 31, 2019, primarily due to favorable discrete adjustments which reduced the effective tax rates for the three and nine months ended March 31, 2019.

10.	NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of the Company’s net income (loss) per share:

	Three Months Ended					Nine Months Ended
	March 29,			March 31,		March 29,			March 31,
	2020			2019		2020			2019
Net income (loss)	$	(36,713	)	$	12,763	$	(21,211	)	$	31,415
Weighted average shares — basic		18,739,480			18,657,719		18,731,338			18,652,289
Dilutive effect of assumed exercises of stock options		—			39,160		—			47,258
Dilutive effect of assumed restricted share awards/units		—			59,726		—			66,350
Weighted average outstanding shares — diluted		18,739,480			18,756,605		18,731,338			18,765,897
Basic net income per share	$	(1.96	)	$	0.68	$	(1.13	)	$	1.68
Diluted net income (loss) per share	$	(1.96	)	$	0.68	$	(1.13	)	$	1.67

For the three and nine months ended March 29, 2020 and March 31, 2019, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted net income (loss) per share, included:

	Three Months Ended				Nine Months Ended
	March 29,		March 31,		March 29,		March 31,
	2020		2019		2020		2019
Restricted stock awards		61,420		1,757		44,428		1,090
Performance stock units		52,288		33,365		45,258		1,036

11.	SHARE-BASED COMPENSATION

The following table presents the components of share-based compensation expense by award type.

	Three Months Ended					Nine Months Ended
	March 29,			March 31,		March 29,			March 31,
	2020			2019		2020			2019
Restricted stock awards	$	378		$	50	$	898		$	667
Performance stock units		(219	)		116		(204	)		341
Stock options		-			205		9			151
Share-based compensation expense	$	159		$	371	$	703		$	1,159

Adjustment to Share-Based Compensation

Based upon current economic trends, the probability of attaining the performance criteria of the Performance Stock Units (PSUs”) has been lowered. As a result, the amount of share-based compensation expense has been lowered by approximately $0.4 million on a cumulative basis from original estimates during the three months ended March 29, 2020.

Restricted Stock Awards

During the nine months ended March 29, 2020, the Company granted 138,457 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 March 29, 2020, 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 March 29, 2020, was $17.41 per share.

The following table summarizes the status of nonvested RSAs as of March 29, 2020, and changes during the nine months then ended.

				Average
	Nonvested			Grant-Date
	Restricted			Fair Value
	Shares			(per share)
Nonvested at June 30, 2019		53,804		$	22.94
Granted		138,457			17.41
Vested		(24,854	)		20.84
Forfeited		(34,797	)		20.24
Nonvested at March 29, 2020		132,610			18.27

As of March 29, 2020, there was $1.6 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

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 March 29, 2020, and changes during the nine months then ended.

				Average
	Nonvested			Grant-Date
	Performance			Fair Value
	Stock Units			(per share)
Nonvested at June 30, 2019		50,621		$	23.34
Granted		72,048			18.14
Vested		-			-
Forfeited		(46,882	)		20.82
Nonvested at March 29, 2020		75,787			19.95

As of March 29, 2020, there was $0.3 million of total unrecognized compensation expense related to nonvested PSUs. The Company expects this expense to be recognized over a weighted average period of 2.0 years.

12.SEGMENT INFORMATION

The Company designs, manufactures, and markets recreational performance sport boats, luxury day boats, and outboard boats under three operating and reportable segments: MasterCraft, NauticStar, and Crest. The Company’s segments are defined by the Company’s operational and reporting structures.

MasterCraft Segment

The MasterCraft segment produces boats under two product brands, MasterCraft and Aviara, at its Vonore, Tennessee facility. MasterCraft boats are premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating. Aviara boats are luxury day boats primarily used for general recreational boating. Production of Aviara boats began during the year ended June 30, 2019 and the Company began selling these boats in July 2019.

NauticStar Segment

The NauticStar segment produces boats at its Amory, Mississippi facility. NauticStar’s boats are primarily used for saltwater fishing and general recreational boating.

Crest Segment

The Crest segment produces pontoon boats at its Owosso, Michigan facility. Crest’s boats are primarily used for general recreational boating.

The following tables present financial information for the Company’s reportable segments for the three and nine months ended March 29, 2020 and March 31, 2019 and total assets at March 29, 2020 and June 30, 2019.

	Three Months Ended March 29, 2020
	MasterCraft		NauticStar			Crest			Consolidated
Net sales	$	70,531	$	14,156		$	17,875		$	102,562
Operating income (loss)		11,062		(15,246	)		(42,993	)		(47,177	)
Depreciation and amortization		1,205		807			620			2,632
Purchases of property, plant and equipment		1,289		799			10			2,098

	Nine Months Ended March 29, 2020
	MasterCraft		NauticStar			Crest^(a)			Consolidated
Net sales	$	211,201	$	47,727		$	53,051		$	311,979
Operating income (loss)		33,869		(15,892	)		(42,122	)		(24,145	)
Depreciation and amortization		3,383		2,532			1,771			7,686
Purchases of property, plant and equipment		5,655		2,713			5,233			13,601

	Three Months Ended March 31, 2019
	MasterCraft		NauticStar		Crest		Consolidated
Net sales	$	79,431	$	21,652		27,307	$	128,390
Operating income		14,620		1,544		2,300		18,464
Depreciation and amortization		868		682		541		2,091
Purchases of property, plant and equipment		4,079		150		136		4,365

	Nine Months Ended March 31, 2019
	MasterCraft		NauticStar		Crest^(a)		Consolidated
Net sales	$	232,062	$	58,255	$	53,255	$	343,572
Operating income		37,563		2,698		4,535		44,796
Depreciation and amortization		2,405		1,967		1,078		5,450
Purchases of property, plant and equipment		8,551		1,663		173		10,387

(a)	Crest was acquired on October 1, 2018.

