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MasterCraft Boat Holdings, Inc. - Quarter Report: 2021 January (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: January 3, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to                                                  

 

Commission File Number 001-37502

 

 

 

MASTERCRAFT BOAT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

06-1571747

(State or Other Jurisdiction

 

(I.R.S. Employer

of Incorporation or Organization)

 

Identification No.)

 

100 Cherokee Cove Drive, Vonore, TN 37885

(Address of Principal Executive Office) (Zip Code)

 

(423) 884-2221

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

MCFT

 

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes               No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).          Yes               No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).          Yes               No

As of February 8, 2021, there were 18,949,261 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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits, Financial Statement Schedules

30

 

 

 

SIGNATURES

 

31

 

2


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements can generally be identified by the use of statements that include words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar words or phrases. Forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

The forward-looking statements contained in this quarterly report on Form 10-Q are based on assumptions that we have made considering our industry experience and our perceptions of historical trends, current conditions, expected future developments and other important factors we believe are appropriate under the circumstances. As you read and consider this quarterly report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements, including but not limited to the following: the potential effects of 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, 2020, filed with the Securities and Exchange Commission (“SEC”) on September 11, 2020 (our “2020 Annual Report”). Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.

Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this quarterly report on Form 10-Q to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could cause our business not to develop as we expect may emerge from time to time, and it is not possible for us to predict all of them.

 

3


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

 

2021

 

 

2019

 

NET SALES

 

$

118,677

 

 

$

99,628

 

 

$

222,422

 

 

$

209,417

 

COST OF SALES

 

 

89,404

 

 

 

78,486

 

 

 

166,919

 

 

 

162,742

 

GROSS PROFIT

 

 

29,273

 

 

 

21,142

 

 

 

55,503

 

 

 

46,675

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

2,989

 

 

 

4,343

 

 

 

5,896

 

 

 

8,407

 

General and administrative

 

 

8,352

 

 

 

5,477

 

 

 

17,284

 

 

 

13,262

 

Amortization of other intangible assets

 

 

987

 

 

 

987

 

 

 

1,974

 

 

 

1,974

 

Total operating expenses

 

 

12,328

 

 

 

10,807

 

 

 

25,154

 

 

 

23,643

 

OPERATING INCOME

 

 

16,945

 

 

 

10,335

 

 

 

30,349

 

 

 

23,032

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

870

 

 

 

1,237

 

 

 

1,889

 

 

 

2,581

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

16,075

 

 

 

9,098

 

 

 

28,460

 

 

 

20,451

 

INCOME TAX EXPENSE

 

 

3,574

 

 

 

2,219

 

 

 

6,392

 

 

 

4,949

 

NET INCOME

 

$

12,501

 

 

$

6,879

 

 

$

22,068

 

 

$

15,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.66

 

 

$

0.37

 

 

$

1.17

 

 

$

0.83

 

Diluted

 

$

0.66

 

 

$

0.37

 

 

$

1.17

 

 

$

0.83

 

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

18,807,316

 

 

 

18,730,688

 

 

 

18,790,826

 

 

 

18,727,267

 

Diluted earnings per share

 

 

18,928,408

 

 

 

18,770,783

 

 

 

18,897,617

 

 

 

18,770,770

 

 

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

 

4


 

 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

 

 

January 3,

 

 

June 30,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,074

 

 

$

16,319

 

Accounts receivable, net of allowances of $164 and $247, respectively

 

 

7,403

 

 

 

6,145

 

Income tax receivable

 

 

4,828

 

 

 

4,924

 

Inventories, net (Note 3)

 

 

34,570

 

 

 

25,636

 

Prepaid expenses and other current assets

 

 

3,696

 

 

 

3,719

 

Total current assets

 

 

62,571

 

 

 

56,743

 

Property, plant and equipment, net (Note 4)

 

 

55,976

 

 

 

40,481

 

Goodwill (Note 5)

 

 

29,593

 

 

 

29,593

 

Other intangible assets, net (Note 5)

 

 

61,874

 

 

 

63,849

 

Deferred income taxes

 

 

15,782

 

 

 

16,080

 

Deferred debt issuance costs, net

 

 

359

 

 

 

425

 

Other long-term assets

 

 

888

 

 

 

752

 

Total assets

 

$

227,043

 

 

$

207,923

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,393

 

 

$

10,510

 

Accrued expenses and other current liabilities (Note 6)

 

 

41,590

 

 

 

35,985

 

Current portion of long-term debt, net of unamortized debt issuance costs (Note 7)

 

 

9,739

 

 

 

8,932

 

Total current liabilities

 

 

65,722

 

 

 

55,427

 

Long-term debt, net of unamortized debt issuance costs (Note 7)

 

 

84,399

 

 

 

99,666

 

Unrecognized tax positions

 

 

4,548

 

 

 

3,683

 

Other long-term liabilities

 

 

373

 

 

 

277

 

Total liabilities

 

 

155,042

 

 

 

159,053

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,949,295 shares at January 3, 2021 and 18,871,637 shares at June 30, 2020

 

 

189

 

 

 

189

 

Additional paid-in capital

 

 

117,245

 

 

 

116,182

 

Accumulated deficit

 

 

(45,433

)

 

 

(67,501

)

Total stockholders' equity

 

 

72,001

 

 

 

48,870

 

Total liabilities and stockholders' equity

 

$

227,043

 

 

$

207,923

 

 

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

 

5


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at June 30, 2020

 

 

18,871,637

 

 

$

189

 

 

$

116,182

 

 

$

(67,501

)

 

$

48,870

 

Share-based compensation activity

 

 

80,701

 

 

 

 

 

 

486

 

 

 

 

 

 

486

 

Net income

 

 

 

 

 

 

 

 

 

 

 

9,567

 

 

 

9,567

 

Balance at October 4, 2020

 

 

18,952,338

 

 

 

189

 

 

 

116,668

 

 

 

(57,934

)

 

 

58,923

 

Share-based compensation activity

 

 

(3,043

)

 

 

 

 

 

577

 

 

 

 

 

 

577

 

Net income

 

 

 

 

 

 

 

 

 

 

 

12,501

 

 

 

12,501

 

Balance at January 3, 2021

 

 

18,949,295

 

 

$

189

 

 

$

117,245

 

 

$

(45,433

)

 

$

72,001

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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

6


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in thousands)

 

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

22,068

 

 

$

15,502

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,599

 

 

 

5,053

 

Share-based compensation

 

 

1,283

 

 

 

544

 

Unrecognized tax benefits

 

 

865

 

 

 

367

 

Amortization of debt issuance costs

 

 

316

 

 

 

282

 

Changes in certain operating assets and liabilities

 

 

(740

)

 

 

(2,777

)

Other, net

 

 

764

 

 

 

873

 

Net  cash provided by operating activities

 

 

30,155

 

 

 

19,844

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(18,903

)

 

 

(11,491

)

Proceeds from disposal of property, plant and equipment

 

 

 

 

 

14

 

Net cash used in investing activities

 

 

(18,903

)

 

 

(11,477

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Principal payments on revolving credit facility

 

 

(30,000

)

 

 

 

Borrowings on revolving credit facility

 

 

20,000

 

 

 

 

Principal payments on long-term debt

 

 

(4,710

)

 

 

(8,292

)

Other, net

 

 

(787

)

 

 

(453

)

Net cash provided by financing activities

 

 

(15,497

)

 

 

(8,745

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(4,245

)

 

 

(378

)

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD

 

 

16,319

 

 

 

5,826

 

CASH AND CASH EQUIVALENTS — END OF PERIOD

 

$

12,074

 

 

$

5,448

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

1,348

 

 

$

2,025

 

Cash payments for income taxes

 

 

5,132

 

 

 

5,376

 

SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures in accounts payable and accrued expenses

 

 

594

 

 

 

427

 

 

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

 

7


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless stated otherwise dollars in thousands, except per share data)

 

1.ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Organization — MasterCraft Boat Holdings, Inc. (“Holdings”) was formed on January 28, 2000, as a Delaware holding company and operates primarily through its wholly owned subsidiaries, MasterCraft Boat Company, LLC; MasterCraft Services, LLC; MasterCraft Parts, Ltd.; MasterCraft International Sales Administration, Inc.; and Aviara, LLC (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.”

