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: October 1, 2023


☐	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 November 3, 2023, there were 17,256,141 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 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	24
Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits, Financial Statement Schedules	26

	SIGNATURES	27

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: changes in interest rates, the potential effects of supply chain disruptions and production inefficiencies, general economic conditions, demand for our products, inflation, 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, geopolitical conflicts, such as the conflict between Russia and Ukraine and the conflict in the Gaza Strip, financial institution disruptions 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, 2023, filed with the Securities and Exchange Commission (“SEC”) on August 30, 2023 (our “2023 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.

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended
	October 1,			October 2,
(Dollar amounts in thousands, except per share data)	2023			2022
NET SALES	$	104,217		$	169,516
COST OF SALES		82,381			123,543
GROSS PROFIT		21,836			45,973
OPERATING EXPENSES:
Selling and marketing		3,464			3,779
General and administrative		9,357			9,483
Amortization of other intangible assets		462			489
Total operating expenses		13,283			13,751
OPERATING INCOME		8,553			32,222
OTHER INCOME (EXPENSE):
Interest expense		(878	)		(562	)
Interest income		1,351			151
INCOME BEFORE INCOME TAX EXPENSE		9,026			31,811
INCOME TAX EXPENSE		1,950			7,176
NET INCOME FROM CONTINUING OPERATIONS		7,076			24,635
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX (Note 3)		(881	)		(20,567	)
NET INCOME	$	6,195		$	4,068

NET INCOME (LOSS) PER SHARE:
Basic
Continuing operations	$	0.41		$	1.38
Discontinued operations		(0.05	)		(1.15	)
Net income	$	0.36		$	0.23

Diluted
Continuing operations	$	0.41		$	1.37
Discontinued operations		(0.05	)		(1.14	)
Net income	$	0.36		$	0.23

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:
Basic earnings per share		17,156,283			17,946,061
Diluted earnings per share		17,224,608			18,031,725

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

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	October 1,		June 30,
(Dollar amounts in thousands, except per share data)	2023		2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,459	$	19,817
Held-to-maturity securities (Note 4)		66,532		91,560
Accounts receivable, net of allowance of $137 and $122, respectively		16,304		15,741
Inventories, net (Note 5)		55,472		58,298
Prepaid expenses and other current assets		12,593		10,083
Total current assets		174,360		195,499
Property, plant and equipment, net (Note 6)		76,050		77,921
Goodwill (Note 7)		28,493		28,493
Other intangible assets, net (Note 7)		35,000		35,462
Deferred income taxes		12,460		12,428
Deferred debt issuance costs, net		279		304
Other long-term assets		7,586		3,869
Total assets	$	334,228	$	353,976
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		16,950		20,391
Income tax payable		500		5,272
Accrued expenses and other current liabilities (Note 8)		61,964		72,496
Current portion of long-term debt, net of unamortized debt issuance costs (Note 10)		4,384		4,381
Total current liabilities		83,798		102,540
Long-term debt, net of unamortized debt issuance costs (Note 10)		48,198		49,295
Unrecognized tax positions		7,546		7,350
Other long-term liabilities		2,790		2,702
Total liabilities		142,332		161,887
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 17,256,141 shares at October 1, 2023 and 17,312,850 shares at June 30, 2023		171		173
Additional paid-in capital		69,510		75,976
Retained earnings		122,015		115,820
MasterCraft Boat Holdings, Inc. equity		191,696		191,969
Noncontrolling interest		200		120
Total equity		191,896		192,089
Total liabilities and equity	$	334,228	$	353,976

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

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY


												MasterCraft Boat
	Common Stock						Additional Paid-in			Retained		Holdings, Inc.			Noncontrolling		Total
(Dollar amounts in thousands)	Shares			Amount			Capital			Earnings		Equity			Interest		Equity
Balance at June 30, 2023		17,312,850		$	173		$	75,976		$	115,820	$	191,969		$	120	$	192,089
Share-based compensation activity		185,055			—			(683	)		—		(683	)		—		(683	)
Repurchase and retirement of common stock		(241,764	)		(2	)		(5,783	)		—		(5,785	)		—		(5,785	)
Capital contribution from noncontrolling interest		—			—			—			—		—			80		80
Net income		—			—			—			6,195		6,195			—		6,195
Balance at October 1, 2023		17,256,141		$	171		$	69,510		$	122,015	$	191,696		$	200	$	191,896


												MasterCraft Boat
	Common Stock						Additional Paid-in			Retained		Holdings, Inc.			Noncontrolling		Total
	Shares			Amount			Capital			Earnings		Equity			Interest		Equity
Balance at June 30, 2022		18,061,437		$	181		$	96,584		$	46,883	$	143,648		$	—	$	143,648
Share-based compensation activity		128,040			1			649			—		650			—		650
Repurchase and retirement of common stock		(191,360	)		(2	)		(4,176	)		—		(4,178	)		—		(4,178	)
Net income		—			—			—			4,068		4,068			—		4,068
Balance at October 2, 2022		17,998,117		$	180		$	93,057		$	50,951	$	144,188		$	—	$	144,188