	March 29, 2020			June 30, 2019
Assets:
MasterCraft	$	331,796		$	273,046
NauticStar		40,334			52,761
Crest		41,151			85,979
Eliminations		(163,013	)		(163,013	)
Total assets	$	250,268		$	248,773

13.ACQUISITION

On October 1, 2018, we acquired Crest, a manufacturer of pontoon boats. For accounting purposes, Crest meets the definition of a business and has been accounted for as a business combination. We finalized the purchase price allocation and recorded measurement period adjustments to the initial allocation as disclosed in the notes to our consolidated financial statements included in our 2019 Annual Report. Beginning October 1, 2018, our consolidated results of operations include the results of Crest.

The unaudited pro forma financial results shown in the table below for the three and nine months ended March 31, 2019, combine the consolidated results of the Company and Crest giving effect to the Crest acquisition as if it had been completed on July 1, 2017. The unaudited pro forma financial results do not give effect to any of our other acquisition activity that occurred after July 1, 2017, and do not include any anticipated synergies or other assumed benefits of the Crest acquisition. This unaudited pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the Crest acquisition been completed as of July 1, 2017. The unaudited pro forma financial results include certain adjustments for acquisition-related costs, debt service costs

and additional amortization expense based upon definite-life amortizable assets acquired. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2019		2019
Net sales	$	128,390	$	364,565
Net income	$	12,765	$	32,944
Basic earnings per share	$	0.68	$	1.77
Diluted earnings per share	$	0.68	$	1.76

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 2019 Annual Report on Form 10-K, our Fiscal Second Quarter Quarterly Report and elsewhere in this Quarterly Report. 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

COVID-19 Pandemic

The outbreak of a novel coronavirus throughout the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that many of the Company's customers, dealers, and suppliers could be impacted by these closings and restrictions which could materially and adversely affect demand for our products, our ability to obtain or deliver inventory, and our ability to collect accounts receivable as customers face higher liquidity and solvency risk. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 Pandemic, and it is possible that it could cause an economic downturn, recession, or depression. Such economic disruption could have a material adverse effect on our business as retail demand for our products could decline which would in-turn reduce wholesale demand from our dealers. Policymakers around the world have responded with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remains uncertain.

To protect the health of its manufacturing employees and to balance wholesale production with retail demand, the Company suspended operations at its manufacturing facilities for all of its brands in late March 2020. As a result of this action, the Company temporarily laid off nearly all of its hourly workforce. The Company paid lump sum severance payments to laid off employees and provided for the temporary continuation of their healthcare benefits. These actions are estimated to have cost approximately $1.5 million during the fiscal 2020 third quarter (the “COVID-19 Shutdown Costs”). After further evaluation, the Company intends to resume operations at its Owosso, Michigan facility (Crest Marine boats) on May 11, 2020, its Amory, Mississippi facility (NauticStar boats) on May 11, 2020, and its Vonore, Tennessee facility (MasterCraft and Aviara boats) on May 12, 2020. As the Company resumes its operations, it will

continue to evaluate and monitor the health and safety of its employees and will adhere to federal and local government mandates and guidelines.

On March 19, 2020, the Company drew $35.0 million on its revolving credit agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 Pandemic. In the event of an extended manufacturing operation suspension or lower retail demand environment, the proceeds from this draw-down will be used in an effort to ensure the ongoing viability of operations and to protect our customers and stakeholders.

Additionally, on May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended & Restated Credit and Guarantee Agreement (the “Amendment”) to strengthen our financial flexibility. Among other things, the changes effected by the Amendment provide temporary relief under our financial covenants. See Note 7 in Notes to Condensed Consolidated Financial Statements for more information regarding these changes.

The current economic environment, including the significant declines in share price, market volatility and the disruption to our supply chain, has also triggered an interim impairment analysis for our intangible assets including goodwill. As a result of our analysis, we recorded an impairment charges totaling $56.4 million related to the NauticStar and Crest segments (the “Impairment Charges”). The impairment was principally a result of a decline, in the fiscal third quarter, in market conditions, including our share price, and the outlook for sales and operating performance relative to our acquisition plans and impairment test performed as of June 30, 2019. See Note 6 in Notes to Condensed Consolidated Financial Statements for more information regarding the Impairment Charges.

The severity of the impact of the COVID-19 Pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration, spread, severity, and impact of the pandemic, the remedial action and stimulus measures adopted by local and federal governemnts, the effects of the pandemic on the Company's customers, dealers, and suppliers, and to the extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted. The Company's future results of operations, cash flows, and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, additional goodwill and other intangible asset impairment charges, and the impact of any initiatives that the Company may undertake to address financial and operational challenges faced by it and its customers, dealers, and suppliers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 Pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Overview of Results of Operations

Net sales were $102.6 million for the third quarter of 2020, which represented a decrease of 20.1 percent as compared to the third quarter of 2019, due to lower wholesale unit volumes primarily as a result of production cuts in anticipation of potential impact on retail demand from the COVID-19 pandemic and our continued effort to allow our dealers to right-size pipeline inventory levels. Partially offsetting this decline was Aviara sales included in our MasterCraft segment, and higher average wholesale prices for the MasterCraft brand.