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, 2020 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of January 3, 2021, its results of operations for the three and six months ended January 3, 2021 and December 29, 2019, its cash flows for the six months ended January 3, 2021 and December 29, 2019, and its statements of stockholders’ equity for the three and six months ended January 3, 2021 and December 29, 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 SEC for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2020 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 2020 Annual Report on Form 10-K.

Due to the seasonality of the Company’s business, the interim results are not necessarily indicative of the results that may be expected for the remainder of the fiscal year.

 

COVID-19 Pandemic — To balance wholesale production with the then anticipated impacts to retail demand caused by the economic impacts of the COVID-19 pandemic, the Company reduced production in February 2020 and, in late March 2020, temporarily suspended manufacturing operations at all of the Company’s facilities to protect the health of employees and to comply with governmental mandates. The Company resumed operations at reduced production levels at our manufacturing facilities by mid-May. Since that time, our facilities have increased production rates above their pre-COVID levels.

 

Demand for the Company’s products has been strong and, as a result of our employee’s committed efforts, disruptions to the Company’s production have been minimal since resuming operations in May 2020. However, the Company remains 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 remains uncertain and difficult to predict, as the response to the COVID-19 pandemic continues to evolve in many countries, including the United States and other markets where the Company and its suppliers operate. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it has caused economic downturns or recessions in the U.S. and other markets where the Company operates. Such economic disruption could have a material adverse effect on the Company’s business as retail demand for our products could decline which would in-turn reduce wholesale demand from the Company’s dealers. Policymakers around the world have responded and may continue to respond with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remain uncertain.

 

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

8


 

 

and federal governments, the effects of the pandemic on the Company's consumers, dealers, suppliers and workforce, 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 or workforce disruptions and uncertain demand, impairment charges, and the impact of any initiatives that the Company may undertake to address financial and operational challenges faced by it and its consumers, dealers, and suppliers. As of the date of issuance of these 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.

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 three and six months ended January 3, 2021 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2020.

New Accounting Pronouncements Issued But Not Yet Adopted

 

Income Taxes — In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by, among other things, eliminating certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for transactions outside of business combination that result in a step-up in the tax basis of goodwill. The transition requirements are primarily prospective, and the effective date is for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Recently Adopted 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 Company adopted this guidance for its fiscal year beginning July 1, 2020. The adoption of this standard did not have an impact on the consolidated financial statements.

 

Current Expected Credit Loss — In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which updated the ASC to use an impairment model that is based on expected losses rather than incurred losses. The Company adopted this guidance for its fiscal year beginning July 1, 2020. The adoption of this standard did not have an impact on the consolidated financial statements.

 

2.

REVENUE RECOGNITION

The following tables present the Company’s revenue by major product category for each reportable segment.

 

 

 

Three Months Ended January 3, 2021

 

 

Three Months Ended December 29, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

Major Product Categories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Boats and trailers

 

$

80,806

 

 

$

14,857

 

 

$

20,757

 

 

$

116,420

 

 

$

66,332

 

 

$

15,485

 

 

$

16,097

 

 

$

97,914

 

Parts

 

 

1,726

 

 

 

87

 

 

 

138

 

 

 

1,951

 

 

 

1,276

 

 

 

87

 

 

 

121

 

 

 

1,484

 

Other revenue

 

 

227

 

 

 

5

 

 

 

74

 

 

 

306

 

 

 

149

 

 

 

4

 

 

 

77

 

 

 

230

 

Total

 

$

82,759

 

 

$

14,949

 

 

$

20,969

 

 

$

118,677

 

 

$

67,757

 

 

$

15,576

 

 

$

16,295

 

 

$

99,628

 

9


 

 

 

 

 

 

Six Months Ended January 3, 2021

 

 

Six Months Ended December 29, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

Major Product Categories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Boats and trailers

 

$

149,388

 

 

$

27,073

 

 

$

38,368

 

 

$

214,829

 

 

$

135,619

 

 

$

33,319

 

 

$

34,721

 

 

$

203,659

 

Parts

 

 

6,271

 

 

 

211

 

 

 

529

 

 

 

7,011

 

 

 

4,707

 

 

 

246

 

 

 

301

 

 

 

5,254

 

Other revenue

 

 

464

 

 

 

7

 

 

 

111

 

 

 

582

 

 

 

344

 

 

 

6

 

 

 

154

 

 

 

504

 

Total

 

$

156,123

 

 

$

27,291

 

 

$

39,008

 

 

$

222,422

 

 

$

140,670

 

 

$

33,571

 

 

$

35,176

 

 

$

209,417

 

 

Contract Liabilities

 

As of June 30, 2020, the Company had $0.6 million of contract liabilities associated with customer deposits. During the six months ended January 3, 2021, all of this amount was recognized as revenue. As of January 3, 2021, total contract liabilities associated with customer deposits were $1.5 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, 2021.  

 

3.

INVENTORIES

Inventories consisted of the following:

 

 

 

January 3,

 

 

June 30,

 

 

 

2021

 

 

2020

 

Raw materials and supplies

 

$

24,258

 

 

$

18,318

 

Work in process

 

 

5,822

 

 

 

3,866

 

Finished goods

 

 

6,558

 

 

 

4,876

 

Obsolescence reserve

 

 

(2,068

)

 

 

(1,424

)

Total inventories

 

$

34,570

 

 

$

25,636

 

 

 

4.PROPERTY, PLANT, AND EQUIPMENT

 

Property, plant, and equipment, net consisted of the following:

 

 

 

January 3,

 

 

June 30,

 

 

 

 

2021

 

 

2020

 

 

Land and improvements

 

$

5,633

 

 

$

3,030

 

 

Buildings and improvements

 

 

35,344

 

 

 

22,366

 

 

Machinery and equipment

 

 

39,445

 

 

 

38,262

 

 

Furniture and fixtures

 

 

2,665

 

 

 

2,229

 

 

Construction in progress

 

 

3,143

 

 

 

1,312

 

 

Total property, plant, and equipment

 

 

86,230

 

 

 

67,199

 

 

Less accumulated depreciation

 

 

(30,254

)

 

 

(26,718

)

 

Property, plant, and equipment — net

 

$

55,976

 

 

$

40,481

 

 

 

Merritt Island Facility

 

During October 2020 we completed the purchase of certain real property located in Merritt Island, Florida, including a boat manufacturing facility, for a purchase price of $14.2 million (the “Merritt Island Facility”). The new Merritt Island Facility provides a dedicated manufacturing center for our Aviara brand.

