What changed in this filing

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Item 1. Financial Statements

2020-05-07 compared with 2020-02-06 · 200 added, 140 removed, 556 unchanged (38% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended

March 31, Nine Months Ended

2020 2019 2020 2019

Net sales $ 182,310 $ 199,918 $ 534,502 $ 489,194

Cost of sales 136,461 150,196 408,784 370,656

Gross profit 45,849 49,722 125,718 118,538

Operating expenses:

1 unchanged sentence

General and administrative 9,643 12,324 30,389 32,527

Amortization 1,501 1,563 4,622 4,381

Operating income 30,133 30,562 76,403 68,258

2 unchanged sentences

Interest expense 940 1,750 3,064 4,765

Other expense, net

Other (income) expense, net ( 720 ) 1,038 1,385 4,019

Income before provision for income taxes 30,853 29,524 75,018 64,239

Provision for income taxes 6,987 7,321 16,872 15,023

Net income 23,866 22,203 58,146 49,216

Net income attributable to non-controlling interest 1,088 1,104 2,787 2,562

Net income attributable to Malibu Boats, Inc.

$ 22,778 $ 21,099 $ 55,359 $ 46,654

Comprehensive income:

Net income $ 23,866 $ 22,203 $ 58,146 $ 49,216

Other comprehensive income (loss), net of tax:

5 unchanged sentences

Weighted average shares outstanding used in computing net income per share:

Basic 20,630,741 20,901,547 20,684,034 20,805,912

Diluted 20,775,108 21,007,933 20,827,958 20,943,548

Net income available to Class A Common Stock per share:

Basic $ 1.11 $ 1.01 $ 2.68 $ 2.24

Diluted $ 1.09 $ 1.01 $ 2.66 $ 2.23

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).

3 unchanged sentences

(In thousands, except share data)

December 31, 2019

June 30, 2019

March 31, 2020 June 30, 2019

Current assets

Cash $ 134,162 $ 27,392

Trade receivables, net 21,722 27,961

3 unchanged sentences

Property, plant and equipment, net 88,320 65,756

Goodwill 50,605 51,404

Other intangible assets, net 141,249 146,061

Deferred tax assets 53,016 60,407

Other assets 14,707 35

Total assets $ 598,664 $ 451,314

Current liabilities

12 unchanged sentences

Class A Common Stock, par value $ 0.01 per share, 100,000,000 shares authorized;

20,583,449 shares issued and outstanding as of December 31, 2019;

20,537,469 shares issued and outstanding as of March 31, 2020;

20,852,640 issued and outstanding as of June 30, 2019

Class B Common Stock, par value $ 0.01 per share, 25,000,000 shares authorized;

15 shares issued and outstanding as of December 31, 2019;

15 shares issued and outstanding as of March 31, 2020;

15 shares issued and outstanding as of June 30, 2019

1 unchanged sentence

25,000,000 shares authorized;

no shares issued and outstanding as of December 31, 2019 and June 30, 2019

no shares issued and outstanding as of March 31, 2020 and June 30, 2019

Additional paid in capital 102,284 113,004

2 unchanged sentences

Total stockholders' equity attributable to Malibu Boats, Inc.

245,082 204,235

Non-controlling interest 7,211 6,118

6 unchanged sentences

(In thousands, except number of Class B shares)

Class A Common Stock

Class B Common Stock

Additional Paid In Capital

Accumulated Other Comprehensive Loss

Accumulated Earnings

Non-controlling Interest in LLC

Total Stockholders' Equity

Class A Common Stock Class B Common Stock Additional Paid In Capital Accumulated Other Comprehensive Loss Accumulated Earnings Non-controlling Interest in LLC Total Stockholders' Equity

Shares Amount Shares Amount

Balance at June 30, 2019 20,853 $ 207 15 $ — $ 113,004 $ ( 2,828 ) $ 93,852 $ 6,118 $ 210,353

Net income — — — — — — 15,859 823 16,682

Stock based compensation, net of withholding taxes on vested equity awards ( 5 ) — — — 435 — — — 435

5 unchanged sentences

Balance at September 30, 2019 20,465 $ 203 15 $ — $ 102,400 $ ( 3,451 ) $ 108,008 $ 6,517 $ 213,677

Net income — — — — — — 16,722 876 17,598

Stock based compensation, net of withholding taxes on vested equity awards 116 1 — — 236 — — — 237

3 unchanged sentences

Balance at December 31, 2019 20,583 $ 204 15 $ — $ 103,291 $ ( 2,836 ) $ 124,730 $ 6,972 $ 232,361

Class A Common Stock

Class B Common Stock

Additional Paid In Capital

Accumulated Other Comprehensive Loss

Accumulated Earnings

Non-controlling Interest in LLC

Total Stockholders' Equity

Net income — — — — — — 22,778 1,088 23,866

Stock based compensation, net of withholding taxes on vested equity awards 1 — — — 789 — — — 789

