MALIBU BOATS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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MANAGEMENT REPORT ON THE FINANCIAL SITUATION AND RESULTS OF

                                   OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited interim condensed consolidated financial statements and notes thereto
included herein.

Malibu Boats, Inc. is a Delaware corporation with its principal offices in
Loudon, Tennessee. We use the terms "Malibu," the "Company," "we," "us," "our"
or similar references to refer to Malibu Boats, Inc., its subsidiary, Malibu
Boats Holdings, LLC, or the LLC, and its subsidiary Malibu Boats, LLC, or Boats,
LLC and its consolidated subsidiaries, including Cobalt Boats, LLC, PB Holdco,
LLC, through which we acquired the assets of Pursuit, and MBG Holdco, Inc.,
through which we acquired all of the outstanding stock of Maverick Boat Group,
Inc.
Overview
We are a leading designer, manufacturer and marketer of a diverse range of
recreational powerboats, including performance sport boats, sterndrive and
outboard boats. Our product portfolio of premium brands are used for a broad
range of recreational boating activities including, among others, water sports,
general recreational boating and fishing. Our passion for consistent innovation,
which has led to propriety technology such as Surf Gate, has allowed us to
expand the market for our products by introducing consumers to new and exciting
recreational activities. We design products that appeal to an expanding range of
recreational boaters and water sports enthusiasts whose passion for boating and
water sports is a key component of their active lifestyle and provide consumers
with a better customer-inspired experience. With performance, quality, value and
multi-purpose features, our product portfolio has us well positioned to broaden
our addressable market and achieve our goal of increasing our market share in
the expanding recreational boating industry.
We currently sell our boats under eight brands- (Malibu; Axis; Pursuit;
Maverick; Cobia; Pathfinder; Hewes; and Cobalt), and we report our results of
operations under three reportable segments, (Malibu, Saltwater Fishing and
Cobalt), as shown in the table below. See   Note 17   to our unaudited interim
condensed consolidated financial statements for more information about our
reporting segments.
                                                                            

% of total revenue

                                                           Six Months Ended December                Fiscal year ended
            Segment                       Brands                   31, 2021                           June 30, 2021
            Malibu                        Malibu                     48.6%                                52.2%
                                           Axis

                                         Pursuit
                                         Maverick
       Saltwater Fishing                  Cobia                      29.4%                                26.2%
                                        Pathfinder
                                          Hewes

            Cobalt                        Cobalt                     22.0%                                21.6%