 

 

 

 

10


 

 

5.GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amounts of goodwill as of January 3, 2021 and June 30, 2020, attributable to each of the Company’s reportable segments, were as follows:

 

 

 

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

 

 

The following table presents the carrying amount of Other intangible assets, net:

 

 

 

January 3,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

 

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

 

 

$

(11,761

)

 

$

27,739

 

 

$

39,500

 

 

$

(9,810

)

 

$

29,690

 

Software

 

 

245

 

 

 

(110

)

 

 

135

 

 

 

245

 

 

 

(86

)

 

 

159

 

 

 

 

39,745

 

 

 

(11,871

)

 

 

27,874

 

 

 

39,745

 

 

 

(9,896

)

 

 

29,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

49,000

 

 

 

(15,000

)

 

 

34,000

 

 

 

49,000

 

 

 

(15,000

)

 

 

34,000

 

Total other intangible assets

 

$

88,745

 

 

$

(26,871

)

 

$

61,874

 

 

$

88,745

 

 

$

(24,896

)

 

$

63,849

 

 

Amortization expense related to Other intangible assets, net for the three and six months ended both January 3, 2021 and December 29, 2019 was $1.0 million and $2.0 million, respectively. Estimated amortization expense for the fiscal year ended June 30, 2021 is $4.0 million.

 

6.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

 

 

 

January 3,

 

 

June 30,

 

 

 

2021

 

 

2020

 

Warranty

 

$

20,919

 

 

$

20,004

 

Dealer incentives

 

 

9,456

 

 

 

9,180

 

Compensation and related accruals

 

 

4,120

 

 

 

1,488

 

Inventory repurchase contingent obligation

 

 

891

 

 

 

1,132

 

Self-insurance

 

 

599

 

 

 

704

 

Debt interest

 

 

226

 

 

 

 

Other

 

 

5,379

 

 

 

3,477

 

Total accrued expenses and other current liabilities

 

$

41,590

 

 

$

35,985

 

 

11


 

 

 

Accrued warranty liability activity was as follows for the six months ending:

 

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

Balance at the beginning of the period

 

$

20,004

 

 

$

17,205

 

Provisions

 

 

4,469

 

 

 

3,858

 

Payments made

 

 

(4,272

)

 

 

(4,332

)

Aggregate changes for preexisting warranties

 

 

718

 

 

 

1,764

 

Balance at the end of the period

 

$

20,919

 

 

$

18,495

 

 

7.LONG-TERM DEBT

Long-term debt is as follows:

 

 

 

January 3,

 

 

June 30,

 

 

 

2021

 

 

2020

 

Revolving credit facility

 

$

-

 

 

$

10,000

 

Term loans

 

 

95,283

 

 

 

99,993

 

Debt issuance costs on term loans

 

 

(1,145

)

 

 

(1,395

)

Total debt

 

 

94,138

 

 

 

108,598

 

Less current portion of long-term debt

 

 

10,205

 

 

 

9,420

 

Less current portion of debt issuance costs on term loans

 

 

(466

)

 

 

(488

)

Long-term debt, net of current portion

 

$

84,399

 

 

$

99,666

 

 

On October 1, 2018, the Company entered into a 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 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 is secured by substantially all the assets of the Company. Holdings is a guarantor on the Fourth Amended Credit Agreement and the Fourth Amended Credit Agreement contains covenants that restrict the ability of Holdings’ subsidiaries to make distributions to Holdings. The Term Loans will mature and all remaining amounts outstanding thereunder will be due and payable on October 1, 2023.

 

Amendment No. 3 to Fourth Amended Credit Agreement

 

On May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended Credit Agreement (the “Amendment No. 3”). The changes effected by Amendment No. 3 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 Amendment No. 3, 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, after 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. As of January 3, 2021, the Company was in compliance with its financial covenants under Amendment No. 3 to the Fourth Amended Credit Agreement.  

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 a LIBOR rate, subject to a 50 basis point floor, plus an applicable margin ranging from 1.5% to 3.25%,

12


 

 

in each case based on the Company’s Total Net Leverage Ratio. As of January 3, 2021 the applicable margin for loans accruing interest at the prime rate was 1.00% and the applicable margin for loans accruing interest at LIBOR was 2.00%.

Amendment No. 4 and Joinder to Fourth Amended Credit Agreement

On October 26, 2020, the Company entered into Amendment No. 4 and Joinder to the Fourth Amended Credit Ageement (the “Amendment No. 4”). In conjunction with the new Merritt Island Facility purchase (see Note 4), the assets were organized in a new wholly-owned subsidiary of the Company.  The changes effected by Amendment No. 4 add this new subsidiary as a borrower under the Fourth Amended Credit Agreement.

Revolving Credit Facility

During October 2020 the Company borrowed $20.0 million under its $35.0 million Revolving Credit Facility to fund the purchase of the Merrit Island Facility. The Company subsequently repaid all outstanding amounts and, as of January 3, 2021, the availability under the Revolving Credit Facility was $35.0 million.

 

8.

INCOME TAXES

The Company’s consolidated interim effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The differences between the Company’s effective tax rates and the statutory federal tax rate of 21.0% primarily relate to the inclusion of the state tax rate in the overall effective rate, the benefit of federal and state credits, and a permanent benefit associated with the foreign derived intangible income deduction, partially offset by a permanent add-back for Section 162(m) limitations. During the three months ended January 3, 2021 and December 29, 2019, the Company’s effective tax rates were 22.2% and 24.4%, respectively.  During the six months ended January 3, 2021 and December 29, 2019, the Company’s effective tax rates were 22.5% and 24.2%, respectively. The Company’s effective tax rate for the three and six months ended January 3, 2021 is lower compared to the effective tax rate for the three and six months ended December 29, 2019, primarily due to an increase in the benefit of federal and state tax credits and a reduction in the effective state tax rate, partially offset by a decrease in the Company’s net permanent benefits, largely driven by changes in the foreign derived intangible income deduction and add-back for Section 162(m) limitations.

9.

EARNINGS PER SHARE

The following table sets forth the computation of the Company’s earnings per share:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

 

2021

 

 

2019

 

Net income

 

$

12,501

 

 

$

6,879

 

 

$

22,068

 

 

$

15,502

 

Weighted average shares — basic

 

 

18,807,316

 

 

 

18,730,688

 

 

 

18,790,826

 

 

 

18,727,267

 

Dilutive effect of assumed exercises of stock options

 

 

13,950

 

 

 

22,629

 

 

 

14,025

 

 

 

25,052

 

Dilutive effect of assumed restricted share awards/units

 

 

107,142

 

 

 

17,466

 

 

 

92,766

 

 

 

18,451

 

Weighted average outstanding shares — diluted

 

 

18,928,408

 

 

 

18,770,783

 

 

 

18,897,617

 

 

 

18,770,770

 

Basic earnings per share

 

$

0.66

 

 

$

0.37

 

 

$

1.17

 

 

$

0.83

 

Diluted earnings per share

 

$

0.66

 

 

$

0.37

 

 

$

1.17

 

 

$

0.83

 

 

For the three and six months ended January 3, 2021 and December 29, 2019, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive.

 

13


 

 

 

10.