Issuances of equity for services — — — — 58 — — — 58

Issuances of equity for exercise of stock options 12 — — — 377 — — — 377

Repurchase and retirement of common stock ( 100 ) ( 1 ) — — ( 2,709 ) — — — ( 2,710 )

Increase in payable pursuant to the tax receivable agreement — — — — ( 440 ) — — — ( 440 )

Increase in deferred tax asset from step-up in tax basis — — — — 574 — — — 574

Exchange of LLC Units for Class A Common Stock 41 1 — — 344 — — ( 344 ) 1

Distributions to LLC Unit holders — — — — — — — ( 421 ) ( 421 )

Foreign currency translation adjustment — — — — — ( 2,078 ) — ( 84 ) ( 2,162 )

Balance at March 31, 2020 20,537 $ 204 15 $ — $ 102,284 $ ( 4,914 ) $ 147,508 $ 7,211 $ 252,293

Class A Common Stock Class B Common Stock Additional Paid In Capital Accumulated Other Comprehensive Loss Accumulated Earnings Non-controlling Interest in LLC Total Stockholders' Equity

Shares Amount Shares Amount

Balance at June 30, 2018 20,555 $ 204 17 $ — $ 108,360 $ ( 1,984 ) $ 27,789 $ 5,502 $ 139,871

Net Income — — — — — — 11,298 717 12,015

Stock based compensation, net of withholding taxes on vested equity awards ( 4 ) — — — ( 50 ) — — — ( 50 )

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Balance at September 30, 2018 20,776 $ 206 16 $ — $ 110,685 $ ( 2,388 ) $ 39,087 $ 4,803 $ 152,393

Net Income — — — — — — 14,257 741 14,998

Stock based compensation, net of withholding taxes on vested equity awards 57 1 — — ( 12 ) — — — ( 11 )

4 unchanged sentences

Balance at December 31, 2018 20,836 $ 207 16 $ — $ 111,347 $ ( 2,755 ) $ 53,346 $ 5,160 $ 167,305

Net Income — — — — — — 21,099 1,104 22,203

Stock based compensation, net of withholding taxes on vested equity awards — — — — 729 — — — 729

Issuances of equity for services — — — — 61 — — — 61

Increase in payable pursuant to the tax receivable agreement — — — — ( 123 ) — — — ( 123 )

Increase in deferred tax asset from step-up in tax basis — — — — 183 — — — 183

Exchange of LLC for Class A Common Stock 15 — ( 1 ) — 89 — — ( 89 ) —

Distributions to LLC Unit Holders — — — — — — ( 4 ) ( 559 ) ( 563 )

Foreign currency translation adjustment — — — — — 99 — 4 103

Balance at March 31, 2019 20,851 $ 207 15 $ — $ 112,286 $ ( 2,656 ) $ 74,441 $ 5,620 $ 189,898

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements (Unaudited).

3 unchanged sentences

(In thousands)

Six Months Ended December 31,

Nine Months Ended March 31,

Operating activities:

Net income $ 58,146 $ 49,216

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

1 unchanged sentence

Non-cash compensation to directors 621 606

Depreciation 9,040 7,102

Amortization 4,622 4,381

Deferred income taxes 7,876 5,252

Adjustment to tax receivable agreement liability ( 1,650 ) ( 707 )

Other items, net 1,731 396

1 unchanged sentence

Trade receivables 6,217 ( 14,067 )

Inventories ( 21,601 ) ( 21,592 )

Prepaid expenses and other assets ( 213 ) ( 1,234 )

15 unchanged sentences

Repurchase and retirement of common stock ( 13,833 ) —

Net cash (used in) provided by in financing activities

Net cash provided by financing activities 63,098 18,331

Effect of exchange rate changes on cash ( 366 ) ( 75 )

19 unchanged sentences

On October 15, 2018, the Company's subsidiary Malibu Boats, LLC, purchased the assets of Pursuit Boats ("Pursuit") from S2 Yachts, Inc., expanding the Company's product offering into the fiberglass outboard fishing boat market.

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.

The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States.

The COVID-19 pandemic has impacted the Company’s operations and financial results.

Due to the impact of the COVID-19 pandemic, the Company elected to suspend operations at all of its facilities on March 24, 2020, which impacted the last week of fiscal third quarter.

The shut-down continued into the fourth quarter with operations resuming between late April and early May, depending on the facility.

Due to the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, the Company cannot reasonably estimate the length or severity of the pandemic or its impact on the Company’s liquidity, results of operations, and financial condition, which could have a material adverse effect.

Basis of Presentation

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and subsidiaries for the year ended June 30, 2019, included in the Company's Annual Report on Form 10-K.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments considered necessary to present fairly the Company’s financial position at December 31, 2019 , and the results of its operations for the three and six month periods ended December 31, 2019 and December 31, 2018 , and its cash flows for the six month periods ended December 31, 2019 and December 31, 2018 .