Our Malibu segment participates in the manufacturing, distribution, marketing
and sale throughout the world of Malibu and Axis performance sports boats. Our
flagship Malibu boats offer our latest innovations in performance, comfort and
convenience, and are designed for consumers seeking a premium performance sport
boat experience. We are the market leader in the United States in the
performance sport boat category through our Malibu and Axis Wake Research boat
brands. Our Axis boats appeal to consumers who desire a more affordable
performance sport boat product but still demand high performance, functional
simplicity and the option to upgrade key features. Retail prices of our Malibu
and Axis boats typically range from $65,000 to $215,000.
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Our Saltwater Fishing segment participates in the manufacturing, distribution,
marketing and sale throughout the world of Pursuit boats and the Maverick Boat
Group family of boats (Maverick, Cobia, Pathfinder and Hewes). Our Pursuit boats
expand our product offerings into the saltwater outboard fishing market and
include center console, dual console and offshore models. We recently acquired
Maverick Boat Group and added Maverick, Cobia, Pathfinder and Hewes to our
brands. Our Maverick Boat Group family of boats are highly complementary to
Pursuit, expanding our saltwater outboard offerings with a strong focus in
length segments under 30 feet. We are among the market leaders in the fiberglass
outboard fishing boat category with the brands in our Saltwater Fishing segment.
Retail prices for our Saltwater Fishing boats typically range from $45,000 to
$1,200,000.
Our Cobalt segment participates in the manufacturing, distribution, marketing
and sale throughout the world of Cobalt boats. Our Cobalt boats consist of mid
to large-sized luxury cruisers and bowriders that we believe offer the ultimate
experience in comfort, performance and quality. We are the market leader in the
United States in the 20' - 40' segment of the sterndrive boat category through
our Cobalt brand. Retail prices for our Cobalt boats typically range from
$65,000 to $500,000.
We sell our boats through a dealer network that we believe is the strongest in
the recreational powerboat category. As of July 1, 2021, our worldwide
distribution channel consisted of over 400 dealer locations globally. Our dealer
base is an important part of our consumers' experience, our marketing efforts
and our brands. We devote significant time and resources to find, develop and
improve the performance of our dealers and believe our dealer network gives us a
distinct competitive advantage.
Our operations have continued to be impacted by a variety of external factors.
The COVID-19 pandemic has impacted our operations and financial results since
the third quarter of fiscal year 2020 and continues to have an impact on us. We
elected to suspend operations at all of our facilities from March 2020 until
late April and early May 2020, depending on the facility. As a result, we were
not able to ship boats to our dealers during the period of shut- down, which
negatively impacted our net sales for the second half of fiscal year 2020.
During the first half of fiscal 2021, we constrained our production levels in an
attempt to allow our supply chain to more fully recover from the impacts of
COVID-19 in preparation of higher wholesale manufacturing volumes that we
planned for the second half of fiscal 2021. While our net sales for fiscal year
2021 were impacted by our lower production levels, retail sales improved during
fiscal year 2021 as consumers turned to boating as a form of outdoor, socially
distanced recreation during the COVID-19 pandemic. The increase in retail sales
during fiscal year 2021 combined with our lower wholesale shipment levels during
the second half of fiscal year 2020 and constrained production in the first half
of fiscal year 2021 has resulted in lower inventory levels at our dealers.
Additionally, we have experienced supply chain disruptions during the first half
of fiscal year 2022 that we believe were driven by numerous factors, including
labor shortages, ongoing domestic logistical constraints, West Coast port
challenges and rising prices to our suppliers, in part due to inflationary
pressures. Such supply chain disruptions along with increased costs for raw
materials, shipping and labor, are having industry-wide impacts affecting us and
our suppliers, dealers and customers.
The future impact of COVID-19, ongoing supply chain disruptions and increases in
costs on our financial condition and results of operations, however, will depend
on a number of factors, including factors that we may not be able to forecast at
this time. See the risk factors around COVID-19 impact, supply chain disruptions
and increases in costs under Part I. Item 1A. on our Form 10- K for the year
ended June 30, 2021.
On a consolidated basis, we achieved second quarter fiscal 2022 net sales, gross
profit, net income and adjusted EBITDA of $263.9 million, $63.6 million, $31.0
million and $48.1 million, respectively, compared to $195.6 million, $49.5
million, $22.1 million and $39.1 million, respectively, for the second quarter
of fiscal 2021. For the second quarter of fiscal 2022, net sales increased
34.9%, gross profit increased 28.4%, net income increased 39.9% and adjusted
EBITDA increased 23.0% as compared to the second quarter of fiscal 2021. For the
definition of adjusted EBITDA and a reconciliation to net income, see "GAAP
Reconciliation of Non-GAAP Financial Measures."
Outlook
Industry-wide marine retail registrations continue to recover from the years
following the global financial crisis. According to Statistical Surveys, Inc.,
domestic retail registration volumes of performance sport boats, fiberglass
sterndrive and fiberglass outboards increased at a compound annual growth rate
of approximately 5.8% between 2011 and 2020, for the 50 reporting states. Within
the recreational powerboat categories, the performance sport boats category,
which we primarily serve with our Malibu and Axis brands, has produced a
double-digit compound annual growth rate between 2011 and 2020. Outboard boats
and fiberglass sterndrive boats have seen their combined market grow at a 5.0%
compound annual growth rate between 2011 and 2020. This combined growth has been
driven primarily by the outboard market. We target the outboard market with our
Pursuit, Cobia, Pathfinder, Maverick and Hewes brands, as well as our Cobalt
brand, which is a new entrant to the outboard market, and we plan to
meaningfully expand our share of the fiberglass outboard category in the future.
We cater to the sterndrive market through our Cobalt brand. While the market for
sterndrive propulsion, particularly in lower foot length
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products, has been challenged, Cobalt's performance continues to be helped by
the higher foot length product market it serves, which has grown and through
gains in market share by Cobalt.
Although retail growth in powerboats was negatively impacted by weak retail
sales in March and April 2020 due to COVID-19, domestic retail demand growth for
powerboats accelerated during calendar year 2020, in part because consumers
turned to boating as a form of outdoor, socially distanced recreation during the
COVID-19 pandemic. Despite the impact of COVID-19 early in 2020, the increased
demand during 2020 was broad based across recreational powerboat categories
leading to the highest growth rate the industry has seen in decades. We
continued to see strong year-over-year retail growth during the first half of
2021. However, beginning in May 2021, we experienced lower growth and in certain
markets year-over-year decreases in retail registrations driven by the lack of
available inventory at our dealers and the high growth in those months during
2020. Retail registration activity declined meaningfully during the third
calendar quarter of 2021 versus the comparable period in 2020 given the limited
available inventory and the strong sales activity and resulting destocking in
2020 and the first half of 2021. Year-over-year domestic retail growth rates for
2021 across the performance sport boat, fiberglass outboard and sterndrive
segments are likely to be reported down low single digit to mid-teen digits,
with the majority of the markets we serve in the low single digits range. We
believe that despite recent retail registration declines, retail activity at our
dealers continues to be strong and but for a lack of inventory would be
meaningfully higher.
The combination of continued strong retail market activity through 2020 and into
early 2021 and supply chain disruptions experienced in 2021 have depleted our
current inventory levels at our dealers below prior year levels. Operational
challenges and supply chain constraints created by severe winter weather delayed
our ability to add to depleted inventory levels in the second half of fiscal
2021, and we experienced increased challenges with our supply chain in the first
half of fiscal 2022 that we believe will continue to challenge our ability to
meet our wholesale production goals for fiscal 2022. As a result of these lower
dealer inventory levels and lower wholesale production volumes, we expect to see
meaningful wholesale demand to restock our dealer inventories through the
remainder of fiscal year 2022 and beyond. We expect lower dealer inventory
levels will support our wholesale shipments and financial performance through
fiscal year 2022, and we believe that strength is likely to continue into fiscal
year 2023 and potentially beyond. The duration of our dealer restocking demand
may be extended by our suppliers' ability to increase production to match our
desired wholesale production targets.
We experienced an increase in supply chain disruptions during the first half of
fiscal 2022 that we believe were driven by numerous factors, including labor
shortages, ongoing domestic logistical constraints, West Coast port challenges
and rising prices to our suppliers, in part due to inflationary pressures. The
length and duration of these challenges is unknown, and they may meaningfully
impact our ability to restock our dealers' inventories in a timely manner. We
anticipate raw material, components and transportation costs will remain at
inflated levels into calendar year 2022, and, to combat this, we implemented a
surcharge across all brands effective December 1, 2021. These higher prices
could negatively impact retail demand, but we believe will not impact our
wholesale shipments in fiscal 2022. Numerous other variables also have the
potential to impact our volumes, both positively and negatively. For example, we
believe a substantial increase or decrease in the price of oil, strength or
weakness of the U.S. dollar and tariffs can result in greater or reduced demand
for our boats in certain markets. To date, growth in our domestic market has
offset the significantly diminished demand from economies that are driven by the
oil industry and international markets. Consumer confidence, expanded or eroded,
is a variable that can also impact demand for our products in both directions.
Other challenges that could impact demand for recreational powerboats include
higher interest rates reducing retail consumer appetite for our product, the
availability of credit to our dealers and retail consumers, fuel costs, a
meaningful reduction in the value of global or domestic equity markets, the
continued acceptance of our new products in the recreational boating market, our
ability to compete in the competitive power boating industry, and the costs of
labor and certain of our raw materials and key components.
Since 2008, we have increased our market share among manufacturers of
performance sport boats with new product development, improved distribution, new
models, and innovative features. Our market remains highly competitive, however,
and our competitors have become more aggressive in their product introductions,
increased their distribution and launched surf systems competitive with our
patented Surf Gate system. Notwithstanding this increasingly competitive
environment, we expanded our market share lead in 2019 in the performance sport
boats category over our nearest competitors. We believe decreased dealer
inventory levels driven by strong retail growth have led to a reduction in our
market share through 2021; however, we continue to maintain the leading market
share in the performance sport boat category. In addition, we continue to be the
market share leader in both the premium and value-oriented product
sub-categories for performance sports boats, we continue to maintain the number
one market share position in the United States for the 24'-29' segment of the