SHARE-BASED COMPENSATION

 

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

 

2021

 

 

2019

 

Restricted stock awards

 

$

388

 

 

$

268

 

 

$

805

 

 

$

520

 

Performance stock units

 

 

255

 

 

 

(236

)

 

 

478

 

 

 

15

 

Stock options

 

 

 

 

 

 

 

 

 

 

 

9

 

Share-based compensation expense

 

$

643

 

 

$

32

 

 

$

1,283

 

 

$

544

 

 

Restricted Stock Awards

During the six months ended January 3, 2021, the Company granted 87,047 restricted stock awards (“RSAs”) to the Company’s non-executive directors, officers and certain other key employees. Generally, the shares of restricted stock granted during the six months ended January 3, 2021, 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 six months ended January 3, 2021, was $19.96 per share.

The following table summarizes the status of nonvested RSAs as of January 3, 2021, and changes during the six months then ended.

 

 

 

 

 

 

 

Average

 

 

 

Nonvested

 

 

Grant-Date

 

 

 

Restricted

 

 

Fair Value

 

 

 

Shares

 

 

(per share)

 

Nonvested at June 30, 2020

 

 

106,894

 

 

$

18.01

 

Granted

 

 

87,047

 

 

 

19.96

 

Vested

 

 

(53,670

)

 

 

18.02

 

Forfeited

 

 

(8,673

)

 

 

19.29

 

Nonvested at January 3, 2021

 

 

131,598

 

 

 

19.21

 

 

As of January 3, 2021, there was $1.9 million of total unrecognized compensation expense related to nonvested RSAs.  The Company expects this expense to be recognized over a weighted average period of 1.9 years.

Performance Stock Units

Performance stock units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of the Company’s stockholders, and to create long-term stockholder value. The awards will be earned based on the Company’s achievement of certain performance criteria over a three-year performance period. The performance period for the awards commences on July 1 of the fiscal year in which they were granted and continue for a three-year period, ending on June 30 of the applicable year. The probability of achieving the performance criteria is assessed quarterly. Following the determination of the Company’s achievement with respect to the performance criteria, the number of shares awarded is subject to further adjustment based on the application of a total shareholder return (“TSR”) modifier. The grant date fair value is determined based on both the probability assessment of the Company achieving the performance criteria and an estimate of the expected TSR modifier. The TSR modifier estimate is determined using a Monte Carlo Simulation model, which considers the likelihood of numerous possible outcomes of long-term market performance. Compensation expense related to nonvested PSUs is recognized ratably over the performance period.

14


 

 

Supplemental PSUs

On July 16, 2020, after consulting with outside compensation advisors and outside legal counsel, reviewing market data and benchmarking expected relative compensation to the market data, the Company’s Compensation Committee made the decision to grant additional PSUs under the Long-term Incentive Plan (“LTIP Program”) to certain of the Company’s officers, (the “Supplemental PSUs”). The “Performance Period” for the Supplemental PSUs is a two-year period commencing July 1, 2020 and ending June 30, 2022. The Supplemental PSUs were granted to attract and motivate key employees whose existing fiscal 2019 and fiscal 2020 PSU grants (the “Existing PSUs”) were unlikely to achieve minimum performance goals due to the unprecedented effects of the COVID-19 pandemic.

The number of Supplemental PSUs that a grantee earns for the performance period will be determined by multiplying the target award by the product of (i) the Composite Payout Percentage and (ii) the Relative TSR Modifier. The “Composite Payout Percentage” is calculated based on the Company’s Total Market Share Percentage, Total Consumer Satisfaction Index Percentage and Total Dealer Inventory Turnover Percentage (each as defined in the Supplemental PSU Award Agreement). Following the determination of the Company’s achievement with respect to the Composite Payout Percentage over the Performance Period, the vesting of each award will be subject to adjustment based upon the application of a Relative TSR Modifier. The Supplemental PSUs are capped at 90% of the Existing PSUs’ original fair value and would be reduced for any shares issuable upon satisfaction of the performance criteria pursuant to the Existing PSUs.

The following table summarizes the status of nonvested PSUs as of January 3, 2021, and changes during the six months then ended.

 

 

 

 

 

 

 

Average

 

 

 

Nonvested

 

 

Grant-Date

 

 

 

Performance

 

 

Fair Value

 

 

 

Stock Units

 

 

(per share)

 

Nonvested at June 30, 2020

 

 

67,404

 

 

$

20.02

 

Granted

 

 

121,914

 

 

 

19.99

 

Vested

 

 

-

 

 

 

-

 

Forfeited

 

 

(15,588

)

 

 

20.25

 

Nonvested at January 3, 2021

 

 

173,730

 

 

 

19.98

 

 

As of January 3, 2021, there was $1.9 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.                                

 

11.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.

 

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. During the three months ended January 3, 2021, the Company began transitioning Aviara production to the Merritt Island, Facility. The Company anticipates all Aviara boats to be produced at the Merritt Island Facility by the end of fiscal 2021.

 

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

 

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

15


 

 

Each segment distributes its products through its own dealer network. The Chief Operating Decision Maker (“CODM”), which is our Chief Executive Officer, regularly reviews the operating performance of each segment including measures of performance based on operating income. Each segment has its own management structure which is responsible for the operations of the segment and which is directly accountable to the CODM. The Company files a consolidated income tax return and does not allocate income taxes and other corporate-level expenses, including interest, to operating segments. All material corporate costs are included in the MasterCraft segment.

Selected financial information for the Company’s reportable segments was as follows:

 

 

 

For the Three Months Ended January 3, 2021

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

82,759

 

 

$

14,949

 

 

$

20,969

 

 

$

118,677

 

Operating income (loss)

 

 

14,621

 

 

 

(326

)

 

 

2,650

 

 

 

16,945

 

Depreciation and amortization

 

 

1,435

 

 

 

802

 

 

 

624

 

 

 

2,861

 

Purchases of property, plant and equipment

 

 

16,412

 

 

 

516

 

 

 

23

 

 

 

16,951

 

 

 

 

For the Six Months Ended January 3, 2021

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

156,123

 

 

$

27,291

 

 

$

39,008

 

 

$

222,422

 

Operating income (loss)

 

 

27,982

 

 

 

(1,945

)

 

 

4,312

 

 

 

30,349

 

Depreciation and amortization

 

 

2,735

 

 

 

1,616

 

 

 

1,248

 

 

 

5,599

 

Purchases of property, plant and equipment

 

 

18,121

 

 

 

759

 

 

 

23

 

 

 

18,903

 

 

 

 

For the Three Months Ended December 29, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

67,757

 

 

$

15,576

 

 

$

16,295

 

 

$

99,628

 

Operating income (loss)

 

 

10,600

 

 

 

(673

)

 

 

408

 

 

 

10,335

 

Depreciation and amortization

 

 

1,158

 

 

 

924

 

 

 

601

 

 

 

2,683

 

Purchases of property, plant and equipment

 

 

1,631

 

 

 

1,095

 

 

 

4,447

 

 

 

7,173

 

 

 

 

For the Six Months Ended December 29, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

140,670

 

 

$

33,571

 

 

$

35,176

 

 

$

209,417

 

Operating income (loss)

 

 

22,807

 

 

 

(646

)

 

 

871

 

 

 

23,032

 

Depreciation and amortization

 

 

2,177

 

 

 

1,725

 

 

 

1,151

 

 

 

5,053

 

Purchases of property, plant and equipment

 

 

4,365

 

 

 

1,914

 

 

 

5,212

 

 

 

11,491

 

 

The following table presents total assets for the Company’s reportable segments.