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

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	October 1,			October 2,
(Dollar amounts in thousands)	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,195		$	4,068
Loss from discontinued operations, net of tax		881			20,567
Net income from continuing operations		7,076			24,635
Adjustments to reconcile net income from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization		2,727			2,601
Share-based compensation		939			1,120
Unrecognized tax benefits		196			(818	)
Deferred income taxes		(32	)		2,416
Amortization of debt issuance costs		56			59
Changes in certain operating assets and liabilities		(18,763	)		(10,021	)
Other, net		(1,003	)		726
Net cash provided by (used in) operating activities of continuing operations		(8,804	)		20,718
Net cash used in operating activities of discontinued operations		(318	)		(2,230	)
Net cash provided by (used in) operating activities		(9,122	)		18,488

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(4,398	)		(5,968	)
Purchases of investments		(9,761	)		—
Maturities of investments		35,347			—
Net cash provided by (used in) investing activities of continuing operations		21,188			(5,968	)
Net cash used in investing activities of discontinued operations		—			(501	)
Net cash provided by (used in) investing activities		21,188			(6,469	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt		(1,125	)		(750	)
Cash paid for withholding taxes on vested stock		(1,622	)		(465	)
Repurchase and retirement of common stock		(5,757	)		(4,178	)
Other, net		80			—
Net cash used in financing activities of continuing operations		(8,424	)		(5,393	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		3,642			6,626

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		19,817			34,203
CASH AND CASH EQUIVALENTS — END OF PERIOD	$	23,459		$	40,829
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest	$	820		$	542
Cash payments for income taxes		6,380			5,627
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Activity related to sales-type lease		3,898			—
Capital expenditures in accounts payable and accrued expenses		883			643

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

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, dollars in thousands, except per share data and per unit data)

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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 accompanying unaudited condensed consolidated financial statements include the accounts of MasterCraft Boat Holdings, Inc. ("Holdings") and its wholly owned subsidiaries. Holdings and its subsidiaries collectively are referred to herein as the "Company." 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, 2023 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of October 1, 2023, its results of operations for the three months ended October 1, 2023 and October 2, 2022, its cash flows for the three months ended October 1, 2023 and October 2, 2022, and its statements of equity for the three months ended October 1, 2023 and October 2, 2022. 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, 2023 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 2023 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.

There were no significant changes in or changes to the application of the Company’s significant or critical accounting policies or estimation procedures for the three months ended October 1, 2023 as compared with those described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2023.

Investment in Sales-Type Lease — On July 1, 2023, the Company became a lessor in a sales-type lease arrangement consisting of land valued at $3.9 million. In accordance with Accounting Standards Codification (“ASC”) 842, Leases, the underlying land was derecognized as Property, Plant and Equipment and a sales-type lease was recognized as a net investment in a lease. The net investment balances are represented as lease receivable and unguaranteed residual asset amounts on the balance sheet within other current assets and other long-term assets. The interest earned on the net investment will be recognized as interest income.

REVENUE RECOGNITION

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


	Three Months Ended October 1, 2023
	MasterCraft		Crest		Aviara		Total
Major Product Categories:
Boats and trailers	$	69,825	$	18,118	$	9,912	$	97,855
Parts		5,192		253		—		5,445
Other revenue		819		98		—		917
Total	$	75,836	$	18,469	$	9,912	$	104,217


	Three Months Ended October 2, 2022
	MasterCraft		Crest		Aviara		Total
Major Product Categories:
Boats and trailers	$	108,204	$	43,143	$	12,935	$	164,282
Parts		4,237		253		—		4,490
Other revenue		579		165		—		744
Total	$	113,020	$	43,561	$	12,935	$	169,516

Contract Liabilities

As of June 30, 2023, the Company had $3.3 million of contract liabilities associated with customer deposits and services. During the three months ended October 1, 2023, $0.7 million was recognized as revenue. As of October 1, 2023, total contract liabilities associated with customer deposits and services were $3.4 million, were reported in Accrued expenses and other current liabilities and Other long term liabilities on the condensed consolidated balance sheet, and $1.3 million is expected to be recognized as revenue during the remainder of the year ending June 30, 2024.

DISCONTINUED OPERATIONS

On September 2, 2022, the Company sold its NauticStar business to certain affiliates of Iconic Marine Group, LLC ("Purchaser"). Pursuant to the terms of the purchase agreement, substantially all of the assets of NauticStar were sold, including, among other things, all of the issued and outstanding membership interests in its wholly-owned subsidiary NS Transport, LLC, all owned real property, equipment, inventory, intellectual property and accounts receivable, and the Purchaser assumed substantially all of the liabilities of NauticStar, including, among other things, product liability and warranty claims.