sterndrive boat category, and we have the number two market share position in
the outboard fiberglass fishing market. Our ability to continue to increase
inventory levels at our dealers will be important to maintain and grow our
market share across our brands. We believe our new product pipeline, strong
dealer network and ability to increase production will allow us to maintain and
potentially expand our industry leading market position in performance sports
boats.
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We believe that our track record of expanding our market share with our Malibu
and Axis brands due to new product development, improved distribution, new
models, and innovative features is directly transferable to our Cobalt, Pursuit
and Maverick Boat Group acquisitions. We have seen the impact of this strategy
at Cobalt as we have realized growing market share with the introduction of nine
new products in the last eighteen months. While Cobalt, Pursuit and the Maverick
Boat Group brands are market leaders in certain areas, we believe our experience
positions us to execute a strategy to drive enhanced share by expanding the
Cobalt, Pursuit and Maverick Boat Group product offerings with different foot
lengths, different boat types and different propulsion technologies. Our new
product development efforts at Pursuit and Maverick Boat Group will take time
and our ability to influence near-term model introductions is limited, but we
have already begun to execute on this strategy. With respect to Cobalt, we
introduced six new models of boats during fiscal year 2021 and three new models
in the first half of fiscal year 2022, and we have included Splash and Stow and
a new electronic flip down Swim Step for model year 2021 boats. For the Pursuit
brand, our focus has been on expanding the award-winning Dual Console, Sport and
Offshore product offerings that continue to combine innovative features and
dependable performance in refined designs that accommodate a broad array of
activities on the water, including the Electric Sliding Entertainment Center on
the new S 378. Our newest acquisition, Maverick Boat Group, is in the very early
stages of integration into the business and meaningful product and innovation
changes will be developed for coming years. We believe enhancing new product
development combined with diligent management of the Cobalt, Pursuit and
Maverick Boat Group dealer networks will position us to meaningfully improve our
share of the sterndrive and outboard markets over time.
Factors Affecting Our Results of Operations
We believe that our results of operations and our growth prospects are affected
by a number of factors, such as the economic environment and consumer demand for
our products, our ability to develop new products and innovate, our product mix,
our ability to manage manufacturing costs, sales cycles and inventory levels,
the strength of our dealer network, our ability to offer dealer financing and
incentives and our vertical integration efforts. We discuss each of these
factors in more detail under the heading "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting Our
Results of Operations" in our Form 10-K for the year ended June 30, 2021. While
we do not have control of all factors affecting our results from operations, we
work diligently to influence and manage those factors which we can impact to
enhance our results of operations.
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Components of Results of Operations
Net Sales
We generate revenue from the sale of boats to our dealers. The substantial
majority of our net sales are derived from the sale of boats, including optional
features included at the time of the initial wholesale purchase of the boat. Net
sales consists of the following:
•Gross sales from:
•Boat and trailer sales-consists of sales of boats and trailers to our dealer
network. Nearly all of our boat sales include optional feature upgrades
purchased by the consumer, which increase the average selling price of our
boats; and
•Parts and other sales-consists of sales of replacement and aftermarket boat
parts and accessories to our dealer network; and consists of royalty income
earned from license agreements with various boat manufacturers, including
Nautique, Chaparral, Mastercraft, and Tige related to the use of our
intellectual property.
•Net sales are net of:
•Sales returns-consists primarily of contractual repurchases of boats either
repossessed by the floor plan financing provider from the dealer or returned by
the dealer under our warranty program; and
•Rebates and free flooring-consists of incentives, rebates and free flooring, we
provide to our dealers based on sales of eligible products. For our Malibu and
Cobalt segments, if a domestic dealer meets its monthly or quarterly commitment
volume, as well as other terms of the dealer performance program, the dealer is
entitled to a specified rebate. For our Saltwater Fishing segment, if a dealer
meets its quarterly or annual retail volume goals, the dealer is entitled to a
specific rebate applied to their wholesale volume purchased. For Malibu, Cobalt
and select Saltwater Fishing models, our dealers that take delivery of current
model year boats in the offseason, typically July through April in the U.S., are
also entitled to have us pay the interest to floor the boat until the earlier of
(1) the sale of the unit or (2) a date near the end of the current model year,
which incentive we refer to as "free flooring." From time to time, we may extend
the flooring program to eligible models beyond the offseason period.
Cost of Sales
Our cost of sales includes all of the costs to manufacture our products,
including raw materials, components, supplies, direct labor and factory
overhead. For components and accessories manufactured by third-party vendors,
such costs represent the amounts invoiced by the vendors. Shipping costs and
depreciation expense related to manufacturing equipment and facilities are also
included in cost of sales. Warranty costs associated with the repair or
replacement of our boats under warranty are also included in cost of sales.
Operating Expenses
Our operating expenses include selling and marketing, general and administrative
and amortization costs. Each of these items includes personnel and related
expenses, supplies, non-manufacturing overhead, third-party professional fees
and various other operating expenses. Further, selling and marketing
expenditures include the cost of advertising and various promotional sales
incentive programs. General and administrative expenses include, among other
things, salaries, benefits and other personnel related expenses for employees
engaged in product development, engineering, finance, information technology,
human resources and executive management. Other costs include outside legal and
accounting fees, investor relations, risk management (insurance) and other
administrative costs. General and administrative expenses also include product
development expenses associated with our engines vertical integration initiative
and acquisition or integration related expenses. Amortization expenses are
associated with the amortization of intangibles.
Other (Income) Expense, Net
Other (income) expense, net consists of interest expense and other income or
expense, net. Interest expense consists of interest charged under our
outstanding debt and amortization of deferred financing costs on our credit
facilities. Other income or expense includes adjustments to our tax receivable
agreement liability.
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Income Taxes
Malibu Boats, Inc. is subject to U.S. federal and state income tax in multiple
jurisdictions with respect to our allocable share of any net taxable income of
the LLC. The LLC is a pass-through entity for federal purposes but incurs income
tax in certain state jurisdictions. Maverick Boat Group is separately subject to
U.S. federal and state income tax with respect to its net taxable income.
Net Income Attributable to Non-controlling Interest
As of December 31, 2021 and 2020, we had a 97.2% and 96.8% controlling economic
interest, respectively, and 100% voting interest in the LLC and, therefore, we
consolidate the LLC's operating results for financial statement purposes. Net
income attributable to non-controlling interest represents the portion of net
income attributable to the non-controlling LLC members.
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Results of Operations
The table below sets forth our unaudited interim consolidated results of
operations, expressed in thousands (except unit volume and net sales per unit)
and as a percentage of net sales, for the periods presented. Our unaudited
interim consolidated financial results for these periods are not necessarily
indicative of the consolidated financial results that we will achieve in future
periods. Certain totals for the table below will not sum to exactly 100% due to
rounding.
                                                     Three Months Ended December 31,                                                               Six Months Ended December 31,
                                           2021                                           2020                                           2021                                          2020
                                 $                   % Revenue                  $                  % Revenue                   $                  % Revenue                  $                  % Revenue
Net sales                        263,887                  100.0  %             195,647                  100.0  %              517,384                  100.0  %             376,631                  100.0  %
Cost of sales                    200,336                   75.9  %             146,158                   74.7  %              394,081                   76.2  %             281,401                   74.7  %
Gross profit                      63,551                   24.1  %              49,489                   25.3  %              123,303                   23.8  %              95,230                   25.3  %
Operating expenses:
Selling and marketing              5,658                    2.1  %               4,001                    2.0  %               10,775                    2.1  %               7,613                    2.0  %
General and
administrative                    15,987                    6.1  %              15,036                    7.7  %               32,078                    6.2  %              26,690                    7.1  %
Amortization                       1,719                    0.7  %               1,524                    0.8  %                3,575                    0.7  %               3,048                    0.8  %
Operating income                  40,187                   15.2  %              28,928                   14.8  %               76,875                   14.8  %              57,879                   15.4  %
Other expense, net:
Other income, net                    (10)                     -  %                 (12)                     -  %                  (23)                     -  %                 (22)                     -  %
Interest expense                     656                    0.2  %                 445                    0.2  %                1,340                    0.2  %               1,001                    0.3  %
Other expense, net                   646                    0.2  %                 433                    0.2  %                1,317                    0.2  %                 979                    0.3  %
Income before provision
for income taxes                  39,541                   15.0  %              28,495                   14.6  %               75,558                   14.6  %              56,900                   15.1  %
Provision for income
taxes                              8,562                    3.3  %               6,348                    3.2  %               16,646                    3.2  %              12,715                    3.4  %
Net income                        30,979                   11.7  %              22,147                   11.4  %               58,912                   11.4  %              44,185                   11.7  %
Net income attributable
to non-controlling
interest                           1,088                    0.4  %                 922                    0.5  %                2,077                    0.4  %               1,867                    0.5  %
Net income attributable
to Malibu Boats, Inc.             29,891                   11.3  %              21,225                   10.9  %               56,835                   11.0  %              42,318                   11.2  %