Net sales were $312.0 million for the nine months ended March 29, 2020, which represented a decrease of 9.2 percent as compared to the nine months ended March 31, 2019, primarily for the same reasons described above for the quarterly period and softness in the overall saltwater fishing category. This decline was partially offset by Aviara sales included in our MasterCraft segment, higher average wholesale prices for both the MasterCraft brand and NauticStar, and lower sales discounts for our Canadian dealers related to import tariff support.

Gross profit for the third quarter of 2020 decreased 32.2 percent, primarily due to lower unit sales volume for each reportable segment, $1.5 million in COVID-19 Shutdown Costs and higher sales discounts. This decline was partially offset by price increases for each reportable segment. Gross margin percentage decreased by 3.7 percentage points to 20.7 percent for the third quarter of 2020 from 24.4 percent for the third quarter of 2019 primarily due to lower overhead absorption resulting from lower unit sales volume and $1.5 million of transitory COVID-19 Shutdown Costs and higher sales discounts.

Gross profit for the nine months ended March 29, 2020 decreased 16.8 percent, primarily due to lower unit sales volume for each reportable segment and $1.5 million in COVID-19 Shutdown Costs. This decline was partially offset by price increases for each reportable segment, the inclusion of Crest’s first quarter 2020 results, and lower sales discounts attributable to the MasterCraft brand. Gross margin

percentage decreased by 2.0 percentage points to 21.8 percent for the nine months ended March 29, 2020 from 23.8 percent for the nine months ended March 31, 2019, primarily due to lower overhead absorption driven by lower unit sales volume for each reportable segment, $1.5 million of transitory COVID-19 Shutdown Costs, and the inclusion of Crest’s first quarter 2020 results.

Net loss was $(36.7) million for the third quarter of 2020, compared to Net income of $12.8 million for the third quarter of 2019. Diluted net loss per share was $(1.96), compared to diluted net income per share of $0.68 for the prior year period.

Net loss was $(21.2) million for the nine months ended March 29, 2020, compared to Net income of $31.4 million for the nine months ended March 31, 2019. Diluted net loss per share was $(1.13), compared to Net income per share of $1.67 for the prior year period. Net loss for the three and nine months ended March 29, 2020 included Goodwill and other intangible asset impairment charges of $56.4, or $(3.01) per diluted share.

Aviara Brand Launch

We began selling boats under the Aviara brand during the first quarter of 2020. Aviara boats are designed, engineered, and manufactured to meet the exacting specifications of consumers seeking the ultimate luxury recreational day boat experience. The brand’s first model, the AV32, began selling during the first quarter of 2020 and the AV36 began selling during the second quarter of 2020. In February 2020, we launched the third Aviara model, the AV40, which we expect to begin selling in the first quarter of fiscal 2021. Aviara is built in our MasterCraft facility and is part of the MasterCraft reportable segment.

Results of Operations

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

	Three Months Ended
	March 29,			March 31,			2020 vs. 2019
	2020			2019			Change			% Change
	(Dollars in thousands)
Consolidated statements of operations:
NET SALES	$	102,562		$	128,390		$	(25,828	)		(20.1	%)
COST OF SALES		81,288			97,033			(15,745	)		(16.2	%)
GROSS PROFIT		21,274			31,357			(10,083	)		(32.2	%)
OPERATING EXPENSES:
Selling and marketing		4,933			5,210			(277	)		(5.3	%)
General and administrative		6,094			6,696			(602	)		(9.0	%)
Amortization of other intangible assets		987			987			-			0.0	%
Goodwill and other intangible asset impairment		56,437			—			56,437
Total operating expenses		68,451			12,893			55,558			430.9	%
OPERATING INCOME (LOSS)		(47,177	)		18,464			(65,641	)		(355.5	%)
OTHER EXPENSE:
Interest expense		1,086			1,867			(781	)		(41.8	%)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE		(48,263	)		16,597			(64,860	)		(390.8	%)
INCOME TAX EXPENSE (BENEFIT)		(11,550	)		3,834			(15,384	)		(401.3	%)
NET INCOME (LOSS)	$	(36,713	)	$	12,763		$	(49,476	)		(387.7	%)
Additional financial and other data:
Unit sales volume:
MasterCraft		713			868			(155	)		(17.9	%)
NauticStar		313			485			(172	)		(35.5	%)
Crest		461			728			(267	)		(36.7	%)
Consolidated unit sales volume		1,487			2,081			(594	)		(28.5	%)
Net sales:
MasterCraft	$	70,531		$	79,431		$	(8,900	)		(11.2	%)
NauticStar		14,156			21,652			(7,496	)		(34.6	%)
Crest		17,875			27,307			(9,432	)		(34.5	%)
Consolidated net sales	$	102,562		$	128,390		$	(25,828	)		(20.1	%)
Net sales per unit:
MasterCraft	$	99		$	92		$	7			7.6	%
NauticStar		45			45			-			0.0	%
Crest		39			38			1			2.6	%
Consolidated net sales per unit		69			62			7			11.3	%
Gross margin percentage		20.7	%		24.4	%	-370 bpts

Three Months Ended March 29, 2020 Compared to the Three Months Ended March 31, 2019

Net Sales. Net Sales for the third quarter were $102.6 million, a decrease of $25.8 million, or 20.1 percent, compared to $128.4 million for the prior-year period. The decrease was primarily due to:

•

an $8.9 million decrease for the MasterCraft segment, due to lower unit sales volume for our MasterCraft brand as we proactively decreased unit production in anticipation of potential impact on retail demand from the COVID-19 Pandemic, reduced unit production as we continued to right-size our dealer inventory levels, and higher retail rebate discounts, partially offset by a richer mix of higher-priced and higher-contented models. Within the MasterCraft segment, the decrease for the MasterCraft brand was partially offset by Aviara sales in 2020;

•

a $9.4 million and a $7.5 million decrease for the Crest and NauticStar segments, respectively, primarily due to lower unit sales volume as we proactively decreased unit production in anticipation of potential impact on retail demand from the COVID-19 Pandemic, reduced unit production as we continued to right-size our dealer inventory levels, and higher retail rebate discounts.