During the quarter ended October 2, 2022, the Company recognized a $22.1 million loss on sale. The final settlement of the purchase price was subject to customary working capital adjustments that had been in arbitration, but were settled in October 2023 without a significant impact to the loss on sale previously recorded. The value of the assets and liabilities that were retained at the time of sale, which are primarily related to certain claims, are subject to change. Certain of these claims have been settled or are expected to settle for higher amounts than previously estimated, with the related activity being recorded as discontinued operations.

The following table summarizes the operating results of discontinued operations for the following periods:


	Three Months Ended
	October 1,			October 2,
	2023			2022
NET SALES	$	37		$	7,870
COST OF SALES		338			9,114
GROSS LOSS		(301	)		(1,244	)
OPERATING EXPENSES:
Selling, general and administrative		1,046			2,345
Total operating expenses		1,046			2,345
OPERATING LOSS		(1,347	)		(3,589	)
Loss on sale of discontinued operations		157			(22,087	)
LOSS BEFORE INCOME TAX BENEFIT		(1,190	)		(25,676	)
INCOME TAX BENEFIT		309			5,109
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	$	(881	)	$	(20,567	)

HELD-TO-MATURITY SECURITIES

The amortized cost and net carrying amount, gross unrealized gains and losses, and estimated fair value of our investments classified as held-to-maturity at October 1, 2023 and June 30, 2023 are summarized as follows:



	October 1, 2023
	Amortized		Gross		Gross			Estimated
	Cost / Net		Unrealized		Unrealized			Fair
	Carrying Amount		Gains		Losses			Value
Held-to-maturity securities:
Fixed income securities:
Corporate bonds	$	56,588	$	3	$	(85	)	$	56,506
U.S. treasury bills		9,944		97		(1	)		10,040
Total held-to-maturity securities	$	66,532	$	100	$	(86	)	$	66,546



	June 30, 2023
	Amortized		Gross		Gross			Estimated
	Cost / Net		Unrealized		Unrealized			Fair
	Carrying Amount		Gains		Losses			Value
Held-to-maturity securities:
Fixed income securities:
Corporate bonds	$	81,743	$	1	$	(160	)	$	81,584
U.S. treasury bills		9,817		31		(1	)		9,847
Total held-to-maturity securities	$	91,560	$	32	$	(161	)	$	91,431

INVENTORIES

Inventories consisted of the following:


	October 1,			June 30,
	2023			2023
Raw materials and supplies	$	36,540		$	40,201
Work in process		10,668			9,465
Finished goods		9,542			10,335
Obsolescence reserve		(1,278	)		(1,703	)
Total inventories	$	55,472		$	58,298

PROPERTY, PLANT, AND EQUIPMENT

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


	October 1,			June 30,
	2023			2023
Land and improvements	$	7,542		$	10,456
Buildings and improvements		48,305			46,759
Machinery and equipment		40,021			40,632
Furniture and fixtures		5,530			5,284
Construction in progress		10,581			10,180
Total property, plant, and equipment		111,979			113,311
Less accumulated depreciation		(35,929	)		(35,390	)
Property, plant, and equipment — net	$	76,050		$	77,921

GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the carrying amounts of goodwill as of October 1, 2023, and June 30, 2023 for each of the Company’s reportable segments.


	Gross Amount		Accumulated Impairment Losses			Total
MasterCraft	$	28,493	$	—		$	28,493
Crest		36,238		(36,238	)		—
Aviara		1,100		(1,100	)		—
Total	$	65,831	$	(37,338	)	$	28,493

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


	October 1,							June 30,
	2023							2023
	Gross Amount		Accumulated Amortization / Impairment			Other intangible assets, net		Gross Amount		Accumulated Amortization / Impairment			Other intangible assets, net
Amortized intangible assets
Dealer networks	$	19,500	$	(10,500	)	$	9,000	$	19,500	$	(10,050	)	$	9,450
Software		245		(245	)		—		245		(233	)		12
		19,745		(10,745	)		9,000		19,745		(10,283	)		9,462

Unamortized intangible assets
Trade names		33,000		(7,000	)		26,000		33,000		(7,000	)		26,000
Total other intangible assets	$	52,745	$	(17,745	)	$	35,000	$	52,745	$	(17,283	)	$	35,462

Amortization expense related to Other intangible assets, net for the three months ended October 1, 2023 and October 2, 2022 was $0.5 million. Estimated amortization expense for the fiscal year ending June 30, 2024 is $1.8 million.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:


	October 1,		June 30,
	2023		2023
Warranty	$	31,710	$	31,780
Dealer incentives		17,330		24,987
Compensation and related accruals		2,897		5,838
Self-insurance		1,454		1,586
Inventory repurchase contingent obligation		1,518		1,515
Contract liabilities		1,484		1,477
Liabilities retained associated with discontinued operations		1,042		690
Other		4,529		4,623
Total accrued expenses and other current liabilities	$	61,964	$	72,496

Accrued warranty liability activity was as follows for the three months ended:


	October 1,			October 2,
	2023			2022
Balance at the beginning of the period	$	31,779		$	25,824
Provisions		2,143			3,345
Payments made		(3,956	)		(3,177	)
Changes for pre-existing warranties		1,744			928
Balance at the end of the period	$	31,710		$	26,920

COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is subject to various litigation, claims and proceedings, which have arisen in the ordinary course of business. The Company accrues for litigation, claims and proceedings when a liability is both probable and the amount can be reasonably estimated.