                                                     Three Months Ended December 31,                                                               Six Months Ended December 31,
                                           2021                                           2020                                           2021                                          2020
                            Unit Volumes              % Total              Unit Volumes             % Total              Unit Volumes              % Total              Unit Volumes             % Total
Volume by Segment
Malibu                             1,179                   56.9  %               1,101                   63.2  %                2,238                   54.6  %               2,132                   63.1  %
Saltwater Fishing                    469                   22.6  %                 152                    8.7  %                  954                   23.3  %                 298                    8.8  %
Cobalt                               425                   20.5  %                 489                   28.1  %                  905                   22.1  %                 947                   28.0  %
Total units                        2,073                  100.0  %               1,742                  100.0  %                4,097                    100  %               3,377                    100  %

Net sales per unit       $       127,297                                 $     112,312                                 $      126,284                                 $     111,528



Comparison of the Three Months Ended December 31, 2021 to the Three Months Ended
December 31, 2020
Net Sales
Net sales for the three months ended December 31, 2021 increased $68.2 million,
or 34.9%, to $263.9 million as compared to the three months ended December 31,
2020. The increase in net sales was driven primarily by a favorable model mix
and increased unit volumes primarily due to the acquisition of Maverick Boat
Group on December 31, 2020. We recognized an increase in net sales across all
three segments and increase in volumes at our Malibu and Saltwater Fishing
segments during the three months ended December 31, 2021. Unit volume for the
three months ended December 31, 2021, increased 331 units, or
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19.0%, to 2,073 units as compared to the three months ended December 31, 2020.
Our unit volume increased primarily due to the acquisition of Maverick Boat
Group on December 31, 2020.
Net sales attributable to our Malibu segment increased $24.8 million, or 22.9%,
to $133.5 million for the three months ended December 31, 2021, compared to the
three months ended December 31, 2020. Unit volumes attributable to our Malibu
segment increased 78 units for the three months ended December 31, 2021,
compared to the three months ended December 31, 2020. The increase in net sales
was driven by increased volume, a favorable model mix and year over year price
increases.
Net sales attributable to our Saltwater Fishing segment increased $35.7 million,
or 90.2%, to $75.2 million, for the three months ended December 31, 2021,
compared to the three months ended December 31, 2020. Unit volume increased 317
units for the three months ended December 31, 2021 compared to the three months
ended December 31, 2020. The increase in net sales was driven primarily by the
acquisition of Maverick Boat Group on December 31, 2020 and favorable model mix.
Net sales attributable to our Cobalt segment increased $7.7 million, or 16.2%,
to $55.2 million for the three months ended December 31, 2021, compared to the
three months ended December 31, 2020. Unit volumes attributable to Cobalt
decreased 64 units for the three months ended December 31, 2021 compared to the
three months ended December 31, 2020. The increase in net sales was driven
primarily by a favorable model mix partially offset by a decrease in volumes due
to production of larger, more complex boats and ongoing supply chain
constraints.
Overall consolidated net sales per unit increased 13.3% to $127,297 per unit for
the three months ended December 31, 2021, compared to the three months ended
December 31, 2020. Net sales per unit for our Malibu segment increased 14.7% to
$113,192 per unit for the three months ended December 31, 2021, compared to the
three months ended December 31, 2020, driven primarily by a favorable model mix
and year over year price increases. Net sales per unit for our Saltwater Fishing
segment decreased 38.3% to $160,429 per unit for the three months ended
December 31, 2021 driven primarily by mix of models due mostly to the inclusion
of lower priced models from our acquisition of Maverick Boat Group on December
31, 2020. Net sales per unit for our Cobalt segment increased 33.8% to $129,866
per unit for the three months ended December 31, 2021, compared to the three
months ended December 31, 2020, driven primarily by a favorable model mix.
Cost of Sales
Cost of sales for the three months ended December 31, 2021 increased $54.2
million, or 37.1%, to $200.3 million as compared to the three months ended
December 31, 2020. The increase in cost of sales was driven by higher costs
related to higher net sales in all our segments, increased prices due to supply
chain disruptions and inflationary pressures that have increased prices on parts
and components (as discussed above in "Outlook"). In the Malibu segment, higher
per unit material and labor costs contributed $13.8 million to the increase in
cost of sales and were driven by an increased mix of larger product that
corresponded with higher net sales per unit. Within our Saltwater Fishing
segment, higher volumes, primarily related to the acquisition of Maverick Boat
Group, drove $27.5 million of increase in cost of sales which was also modestly
impacted by higher per unit costs. In the Cobalt segment, higher per unit
material and labor costs contributed $5.3 million to the increase in cost of
sales and were driven by an increased mix of larger product that corresponded
with higher net sales per unit.
Gross Profit
Gross profit for the three months ended December 31, 2021 increased $14.1
million, or 28.4%, to $63.6 million compared to the three months ended
December 31, 2020. The increase in gross profit was driven primarily by higher
sales revenue partially offset by the increased cost of sales for the reasons
noted above. Gross margin for the three months ended December 31, 2021 decreased
120 basis points from 25.3% to 24.1% driven primarily by mix of models due
mostly to the inclusion of lower priced models from the Maverick Boat Group,
which we acquired on December 31, 2020.
Operating Expenses
Selling and marketing expenses for the three months ended December 31, 2021
increased $1.7 million, or 41.4% to $5.7 million compared to the three months
ended December 31, 2020. The increase was driven primarily by incremental
selling and marketing expenses from the acquisition of Maverick Boat Group,
increased compensation and personnel related expenses and by increased travel
and promotional events that have since resumed in the three months ended
December 31, 2021 after being suspended for COVID-19 during the three months
ended December 31, 2020. As a percentage of sales, selling and marketing
expenses increased 10 basis points to 2.1% for the three months ended
December 31, 2021 compared to 2.0% for the three months ended December 31, 2020.
General and administrative expenses for the three months ended December 31, 2021
increased $1.0 million, or 6.3%, to $16.0 million as compared to the three
months ended December 31, 2020 driven primarily by an increase in compensation
and personnel related expenses, information technology infrastructure expenses
and incremental general and administrative expenses due to the acquisition of
Maverick Boat Group offset by a decrease in acquisition expenses related to the
acquisition of Maverick Boat Group on December 31, 2020. As a percentage of
sales, general and administrative
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expenses decreased 160 basis points to 6.1% for the three months ended
December 31, 2021 compared to 7.7% for the three months ended December 31, 2020.
Amortization expense for the three months ended December 31, 2021 increased $0.2
million, or 12.8% to $1.7 million compared to the three months ended
December 31, 2020. The increase is due to amortization of intangibles acquired
as part of the acquisition of Maverick Boat Group on December 31, 2020 offset by
a decrease of amortization expense related to fully amortized intangibles.
Other Expense, Net
Other expense, net for the three months ended December 31, 2021 increased by
$0.2 million, or 49.2% to $0.6 million, compared to the three months ended
December 31, 2020. The increase in other expense resulted primarily from
increased interest expense due to higher average outstanding debt during the
three months ended December 31, 2021 compared to the three months ended
December 31, 2020.
Provision for Income Taxes
Our provision for income taxes for the three months ended December 31, 2021,
increased $2.2 million, or 34.9%, to $8.6 million compared to the three months
ended December 31, 2020. The increase primarily resulted from increased pre-tax
earnings. For the three months ended December 31, 2021 and 2020, our effective
tax rate of 21.7% and 22.3%, respectively, exceeded the statutory federal income
tax rate of 21% primarily due to the impact of U.S. state taxes. This increase
in tax rate in both periods was partially offset by a windfall benefit generated
by certain stock based compensation, as well as the benefits of the foreign
derived intangible income deduction, the research and development tax credit,
and the impact of non-controlling interests in the LLC.
Non-controlling Interest
Non-controlling interest represents the ownership interests of the members of
the LLC other than us and the amount recorded as non-controlling interest in our
unaudited interim condensed consolidated statements of operations and
comprehensive income is computed by multiplying pre-tax income for the
applicable period, by the percentage ownership in the LLC not directly
attributable to us. For the three months ended December 31, 2021 and 2020, the
weighted average non-controlling interest attributable to ownership interests in
the LLC not directly attributable to us was 2.8% and 3.3%, respectively.
Comparison of the Six Months Ended December 31, 2021 to the Six Months Ended
December 31, 2020
Net Sales
Net sales for the six months ended December 31, 2021 increased $140.8 million,
or 37.4%, to $517.4 million as compared to the six months ended December 31,
2020. The increase in net sales was driven primarily by a favorable model mix
and increased unit volumes primarily due to the acquisition of Maverick Boat
Group on December 31, 2020. We recognized an increase in net sales across all
three segments and increase in volumes at our Malibu and Saltwater segments
during the six months ended December 31, 2021. Unit volume for the six months
ended December 31, 2021, increased 720 units, or 21.3%, to 4,097 units as
compared to the six months ended December 31, 2020. Our unit volume increased