Gross Profit and Gross Margin Percentage. Gross profit decreased $10.1 million, or 32.2 percent, to $21.3 million compared to $31.4 million for the prior-year period. The decrease was primarily driven by lower unit sales volume for each reportable segment, $1.5 million of COVID-19 Shutdown Costs, and higher retail rebate discounts. These decreases were partially offset by price increases for MasterCraft and Crest.

Operating Expenses. Operating expenses increased $55.6 million, or 430.9 percent, to $68.5 million for the third quarter compared to $12.9 million for the prior-year period. This increase was primarily due to the $56.4 of Impairment Charges and was partially offset by lower variable compensation costs.

Interest Expense. Interest expense decreased $0.8 million, or 41.8 percent, as $16.0 million of voluntary prepayments on our term loans over the last twelve months have resulted in lower average debt balances, and lower effective interest rates during the quarter compared to the prior-year period.

Income Tax Expense (Benefit). Our consolidated interim effective income tax rate increased to 23.9 percent for the third quarter of 2020 from 23.1 percent for third quarter 2019, primarily due to favorable discrete adjustments for the second quarter of 2019, which reduced the interim effective tax rate for that period.

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

	Nine Months Ended
	March 29,			March 31,			2020 vs. 2019
	2020			2019			Change			% Change
	(Dollars in thousands)
Consolidated statements of operations:
NET SALES	$	311,979		$	343,572		$	(31,593	)		(9.2	%)
COST OF SALES		244,030			261,939			(17,909	)		(6.8	%)
GROSS PROFIT		67,949			81,633			(13,684	)		(16.8	%)
OPERATING EXPENSES:
Selling and marketing		13,340			13,757			(417	)		(3.0	%)
General and administrative		19,356			20,576			(1,220	)		(5.9	%)
Amortization of other intangible assets		2,961			2,504			457			18.3	%
Goodwill and other intangible asset impairment		56,437			—			56,437
Total operating expenses		92,094			36,837			55,257			150.0	%
OPERATING INCOME (LOSS)		(24,145	)		44,796			(68,941	)		(153.9	%)
OTHER EXPENSE:
Interest expense		3,667			4,829			(1,162	)		(24.1	%)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE		(27,812	)		39,967			(67,779	)		(169.6	%)
INCOME TAX EXPENSE (BENEFIT)		(6,601	)		8,552			(15,153	)		(177.2	%)
NET INCOME (LOSS)	$	(21,211	)	$	31,415		$	(52,626	)		(167.5	%)
Additional financial and other data:
Unit sales volume:
MasterCraft		2,170			2,609			(439	)		(16.8	%)
NauticStar		1,046			1,391			(345	)		(24.8	%)
Crest^(a)		1,407			1,403			4			0.3	%
Consolidated unit sales volume		4,623			5,403			(780	)		(14.4	%)
Net sales:
MasterCraft	$	211,201		$	232,062		$	(20,861	)		(9.0	%)
NauticStar		47,727			58,255			(10,528	)		(18.1	%)
Crest^(a)		53,051			53,255			(204	)		(0.4	%)
Consolidated net sales	$	311,979		$	343,572		$	(31,593	)		(9.2	%)
Net sales per unit:
MasterCraft	$	97		$	89		$	8			9.0	%
NauticStar		46			42			4			9.5	%
Crest^(a)		38			38			-			0.0	%
Consolidated net sales per unit		67			64			3			4.7	%
Gross margin percentage		21.8	%		23.8	%	-200 bpts

(a)	Crest was acquired on October 1, 2018.

Nine months Ended March 29, 2020 Compared to the Nine months Ended March 31, 2019

Net Sales. Net Sales for the nine months ended March 29, 2020 were $312.0 million, a decrease of $31.6 million, or 9.2 percent, compared to $343.6 million for the prior-year period. The decrease was primarily due to:

•

a $20.9 million decrease for the MasterCraft segment, primarily due to lower unit sales volume for our MasterCraft brand as we continued to right-size our dealer inventory levels and proactively decreased unit production in March 2020 in response to the COVID-19 Pandemic, partially offset by a richer mix of higher-priced and higher-contented models and lower sales discounts. The lower sales discounts were primarily related to our Canadian dealers as the Canadian retaliatory import tariffs on boats, first imposed in July 2018, were rescinded in May 2019. Within the MasterCraft segment, the decrease for the MasterCraft brand was partially offset by Aviara sales in 2020;

•

a $10.5 million decrease for the NauticStar segment primarily for the same reasons described above for the quarterly period as well as softness in the overall saltwater fishing category, partially offset by a shift to higher-priced models;

•

a net $0.2 million decrease as the Crest acquisition in October 2018 added net sales of $18.9 million for the first quarter of 2020 which was offset by a total $19.1 million period-over-period decrease attributable to the second and third quarters of 2020 as we continued to right-size our dealer inventory levels and proactively decreased unit production in March 2020 in response to the COVID-19 Pandemic.

Gross Profit and Gross Margin Percentage. Gross profit decreased $13.7 million, or 16.8 percent, to $67.9 million compared to $81.6 million for the prior-year period. The decrease was primarily due to lower unit sales volume for each reportable segment and $1.5 million in COVID-19 Shutdown Costs. These decreases were partially offset by price increases for each reportable segment, $2.6 million of gross profit attributable to Crest’s first quarter 2020 results and lower sales discounts attributable to the MasterCraft brand.