The Company’s accruals for litigation matters are not material. While these matters are subject to inherent uncertainties, management believes that current litigation, claims and proceedings, individually and in aggregate, and after considering expected insurance reimbursements and other contract indemnifications, are not likely to have a material adverse impact on the Company’s financial position, results of operations or cash flows.

10.

LONG-TERM DEBT

Long-term debt is as follows:


	October 1,			June 30,
	2023			2023
Term loan	$	52,875		$	54,000
Debt issuance costs on term loan		(293	)		(324	)
Total debt		52,582			53,676
Less current portion of long-term debt		4,500			4,500
Less current portion of debt issuance costs on term loan		(116	)		(119	)
Long-term debt, net of current portion	$	48,198		$	49,295

The Company has a credit agreement with a syndicate of certain financial institutions (the “Credit Agreement”) that provides the Company with a $160.0 million senior secured credit facility, consisting of a $60.0 million term loan (the “Term Loan”) and a $100.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Agreement is secured by a first priority security interest in substantially all of the Company’s assets.

The Credit Agreement contains a number of covenants that, among other things, restrict the Company’s ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve; engage in businesses that are not in a related line of business; make loans, advances or guarantees; pay dividends or make other distributions; engage in transactions with affiliates; and make investments. The Company is also required to maintain a minimum fixed charge coverage ratio and a maximum net leverage ratio.

On August 31, 2022, the Company entered into the Second Amendment to the Credit Agreement to obtain the necessary consents and waivers related to the sale of the NauticStar segment on September 2, 2022, as discussed in Note 3.

On October 4, 2023, the Company entered into the Third Amendment to the Credit Agreement to exclude certain amounts of stock repurchases during the fiscal year ending June 30, 2024 from the calculation of the minimum required fixed charge coverage ratio.

The Credit Agreement, as amended, bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.25% to 1.00% or at an adjusted term benchmark rate plus an applicable margin ranging from 1.25% to 2.00%, in each case based on the Company’s net leverage ratio. The Company is also required to pay a commitment fee for any unused portion of the revolving credit facility ranging from 0.15% to 0.30% based on the Company’s net leverage ratio. Effective during the three months ended October 1, 2023, the applicable margin for loans accruing at the prime rate was 0.25% and the applicable margin for loans accruing interest at the benchmark rate was 1.25%. As of October 1, 2023, the interest rate on the Company’s term loan was 6.67%.

The Credit Agreement will mature and all remaining amounts outstanding thereunder will be due and payable on June 28, 2026. As of October 1, 2023, the Company was in compliance with its financial covenants under the Credit Agreement.

Revolving Credit Facility

As of October 1, 2023, the Company had no amounts outstanding on its Revolving Credit Facility and had remaining availability of $100.0 million.

11.

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 October 1, 2023 and October 2, 2022, the Company’s effective tax rate was 21.6% and 22.6%, respectively. The Company’s effective tax rate for the three months ended October 1, 2023 is lower compared to the effective tax rate for the three months ended October 2, 2022, primarily due to a decrease in taxable income and the greater relative impact of certain tax credits.

12.

SHARE-BASED COMPENSATION

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


	Three Months Ended
	October 1,		October 2,
	2023		2022
Restricted stock awards	$	413	$	552
Performance stock units		526		568
Share-based compensation expense	$	939	$	1,120

Restricted Stock Awards

During the three months ended October 1, 2023, the Company granted 114,622 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 three months ended October 1, 2023, 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 three months ended October 1, 2023, was $21.06 per share.

The following table summarizes the status of nonvested RSAs as of October 1, 2023, and changes during the three months then ended.


				Average
	Nonvested			Grant-Date
	Restricted			Fair Value
	Shares			(per share)
Nonvested at June 30, 2023		91,907		$	23.66
Granted		114,622			21.06
Vested		(18,830	)		20.00
Forfeited		(4,344	)		24.50
Nonvested at October 1, 2023		183,355			23.38

As of October 1, 2023, there was $3.7 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.

The following table summarizes the status of nonvested PSUs as of October 1, 2023, and changes during the three months then ended.