 

 

 

January 3,                2021

 

 

June 30,

2020

 

Assets:

 

 

 

 

 

 

 

 

MasterCraft

 

$

309,090

 

 

$

294,139

 

NauticStar

 

 

40,918

 

 

 

36,720

 

Crest

 

 

40,048

 

 

 

40,077

 

Eliminations(a)

 

 

(163,013

)

 

 

(163,013

)

Total assets

 

$

227,043

 

 

$

207,923

 

 

(a)

Represents the Company’s initial investment in NauticStar and Crest, which is included in total assets attributed to the MasterCraft segment.

 

 

 

16


 

 

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 2020 Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

 

Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in the statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures do not include operating and statistical measures. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to users of the financial statements, including investors, because they permit users of the financial statements to view the Company’s performance using the same tools that management utilizes and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to business acquisitions.

 

COVID-19 Pandemic

 

Demand for the Company’s products has been strong and, as a result of our employee’s committed efforts, disruptions to the Company’s production have been minimal since resuming operations in May 2020.  However, we continue to be subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business remains uncertain and difficult to predict, as the response to the COVID-19 pandemic is still evolving in many countries, including the United States and other markets where we and our suppliers operate.

 

Impact to Operations

 

To balance wholesale production with the anticipated impacts to retail demand caused by the economic impacts of the COVID-19 pandemic, we reduced production in February 2020 and, in late March 2020, temporarily suspended manufacturing operations at all of our facilities to protect the health of our employees and comply with governmental mandates. We resumed operations at reduced production levels at our manufacturing facilities by mid-May 2020. Since that time, our facilities have increased production rates above their pre-COVID levels, and we plan further increases to meet strong retail demand.

 

MasterCraft, NauticStar and Crest each achieved a steady increase in production during the first and second quarters of fiscal 2021. Although all of our segments made progress, NauticStar’s performance lagged behind our other brands during the first and second quarters of fiscal 2021. In August 2020, we announced that Scott Womack had been named President of NauticStar. We believe NauticStar will greatly benefit from Mr. Womack’s years of executive leadership, manufacturing experience and proven dedication to operational excellence.    

 

We and our dealers have historically utilized public boat shows, which typically occur from January through early April across North America, to showcase our newest models and features. The COVID-19 pandemic has caused the cancellation of most large 2021 boat

17


 

shows. In response, we have launched an online platform aimed at engaging with consumers during this dynamic boat show season. This digital platform, named the MasterCraft Experience Digital Boat Show, is designed to bridge the gap between consumers seeking a safe, flexible avenue to research the MasterCraft brand and its products, and our dealers looking to connect with consumers as the summer selling season approaches. We also launched similar online experiences for the Crest and Aviara brands, and in the near future plan to launch a platform for our NauticStar brand.

 

Impact to Liquidity and Capital Resources

 

During March 2020, we drew $35.0 million on our Revolving Credit Facility as a precautionary measure in order to increase our 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, we entered into Amendment No. 3 (the “Amendment”) to the Fourth Amended & Restated Credit and Guarantee Agreement (the “Credit Facility”) 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 Consolidated Financial Statements for more information regarding these changes. The performance of the business and our cash management activities provided the flexibility to repay the entire Revolving Credit Facility as of October 4, 2020. As of January 3, 2021, we were in compliance with our financial covenants under the Amendment to the Credit Facility.

 

Outlook

 

We believe strong marine retail demand, coupled with abnormally low retail inventory levels for all our brands have created a growth opportunity for fiscal 2021 and potentially into future years. Our facilitites are now running at production rates above their pre-COVID levels and we continue to ramp up production further. We expect this ramp up phase to continue through fiscal 2021 in order to meet strong wholesale demand as our dealers seek to satisfy current retail order flow and replenish their stock inventory. As we navigate the unprecedented confluence of demand and disruption precipitated by the COVID-19 pandemic, our production during this ramp up period will depend, in large part, on our suppliers’ capacity. Additionally, our ability to grow and retain a high-performing workforce will be critical to meeting our production objectives.

 

Although the consumer responses to the COVID-19 pandemic have thus far resulted in strong demand for our products, significant uncertainty exists in the economy as a result of the unpredictable outlook for the COVID-19 pandemic. The ultimate impact of the COVID-19 pandemic on our business is uncertain and will depend on a number of factors, including the duration, spread and severity, the remedial action and stimulus measures adopted by local, state and federal governments, the effects of the pandemic on our consumers, dealers, suppliers and workforce, and the extent to which normal economic and operating conditions can resume and be sustained within the general economy. Our 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 or workforce disruptions and uncertain demand, additional manufacturing suspensions, additional other intangible asset impairment charges, and the impact of any initiatives that we may undertake to address financial and operational challenges faced by us and our consumers, dealers, and suppliers.

Overview of Consolidated Results of Operations

Net sales were $118.7 million for the second quarter of 2021, which represented an increase of 19.1 percent as compared to the second quarter of 2020. The increase was primarily due to higher sales volumes at each of our segments, a favorable mix of higher-priced and higher-contented models and lower dealer incentives.

Net sales were $222.4 million for the six months ended January 3, 2021, which represented an increase of 6.2 percent as compared to the six months ended December 29, 2020. The increase was primarily the result of a favorable mix of higher-priced and higher-contented models and lower dealer incentives. This favorability was partially offset by slightly lower sales volume, primarily during the fiscal first quarter.

18


 

Gross margin increased by 340 basis points to 24.7 percent for the second quarter of 2021 from 21.2 percent for the prior year period primarily due to favorable overhead absorption driven by higher sales volume, higher prices, lower dealer incentives and materials cost containment, partially offset by higher labor costs.

Gross margin increased by 270 basis points to 25.0 percent for the six months ended January 3, 2021 from 22.3 percent for the prior year period primarily due to lower dealer incentives and materials cost containment, and higher prices, partially offset by unfavorable overhead absorption and higher labor costs.

 

Net income was $12.5 million for the second quarter of 2021, compared to Net income of $6.9 million for the second quarter of 2020. Diluted earnings per share was $0.66, compared to diluted earnings per share of $0.37 for the prior year period.

 

Net income was $22.1 million for the six months ended January 3, 2021, compared to Net income of $15.5 million for the prior year period. Diluted earnings per share was $1.17, compared to diluted earnings per share of $0.83 for the prior year period.

 

Merritt Island Facility and Aviara Transition

 

On October 26, 2020, we completed the purchase of certain real property located in Merritt Island, Florida, including an approximately 140,000 sq. ft. boat manufacturing facility, (the “Merritt Island Facility”) for a purchase price of $14.2 million. We are expanding our overall boat building capacity by moving all Aviara production to the Merritt Island Facility. While we believe this additional capacity will help facilitate Aviara’s long-term growth, importantly, removing Aviara production from our Vonore, Tennessee facility allowed for an immediate increase in capacity and productivity for our MasterCraft brand. Although the transition of Aviara’s production is still ongoing, we began producing Aviara in the Merritt Island Facility in December 2020.