Gross margin percentage decreased primarily due to lower overhead absorption driven by lower unit sales volume for each reportable segment, $1.5 million of transitory COVID-19 Shutdown Costs, and the inclusion of Crest’s first quarter 2020 results, as Crest generates a lower gross margin percentage than our MasterCraft segment.

Operating Expenses. Operating expenses increased $55.3 million, or 150.0 percent, to $92.1 million for the nine months ended March 29, 2020 compared to $36.8 million for the prior-year period. The increase was primarily driven by the $56.4 of Impairment Charges and the inclusion of Crest which added $2.2 million related to the first quarter 2020. This increase was partially offset by a $2.8 million decrease at our MasterCraft segment mainly due to lower acquisition-related costs, lower incentive compensation costs, and lower share-based compensation expense as a result of our CEO transition and lower estimated payouts related to our Performance Stock Units.

Interest Expense. Interest expense decreased $1.2 million, or 24.1 percent, primarily for the same reasons described above for the quarterly period.

Income Tax Expense (Benefit). Our consolidated interim effective income tax rate increased to 23.7 percent for the nine months ended March 29, 2020 from 21.4 percent for the nine months ended March 31, 2019, primarily due to favorable discrete adjustments for the nine months ended March 31, 2019, which reduced the interim effective tax rate for that period.

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 Goodwill and other intangible asset impairment, COVID-19 Shutdown Costs, Aviara (new brand) startup costs, transaction expenses associated with acquisitions and certain non-cash items including share-based compensation, and an acquisition-related inventory step-up adjustment. We define Adjusted EBITDA Margin as Adjusted EBITDA expressed as a percentage of Net sales.

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. For the periods presented herein, these adjustments include Goodwill and other intangible asset impairment, COVID-19 Shutdown Costs, Aviara (new brand) startup costs, transaction expenses associated with acquisitions, and certain non-cash items including other intangible asset amortization, share-based compensation, and an acquisition-related inventory step-up adjustment.

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 for management’s discretionary use. 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 non-cash items and items not indicative of our core and/or ongoing operations. 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.

The following table presents a reconciliation of net income (loss) as determined in accordance with U.S. GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated:

	Three Months Ended						Nine Months Ended
	March 29,			March 31,			March 29,			March 31,
	2020			2019			2020			2019

Net income (loss)	$	(36,713	)	$	12,763		$	(21,211	)	$	31,415
Income tax expense (benefit)		(11,550	)		3,834			(6,601	)		8,552
Interest expense		1,086			1,867			3,667			4,829
Depreciation and amortization		2,632			2,091			7,686			5,450
EBITDA		(44,545	)		20,555			(16,459	)		50,246
Goodwill and other intangible asset impairment^(a)		56,437			-			56,437			-
COVID-19 Shutdown costs^(b)		1,506			-			1,506			-
Aviara start-up costs^(c)		398			937			1,213			1,700
Share-based compensation		159			371			703			1,159
Transaction expense^(d)		-			27			-			2,044
Inventory step-up adjustment - acquisition related^(e)		-			-			-			382
Adjusted EBITDA	$	13,955		$	21,890		$	43,400		$	55,531
Adjusted EBITDA Margin		13.6	%		17.0	%		13.9	%		16.2	%

(a)	Represents non-cash charges recorded in the NauticStar and Crest segments for impairments of goodwill and trade name. See Note 6 in Notes to Condensed Consolidated Financial Statements for more information regarding these impairment charges.

(b)	Represents costs associated with the COVID-19 pandemic. Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees.

(c)

Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, in first fiscal quarter of 2021. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. Start-up costs presented for fiscal 2019 are related to the launch of the Aviara brand and the three initial Aviara models which had not yet begun selling. We expect to adjust EBITDA for Aviara start-up costs through fiscal 2020.

(d)	Represents fees, expenses, and integration costs associated with our acquisition of Crest in fiscal 2019.

(e)	Represents post-acquisition adjustment to cost of goods sold for the fair value step-up of inventory acquired, all of which was sold during fiscal 2019.

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

	Three Months Ended					Nine Months Ended
	March 29,			March 31,		March 29,			March 31,
	2020			2019		2020			2019
	(Dollars in thousands, except share and per share amounts)
Net income (loss)	$	(36,713	)	$	12,763	$	(21,211	)	$	31,415
Income tax expense (benefit)		(11,550	)		3,834		(6,601	)		8,552
Goodwill and other intangible asset impairment^(a)		56,437			-		56,437			-
COVID-19 Shutdown costs^(b)		1,506			-		1,506			-
Amortization of acquisition intangibles		960			960		2,882			2,423
Aviara start-up costs^(c)		398			937		1,213			1,700
Share-based compensation		159			371		703			1,159
Transaction expense^(d)		-			27		-			2,044
Inventory step-up adjustment - acquisition related^(e)		-			-		-			382
Adjusted Net Income before income taxes		11,197			18,892		34,929			47,675
Adjusted income tax expense^(f)		2,575			4,251		8,034			10,727
Adjusted Net Income	$	8,622		$	14,641	$	26,895		$	36,948

Adjusted Net Income per share:
Basic	$	0.46		$	0.78	$	1.44		$	1.98
Diluted	$	0.46		$	0.78	$	1.42		$	1.96
Weighted average shares used for the computation of:
Basic Adjusted Net Income per share		18,739,480			18,657,719		18,731,338			18,652,289
Diluted Adjusted Net Income per share^(g)		18,947,877			18,849,136		18,952,577			18,857,600

(a)	Represents non-cash charges recorded in the NauticStar and Crest segments for impairments of goodwill and trade name. See Note 6 in Notes to Condensed Consolidated Financial Statements for more information regarding these impairment charges.