				Average
	Nonvested			Grant-Date
	Performance			Fair Value
	Stock Units			(per share)
Nonvested at June 30, 2023		122,971		$	27.12
Granted		84,704			21.06
Forfeited		(8,007	)		27.37
Nonvested at October 1, 2023		199,668			26.68

As of October 1, 2023, there was $2.9 million of total unrecognized compensation expense related to nonvested PSUs. The Company expects this expense to be recognized over a weighted average period of 2.3 years.

13.

EARNINGS PER SHARE AND COMMON STOCK

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


	Three Months Ended
	October 1,			October 2,
	2023			2022
Net income from continuing operations	$	7,076		$	24,635
Loss from discontinued operations, net of tax		(881	)		(20,567	)
Net income	$	6,195		$	4,068

Weighted average shares — basic		17,156,283			17,946,061
Dilutive effect of assumed exercises of stock options		—			8,093
Dilutive effect of assumed restricted share awards/units		68,325			77,571
Weighted average outstanding shares — diluted		17,224,608			18,031,725
Basic net income (loss) per share
Continuing operations	$	0.41		$	1.38
Discontinued operations	$	(0.05	)	$	(1.15	)
Net income	$	0.36		$	0.23
Diluted net income (loss) per share
Continuing operations	$	0.41		$	1.37
Discontinued operations		(0.05	)	$	(1.14	)
Net income	$	0.36		$	0.23

For the three months ended October 1, 2023, no shares were excluded from the computation of diluted earnings per share. For the three months ended October 2, 2022, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive.

Share Repurchase Program

On June 24, 2021, the board of directors of the Company authorized a share repurchase program that allows for the repurchase of up to $50.0 million of the Company’s common stock during the three-year period ending June 24, 2024. While having $1.6 million of availability as of June 30, 2023, this program was fully utilized as of October 1, 2023.

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

During the three months ended October 1, 2023, the Company repurchased 241,764 shares of common stock for $5.8 million in cash, excluding related fees and expenses. During the three months ended October 2, 2022, the Company repurchased 191,360 shares of common stock for $4.2 million. As of October 1, 2023, $45.9 million remained available under the new program.

14.

SEGMENT INFORMATION

Reportable Segments

Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the CODM in making decisions on how to allocate resources and assess performance. For the three months ended October 1, 2023, the Company’s CODM regularly assessed the operating performance of the Company’s boat brands under three operating and reportable segments:

•

The MasterCraft segment produces boats at its Vonore, Tennessee facility. These are premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating.

•

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

•

The Aviara segment produces luxury day boats at its Merritt Island, Florida facility. Aviara boats are primarily used for general recreational boating.

Each segment distributes its products through its own independent dealer network. Each segment also has its own management structure which is responsible for the operations of the segment and is directly accountable to the CODM for the operating performance of the segment, which is regularly assessed by the CODM who allocates resources based on that performance.

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 October 1, 2023
	MasterCraft		Crest		Aviara			Consolidated
Net sales	$	75,836	$	18,469	$	9,912		$	104,217
Operating income (loss)		10,290		263		(2,000	)		8,553
Depreciation and amortization		1,301		808		618			2,727
Purchases of property, plant and equipment		2,209		859		1,330			4,398


	For the Three Months Ended October 2, 2022
	MasterCraft		Crest		Aviara		Consolidated
Net sales	$	113,020	$	43,561	$	12,935	$	169,516
Operating income		24,072		7,543		607		32,222
Depreciation and amortization		1,382		682		537		2,601
Purchases of property, plant and equipment		2,109		2,523		1,336		5,968

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


	October 1, 2023		June 30, 2023
Assets:
MasterCraft	$	236,174	$	259,201
Crest		52,922		53,435
Aviara		45,132		41,340
Total assets	$	334,228	$	353,976

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 2023 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.

Discontinued Operations

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

Overview

As anticipated, general market volatility and economic headwinds continue to create uncertainty and softness in the retail environment. As previously disclosed, because of the anticipated softness in retail demand, the Company has approached its wholesale production plan for fiscal 2024 with a prudent level of caution and a focus on rebalancing dealer inventories consistent with the expected retail demand. As a result, net sales decreased $65.3 million, or 38.5 percent, compared to the prior-year period. Gross margin declined in the quarter as a result of lower cost absorption due to decreased sales volumes and higher dealer incentives, partially offset by higher prices. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains competitive.