primarily due to the acquisition of Maverick Boat Group on December 31, 2020.
Net sales attributable to our Malibu segment increased $43.3 million, or 20.8%,
to $251.7 million for the six months ended December 31, 2021, compared to the
six months ended December 31, 2020. Unit volumes attributable to our Malibu
segment increased 106 units for the six months ended December 31, 2021, compared
to the six months ended December 31, 2020. The increase in net sales was driven
by increased volume, favorable model mix and year over year price increases.
Net sales attributable to our Saltwater Fishing segment increased $75.7 million,
or 99.4%, to $152.0 million, for the six months ended December 31, 2021,
compared to the six months ended December 31, 2020. Unit volume increased 656
units for the six months ended December 31, 2021 compared to the six months
ended December 31, 2020. The increase in net sales was driven primarily by the
acquisition of Maverick Boat Group on December 31, 2020 and favorable model mix.
Net sales attributable to our Cobalt segment increased $21.8 million, or 23.7%,
to $113.7 million for the six months ended December 31, 2021, compared to the
six months ended December 31, 2020. Unit volumes attributable to Cobalt
decreased 42 units for the six months ended December 31, 2021 compared to the
six months ended December 31, 2020. The increase in net sales was driven
primarily by a favorable model mix partially offset by a decrease in volumes due
to production of larger, more complex boats and ongoing supply chain
constraints.
Overall consolidated net sales per unit increased 13.2% to $126,284 per unit for
the six months ended December 31, 2021, compared to the six months ended
December 31, 2020. Net sales per unit for our Malibu segment increased 15.0% to
$112,469
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per unit for the six months ended December 31, 2021, compared to the six months
ended December 31, 2020, driven primarily by a favorable model mix and year over
year price increases. Net sales per unit for our Saltwater Fishing segment
decreased 37.7% to $159,296 per unit for the six months ended December 31, 2021
driven primarily by mix of models due mostly to the inclusion of lower priced
models from our acquisition of Maverick Boat Group on December 31, 2020. Net
sales per unit for our Cobalt segment increased 29.4% to $125,648 per unit for
the six months ended December 31, 2021, compared to the six months ended
December 31, 2020, driven primarily by a favorable model mix.
Cost of Sales
Cost of sales for the six months ended December 31, 2021 increased $112.7
million, or 40.0%, to $394.1 million as compared to the six months ended
December 31, 2020. The increase in cost of sales was driven by higher costs
related to higher net sales in all our segments, increased prices due to supply
chain disruptions and inflationary pressures that have increased prices on parts
and components (as discussed above in "Outlook"). In the Malibu segment, higher
per unit material and labor costs contributed $24.7 million to the increase in
cost of sales and were driven by an increased mix of larger product that
corresponded with higher net sales per unit. Within our Saltwater Fishing
segment, higher volumes, primarily related to the acquisition of Maverick Boat
Group, drove $57.5 million of increase in cost of sales which was also modestly
impacted by higher per unit costs. In the Cobalt segment, higher per unit
material and labor costs contributed $15.1 million to the increase in cost of
sales and were driven by an increased mix of larger product that corresponded
with higher net sales per unit.
Gross Profit
Gross profit for the six months ended December 31, 2021 increased $28.1 million,
or 29.5%, to $123.3 million compared to the six months ended December 31, 2020.
The increase in gross profit was driven primarily by higher sales revenue
partially offset by the increased cost of sales for the reasons noted above.
Gross margin for the six months ended December 31, 2021 decreased 150 basis
points from 25.3% to 23.8% driven primarily by mix of models due mostly to the
inclusion of lower priced models from the Maverick Boat Group, which we acquired
on December 31, 2020.
Operating Expenses
Selling and marketing expenses for the six months ended December 31, 2021
increased $3.2 million, or 41.5% to $10.8 million compared to the six months
ended December 31, 2020. The increase was driven primarily by incremental
selling and marketing expenses from the acquisition of Maverick Boat Group,
increased compensation and personnel related expenses and increased travel and
promotional events that have since resumed in the six months ended December 31,
2021 after being suspended for COVID-19 during the six months ended December 31,
2020. As a percentage of sales, selling and marketing expenses increased 10
basis points to 2.1% for the six months ended December 31, 2021 compared to 2.0%
for the six months ended December 31, 2020. General and administrative expenses
for the six months ended December 31, 2021 increased $5.4 million, or 20.2%, to
$32.1 million as compared to the six months ended December 31, 2020 driven
primarily by an increase in compensation and personnel related expenses, travel
related expenses, information technology infrastructure expenses and incremental
general and administrative expenses due to the acquisition of Maverick Boat
Group offset by lower professional fees and a decrease in acquisition expenses
related to the acquisition of Maverick Boat Group on December 31, 2020. As a
percentage of sales, general and administrative expenses decreased 90 basis
points to 6.2% for the six months ended December 31, 2021 compared to 7.1% for
the six months ended December 31, 2020. Amortization expense for the six months
ended December 31, 2021 increased $0.5 million, or 17.3% to $3.6 million
compared to the six months ended December 31, 2020. The increase is due to
amortization of intangibles acquired as part of the acquisition of Maverick Boat
Group on December 31, 2020 offset by a decrease of amortization expense related
to fully amortized intangibles.
Other Expense, Net
Other expense, net for the six months ended December 31, 2021 increased by $0.3
million, or 34.5% to $1.3 million compared to the six months ended December 31,
2020. The increase in other expense resulted primarily from increased interest
expense due to higher average outstanding debt during the six months ended
December 31, 2021 compared to the six months ended December 31, 2020.
Provision for Income Taxes
Our provision for income taxes for the six months ended December 31, 2021,
increased $3.9 million, or 30.9%, to $16.6 million compared to the six months
ended December 31, 2020. The increase primarily resulted from increased pre-tax
earnings. For the six months ended December 31, 2021 and 2020, our effective tax
rate of 22.0% and 22.3%, respectively, exceeded the statutory federal income tax
rate of 21% primarily due to the impact of U.S. state taxes. This increase in
tax rate was partially
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offset by the benefits of the foreign derived intangible income deduction, the
research and development tax credit, and the impact of non-controlling interests
in the LLC.
Non-controlling Interest
Non-controlling interest represents the ownership interests of the members of
the LLC other than us and the amount recorded as non-controlling interest in our
unaudited interim condensed consolidated statements of operations and
comprehensive income is computed by multiplying pre-tax income for the
applicable period, by the percentage ownership in the LLC not directly
attributable to us. For the six months ended December 31, 2021 and 2020, the
weighted average non-controlling interest attributable to ownership interests in
the LLC not directly attributable to us was 2.8% and 3.3%, respectively.
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GAAP Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that
are used by management as well as by investors, commercial bankers, industry
analysts and other users of our financial statements.
We define adjusted EBITDA as net income before interest expense, income taxes,
depreciation, amortization and non-cash, non-recurring or non-operating
expenses, including certain professional fees, acquisition and
integration-related expenses and non-cash compensation expense. We define
adjusted EBITDA margin as adjusted EBITDA divided by net sales. Adjusted EBITDA
and adjusted EBITDA margin are not measures of net income as determined by GAAP.
Management believes adjusted EBITDA and adjusted EBITDA margin allow investors
to evaluate the Company's operating performance and compare our results of
operations from period to period on a consistent basis by excluding items that
management does not believe are indicative of our core operating performance.
Management uses Adjusted EBITDA to assist in highlighting trends in our
operating results without regard to our financing methods, capital structure and
non-recurring or non-operating expenses. We exclude the items listed above from
net income in arriving at adjusted EBITDA because these amounts can vary
substantially from company to company within our industry depending upon
accounting methods and book values of assets, capital structures, the methods by
which assets were acquired and other factors. Adjusted EBITDA has limitations as
an analytical tool and should not be considered as an alternative to, or more
meaningful than, net income as determined in accordance with GAAP or as an
indicator of our liquidity. Certain items excluded from adjusted EBITDA are
significant components in understanding and assessing a company's financial
performance, such as a company's cost of capital and tax structure, as well as
the historical costs of depreciable assets. Our presentation of adjusted EBITDA
and adjusted EBITDA margin should not be construed as an inference that our
results will be unaffected by unusual or non-recurring items. Our computations
of adjusted EBITDA and adjusted EBITDA margin may not be comparable to other
similarly titled measures of other companies.
The following table sets forth a reconciliation of net income as determined in
accordance with GAAP to adjusted EBITDA and presentation of net income margin
and adjusted EBITDA margin for the periods indicated (dollars in thousands):
                                           Three Months Ended December 31,               Six Months Ended December 31,
                                              2021                   2020                   2021                  2020
Net income                             $        30,979           $   22,147          $       58,912           $   44,185
Provision for income taxes                       8,562                6,348                  16,646               12,715
Interest expense                                   656                  445                   1,340                1,001
Depreciation                                     4,613                3,599                   9,531                7,085
Amortization                                     1,719                1,524                   3,575                3,048