(b)	Represents costs associated with the COVID-19 pandemic. Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees.

(c)

Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, in first fiscal quarter of 2021. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. Start-up costs presented for fiscal 2019 are related to the launch of the Aviara brand and the three initial Aviara models which had not yet begun selling. We expect to adjust net income (loss) for Aviara start-up costs through fiscal 2020.

(d)	Represents fees, expenses, and integration costs associated with our acquisition of Crest in fiscal 2019.

(e)	Represents post-acquisition adjustment to cost of goods sold for the fair value step-up of inventory acquired, all of which was sold during fiscal 2019.

(f)	Reflects income tax expense at an estimated annual effective income tax rate of 23.0% for fiscal 2020 and 22.5% for the prior-year period.

(g)	See table below for reconciliation of weighted average shares used for computation of Basic earnings per share to weighted average shares used for Diluted Adjusted Net Income per share.

The following table presents the reconciliation of weighted average shares used for computation of Basic earnings per share to weighted average shares used for Diluted Adjusted Net income per share:

	Three Months Ended				Nine Months Ended
	March 29,		March 31,		March 29,		March 31,
	2020		2019		2020		2019
Weighted average shares used for computation of Basic earnings per share		18,739,480		18,657,719		18,731,338		18,652,289
Dilutive effect of outstanding stock options^(a)		-		42,525		10,711		48,289
Dilutive effect of outstanding restricted share awards/units^(b)		208,397		148,892		210,528		157,022
Weighted average shares used for the computation of Diluted Adjusted Net Income per share		18,947,877		18,849,136		18,952,577		18,857,600

(a)	Represents the dilutive effect of stock options calculated using the treasury stock method, but instead of using the average market price, the market price on the last business day of the period is used.

(b)	Represents the dilutive effect of restricted stock awards (“RSAs”) and performance stock units (“PSUs”) assuming the total outstanding awards/unit at each period end are fully dilutive.

The following table presents the reconciliation of net income (loss) per diluted share to Adjusted net income per diluted weighted average share for the periods presented:

	Three Months Ended						Nine Months Ended
	March 29,			March 31,			March 29,			March 31,
	2020			2019			2020			2019
Net income (loss) per diluted share	$	(1.96	)	$	0.68		$	(1.13	)	$	1.67
Impact of adjustments:
Income tax expense (benefit)		(0.62	)		0.20			(0.35	)		0.46
Goodwill and other intangible asset impairment^(a)		3.01			-			3.01			-
COVID-19 Shutdown costs^(b)		0.08			-			0.08			-
Amortization of acquisition intangibles		0.05			0.05			0.15			0.13
Aviara start-up costs^(c)		0.02			0.05			0.06			0.09
Share-based compensation		0.01			0.02			0.04			0.06
Transaction expense^(d)		-			-			-			0.11
Inventory step-up adjustment - acquisition related^(e)		-			-			-			0.02
Adjusted Net Income per diluted share before income taxes		0.59			1.00			1.86			2.54
Impact of adjusted income tax expense on net income per diluted share before income taxes^(f)		(0.14	)		(0.22	)		(0.43	)		(0.58	)
Impact of increased share count^(g)		0.01			-			(0.01	)		-
Adjusted Net Income per diluted weighted average share	$	0.46		$	0.78		$	1.42		$	1.96

(a)	Represents non-cash charges recorded in the NauticStar and Crest segments for impairments of goodwill and trade name. See Note 6 in Notes to Condensed Consolidated Financial Statements for more information regarding these impairment charges.

(b)	Represents costs associated with the COVID-19 pandemic. Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees.

(c)

Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, in first fiscal quarter of 2021. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. Start-up costs presented for fiscal 2019 are related to the launch of the Aviara brand and the three initial Aviara models which had not yet begun selling. We expect to adjust net income for Aviara start-up costs through fiscal 2020.

(d)	Represents fees, expenses, and integration costs associated with our acquisition of Crest in fiscal 2019.

(e)	Represents post-acquisition adjustment to cost of goods sold for the fair value step-up of inventory acquired, all of which was sold during fiscal 2019.

(f)	Reflects income tax expense at an estimated annual effective income tax rate of 23.0% for fiscal 2020 and 22.5% for the prior-year period.

(g)	Reflects the impact of increased share counts giving effect to the exchange of all RSAs, the vesting of all PSUs and for the dilutive effect of stock options included in outstanding shares and rounding.

Liquidity and Capital Resources

Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, and service our debt. Our principal sources of funds are cash generated from operating activities and the refinancing and/or new issuance of long-term debt. On March 19, 2020, the Company drew $35.0 million on its revolving credit agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 Pandemic. Additionally, on May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended & Restated Credit and Guarantee Agreement (the “Amendment”) to strengthen our financial flexibility. Among other things, the changes effected by the Amendment provide temporary relief under our financial covenants. See Note 7 in Notes to Condensed Consolidated Financial Statements for more information regarding these changes. As of March 29, 2020, we had no remaining borrowing availability under the Revolving Credit Facility. We believe our cash balance and cash from operations, along with the ability to borrow, will be sufficient to provide for our liquidity and capital resource needs for at least the next 12 months. However, we are continuing to monitor the COVID-19 Pandemic and its impact on our business, customers and industry as a whole. See Part II, Item 1A. Risk Factors.