Results of Continuing Operations

Consolidated Results

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


	Three Months Ended						2024 vs. 2023
	October 1,			October 2,						%
	2023			2022			Change			Change
(Dollar amounts in thousands)
Consolidated statements of operations:
NET SALES	$	104,217		$	169,516		$	(65,299	)		(38.5	%)
COST OF SALES		82,381			123,543			(41,162	)		(33.3	%)
GROSS PROFIT		21,836			45,973			(24,137	)		(52.5	%)
OPERATING EXPENSES:
Selling and marketing		3,464			3,779			(315	)		(8.3	%)
General and administrative		9,357			9,483			(126	)		(1.3	%)
Amortization of other intangible assets		462			489			(27	)		(5.5	%)
Total operating expenses		13,283			13,751			(468	)		(3.4	%)
OPERATING INCOME		8,553			32,222			(23,669	)		(73.5	%)
OTHER INCOME (EXPENSE):
Interest expense		(878	)		(562	)		(316	)		56.2	%
Interest income		1,351			151			1,200			794.7	%
INCOME BEFORE INCOME TAX EXPENSE		9,026			31,811			(22,785	)		(71.6	%)
INCOME TAX EXPENSE		1,950			7,176			(5,226	)		(72.8	%)
NET INCOME FROM CONTINUING OPERATIONS	$	7,076		$	24,635		$	(17,559	)		(71.3	%)
Additional financial and other data:
Unit sales volume:
MasterCraft		494			781			(287	)		(36.7	%)
Crest		362			846			(484	)		(57.2	%)
Aviara		25			32			(7	)		(21.9	%)
Consolidated unit sales volume		881			1,659			(778	)		(46.9	%)
Net sales:
MasterCraft	$	75,836		$	113,020		$	(37,184	)		(32.9	%)
Crest		18,469			43,561			(25,092	)		(57.6	%)
Aviara		9,912			12,935			(3,023	)		(23.4	%)
Consolidated net sales	$	104,217		$	169,516		$	(65,299	)		(38.5	%)
Net sales per unit:
MasterCraft	$	154		$	145		$	9			6.2	%
Crest		51			51			-			-
Aviara		396			404			(8	)		(2.0	%)
Consolidated net sales per unit		118			102			16			15.7	%
Gross margin		21.0	%		27.1	%	(610) bps

Net sales decreased 38.5 percent during the first quarter of fiscal 2024, when compared with the same prior-year period. The net sales decrease reflects decreased unit volume and an increase in dealer incentives, partially offset by higher prices. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment remains competitive.

Gross margin percentage declined 610 basis points during the first quarter of fiscal 2024, when compared to the same prior-year period. Lower margins were the result of lower cost absorption due to planned decreased sales volume, higher dealer incentives, and higher costs related to material, labor and overhead inflation, partially offset by higher prices.

Operating expenses decreased 3.4 percent during the first quarter of fiscal 2024, when compared to the same prior-year period.

Segment Results

MasterCraft Segment

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


	Three Months Ended				2024 vs. 2023
	October 1,		October 2,					%
(Dollar amounts in thousands)	2023		2022		Change			Change
Net sales	$	75,836	$	113,020	$	(37,184	)		(32.9	%)
Operating income		10,290		24,072		(13,782	)		(57.3	%)
Purchases of property, plant and equipment		2,209		2,109		100			4.7	%

Unit sales volume		494		781		(287	)		(36.7	%)
Net sales per unit	$	154	$	145	$	9			6.2	%

Net sales decreased 32.9 percent during the first quarter of fiscal 2024, when compared with the same prior-year period. The decrease was driven by lower unit volume and increased dealer incentives, partially offset by higher prices. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment becomes more competitive.

Operating income decreased 57.3 percent during the first quarter of fiscal 2024, when compared to the same prior-year period. The decrease was driven by decreased sales volume, higher dealer incentives, and higher costs related to material, labor and overhead inflation, partially offset by higher prices.

Crest Segment

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


	Three Months Ended				2024 vs. 2023
	October 1,		October 2,					%
(Dollar amounts in thousands)	2023		2022		Change			Change
Net sales	$	18,469	$	43,561	$	(25,092	)		(57.6	%)
Operating income		263		7,543		(7,280	)		(96.5	%)
Purchases of property, plant and equipment		859		2,523		(1,664	)		(66.0	%)

Unit sales volume		362		846		(484	)		(57.2	%)
Net sales per unit	$	51	$	51	$	-			0.0	%

Net sales decreased 57.6 percent during the first quarter of fiscal 2024, when compared to the same prior-year period, as a result of lower unit volume and increased dealer incentives, partially offset by higher prices.

Operating income for the first quarter of fiscal 2024 decreased 96.5 percent, when compared to the same prior-year period. The decrease is primarily the result of decreased sales volume, higher dealer incentives, higher costs related to material, labor and overhead inflation, and higher warranty costs related to prior model year expenses, partially offset by higher prices.

Aviara Segment

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


	Three Months Ended					2024 vs. 2023
	October 1,			October 2,					%
(Dollar amounts in thousands)	2023			2022		Change			Change
Net sales	$	9,912		$	12,935	$	(3,023	)		(23.4	%)
Operating income (loss)		(2,000	)		607		(2,607	)		(429.5	%)
Purchases of property, plant and equipment		1,330			1,336		(6	)		(0.4	%)

Unit sales volume		25			32		(7	)		(21.9	%)
Net sales per unit	$	396		$	404	$	(8	)		(2.0	%)

Net sales decreased 23.4 percent during the first quarter of fiscal 2024, when compared to the same prior-year period, due to decreased unit volume, and higher dealer incentives, partially offset by higher prices.