Operating results for the three and six months ended December 31, 2019 , are not necessarily indicative of the results that may be expected for the full year ending June 30, 2020 .

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments considered necessary to present fairly the Company’s financial position at March 31, 2020, and the results of its operations for the three and nine month periods ended March 31, 2020 and March 31, 2019, and its cash flows for the nine month periods ended March 31, 2020 and March 31, 2019.

Operating results for the three and nine months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the full year ending June 30, 2020.

Certain reclassifications have been made to the prior period presentation to conform to the current period presentation.

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and Malibu Australia into one reportable segment as they have similar economic characteristics and qualitative factors.

As a result the Company now has three reportable segments, Malibu, Cobalt and Pursuit.

the Company now has three reportable segments, Malibu, Cobalt and Pursuit.

See Note 18 for revised segment information for the current and prior periods.

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The amendments in this update create ASC Topic 842, Leases , and supersede the requirements in ASC Topic 840, Leases .

ASC Topic 842 requires lessees to recognize on the balance sheet a right‑of‑use asset, representing its right to use the underlying asset for the

lease term, and a lease liability for all leases with terms greater than 12 months.

ASC Topic 842 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months.

The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases.

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The following table disaggregates the Company's revenue by major product type and geography:

Three Months Ended December 31, 2019

Six Months Ended December 31, 2019

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

Malibu Cobalt Pursuit Consolidated Malibu Cobalt Pursuit Consolidated

Revenue by product:

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Total revenue $ 102,604 $ 46,028 $ 33,678 $ 182,310 $ 285,811 $ 145,173 $ 103,518 $ 534,502

Three Months Ended December 31, 2018

Six Months Ended December 31, 2018

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

Malibu Cobalt Pursuit Consolidated Malibu Cobalt Pursuit Consolidated

Revenue by product:

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The non-controlling interest on the unaudited interim condensed consolidated statement of operations and comprehensive income represents the portion of earnings attributable to the economic interest in the Company's subsidiary, Malibu Boats Holdings, LLC, held by the non-controlling LLC Unit holders.

Non-controlling interest on the unaudited interim condensed consolidated balance sheets represents the portion of net assets of the Company attributable to the non-controlling LLC Unit holders, based on the portion of the LLC Units owned by such Unit holders.

Non-controlling interest on the unaudited interim condensed consolidated balance sheets represents the portion of net assets of the Company attributable to the non-controlling LLC Unit

holders, based on the portion of the LLC Units owned by such Unit holders.

The ownership of Malibu Boats Holdings, LLC is summarized as follows:

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Units Ownership % Units Ownership %

Non-controlling LLC Unit holders ownership in Malibu Boats Holdings, LLC 789,152 3.7 % 830,152 3.8 %

1 unchanged sentence

ownership in Malibu Boats Holdings, LLC 20,537,469 96.3 % 20,852,640 96.2 %

21,326,621 100.0 % 21,682,792 100.0 %

Issuance of Additional LLC Units

2 unchanged sentences

The Company must cause the LLC to issue a number of LLC Units equal to the number of shares of Class A Common Stock issued such that, at all times, the number of LLC Units held by the Company equals the number of outstanding shares of Class A Common Stock.

During the six months ended December 31, 2019 , the Company caused the LLC to issue a total of 129,946 LLC Units to the Company in connection with (i) the Company's issuance of Class A Common Stock to a non-employee director for her services, (ii) the issuance of Class A Common Stock for the vesting of awards granted under the Malibu Boats, Inc.

Long-Term Incentive Plan (the "Incentive Plan") and (iii) the issuance of restricted Class A Common Stock granted under the Incentive Plan.

During the six months ended December 31, 2019 , 15,733 LLC Units were canceled in connection with the vesting of share-based equity

awards to satisfy employee tax withholding requirements and the retirement of 15,733 treasury shares in accordance with the LLC Agreement.

During the six months ended December 31, 2019 , 383,404 LLC Units were redeemed and canceled by the LLC in connection with the purchase and retirement of 383,404 treasury shares under the Company's stock repurchase program.

During the nine months ended March 31, 2020, the Company caused the LLC to issue a total of 184,241 LLC Units to the Company in connection with (i) the Company's issuance of Class A Common Stock to a non-employee director for her services, (ii) the issuance of Class A Common Stock for the vesting of awards granted under the Malibu Boats, Inc.

Long-Term Incentive Plan (the "Incentive Plan"), (iii) the issuance of restricted Class A Common Stock granted under the Incentive Plan, (iv) the issuance of Class A Common Stock to LLC Unit holders in exchange of their LLC Units and (v) the issuance of Class A Common Stock for the exercise of options granted under the Incentive Plan.