Professional fees 1                                  -                  673                       -                2,238

Acquisition and integration related
expenses 2                                           -                2,577                       -                2,577
Stock-based compensation expense 3               1,598                1,800                   2,856                2,611

Adjusted EBITDA                        $        48,127           $   39,113          $       92,860           $   75,460
Net Sales                              $       263,887           $  195,647          $      517,384           $  376,631
Net Income Margin 4                               11.7   %             11.4  %                 11.4   %             11.7  %
Adjusted EBITDA Margin 4                          18.2   %             20.0  %                 17.9   %             20.0  %

(1) For the three and six month periods ended December 31, 2020represents legal and advisory services

fees related to our disputes with Skiers Choice, Inc. See note 16 of our

unaudited condensed interim consolidated financial statements included elsewhere in

this quarterly report. (2) For the periods of three and six months ended December 31, 2020represents legal and advisory services

costs incurred in connection with our acquisition of Maverick boat group to the 31st of December,

2020. Integration-related expenses for the quarters and six months ended the 31st of December,

2020, includes post-acquisition cost of goods sold adjustments of $0.9 million for

the revaluation at fair value of inventories acquired from Maverick boat groupwhich was sold

during the third quarter of fiscal 2021.

(3) Represents stock-based incentives granted to certain of our employees under the Malibu

Boats, Inc. Long-term incentive plan and beneficial interests issued under the previous

LLC’s existing limited liability partnership agreement. See note 14 of our

unaudited condensed interim consolidated financial statements included elsewhere in

this quarterly report. (4) We calculate net profit margin as net profit divided by net sales and define

      adjusted EBITDA margin as adjusted EBITDA divided by net sales.



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Adjusted Fully Distributed Net Income
We define Adjusted Fully Distributed Net Income as net income attributable to
Malibu Boats, Inc. (i) excluding income tax expense, (ii) excluding the effect
of non-recurring or non-cash items, (iii) assuming the exchange of all LLC Units
into shares of Class A Common Stock, which results in the elimination of
non-controlling interest in the LLC, and (iv) reflecting an adjustment for
income tax expense on fully distributed net income before income taxes at our
estimated effective income tax rate. Adjusted Fully Distributed Net Income is a
non-GAAP financial measure because it represents net income attributable to
Malibu Boats, Inc., before non-recurring or non-cash items and the effects of
non-controlling interests in the LLC.
We use Adjusted Fully Distributed Net Income 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 GAAP,
provides a more complete understanding of factors and trends affecting our
business than GAAP measures alone.
We believe Adjusted Fully Distributed Net Income assists our board of directors,
management and investors in comparing our net income on a consistent basis from
period to period because it removes non-cash or non-recurring items, and
eliminates the variability of non-controlling interest as a result of member
owner exchanges of LLC Units into shares of Class A Common Stock.
In addition, because Adjusted Fully Distributed Net Income is susceptible to
varying calculations, the Adjusted Fully Distributed Net Income measures, as
presented in this Quarterly Report, may differ from and may, therefore, not be
comparable to similarly titled measures used by other companies.
The following table shows the reconciliation of the numerator and denominator
for net income available to Class A Common Stock per share to Adjusted Fully
Distributed Net Income per Share of Class A Common Stock for the periods
presented (in thousands except share and per share data):
                                             Three Months Ended December 31,               Six Months Ended December 31,
                                                2021                   2020                   2021                  2020
Reconciliation of numerator for net
income available to Class A Common Stock
per share to Adjusted Fully Distributed
Net Income per Share of Class A Common
Stock:
Net income attributable to Malibu Boats,
Inc.                                     $         29,891          $   

21,225 $56,835 $42,318
Provision for income taxes

                          8,562               6,348                   16,646              12,715
Professional fees 1                                     -                 673                        -               2,238
Acquisition and integration related
expenses 2                                          1,677               3,651                    3,354               4,724

Stock-based compensation expense 3                  1,598               1,800                    2,856               2,611

Net income attributable to
non-controlling interest 4                          1,088                 922                    2,077               1,867
Fully distributed net income before
income taxes                                       42,816              34,619                   81,768              66,473
Income tax expense on fully distributed
income before income taxes 5                       10,190               8,170                   19,461              15,688

Adjusted fully distributed net income $32,626 $26,449 $62,307 $50,785

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                                                       Three Months Ended December 31,                                  Six Months Ended December 31,
                                                   2021                                 2020                       2021                                 2020
Reconciliation of denominator for net
income available to Class A Common Stock
per share to Adjusted Fully Distributed
Net Income per Share of Class A Common
Stock:
Weighted average shares outstanding of
Class A Common Stock used for basic net
income per share:                                20,900,201                           20,717,359                 20,875,091                           

20,684,644

Adjustments to weighted average shares of
Class A Common Stock:
Weighted-average LLC Units held by
non-controlling unit holders 6                      600,919                              700,732                    600,919                             

707 497

Weighted-average unvested restricted
stock awards issued to management 7                 248,129                              209,544                    236,147                             

194 296

Adjusted weighted average shares of Class
A Common Stock outstanding used in
computing Adjusted Fully Distributed Net
Income per Share of Class A Common Stock:        21,749,249                           21,627,635                 21,712,157                           

21,586,437


The following table shows the reconciliation of net income available to Class A
Common Stock per share to Adjusted Fully Distributed Net Income per Share of
Class A Common Stock for the periods presented:
                                             Three Months Ended December 31,                Six Months Ended December 31,
                                                2021                   2020                   2021                   2020
Net income available to Class A Common
Stock per share                          $           1.43          $     1.03          $           2.72          $     2.05
Impact of adjustments:
Provision for income taxes                           0.41                0.30                      0.80                0.61
Professional fees 1                                     -                0.03                         -                0.11
Acquisition and integration related
expenses 2                                           0.08                0.18                      0.16                0.23

Stock-based compensation expense 3                   0.08                0.09                      0.14                0.13

Net income attributable to
non-controlling interest 4                           0.05                0.04                      0.10                0.09
Fully distributed net income per share
before income taxes                                  2.05                1.67                      3.92                3.22
Impact of income tax expense on fully
distributed income before income taxes 5            (0.49)              (0.39)                    (0.93)              (0.75)
Impact of increased share count 8                   (0.06)              (0.06)                    (0.12)              (0.12)
Adjusted Fully Distributed Net Income
per Share of Class A Common Stock        $           1.50          $     1.22          $           2.87          $     2.35


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Table of Contents (1) For the three and six month periods ended December 31, 2020represents legal and advisory services

fees related to our disputes with Skiers Choice, Inc. See note 16 of our

unaudited condensed interim consolidated financial statements included elsewhere in

this quarterly report. (2) For the periods of three and six months ended December 31, 2021represents the amortization of

intangible assets acquired as part of the acquisitions of Maverick boat group,

Pursuit and Cobalt. For the three and six months ended December 31, 2020represented,

legal and advisory fees incurred in connection with the acquisition of Maverick Boat

Group and the amortization of intangible assets acquired through acquisitions

of Pursuit and Cobalt.

(3) Represents share-based incentives granted to certain of our employees under the

Malibu Boats, Inc. Long-term incentive plan and beneficial interests issued under the

LLC’s previously existing limited liability partnership agreement. See note 14 at

our unaudited condensed interim consolidated financial statements included elsewhere

in this quarterly report.

(4) Reflects the elimination of the non-controlling interest in the LLC as if all LLCs

members had fully exchanged their LLC units for Class A common stock. (5) Reflects income tax expense at an estimated normalized annual effective tax rate

rate of 23.8% and 23.6% of income before income tax for the three and six months

completed periods December 31, 2021 and 2020, respectively, assuming the conversion of all

Class A common stock LLC units. The estimated normalized annual value

the effective tax rate for fiscal year 2022 is based on the federal statutory rate

plus a mixed State rate adjusted for the research and development tax credit, the

deduction of intangible income of foreign origin and foreign taxes on income attributable to

our Australian subsidiary. (6) Represents the weighted average number of outstanding shares of LLC units held by

non-controlling interests assuming they were exchanged for Class A common stock on a

one-to-one basis. (7) Represents the weighted average of unvested restricted stock awards included in

shares outstanding during the applicable period that were convertible into Class A

common shares and granted to members of management. (8) Reflects the impact of the increase in the number of shares assuming the exchange of all

average number of outstanding shares of LLC Units in Class A common stock and the

conversion of all weighted average unvested restricted stock awards included in

       outstanding shares granted to members of management.