The following table summarizes our cash flows from operating, investing, and financing activities:

	Nine Months Ended
	March 29,			March 31,			2020 vs. 2019
	2020			2019			Change			% Change
	(Dollars in thousands)
Total cash provided by (used in):
Operating activities	$	23,900		$	39,552		$	(15,652	)		(39.6	%)
Investing activities		(13,576	)		(92,111	)		78,535			(85.3	%)
Financing activities		24,841			50,111			(25,270	)		(50.4	%)
Net change in cash	$	35,165		$	(2,448	)		37,613			(1536.5	%)

Operating Activities

Net cash provided by operating activities decreased primarily due to unfavorable working capital usage and lower operating 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, excluding the impact of acquisitions and non-cash adjustments. Cash flows from working capital changes decreased $12.7 million primarily due to:

•

a $7.4 million decrease related to Accrued expenses and other current liabilities largely from higher dealer incentive spending, timing of dealer incentive payments, and lower accrued payroll as a result of lower incentive compensation accruals;

•

a $7.2 million decrease attributable to Inventories mainly as a result of the production slowdown in March 2020 in response to the COVID-19 Pandemic, growth in inventory balances as a result of the introduction of the Aviara brand, and an increase in certain raw materials as a precautionary measure in response to potential supply chain disruptions resulting from the COVID-19 Pandemic;

•

a $4.3 million decrease related to Income tax receivable is primarily due to the decreased taxable income between the comparable periods;

•

a $3.4 million decrease attributable to Accounts payable as a result of lower production levels in March 2020 as compared to March 2019 and the timing of vendor payments;

•

partially offset by a $9.4 million increase related to Accounts receivable primarily due to lower sales volumes in March 2020 as compared to March 2019 and an improved collection cycle for Crest.

Investing Activities

Net cash used in investing activities decreased primarily due to the 2019 Crest acquisition for $81.7 million. Capital outlays during the nine months ended March 29, 2020 included the purchase of the Crest manufacturing facility, expansion activities, molds, and equipment. See Note 8 in Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding the Crest facility purchase.

Financing Activities

Net financing cash flow decreased primarily as the result of lower proceeds from the issuance of long-term debt. The Crest acquisition, completed during the second quarter of 2019, was funded using $80.0 million of proceeds from the issuance of long-term debt. On March 20, 2020, the Company borrowed all available funds under its Revolving Credit Facility, $35.0 million, precautionary measure in order to increase its cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the COVID-19 Pandemic. During the nine months ended March 29, 2020, the Company made $10.6 million of principal payments on its term loans, including $6.0 million of voluntary prepayments.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet financing arrangements as of March 29, 2020.

Contractual Obligations

During the first quarter of 2020, the Company elected to exercise its option to purchase the leased Crest manufacturing facility and on October 24, 2019 the purchase was completed. See Note 8 in Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding this purchase.

As a result of this purchase, the Company’s Operating Lease Obligations, as presented in the Contractual Obligations table in our 2019 Annual Report on Form 10-K were impacted as follows:

•

Payments due in Less than 1 year were reduced by $0.3 million,

•

Payments due in 1-3 years were reduced by $0.7 million,

•

Payments due in 4-5 years were reduced by $0.7 million, and

•

Payments due in More than 5 years were reduced by $1.8 million.

Emerging Growth Company

We are an emerging growth company, as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding stockholder advisory “say-on-pay” votes on executive compensation.

The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Pursuant to Section 107 of the JOBS Act, we have irrevocably chosen to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.”

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of fiscal year during which we had total annual gross revenues of at least $1.07 billion, (ii) the last day of the fiscal year following the fifth anniversary of the closing of the IPO, June 30, 2021, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, or (iv) the date on which we are deemed to be a “large accelerated filer,” as defined under the Exchange Act.

Critical Accounting Policies

Except as noted below, as of March 29, 2020, there were no significant changes in or changes in the application of our critical accounting policies or estimation procedures from those presented in our 2019 Annual Report.

We review goodwill and other intangibles for impairment on a reporting unit basis annually during the fourth quarter of each year, using a measurement date of June 30th, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Reporting units for the purpose of goodwill impairment testing are the same as our operating segments (MasterCraft, NauticStar and Crest).

The Company calculates the fair value of its reporting units considering both the income approach and market approach. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach. Internally forecasted future cash flows, which the Company believes reasonably approximate market participant assumptions, are discounted using a weighted average cost of capital (“Discount Rate”) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering the measure of risk related to the specific reporting unit’s forecasted performance. Fair value under the market approach is determined for each unit by applying market multiples for comparable public companies to the unit’s financial results. The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those forecasts in determining the Discount Rate, along with selecting representative market multiples.

As discussed in Note 6 in our Notes to Unaudited Condensed Consolidated Financial Statements, we performed an interim impairment analysis related to goodwill and intangible assets in connection with our preparation of our financial statements for the three months ended March 29, 2020. Based on the results of this impairment analysis, which indicated the carrying values of our NauticStar and Crest reporting units were in excess of fair values, all goodwill recorded for these reporting units was impaired. We concluded there was no impairment of goodwill for MasterCraft. The fair value of the MasterCraft reporting unit exceeds the carrying value by approximately 165% as of the March 29, 2020 impairment test. If our assessment of the relevant facts and circumstances changes, or the actual performance falls short of the expected results, impairment charges may be required. Currently, the Company forecasts a modest recovery in the reporting units’ results later in fiscal year 2021.