During the nine months ended March 31, 2020, 15,733 LLC Units were canceled in connection with the vesting of share-based equity awards to satisfy employee tax withholding requirements and the retirement of 15,733 treasury shares in accordance with the LLC Agreement.

During the nine months ended March 31, 2020, 483,679 LLC Units were redeemed and canceled by the LLC in connection with the purchase and retirement of 483,679 treasury shares under the Company's stock repurchase program.

Distributions and Other Payments to Non-controlling Unit Holders

4 unchanged sentences

If the actual taxable income of the LLC multiplied by the estimated tax rate exceeds the tax distributions made in a calendar year, the LLC may make true-up distributions to its members, if cash or borrowings are available for such purposes.

As of December 31, 2019 and June 30, 2019, tax distributions payable to non-controlling LLC Unit holders were $ 446 and $ 568 , respectively.

During the six months ended December 31, 2019 and 2018 , tax distributions paid to the non-controlling LLC Unit holders were $ 969 and $ 909 , respectively.

As of March 31, 2020 and June 30, 2019, tax distributions payable to non-controlling LLC Unit holders were $ 421 and $ 568 , respectively.

During the nine months ended March 31, 2020 and 2019, tax distributions paid to the non-controlling LLC Unit holders were $ 1,415 and $ 1,228 , respectively.

Other Distributions

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Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:

Inventories $ 8,332

Other current assets 350

3 unchanged sentences

Fair value of assets acquired and liabilities assumed 80,548

Goodwill 19,525

Total purchase price $ 100,073

The fair value estimates for the Company's identifiable intangible assets acquired as part of the acquisition are as follows:

Estimates of Fair Value

Estimated Useful Life (in years)

Estimates of Fair Value Estimated Useful Life (in years)

Definite-lived intangibles:

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Indefinite-lived intangible:

Trade name 32,500

Total intangible assets $ 57,900

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The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax purposes.

Acquisition-related costs of $ 2,809 , which were incurred by the Company in the first half of fiscal year 2019 related to the Pursuit acquisition, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income for the six months ended December 31, 2018.

Acquisition-related costs of $ 2,846 , which were incurred by the Company in the first nine months of fiscal year 2019 related to the Pursuit acquisition, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income for the nine months ended March 31, 2019.

Pro Forma Financial Information (unaudited):

The following unaudited pro forma consolidated results of operations for the three and six months ended December 31, 2019 and 2018, assumes that the acquisition of Pursuit occurred as of July 1, 2018.

The following unaudited pro forma consolidated results of operations for the three and nine months ended March 31, 2020 and 2019, assumes that the acquisition of Pursuit occurred as of July 1, 2018.

The unaudited interim pro forma financial information combines historical results of Malibu and Pursuit, with adjustments for depreciation and amortization attributable to preliminary fair value estimates on acquired tangible and intangible assets for the respective periods.

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The unaudited interim pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2019 or the results that may occur in the future:

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2020 2019 2020 2019

Net sales $ 182,310 $ 199,918 $ 534,502 $ 530,836

Net income 23,866 22,203 58,146 53,223

Net income attributable to Malibu Boats, Inc.

22,778 21,099 55,359 50,430

Basic earnings per share $ 1.11 $ 1.01 $ 2.68 $ 2.42

1 unchanged sentence

Inventories, net consisted of the following:

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Raw materials $ 62,644 $ 45,910

4 unchanged sentences

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

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Land $ 2,194 $ 2,194

Building and leasehold improvements 34,971 28,957

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Construction in process 28,312 9,764

125,741 94,267

Accumulated depreciation ( 37,421 ) ( 28,511 )

Property, plant and equipment, net $ 88,320 $ 65,756

Depreciation expense was $ 3,005 and $ 2,495 for the three months ended December 31, 2019 and 2018 , respectively, and $ 6,102 and $ 4,358 for the six months ended December 31, 2019 and 2018 , respectively, substantially all of which was recorded in cost of sales.

Depreciation expense was $ 2,938 and $ 2,744 for the three months ended March 31, 2020 and 2019, respectively, and $ 9,040 and $ 7,102 for the nine months ended March 31, 2020 and 2019, respectively, substantially all of which was recorded in cost of sales.

During the first quarter of fiscal 2019, the Company disposed of various molds for models not currently in production with zero net book value and historical costs of $ 3,285 .

Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the six months ended December 31, 2019 were as follows:

Changes in the carrying amount of goodwill for the nine months ended March 31, 2020 were as follows:

Goodwill as of June 30, 2019 $ 51,404

Effect of foreign currency changes on goodwill

Goodwill as of December 31, 2019

Goodwill as of March 31, 2020 $ 50,605

The components of other intangible assets were as follows:

As of December 31, 2019

As of June 30, 2019

Estimated Useful Life (in years)

Weighted Average Remaining Useful Life

As of March 31, 2020 As of June 30, 2019 Estimated Useful Life (in years) Weighted Average Remaining Useful Life

Definite-lived intangibles:

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Dealer relationships 111,057 111,339 8 - 20

Patent 3,986 3,986 12 - 15

Trade name 24,667 24,667 15 1.6

Non-compete agreement 43 49 10 4.6

Backlog 77 88 0.3 0.0

Total 140,935 141,393

Accumulated amortization ( 63,186 ) ( 58,832 )

1 unchanged sentence

Indefinite-lived intangible:

Trade name 63,500 63,500

Total other intangible assets, net $ 141,249 $ 146,061

Amortization expense recognized on all amortizable intangibles was $ 1,537 and $ 1,538 for the three months ended December 31, 2019 and 2018 , respectively, and $ 3,121 and $ 2,818 for the six months ended December 31, 2019 and 2018 , respectively.

Amortization expense recognized on all amortizable intangibles was $ 1,501 and $ 1,563 for the three months ended March 31, 2020 and 2019, respectively, and $ 4,622 and $ 4,381 for the nine months ended March 31, 2020 and 2019, respectively.

The estimated future amortization of definite-lived intangible assets is as follows:

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Accrued expenses consisted of the following:

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Warranties $ 27,398 $ 23,820

Dealer incentives 9,679 7,394

8 unchanged sentences

Prior to fiscal year 2016, the Company provided a limited warranty for a period of up to three years for its Malibu brand boats and two years for its Axis boats.

For its Cobalt brand boats, the Company provides a structural warranty of up to ten years which

covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount.

For its Cobalt brand boats, the Company provides a structural warranty of up to ten years which covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount.

In addition, the Company provides a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery.

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Changes in the Company’s product warranty liability, which is included in accrued expenses on the unaudited interim condensed consolidated balance sheets, were as follows:

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2020 2019 2020 2019

Beginning balance $ 26,710 $ 20,943 $ 23,820 $ 17,217

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Outstanding debt consisted of the following:

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Term loans $ 75,000 $ 75,000

Revolving credit loan 118,800 40,000

Less unamortized debt issuance costs ( 1,062 ) ( 1,367 )

Total debt 192,738 113,633

Less current maturities — —

2 unchanged sentences

The Company currently has a revolving credit facility with borrowing capacity of up to $ 120,000 and a $ 75,000 term loan outstanding.

As of December 31, 2019 , the Company had $ 20,000 outstanding under its revolving credit facility and $ 1,170 in outstanding letters of credit.

As of March 31, 2020, the Company had $ 118,800 outstanding under its revolving credit facility and $ 1,170 in outstanding letters of credit.

On March 19, 2020 the Company elected to draw the remaining available funds of $ 98,800 from the revolving credit facility.

The revolving credit facility matures on July 1, 2024 and the term loan matures on July 1, 2022.

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(previously known as SunTrust 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 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 the LLC, Boats LLC and such subsidiary guarantors.

The obligations of Boats LLC under the Credit Agreement are guaranteed by the

LLC, and, subject to 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.

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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, 2019 , the interest rate on the Company’s term loan and revolving credit

facility was 3.01 % .

The Company is 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.

As of March 31, 2020, the interest rate on the Company’s term loan and revolving credit facility was 2.24 %.

The Company is required to pay a commitment fee for any 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 loan without any penalties.

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The Credit Agreement is also subject to 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.

As of December 31, 2019, the outstanding principal amount of the Company’s term loan and revolving credit facility was $ 95,000 .

As of March 31, 2020, the outstanding principal amount of the Company’s term loan and revolving credit facility was $ 193,800 .

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.

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As described above, the Company used proceeds from an offering on August 24, 2017 to repay $ 50,000 on its term loan under the Credit Agreement and exercised its option to apply the prepayment to principal installments through December 31, 2021, and a portion of principal installments due on March 31, 2022.

Accordingly, no principal payments are required under the Credit Agreement until March 31, 2022, and as such, all borrowings as of December 31, 2019 and June 30, 2019, are reflected as noncurrent.

Accordingly, no principal payments are required under the Credit Agreement until March 31, 2022, and as such, all borrowings as of March 31, 2020 and June 30, 2019, are reflected as noncurrent.

The $ 50,000 repayment resulted in a write off of deferred financing costs of $ 829 in fiscal year 2018, which was included in amortization expense on the consolidated statement of operations and comprehensive income.

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Covenant Compliance

As of December 31, 2019 , the Company was in compliance with the covenants contained in the Credit Agreement.

As of March 31, 2020, the Company was in compliance with the covenants contained in the Credit Agreement.

Interest Rate Swap

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Under ASC Topic 815, Derivatives and Hedging, all derivative instruments are recorded on the unaudited interim condensed consolidated balance sheets at fair value as either short term or long term assets or liabilities based on their anticipated settlement date.