19


 

Results of Operations

 

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

 

 

 

Three Months Ended

 

 

 

 

 

 

January 3,

 

 

December 29,

 

 

2021 vs. 2020

 

 

 

2021

 

 

2019

 

 

Change

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Consolidated statements of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

$

118,677

 

 

$

99,628

 

 

$

19,049

 

 

 

19.1

%

COST OF SALES

 

 

89,404

 

 

 

78,486

 

 

 

10,918

 

 

 

13.9

%

GROSS PROFIT

 

 

29,273

 

 

 

21,142

 

 

 

8,131

 

 

 

38.5

%

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

2,989

 

 

 

4,343

 

 

 

(1,354

)

 

 

(31.2

%)

General and administrative

 

 

8,352

 

 

 

5,477

 

 

 

2,875

 

 

 

52.5

%

Amortization of other intangible assets

 

 

987

 

 

 

987

 

 

 

-

 

 

 

0.0

%

Total operating expenses

 

 

12,328

 

 

 

10,807

 

 

 

1,521

 

 

 

14.1

%

OPERATING INCOME

 

 

16,945

 

 

 

10,335

 

 

 

6,610

 

 

 

64.0

%

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

870

 

 

 

1,237

 

 

 

(367

)

 

 

(29.7

%)

INCOME BEFORE INCOME TAX EXPENSE

 

 

16,075

 

 

 

9,098

 

 

 

6,977

 

 

 

76.7

%

INCOME TAX EXPENSE

 

 

3,574

 

 

 

2,219

 

 

 

1,355

 

 

 

61.1

%

NET INCOME

 

$

12,501

 

 

$

6,879

 

 

$

5,622

 

 

 

81.7

%

Additional financial and other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit sales volume:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

 

784

 

 

 

716

 

 

 

68

 

 

 

9.5

%

NauticStar

 

 

355

 

 

 

337

 

 

 

18

 

 

 

5.3

%

Crest

 

 

575

 

 

 

420

 

 

 

155

 

 

 

36.9

%

Consolidated unit sales volume

 

 

1,714

 

 

 

1,473

 

 

 

241

 

 

 

16.4

%

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

$

82,759

 

 

$

67,757

 

 

$

15,002

 

 

 

22.1

%

NauticStar

 

 

14,949

 

 

 

15,576

 

 

 

(627

)

 

 

(4.0

%)

Crest

 

 

20,969

 

 

 

16,295

 

 

 

4,674

 

 

 

28.7

%

Consolidated net sales

 

$

118,677

 

 

$

99,628

 

 

$

19,049

 

 

 

19.1

%

Net sales per unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

$

106

 

 

$

95

 

 

$

11

 

 

 

11.6

%

NauticStar

 

 

42

 

 

 

46

 

 

 

(4

)

 

 

(8.7

%)

Crest

 

 

36

 

 

 

39

 

 

 

(3

)

 

 

(7.7

%)

Consolidated net sales per unit

 

 

69

 

 

 

68

 

 

 

1

 

 

 

1.5

%

Gross margin

 

 

24.7

%

 

 

21.2

%

 

340 bps

 

 

 

 

 

 

Three Months Ended January 3, 2021 Compared to the Three Months Ended December 29, 2019

 

Net Sales.  Net Sales for the second quarter were $118.7 million, an increase of $19.0 million, or 19.1 percent, compared to $99.6 million for the prior-year period. The increase was primarily due to:

 

a $15.0 million increase for the MasterCraft segment driven by a 9.5 percent increase in sales volume, a favorable mix of higher-priced and higher-contented models, and lower dealer incentives,

 

a $4.7 million increase for the Crest segment resulting from a 36.9 percent increase in sales volume, higher prices, options favorability, and lower dealer incentives, partially offset by model mix, and

20


 

 

a $0.6 million decrease for the NauticStar segment primarily due to model mix, partially offset by a 5.3 percent increase in sales volume.

 

Gross Profit and Gross Margin.  Gross profit increased $8.1 million, or 38.5 percent, to $29.3 million compared to $21.1 million for the prior-year period. The increase was primarily a result of higher sales volumes, higher prices, and lower dealer incentives at MasterCraft and Crest and favorable model and options mix at MasterCraft. These increases were partially offset by higher labor costs at MasterCraft, NauticStar, and Crest as well as higher variable compensation costs and Aviara transition costs at MasterCraft. We expect to realize higher labor costs for the full fiscal year due to changes, implemented in the first quarter of fiscal 2021, to our production employee compensation packages.

 

Gross margin increased due to favorable overhead absorption driven by higher sales volume, higher prices, lower dealer incentives and materials cost containment, partially offset by higher labor costs.

 

Operating Expenses. Operating expenses increased $1.5 million, or 14.1 percent, compared to the prior-year period primarily driven by higher general and administrative expenses, resulting from higher incentive compensation costs and additional investment related to product development. This increase was partially offset by lower selling and marketing costs, primarily due to the timing of anticipated expense, which has been delayed by the COVID-19 pandemic until later in the fiscal year.

 

Interest Expense.  Interest expense decreased $0.4 million, or 29.7 percent primarily due to lower effective interest rates and lower average outstanding debt balances during the quarter compared to the prior-year period.

 

Income Tax Expense.  Our consolidated interim effective income tax rate decreased to 22.2 percent for the second quarter of 2021 from 24.4 percent for the prior-year period.

 

 

 

 

 

 

 

 

 

 

21


 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

January 3,

 

 

December 29,

 

 

2021 vs. 2020

 

 

 

2021

 

 

2019

 

 

Change

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Consolidated statements of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

$

222,422

 

 

$

209,417

 

 

$

13,005

 

 

 

6.2

%

COST OF SALES

 

 

166,919

 

 

 

162,742

 

 

 

4,177

 

 

 

2.6

%

GROSS PROFIT

 

 

55,503

 

 

 

46,675

 

 

 

8,828

 

 

 

18.9

%

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

5,896

 

 

 

8,407

 

 

 

(2,511

)

 

 

(29.9

%)

General and administrative

 

 

17,284

 

 

 

13,262

 

 

 

4,022

 

 

 

30.3

%

Amortization of other intangible assets

 

 

1,974

 

 

 

1,974

 

 

 

-

 

 

 

0.0

%

Total operating expenses

 

 

25,154

 

 

 

23,643

 

 

 

1,511

 

 

 

6.4

%

OPERATING INCOME (LOSS)

 

 

30,349

 

 

 

23,032

 

 

 

7,317

 

 

 

31.8

%

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

1,889

 

 

 

2,581

 

 

 

(692

)

 

 

(26.8

%)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

 

 

28,460

 

 

 

20,451

 

 

 

8,009

 

 

 

39.2

%

INCOME TAX EXPENSE (BENEFIT)

 

 

6,392

 

 

 

4,949

 

 

 

1,443

 

 

 

29.2

%

NET INCOME (LOSS)

 

$

22,068

 

 

$

15,502

 

 

$

6,566

 

 

 

42.4

%

Additional financial and other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit sales volume:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

 

1,431

 

 

 

1,457

 

 

 

(26

)

 

 

(1.8

%)

NauticStar

 

 

646

 

 

 

733

 

 

 

(87

)

 

 

(11.9

%)

Crest

 

 

1,012

 

 

 

946

 

 

 

66

 

 

 

7.0

%

Consolidated unit sales volume

 

 

3,089

 

 

 

3,136

 

 

 

(47

)

 

 

(1.5

%)

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

$

156,123

 

 

$

140,670

 

 

$

15,453

 

 

 

11.0

%

NauticStar

 

 

27,291

 

 

 

33,571

 

 

 

(6,280

)

 

 

(18.7

%)

Crest

 

 

39,008

 

 

 

35,176

 

 

 

3,832

 

 

 

10.9

%

Consolidated net sales

 

$

222,422

 

 

$

209,417

 

 

$

13,005

 

 

 

6.2

%

Net sales per unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

$

109

 

 

$

97

 

 

$

12

 

 

 

12.4

%

NauticStar

 

 