Operating loss was $2.0 million for the first quarter of fiscal 2024 compared to operating income of $0.6 million in the same prior-year period. The change was primarily a result of higher costs related to material, labor and overhead inflation, decreased sales volume, and higher dealer incentives, partially offset by higher prices.

Non-GAAP Measures

EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin

We define EBITDA as net income from continuing operations, before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations. For the periods presented herein, the adjustment is for share-based compensation. We define EBITDA margin and Adjusted EBITDA margin as EBITDA and Adjusted EBITDA 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 from continuing operations, adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. For the periods presented herein, these adjustments include other intangible asset amortization and share-based compensation.

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

•

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and the Non-GAAP measures do not reflect any cash requirements for such replacements;

•

The Non-GAAP measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

•

The Non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs;

•

The Non-GAAP measures do not reflect our tax expense or any cash requirements to pay income taxes;

•

The Non-GAAP measures do not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and

•

The Non-GAAP measures 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.

Beginning in the first quarter of fiscal 2023, due to the effects of discontinued operations, as discussed above, the Company's non-GAAP financial measures are presented on a continuing operations basis, for all periods presented.

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


	Three Months Ended
	October 1,			% of Net	October 2,			% of Net
	2023			sales	2022			sales
Net income from continuing operations	$	7,076		6.8%	$	24,635		14.5%
Income tax expense		1,950				7,176
Interest expense		878				562
Interest income		(1,351	)			(151	)
Depreciation and amortization		2,727				2,601
EBITDA		11,280		10.8%		34,823		20.5%
Share-based compensation		939				1,120
Adjusted EBITDA	$	12,219		11.7%	$	35,943		21.2%

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


	Three Months Ended
	October 1,		October 2,
	2023		2022
	(Dollars in thousands, except per share data)
Net income from continuing operations	$	7,076	$	24,635
Income tax expense		1,950		7,176
Amortization of acquisition intangibles		462		462
Share-based compensation		939		1,120
Adjusted Net Income before income taxes		10,427		33,393
Adjusted income tax expense(a)		2,294		7,680
Adjusted Net Income	$	8,133	$	25,713

Adjusted Net Income per share:
Basic	$	0.47	$	1.43
Diluted	$	0.47	$	1.43
Weighted average shares used for the computation of(b):
Basic Adjusted Net Income per share		17,156,283		17,946,061
Diluted Adjusted Net Income per share		17,224,608		18,031,725

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


	Three Months Ended
	October 1,			October 2,
	2023			2022
Net income from continuing operations per diluted share	$	0.41		$	1.37
Impact of adjustments:
Income tax expense	$	0.11			0.40
Amortization of acquisition intangibles	$	0.03			0.03
Share-based compensation	$	0.05			0.06
Adjusted Net Income per diluted share before income taxes	$	0.60			1.86
Impact of adjusted income tax expense on net income per diluted share before income taxes(a)	$	(0.13	)		(0.43	)
Adjusted Net Income per diluted share	$	0.47		$	1.43

(a)

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

(b)

Represents 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 basic and diluted share for all periods presented herein.

Liquidity and Capital Resources

Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, service our debt, fund potential acquisitions, and fund our share repurchase program. Our principal sources of liquidity are our cash balance, held-to-maturity securities, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt. We believe our cash balance, held-to-maturity securities, cash from operations, and our ability to borrow will be sufficient to provide for our liquidity and capital resource needs.

Cash and cash equivalents totaled $23.5 million as of October 1, 2023, an increase of $3.7 million from $19.8 million as of June 30, 2023. Held-to-maturity securities totaled $66.5 million as of October 1, 2023, a decrease of $25.1 million from $91.6 million as of June 30, 2023. Total debt as of October 1, 2023 and June 30, 2023 was $52.6 million and $53.7 million, respectively.

As of October 1, 2023, we had no amounts outstanding under the Revolving Credit Facility, leaving $100.0 million of available borrowing capacity. Refer to Note 10 — Long Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.

On June 24, 2021, the board of directors of the Company authorized a share repurchase program that allowed for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. While having $1.6 million of availability as of June 30, 2023, this program was fully utilized as of October 1, 2023.

During the three months ended October 1, 2023, the Company repurchased 241,764 shares of common stock for $5.8 million in cash, excluding related fees and expenses under both plans.