Refer to Fair

Value Measurements in Note 13.

Refer to Fair Value Measurements in Note 13.

The Company has elected not to designate its interest rate swap as a hedge for accounting purposes;

therefore, changes in the fair value of the derivative instrument are being recognized in earnings in the Company's unaudited interim condensed consolidated statements of operations and comprehensive income.

For the three months ended December 31, 2019 and 2018 the Company recorded a loss of $ 20 and $ 129 , respectively, and for the six months ended December 31, 2019 and 2018 the Company recorded a loss of $ 58 and $ 132 , respectively, for the change in fair value of the interest rate swap, which is included in interest expense in the unaudited interim condensed consolidated statements of operations and comprehensive income.

The swap matured on March 31, 2020.

For the three months ended March 31, 2020 and 2019 the Company recorded a loss of $ 10 and $ 93 , respectively, and for the nine months ended March 31, 2020 and 2019 the Company recorded a loss of $ 68 and $ 225 , respectively, for the change in fair value of the interest rate swap, which is included in interest expense in the unaudited interim condensed consolidated statements of operations and comprehensive income.

The Company leases certain manufacturing facilities, warehouses, office space, land, and equipment.

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The Company's lease liabilities do not include future lease payments related to options to extend or terminate lease agreements as it is not reasonably certain those options will be exercised.

Lease expense recorded in the three-month and six-month period ended December 31, 2019 under ASC Topic 842 was not materially different from lease expense that would have been recorded under the previous lease accounting standard.

Lease expense recorded in the three month and nine month period ended March 31, 2020 under ASC Topic 842 was not materially different from lease expense that would have been recorded under the previous lease accounting standard.

Other information concerning the Company's operating leases accounted for under ASC Topic 842 is as follows (in thousands):

Classification

As of December 31, 2019

Right-of-use assets

Current operating lease liabilities

Accrued expenses

Long-term operating lease liabilities

Other liabilities

Classification As of March 31, 2020

Right-of-use assets Other assets $ 14,675

Current operating lease liabilities Accrued expenses $ 1,998

Long-term operating lease liabilities Other liabilities 14,397

Total lease liabilities $ 16,395

Classification

Three Months Ended December 31, 2019

Six Months Ended December 31, 2019

Classification Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020

Operating lease costs (1)

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Selling, general and administrative 211 654

Sublease income

Other income (expense)

Cash paid for amounts included in the measurement of operating lease liabilities

Cash flows from operating activities

Sublease income Other income (expense) 10 29

Cash paid for amounts included in the measurement of operating lease liabilities Cash flows from operating activities 653 1,955

(1) Includes short-term leases, which are insignificant, and are not included in the lease liability.

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The weighted average remaining lease term is 7.52 years.

The weighted average discount rate determined based on the Company's incremental borrowing rate is 3.65 % , as of December 31, 2019 .

Future annual minimum lease payments for the following fiscal years as of December 31, 2019 are as follows:

The weighted average discount rate determined based on the Company's incremental borrowing rate is 3.65 %, as of March 31, 2020.

Future annual minimum lease payments for the following fiscal years as of March 31, 2020 are as follows:

Remainder of 2020 $ 646

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2025 and thereafter 8,577

Total $ 21,240

Tax Receivable Agreement Liability

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The following table reflects the changes to the Company's tax receivable agreement liability:

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Payable pursuant to tax receivable agreement $ 53,754 $ 55,046

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Payments under tax receivable agreement — ( 3,865 )

52,544 53,754

Less current portion under tax receivable agreement ( 3,477 ) ( 3,592 )

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When estimating the expected tax rate to use in order to determine the tax benefit expected to be recognized from the Company’s increased tax basis as a result of exchanges of LLC Units by the pre-IPO owners of the LLC, the Company continuously monitors changes in its overall tax posture, including changes resulting from new legislation and changes as a result of new jurisdictions in which the Company is subject to tax.

As of both December 31, 2019 and June 30, 2019 , the Company had deferred tax assets of $ 110,545 associated with basis differences in assets upon acquiring an interest in Malibu Boats Holdings, LLC and pursuant to making an election under Section 754 of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), as amended.

As of March 31, 2020 and June 30, 2019, the Company had deferred tax assets of $ 110,726 and $ 110,545 , respectively, associated with basis differences in assets upon acquiring an interest in Malibu Boats Holdings, LLC and pursuant to making an election under Section 754 of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), as amended.

The aggregate tax receivable agreement liability represents 85 % of the tax benefits that the Company expects to receive in connection with the Section 754 election.

In accordance with the tax receivable agreement, the next annual payment is anticipated approximately 75 days after filing the federal tax return due by April 15, 2020.

In accordance with the tax receivable agreement, the next annual payment is anticipated approximately 75 days after filing the federal tax return which was filed on March 13, 2020.