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Liquidity and Capital Resources
Our primary sources of funds are cash provided by operating activities and
borrowings under our credit agreement. Our primary use of funds has been for
capital investments, repayments under our debt arrangements, acquisitions and
cash payments under our tax receivable agreement. The following table summarizes
the cash flows from operating, investing and financing activities (dollars in
thousands):
                                                                      Six Months Ended December 31,
                                                                        2021                   2020
Total cash provided by (used in):
Operating activities                                              $       57,966          $    72,601
Investing activities                                                     (26,226)            (161,952)
Financing activities                                                     (28,153)              79,138
Impact of currency exchange rates on cash balances                          (231)                 155
Increase (decrease) in cash                                       $        3,356          $   (10,058)


Operating Activities
Net cash provided by operating activities was $58.0 million for the six months
ended December 31, 2021, compared to $72.6 million for the six months ended
December 31, 2020, a decrease of $14.6 million. The decrease in cash provided by
operating activities primarily resulted from a net decrease in operating assets
and liabilities of $33.0 million related to the timing of collections of
accounts receivables, payments for accruals and payables, and purchases of
inventory offset by an increase of $18.4 million in net income (after
consideration of non-cash items included in net income, primarily related to
depreciation, amortization, deferred tax assets and non-cash compensation).
Investing Activities
Net cash used in investing activities was $26.2 million for the six months ended
December 31, 2021, and $162.0 million for the six months ended December 31,
2020, Net cash used for investing activities for the six months ended
December 31, 2021 was primarily for general capital expenditures and expansion
projects at our Saltwater Fishing facilities. Net cash used for investing
activities for the six months ended December 31, 2020 was primarily related to
the acquisition of Maverick Boat Group on December 31, 2020.
Financing Activities
Net cash used in financing activities was $28.2 million for the six months ended
December 31, 2021, compared to net cash provided by financing activities of
$79.1 million for the six months ended December 31, 2020, a change of $107.3
million. During the six months ended December 31, 2021, we repaid $20 million of
borrowings under our revolving credit facility, we repurchased $5.2 million of
our Class A Common Stock under our previously announced stock repurchase
program. We repaid $0.6 million on our term loan, paid $2.0 million on taxes for
shares withheld upon the vesting of restricted stock awards, and paid $1.2
million in distributions to LLC Unit holders and we received $1.0 million in
proceeds from the exercise of stock options. During the six months ended
December 31, 2020, we received proceeds of $25.0 million from a new incremental
term loan and $65.0 million from additional borrowings under our revolving
credit facility to fund the acquisition of Maverick Boat Group. During the six
months ended December 31, 2020, we also repaid $8.8 million of borrowings under
our revolving credit facility, paid $1.2 million on taxes for shares withheld
upon the vesting of restricted stock awards, paid $0.6 million in deferred
financing costs, paid $0.6 million in distributions to LLC unit holders and
received $0.3 million in proceeds from the exercise of stock options.
Loans and Commitments
We amended our existing credit agreement on December 30, 2020 in connection with
our acquisition of Maverick Boat Group. As a result of that amendment, we
currently have a revolving credit facility with borrowing capacity of up to
$170.0 million and $98.8 million aggregate principal amount of term loans
outstanding. As of December 31, 2021, we had $25.0 million outstanding under our
revolving credit facility and $1.3 million in outstanding letters of credit,
with $143.7 million available for borrowing. Our revolving credit facility
matures on July 1, 2024, our term loan in a principal amount of $25.0 million,
of which $23.8 million is outstanding as of December 31, 2021 (which we refer to
as the incremental term loan) matures on July 1, 2024 and our term loans in a
principal amount of $75.0 million (which we refer to as the existing term loans,
and together with the incremental term loan, the term loans) mature on July 1,
2022. The revolving credit facility and term loans are governed by a credit
agreement with Boats LLC as the borrower and Truist Bank, as the administrative
agent, swingline lender and issuing bank. The obligations of Boats LLC under the
credit agreement are guaranteed by the LLC and, subject to
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certain exceptions, the present and future domestic subsidiaries of Boats LLC,
and all such obligations are secured by substantially all of the assets of the
LLC, Boats LLC and such subsidiary guarantors. Malibu Boats, Inc. is not a party
to the credit agreement.
Borrowings under our credit agreement bear interest at a rate equal to either,
at our option, (i) the highest of the prime rate, the Federal Funds Rate plus
0.5%, or one-month LIBOR plus 1% (the "Base Rate") or (ii) LIBOR, in each case
plus an applicable margin ranging from 1.25% to 2.25% with respect to LIBOR
borrowings and 0.25% to 1.25% with respect to Base Rate borrowings. The
applicable margin will be based upon the consolidated leverage ratio of the LLC
and its subsidiaries calculated on a consolidated basis. As of December 31,
2021, the interest rate on our term loans and revolving credit facility was
1.35%. We are required to pay a commitment fee for the unused portion of the
revolving credit facility, which will range from 0.20% to 0.40% per annum,
depending on the LLC's and its subsidiaries' consolidated leverage ratio.
The credit agreement permits prepayment of the term loans without any penalties.
The existing term loans require an amortization payment of approximately $3.0
million on March 31, 2022 and the balance of the existing term loans are due on
the scheduled maturity date of July 1, 2022. The incremental term loan of $25.0
million is subject to quarterly amortization at a rate of 5.0% per year through
December 31, 2022, 7.5% per year through June 30, 2024 and the balance of the
incremental term loan is due on the scheduled maturity date of July 1, 2024. The
credit agreement also requires prepayments from the net cash proceeds received
by Boats LLC or any guarantors from certain asset sales and recovery events,
subject to certain reinvestment rights, and from excess cash flow, subject to
the terms and conditions of the credit agreement.
The credit agreement contains certain customary representations and warranties,
and notice requirements for the occurrence of specific events such as the
occurrence of any event of default, or pending or threatened litigation. The
credit agreement also requires compliance with certain customary financial
covenants, including a minimum ratio of EBITDA to fixed charges and a maximum
ratio of total debt to EBITDA. The credit agreement contains certain restrictive
covenants, which, among other things, place limits on certain activities of the
loan parties under the credit agreement, such as the incurrence of additional
indebtedness and additional liens on property and limit the future payment of
dividends or distributions. For example, the credit agreement generally
prohibits the LLC, Boats LLC and the subsidiary guarantors from paying dividends
or making distributions, including to us. The credit facility permits, however,
(i) distributions based on a member's allocated taxable income, (ii)
distributions to fund payments that are required under the LLC's tax receivable
agreement, (iii) purchase of stock or stock options of the LLC from former
officers, directors or employees of loan parties or payments pursuant to stock
option and other benefit plans up to $3.0 million in any fiscal year, and (iv)
share repurchase payments up to $35.0 million in any fiscal year subject to
one-year carry forward and compliance with other financial covenants. In
addition, the LLC may make dividends and distributions of up to $10.0 million in
any fiscal year, subject to compliance with other financial covenants.
Potential Impact of LIBOR Transition
The Chief Executive of the U.K. Financial Conduct Authority (the "FCA"), which
regulates the London Interbank Offered Rate, or LIBOR, has announced that the
FCA will no longer persuade or compel banks to submit rates for the calculation
of LIBOR after 2021. However, for U.S dollar LIBOR, the relevant date has been
deferred to at least June 30, 2023 for certain tenors (including overnight and
one, three, six and 12 months), at which time the LIBOR administrator has
indicated that it intends to cease publication of U.S. dollar LIBOR. Despite
this deferral, the LIBOR administrator has advised that no new contracts using
U.S. dollar LIBOR should be entered into after December 31, 2021. These actions
indicate that the continuation of U.S. LIBOR on the current basis cannot and
will not be guaranteed after June 30, 2023. Moreover, it is possible that U.S.
LIBOR will be discontinued or modified prior to June 30, 2023.
All of our $123.8 million of debt outstanding under our credit agreement as of
December 31, 2021 bears interest at a floating rate that uses LIBOR as the
applicable reference rate to calculate the interest. Our credit agreement
provides that, if it is publicly announced that the administrator of LIBOR has
ceased or will cease to provide LIBOR, if it is publicly announced by the
applicable regulatory supervisor that LIBOR is no longer representative or if
either the administrative agent or lenders holding 50% of the aggregate
principal amount of our revolving commitments and term loans elect, we and the
administrative agent may amend our credit agreement to replace LIBOR with an
alternative benchmark rate. This alternative benchmark rate may include a
forward-looking term rate that is based on the secured overnight financing rate,
also known as SOFR, published by the Federal Reserve Bank of New York.
In addition, our tax receivable agreement provides that, if for any reason the
LLC is not able to make a tax distribution in an amount that is sufficient to
make any required payment under the tax receivable agreement or we otherwise
lack sufficient funds, interest would accrue on any unpaid amounts at LIBOR plus
500 basis points until they are paid. Our tax receivable agreement, however,
does not provide for an alternative reference rate to LIBOR and, while we do not
currently anticipate failing to pay any amounts owed under our tax receivable
agreement, it is unclear how we would determine interest on any such amounts
should we fail to pay as required under our tax receivable agreement.
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If the rate used to calculate interest on our outstanding floating rate debt
under our credit agreement that currently uses LIBOR were to increase by 1.0%
either as a result of an increase in LIBOR or the result of the use of the
alternative benchmark rate, we would expect to incur additional interest expense
on such indebtedness as of December 31, 2021 of approximately $1.2 million on an
annualized basis. While we do not expect the potential impact of any LIBOR
transition to have a material effect on our financial results based on our
currently outstanding debt, uncertainty as to the nature of potential changes to
LIBOR, fallback provisions, alternative reference rates or other reforms could
adversely impact our interest expense on our floating rate debt that currently
uses LIBOR as the applicable reference rate. In addition, any alternative
reference rates to LIBOR may result in interest that does not correlate over
time with the payments that would have been made on our indebtedness if LIBOR
was available in its current form. Further, the discontinuance or modification
of LIBOR and uncertainty of an alternative reference rate may result in the
increase in the cost of future indebtedness, which could have a material adverse
effect on our financial condition, cash flow and results of operations. We
intend to closely monitor the financial markets and the use of fallback
provisions and alternative reference rates in anticipation of the discontinuance
or modification of U.S. LIBOR by June 30, 2023.
Future Liquidity Needs and Capital Expenditures
Management believes that our existing cash and cash flows from operations will
be sufficient to fund our operations for the next 12 months. We estimate that
approximately $3.8 million will be due under the tax receivable agreement within
the next 12 months. In accordance with the tax receivable agreement, the next
payment is anticipated to occur approximately 75 days after filing the federal
tax return which is due on April 15, 2022. We expect to repay $76.3 million due
on our term loans in the next 12 months with cash from operations.
Our future capital requirements will depend on many factors, including the
general economic environment in which we operate and our ability to generate
cash flow from operations, which are more uncertain as a result of the COVID-19
pandemic and ongoing supply chain disruptions and the impact on the general
economy. Our liquidity needs during this uncertain time will depend on multiple
factors, including our ability to continue operations and production of boats,
the COVID-19 pandemic's effects on our dealers, suppliers and retail customers,
the availability of sufficient amounts of financing, and our operating
performance.
Stock Repurchase Program
On November 3, 2021, our Board of Directors authorized a stock repurchase
program to allow for the repurchase of up to $70.0 million of our Class A Common
Stock and the LLC's LLC Units (the "Repurchase Program") for the period from
November 8, 2021 to November 8, 2022. We intend to fund repurchases under the
Repurchase Program from cash on hand. During the six months ended December 31,
2021, we repurchased 77,735 shares of Class A Common Stock for $5.2 million in
cash including related fees and expenses. As of December 31, 2021, we may
repurchase up to an additional $64.8 million in shares of Class A Common Stock
and LLC Units under the program.
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Contractual Obligations and Commitments
As of December 31, 2021, our continuing contractual obligations were as follows:
                                                                   Payments Due by Period
                                                  Less than 1                                                     More than 5
                                 Total                Year              1-3 Years            3-5 Years               Years
Bank debt 1                  $  123,750          $    76,250          $    47,500          $         -          $          -
Interest expense 2                2,113                1,160                  953                    -                     -
Operating leases 3               14,720                2,518                5,060                4,511                 2,631
Purchase obligations 4          164,917              164,917                    -                    -                     -
Payments pursuant to tax
receivable agreement 5           48,214                3,773                8,006                8,581                27,854
Total                        $  353,714          $   248,618          $    61,519          $    13,092          $     30,485