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


	Three Months Ended
	October 1,			October 2,
	2023			2022
	(Dollars in thousands)
Total cash provided by (used in):
Operating activities	$	(8,804	)	$	20,718
Investing activities		21,188			(5,968	)
Financing activities		(8,424	)		(5,393	)
Net change in cash from continuing operations	$	3,960		$	9,357

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

Net cash used in operating activities for the three months ended October 1, 2023 was $8.8 million, primarily due to lower net earnings and unfavorable 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, excluding the impact of acquisitions and non-cash adjustments. Working capital usage primarily consisted of decreases in accrued expenses and other current liabilities, income tax payable, and accounts payable, and an increase in prepaid expenses and other current assets. Partially offsetting the working capital usage was a decrease in inventories. Accrued expenses and other current liabilities decreased due to payment of dealer incentives and variable compensation, partially offset by increased warranty. Income tax payable decreased due to tax payments within the quarter. Accounts payable decreased due to lower production at the end of the period compared to the end of the prior year period. Prepaid expenses and other current assets increased due to an increase in prepaid expenses, partially offset by amortization of insurance premiums. Inventories decreased as we adjust inventory levels to align with lower production levels.

Net cash provided by investing activities was $21.2 million, which included net changes of $25.6 million in held-to-maturity securities, and $4.4 million in net capital expenditures. Our capital spending was primarily focused on tooling, facility enhancements and information technology.

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

Three Months Ended October 2, 2022 Cash Flows from Continuing Operations

Net cash provided by operating activities for the three months ended October 2, 2022 was $20.7 million, primarily due to higher net earnings, partially offset by working capital usage. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Working capital usage primarily consisted of an increase in inventories and income tax receivable, and a decrease in accrued expenses

and other current liabilities and income tax payable. Partially offsetting the working capital usage was a decrease in accounts receivable and prepaid expenses and other current assets. Inventories increased as we rebalance inventory levels after the summer selling season and increased materials costs from inflation. Income tax receivable increased and income tax payable decreased due to the tax benefit generated from the sale of NauticStar. Accrued expenses and other current liabilities decreased due to payment of variable compensation and payment of dealer incentives, partially offset by increased warranty costs. Accounts receivable decreased as a result of lower sales at the end of the period compared to the end of the prior-year period due to supply chain disruptions. Prepaid expenses and other current assets decreased due to amortization of insurance premiums.

Net cash used in investing activities was $6.0 million, which included capital expenditures. Our capital spending was focused on expanding our capacity, maintenance capital, and information technology.

Net cash used in financing activities was $5.4 million, which included net payments of $0.8 million on long-term debt and stock repurchases totaling $4.2 million.

Off Balance Sheet Arrangements

The Company did not have any off balance sheet financing arrangements as of October 1, 2023.

Critical Accounting Policies

As of October 1, 2023, there were no significant changes in or changes to the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, which was filed with the SEC on August 30, 2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Refer to our 2023 Annual Report for 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) and 15d-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 on Form 10-Q, 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 October 1, 2023.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended October 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

For a discussion of the Company’s legal proceedings, see Part I – Item 1. – Note 9 – Commitments and Contingencies to the Company’s unaudited condensed consolidated financial statements.

ITEM 1A. RISK FACTORS.

During the three months ended October 1, 2023, 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, 2023.

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.

Share Repurchase Program

During the first three months of fiscal 2024, we repurchased approximately $5.8 million of our common stock under both programs, excluding related fees and expenses. As of October 1, 2023, the remaining authorization under the new program was approximately $45.9 million.

During the three months ended October 1, 2023, the Company repurchased the following shares of common stock:


Period	Total Number of Shares Purchased		Average Price Paid Per Share(a)(b)		Total Number of Shares Purchased as part of Publicly Announced Program		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (dollars in thousands)
July 1, 2023 - July 30, 2023		45,104	$	28.38		45,104	$	50,354
July 31, 2023 - August 27, 2023		54,391		27.06		54,391		48,883
August 28, 2023 - October 01, 2023		142,269		21.09		142,269		45,883
Total		241,764				241,764

(a)

Represents weighted average price paid per share excluding commissions paid.

(b)

Average price per share excludes any excise tax imposed on certain stock repurchases as part of the Inflation Reduction Act of 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

Director and Officer Rule 10b5-1 Trading Arrangements

During the three months ended October 1, 2023, none of our directors or "officers" (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated "Rule 10b5-1 trading arrangements" or "non-Rule 10b5-1 trading arrangements" (each as defined in Item 408 of Regulation S-K).

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

Third Amendment to Credit 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

Inline XBRL Instance Document

*

101.SCH

Inline XBRL Taxonomy Extension Schema Document

*

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

*

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

*

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*

101.DEF

Inline 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.

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:	November 8, 2023	By:	/s/ FREDERICK A. BRIGHTBILL
			Frederick A. Brightbill
			Chief Executive Officer (Principal Executive Officer) and Chairman of the Board

Date:	November 8, 2023	By:	/s/ TIMOTHY M. OXLEY
			Timothy M. Oxley
			Chief Financial Officer (Principal Financial and Accounting Officer),
			Treasurer and Secretary