Fair Value Measurements

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Fair Value Measurements at Reporting Date Using

Quoted Prices

Total Quoted Prices

Identical Assets

As of December 31, 2019:

(Level 1) Significant

(Level 2) Significant

As of March 31, 2020:

Interest rate swap not designated as cash flow hedge $ — $ — $ — $ —

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Fair value measurements for the Company’s interest rate swap are classified under Level 2 because such measurements are based on significant other observable inputs.

There were no transfers of assets or liabilities between Level 1 and Level 2 as of December 31, 2019 or June 30, 2019.

There were no transfers of assets or liabilities between Level 1 and Level 2 as of March 31, 2020 or June 30, 2019.

The Company’s nonfinancial assets and liabilities that have nonrecurring fair value measurements include property, plant and equipment, goodwill and intangibles.

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To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, such deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made.

As of both December 31, 2019 and June 30, 2019 , the Company maintained a total valuation allowance of $ 14,252 against deferred tax assets related to state net operating losses and future amortization deductions (with respect to the Section 754 election) that are reported in the Tennessee corporate tax return without offsetting income, which is taxable at the LLC.

As of March 31, 2020 and June 30, 2019, the Company maintained a total valuation allowance of $ 14,296 and $ 14,252 , respectively, against deferred tax assets related to state net operating losses and future amortization deductions (with respect to the Section 754 election) that are reported in the Tennessee corporate tax return without offsetting income, which is taxable at the LLC.

This also includes a valuation allowance in the amount of $ 580 related to foreign tax credit carryforward that is not expected to be utilized in the future.

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tax law noted above as well as other adjustments to accruals for tax uncertainties, are recognized in the quarter in which the related event occurs.

For the three months ended December 31, 2019 and 2018 , the Company's effective tax rate was 22.3 % and 21.5 % , respectively.

For the six months ended December 31, 2019 and 2018 , the Company's effective tax rate was 22.4 % and 22.2 % , respectively.

For the three and six months ended December 31, 2019 , the Company's effective tax rate exceeded the statutory federal income tax rate of 21% primarily due to the impact of U.S.

For the three months ended March 31, 2020 and 2019, the Company's effective tax rate was 22.6 % and 24.8 %, respectively.

For the nine months ended March 31, 2020 and 2019, the Company's effective tax rate was 22.5 % and 23.4 %, respectively.

For the three and nine months ended March 31, 2020, the Company's effective tax rate exceeded the statutory federal income tax rate of 21% primarily due to the impact of U.S.

This increase was partially offset by the benefits of the foreign derived intangible income deduction, the research and development tax credit, a windfall benefit generated by certain stock-based compensation, and the impact of non-controlling interests in the LLC.

For the three and six months ended December 31, 2018 , the Company's effective tax rate exceeded the statutory federal income tax rate of 21% due to the impact of U.S.

This effect was partially offset by a windfall benefit generated by certain stock based compensation for the three and six months ended December 31, 2018 and the impact of non-controlling interests in the LLC, a passthrough entity for U.S.

federal tax purposes .

For the three and nine months ended March 31, 2019, the Company's effective tax rate exceeded the statutory federal income tax rate of 21% due to the impact of U.S.

state taxes and remeasurement of deferred taxes.

This increase was partially 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.

On Friday March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.

The CARES Act contains significant business tax provisions, including modifications to the rules limiting the deductibility of net operating losses (NOLs), expensing of qualified improvement property (QIP) and business interest in Internal Revenue Code Sections 172(a) and 163(j), respectively.

The effects of the new legislation are recognized upon enactment.

The Company did not recognize any significant impact to income tax expense for the three and nine months ended March 31, 2020 relating to the CARES Act.

Stock-Based Compensation

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Incentive stock awards authorized under the Incentive Plan include unrestricted shares of Class A Common Stock, stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent awards and performance awards.

As of December 31, 2019 , 712,363 shares remain available for future issuance under the long term incentive plan.

As of March 31, 2020, 714,911 shares remain available for future issuance under the long term incentive plan.

On November 22, 2019, under the Incentive Plan, the Company granted approximately 43,000 restricted service-based stock units and 28,000 restricted service based stock awards to key employees under the Incentive Plan.

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Compensation costs are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718 , Compensation—Stock Compensation.