(1) Repayment of the principal of our outstanding bank debt according to the terms of our credit agreement,

consisting of term loans, of which $98.8 million is in circulation from

December 31, 2021 and $170.0 million revolving credit facility, of which $25.0 million

was exceptional from December 31, 2021. Assumes no additional borrowing or

repayments under our revolving credit facility prior to its maturity. The balance of

outstanding term loans mature on July 1, 2022the additional term loan matures on

July 1, 2024 and the revolving credit facility matures on July 1, 2024. (2) Interest payments on our outstanding term loans under our credit agreement. Our mandate

loan bears interest at variable rates. We have calculated future interest obligations

based on the prevailing interest rate December 31, 2021. (3) Consistent with the adoption of ASC Topic 842, Leases, effective July 1, 2019 our lease

liability for all leases with a duration of more than 12 months, as represented on the

respective balance sheet of the due date. (4) In the normal course of our business, we place purchase orders with various

of suppliers, mainly for raw materials, in order to manage our various

Needs. Orders are expected to be purchased throughout fiscal 2022 and 2023. (5) Reflects amounts due under our tax receivables agreement we entered into with

our pre-IPO owners at the time of our IPO. Under the agreement on tax receivables, we pay

pre-IPO owners (or any permitted transferee) 85% of the cash savings amount, if

any, in we federal, state and local income tax or franchise tax we actually

to achieve, or in certain circumstances are deemed to achieve, following a

increasing our share of the tax base in tangible and intangible LLC assets, including

increases attributable to payments made under the tax debt agreement. Those

the bonds will not be paid if we do not achieve cash tax savings.



Off Balance Sheet Arrangements
In connection with our dealers' wholesale floor plan financing of boats, we have
entered into repurchase arrangements with various lending institutions. The
repurchase commitment is on an individual unit basis with a term from the date
it is financed by the lending institution through payment date by the dealer,
generally not exceeding two and a half years. Such arrangements are customary in
the industry and our exposure to loss under such arrangements is limited by the
resale value of the inventory which is required to be repurchased. Refer to
  Note 16   of our unaudited interim condensed consolidated financial statements
included elsewhere in this Quarterly Report for further information on
repurchase commitments.
Seasonality
Our dealers experience seasonality in their business. Retail demand for boats is
seasonal, with a significant majority of sales occurring during peak boating
season, which coincides with our first and fourth fiscal quarters. In order to
minimize the impact of this seasonality on our business, we manage our
manufacturing processes and structure dealer incentives to tie our annual volume
rebates program to consistent ordering patterns, encouraging dealers to purchase
our products throughout the year. In this regard, we may offer free flooring
incentives to dealers from the beginning of our model year through April 30 of
each year. Further, in the event that a dealer does not consistently order units
throughout the year, such dealer's rebate is materially reduced. We may offer
off-season retail promotions to our dealers in seasonally slow months, during
and ahead of boat shows, to encourage retail demand.
Critical Accounting Policies
As of December 31, 2021, there were no other significant 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, 2021.
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