42

 

 

 

46

 

 

 

(4

)

 

 

(8.7

%)

Crest

 

 

39

 

 

 

37

 

 

 

2

 

 

 

5.4

%

Consolidated net sales per unit

 

 

72

 

 

 

67

 

 

 

5

 

 

 

7.5

%

Gross margin

 

 

25.0

%

 

 

22.3

%

 

270 bps

 

 

 

 

 

 

Six Months Ended January 3, 2021 Compared to the Six Months Ended December 29, 2019

 

Net Sales.  Net Sales for the six months ended January 3, 2021 were $222.4 million, an increase of $13.0 million, or 6.2 percent, compared to $209.4 million for the prior-year period. The increase was primarily due to:

 

a $15.5 million increase for the MasterCraft segment, as the impact of slightly lower sales volume associated with our continued production ramp up was offset by a favorable mix of higher-priced and higher-contented models, lower dealer incentives, and higher parts sales volume,

 

a $3.8 million increase for the Crest segment primarily due to higher sales volume, lower dealer incentives, and higher prices, partially offset by model mix, and

 

a $6.3 million decrease for the NauticStar segment primarily due lower sales volume and model mix, partially offset by higher prices.

 

22


 

 

Gross Profit and Gross Margin.  Gross profit increased $8.8 million, or 18.9 percent, to $55.5 million compared to $46.7 million for the prior-year period. The increase was primarily a result of lower dealer incentives, higher prices, and higher parts revenue at MasterCraft and Crest and favorable model and options mix at MasterCraft. These increases were partially offset by lower sales volume at MasterCraft and NauticStar, higher labor costs for each reportable segment, and higher variable compensation costs and Aviara transition costs at MasterCraft. We expect to realize higher labor costs for the full fiscal year due to changes, implemented in the first quarter of fiscal 2021, to our production employee compensation packages.

 

Gross margin increased primarily due to lower dealer incentives and materials cost containment, and higher prices, partially offset by unfavorable overhead and higher labor costs.

 

Operating Expenses. Operating expenses increased $1.5 million, or 6.4 percent, compared to the prior-year period due to higher general and administrative expenses, primarily driven by higher incentive compensation costs and additional investment related to information technology and product development. This increase was partially offset by lower selling and marketing costs, primarily due to the timing of anticipated expense, which has been delayed by the COVID-19 pandemic until later in the fiscal year.

 

Interest Expense.  Interest expense decreased $0.7 million, or 26.8 percent primarily due to lower effective interest rates and lower average outstanding debt balances during the quarter compared to the prior-year period.

 

Income Tax Expense.  Our consolidated interim effective income tax rate decreased to 22.5 percent for the six months ended January 3, 2021 from 24.2 percent for the prior-year 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 Aviara transition costs, Aviara (new brand) startup costs, and non-cash share-based compensation. 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 and adjusted for the impact to income tax expense related to non-GAAP adjustments. For the periods presented herein, these adjustments include Aviara transition costs, Aviara (new brand) startup costs, and certain non-cash items including other intangible asset amortization and share-based compensation. 

23


 

EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share, which we refer to collectively as the Non-GAAP Measures, are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, or U.S. GAAP. The Non-GAAP Measures are not measures of performance in accordance with U.S. GAAP and should not be considered as an alternative to net income, net income per share, or operating cash flows determined in accordance with U.S. GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow. We believe that the inclusion of the Non-GAAP Measures is appropriate to provide additional information to investors because securities analysts and investors use the Non-GAAP Measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted Net Income and Adjusted Net Income per share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with U.S. GAAP, provides a more complete understanding of factors and trends affecting our business than does U.S. GAAP measures alone.  We believe Adjusted Net Income and Adjusted Net Income per share assists our board of directors, management, investors, and other users of the financial statements in comparing our net income on a consistent basis from period to period because it removes certain non-cash items and other items that we do not consider to be indicative of our core and/or ongoing operations and adjusts for the impact to income tax expense (benefit) related to non-GAAP adjustments. 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 as determined in accordance with U.S. GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

 

2021

 

 

2019

 

 

 

 

 

 

 

 

Net income

 

$

12,501

 

 

$

6,879

 

 

$

22,068

 

 

$

15,502

 

Income tax expense

 

 

3,574

 

 

 

2,219

 

 

 

6,392

 

 

 

4,949

 

Interest expense

 

 

870

 

 

 

1,237

 

 

 

1,889

 

 

 

2,581

 

Depreciation and amortization

 

 

2,861

 

 

 

2,683

 

 

 

5,599

 

 

 

5,053

 

EBITDA

 

 

19,806

 

 

 

13,018

 

 

 

35,948

 

 

 

28,085

 

Share-based compensation

 

 

643

 

 

 

32

 

 

 

1,283

 

 

 

544

 

Aviara start-up costs(a)

 

 

-

 

 

 

507

 

 

 

-

 

 

 

815

 

Aviara transition costs(b)

 

 

847

 

 

 

-

 

 

 

1,025

 

 

 

-

 

Adjusted EBITDA

 

$

21,296

 

 

$

13,557

 

 

$

38,256

 

 

$

29,444

 

Adjusted EBITDA Margin

 

 

17.9

%

 

 

13.6

%

 

 

17.2

%

 

 

14.1

%

24


 

 

(a)

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, after the Aviara transition of production to the new Merritt Island Facility in Florida. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models.

(b)

Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).  We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021.

 

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

 

2021

 

 

2019

 

 

 

(Dollars in thousands)

 

Net income

 

$

12,501

 

 

$

6,879

 

 

$

22,068

 

 

$

15,502

 

Income tax expense

 

 

3,574

 

 

 

2,219

 

 

 

6,392

 

 

 

4,949

 

Amortization of acquisition intangibles

 

 

960

 

 

 

961

 

 

 

1,921

 

 

 

1,921

 

Aviara start-up costs(a)

 

 

-

 

 

 

507

 

 

 

-

 

 

 

815

 

Aviara transition costs(b)

 

 

847

 

 

 

-

 

 

 

1,025

 

 

 

-

 

Share-based compensation

 

 

643

 

 

 

32

 

 

 

1,283

 

 

 

544

 

Adjusted Net Income before income taxes

 

 

18,525

 

 

 

10,598

 

 

 

32,689

 

 

 

23,731

 

Adjusted income tax expense(c)

 

 

4,261

 

 

 

2,438

 

 

 

7,518

 

 

 

5,458

 

Adjusted Net Income

 

$

14,264

 

 

$

8,160

 

 

$

25,171

 

 

$

18,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.76

 

 

$

0.44

 

 

$

1.34

 

 

$

0.98

 

Diluted

 

$

0.75

 

 

$

0.43

 

 

$

1.33

 

 

$

0.97

 

Weighted average shares used for the computation of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Adjusted Net Income per share

 

 

18,807,316

 

 

 

18,730,688

 

 

 

18,790,826

 

 

 

18,727,267

 

Diluted Adjusted Net Income per share

 

 

18,928,408

 

 

 

18,770,783

 

 

 

18,897,617

 

 

 

18,770,770

 

(a)

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, after the Aviara transition of production to the new Merritt Island Facility in Florida. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models.

(b)

Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).  We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021.

(c)

Reflects income tax expense at an income tax rate of 23.0% for each period presented.