Indefinite-lived and definite-lived intangible assets acquired in October 2017 and October 2018 related to the NauticStar and Crest acquisitions, respectively, are derived from the value of the business acquired. A portion of these values were also impaired as a result of the March 29, 2020 impairment test. Given the recent impairment, there is no difference between the carrying value and fair value of the trade name intangibles. The key uncertainties in the fair value calculations for our indefinite-lived and definite-lived intangible assets, as applicable , are: assumptions used in developing internal revenue growth and customer expense forecasts, assumed customer attrition rates, and the selection of an appropriate royalty rate, as well as the perceived risk associated with those forecasts in determining the discount rate. In the event of significant adverse changes in these assumptions, we may have to recognize a non-cash impairment of intangibles, which could have a material adverse effect on our financial condition and results of operations.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Refer to our 2019 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) 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, 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 March 29, 2020.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 29, 2020 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.

None.

ITEM 1A.

RISK FACTORS.

Except as noted below, there have been no material changes to the risk factors disclosed in our 2019 Annual Report under “Part I, Item 1A. Risk Factors” or our Quarterly Report on Form 10-Q for the quarter ended December 29, 2019, which was filed with the SEC on February 5, 2020 under “Part II, Item 1A. Risk Factors.”

The COVID-19 pandemic has had, and may continue to have, certain negative impacts on our business and those of our customers, dealers and suppliers, and such impacts may have a material adverse effect on our operations and business.

The COVID-19 Pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business and those of our customers, dealers and suppliers. In response to the COVID-19 Pandemic, governmental authorities, including in many of the jurisdictions in which we operate, have taken measures to limit the spread of the outbreak, including mandatory business closures, travel restrictions, quarantines, declarations of states of emergency, “stay-at-home” or “shelter-in-place” orders and social distancing protocols, in addition to seeking voluntary facility closures and other restrictions. These actions could materially adversely affect our ability, and our customers’, dealers’ and suppliers’ ability, to adequately staff, manage and maintain our and their respective businesses. Furthermore, our future results of operations, cash-flows and liquidity could be adversely impacted by the COVID-19 Pandemic due to delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, uncertain demand and additional goodwill and intangible asset impairment charges.

The COVID-19 Pandemic has impacted our supply chain for products we sell, particularly as a result of mandatory shutdowns in locations where our products are manufactured. It also possible that we experience significant disruptions to our supply chain in the U.S. as well as significant deterioration in macroeconomic factors that typically affect us, such as consumer spending and demand for our products. In addition, we have experienced and are likely to continue to experience disruptions in manufacturing and logistics due to the COVID-19 Pandemic, and we may experience disruptions in manufacturing or logistics in the future due to inconsistent and unanticipated order patterns, our inability to develop long-term relationships with key suppliers, other diseases or pandemics or unforeseen natural disasters or public health emergencies. Further, we may face obstacles and delays in re-opening our manufacturing facilities as we may have to hire and train a substantial number of new employees as some of the employees that we have temporarily laid off may seek or have found other employment.

The severity of the impact of the COVID-19 Pandemic on our business will depend on a number of factors, including, but not limited to, the duration, spread, severity and impact of the pandemic, the remedial actions and stimulus measures adopted by local and federal governments, the effects of the pandemic on our customers and suppliers, and to the extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted. The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions thereto, also makes it more challenging for our management to estimate the potential impact and the future performance of our business. Accordingly, the anticipated negative financial impact to our operating results cannot be reasonably estimated at this time, but could be material and last for an extended period of time.

ITEM 2.

UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES.

None.

ITEM 5.

OTHER INFORMATION.

On May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended and Restated Credit and Guaranty Agreement (the “Amendment”). The changes effected by the Amendment include the temporary removal and replacement of the Company’s financial covenants, the addition of a 50 basis point floor on LIBOR, modifications to the range of applicable LIBOR and prime interest rate margins, and a revision of the Total Net Leverage Ratio calculation. Under the Amendment, the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant of the Fourth Amended Credit Agreement are temporarily replaced with three separate covenants: (i) an Interest Coverage Ratio, (ii) a Minimum Liquidity threshold, and (iii) a Maximum Unfinanced Capital Expenditures limitation (the “Package of Financial Covenants”). The Package of Financial Covenants are in place through the quarter ended March 31, 2021, at which time the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant will be reinstated and the Package of Financial Covenants will sunset, and with the minimum liquidity covenant being tested on the last day of each fiscal month through May 31, 2021. In addition, the Total Net Leverage Ratio calculation was temporarily revised to include all unrestricted cash balances, without limitation, until June 30, 2021.

A copy of the Amendment is attached as Exhibit 10.1 hereto and incorporated herein by reference.

ITEM 6.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Incorporated by Reference

Exhibit
No.

Description

Form

File No.

Exhibit

Filing Date

Filed
Herewith

3.1

Amended and Restated Certificate of Incorporation of MCBC Holdings, Inc.

10-K

001-37502

3.1

9/18/15

3.2

Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc.

10-Q

001-37502

3.2

11/9/18

3.3

Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc.

8-K

001-37502

3.1

10/25/19

3.4

Fourth Amended and Restated By-laws of MasterCraft Boat Holdings, Inc.

8-K

001-37502

3.2

10/25/19

10.1

Amendment No. 3 to the Fourth Amended and Restated Credit and Guaranty Agreement

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

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

*	Filed herewith.

**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


		MASTERCRAFT BOAT HOLDINGS, INC.
		(Registrant)

Date:	May 8, 2020	By:	/s/ FREDERICK A. BRIGHTBILL
			Frederick A. Brightbill
			Chief Executive Officer (Principal Executive Officer) and Director

Date:	May 8, 2020	By:	/s/ TIMOTHY M. OXLEY
			Timothy M. Oxley
			Chief Financial Officer (Principal Financial and Accounting Officer),
			Treasurer and Secretary