 

25


 

 

The following table presents the reconciliation of net income per diluted share to Adjusted net income per diluted share for the periods presented:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

January 3,

 

 

December 29,

 

 

January 3,

 

 

December 29,

 

 

 

2021

 

 

2019

 

 

2021

 

 

2019

 

Net income per diluted share

 

$

0.66

 

 

$

0.37

 

 

$

1.17

 

 

$

0.83

 

Impact of adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

0.19

 

 

 

0.12

 

 

 

0.34

 

 

 

0.26

 

Amortization of acquisition intangibles

 

 

0.05

 

 

 

0.05

 

 

 

0.10

 

 

 

0.10

 

Aviara start-up costs(a)

 

 

-

 

 

 

0.02

 

 

 

-

 

 

 

0.04

 

Aviara transition costs(b)

 

 

0.04

 

 

 

-

 

 

 

0.05

 

 

 

-

 

Share-based compensation

 

 

0.03

 

 

 

-

 

 

 

0.07

 

 

 

0.03

 

Adjusted Net Income per diluted share before income taxes

 

$

0.97

 

 

$

0.56

 

 

$

1.73

 

 

$

1.26

 

Impact of adjusted income tax expense on net income per diluted share before income taxes(c)

 

 

(0.22

)

 

 

(0.13

)

 

 

(0.40

)

 

 

(0.29

)

Adjusted Net Income per diluted share

 

$

0.75

 

 

$

0.43

 

 

$

1.33

 

 

$

0.97

 

(a)

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, after the Aviara transition of production to the new Merritt Island Facility in Florida. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models.

(b)

Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).  We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021.

(c)

Reflects income tax expense at an income tax rate of 23.0% for each period presented.

 

Change in Non-GAAP Financial Measure

 

Prior to fiscal year-end 2020, the Company’s calculation of a diluted per share amount of Adjusted Net Income included an adjustment to fully dilute this non-GAAP measure for all outstanding share-based compensation grants. This additional dilution was incorporated by adjusting the GAAP measure, Weighted Average Shares Used for the Computation of Basic earnings per share, as presented on the Consolidated Statements of Operations, to include a dilutive effect for all outstanding RSAs, PSUs, and stock options. Beginning with the fiscal year-end 2020 presentation and for all subsequent periods, the Company will no longer include this additional dilution impact in its calculation of Adjusted Net Income per diluted share. The Company has instead utilized the Weighted Average Shares Used for the Computation of Basic and Diluted earnings per share as presented on the Consolidated Statements of Operations to calculate Adjusted Net Income per diluted share for all periods presented herein.

 

The Company believes that, because its outstanding share-based compensation grants no longer result in a material amount of dilution of its earnings as was the case nearer to the date of our IPO, the adjustment methodology previously used no longer provides meaningful information to management or other users of its financial statements. This change resulted in an increase of $0.01 in the six months ended December 29, 2019 in the amount of Adjusted Net Income per diluted share from what was previously reported.

 

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 liquidity are our cash balance, cash generated from operating activities, our Revolving Credit Facility and the refinancing and/or new issuance of long-term debt. As of January 3, 2021, we had a cash balance of $12.1 million in addition to $35.0 million of available borrowing capacity under the Revolving Credit Facility. During October 2020, the Company completed the purchase of the Merritt Island Facility for a purchase price of $14.2 million. See Note 11 in Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding this transaction.  

26


 

We believe our cash balance, cash from operations, and availability under the Revolving Credit Facility will be sufficient to provide for our liquidity and capital resource needs. However, we are continuing to monitor the COVID-19 pandemic and its impact on our business, dealers, consumers and industry as a whole. The following table summarizes the cash flows from operating, investing, and financing activities:

 

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

 

 

 

Six Months Ended

 

 

 

 

 

 

 

January 3,

 

 

December 29,

 

 

 

 

 

 

 

2021

 

 

2019

 

 

Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

Total cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

30,155

 

 

$

19,844

 

 

$

10,311

 

Investing activities

 

 

(18,903

)

 

 

(11,477

)

 

 

(7,426

)

Financing activities

 

 

(15,497

)

 

 

(8,745

)

 

 

(6,752

)

Net change in cash

 

$

(4,245

)

 

$

(378

)

 

$

(3,867

)

 

Cash Flows

Net cash provided by operating activities increased primarily due to higher operating income partially offset by additional working capital usage. Working capital is defined as Accounts receivable, Income tax receivable, Inventories, and Prepaid expenses and other current assets net of Accounts payable, Income tax payable, and Accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets. Cash flows from working capital changes increased $2.0 million compared to the prior year quarter and included:

 

a $11.5 million increase attributable to Accounts payable driven by increasing production rates during the first half of fiscal 2021;

 

a $9.4 million increase related to Accrued expenses and other current liabilities largely from lower cash used for variable compensation and dealer incentives for the first half of fiscal 2021 compared to the first half of fiscal 2020;

 

a $10.5 million decrease attributable to Inventories mainly as a result of an increase in raw materials and work-in-process driven by increasing production during the first half of fiscal 2021; and

 

a $9.5 million decrease related to Accounts receivable primarily due to an improved collection cycle at Crest during the first half of fiscal 2020 and a larger build in receivables during first half of fiscal 2021 as compared to the same period in fiscal 2020 driven by relative sales volumes improvement.

 

Net cash used in investing activities increased $7.4 million due to higher capital expenditures, primarily the purchase of the Merritt Island Facility.

 

Financing cash flow decreased primarily as the result of higher repayments of debt during the first half of fiscal 2021 as compared to the same period of the prior year. The Company repaid net borrowings of $10.0 million on its Revolving Credit Facility and $4.7 million of scheduled principal repayments on its term loans during the first half of fiscal 2021, compared to $2.3 million of scheduled repayments and $6.0 million of voluntary prepayments on long-term debt during the first half of fiscal 2020.

 

Off-Balance Sheet Arrangements

 

The Company did not have any off-balance sheet financing arrangements as of January 3, 2021.

 

Emerging Growth Company

 

We are currently an emerging growth company, as defined in the JOBS Act. We will continue to be an emerging growth company until June 30, 2021, which is the last day of our fiscal year following the fifth anniversary of the date of completion of our initial public

27


 

offering. As a result, beginning with our annual reporting requirements related to fiscal 2021, we may no longer 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 and stockholder advisory votes on golden parachute 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.”

 

Critical Accounting Policies

 

As of January 3, 2021 there were no significant changes in or changes in the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, which was filed with the SEC on September 11, 2020.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Refer to our 2020 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 January 3, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended January 3, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28


 

PART II – OTHER INFORMATION

ITEM 1.

None.

ITEM 1A.

RISK FACTORS.

During the three months ended January 3, 2021, there were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

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.

None.

29


 

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. 4 and Joinder to 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

 

 

 

 

 

 

 

 

 

*

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

 

 

 

 

 

 

 

*

 

 

*

Filed herewith.

**

Furnished herewith.

30


 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

MASTERCRAFT BOAT HOLDINGS, INC.

 

 

(Registrant)

 

 

 

 

Date:

February 10, 2021

By:

/s/  FREDERICK A. BRIGHTBILL

 

 

 

Frederick A. Brightbill

 

 

 

Chief Executive Officer (Principal Executive Officer) and Chairman of the Board

 

 

 

 

Date:

February 10, 2021

By:

/s/ TIMOTHY M. OXLEY

 

 

 

Timothy M. Oxley

 

 

 

Chief Financial Officer (Principal Financial and Accounting Officer),

 

 

 

Treasurer and Secretary

 

 

 

 

 

31