The following is a summary of the changes in the Company's stock options for the six months ended December 31, 2019 :

Weighted Average Exercise Price/Share

The following is a summary of the changes in the Company's stock options for the nine months ended March 31, 2020:

Shares Weighted Average Exercise Price/Share

Total outstanding options as of June 30, 2019 185,473 $ 32.51

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Options exercised ( 12,125 ) 31.08

Outstanding options as of December 31, 2019

Exercisable as of December 31, 2019

The following is a summary of the changes in non-vested restricted stock units and restricted stock awards for the six months ended December 31, 2019 :

Number of Restricted Stock Units and Restricted Stock Awards Outstanding

Weighted Average Grant Date Fair Value

Outstanding options as of March 31, 2020 173,348 32.61

Exercisable as of March 31, 2020 48,869 $ 31.71

The following is a summary of the changes in non-vested restricted stock units and restricted stock awards for the nine months ended March 31, 2020:

Number of Restricted Stock Units and Restricted Stock Awards Outstanding Weighted Average Grant Date Fair Value

Total Non-vested Restricted Stock Units and Restricted Stock Awards as of June 30, 2019 226,240 $ 29.64

Total Non-vested Restricted Stock Units and Restricted Stock Awards as of December 31, 2019

Stock compensation expense attributable to the Company's share-based equity awards was $ 813 and $ 655 for the three months ended December 31, 2019 and 2018 , respectively, and $ 1,490 and $ 1,131 for the six months ended December 31, 2019 and 2018 , respectively.

Granted 166,037 37.60

Vested ( 110,073 ) 26.85

Forfeited ( 4,062 ) 33.71

Total Non-vested Restricted Stock Units and Restricted Stock Awards as of March 31, 2020 278,142 $ 35.44

Stock compensation expense attributable to the Company's share-based equity awards was $ 816 and $ 735 for the three months ended March 31, 2020 and 2019, respectively, and $ 2,306 and $ 1,866 for the nine months ended March 31, 2020 and 2019, respectively.

Stock compensation expense attributed to share-based equity awards issued under the Incentive Plan is recognized on a straight-line basis over the terms of the respective awards and is included in general and administrative expense in the Company's unaudited interim condensed consolidated statement of operations and comprehensive income.

Awards vesting during the three and six months ended December 31, 2019 include 17,375 and 18,786 , respectively, fully vested restricted stock units issued to non-employee directors for their service as directors for the Company.

Awards vesting during the three and nine months ended March 31, 2020 include 1,409 and 20,195 , respectively, fully vested restricted stock units issued to non-employee directors for their service as directors for the Company.

Net Earnings Per Share

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Basic and diluted net income per share of Class A Common Stock has been computed as follows (in thousands, except share and per share amounts):

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2020 2019 2020 2019

Net income attributable to Malibu Boats, Inc.

$ 22,778 $ 21,099 $ 55,359 $ 46,654

Shares used in computing basic net income per share:

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Net income attributable to Malibu Boats, Inc.

$ 22,778 $ 21,099 $ 55,359 $ 46,654

Shares used in computing diluted net income per share:

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Diluted weighted-average shares outstanding 1

20,775,108 21,007,933 20,827,958 20,943,548

Diluted net income per share $ 1.09 $ 1.01 $ 2.66 $ 2.23

1 The Company excluded (i) 940,875 and 904,652 potentially dilutive shares from the calculation of diluted net income per share for the three months ended December 31, 2019 and 2018 , respectively, and (ii) 1,042,509 and 924,652 potentially dilutive shares from the calculation of diluted net income per share for the six months ended December 31, 2019 and 2018 , respectively, as these units would have been antidilutive.

1 The Company excluded (i) 889,500 and 946,875 potentially dilutive shares from the calculation of diluted net income per share for the three months ended March 31, 2020 and 2019, respectively, and (ii) 890,750 and 930,125 potentially dilutive shares from the calculation of diluted net income per share for the nine months ended March 31, 2020 and 2019, respectively, as these units would have been antidilutive.

The shares of Class B Common Stock do not share in the earnings or losses of Malibu Boats, Inc.

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If the Company were obligated to repurchase a significant number of units under any repurchase agreement, its business, operating results and financial condition could be adversely affected.

The total amount financed under the floor financing programs with repurchase obligations was $ 290,904 and $ 239,315 as of December 31, 2019 and June 30, 2019 , respectively.

The total amount financed under the floor financing programs with repurchase obligations was $ 327,806 and $ 239,315 as of March 31, 2020 and June 30, 2019, respectively.

Repurchases and subsequent sales are recorded as a revenue transaction.

The net difference between the repurchase price and the resale price is recorded against the loss reserve and presented in cost of sales in the accompanying unaudited interim condensed consolidated statements of operations and comprehensive income.

The Company did not carry a reserve for repurchases as of December 31, 2019 and June 30, 2019 .

As of March 31, 2020 there have been no repurchases and the Company has not been notified about any probable repossessions.

Therefore, the Company did not carry a reserve for repurchases as of March 31, 2020 consistent with June 30, 2019.

The Company has collateralized receivables financing arrangements with a third-party floor plan financing provider for European dealers.

Under terms of these arrangements, the Company transfers the right to collect a trade receivable to

the financing provider in exchange for cash but agrees to repurchase the receivable if the dealer defaults.

Since the transfer of the receivable to the financing provider does not meet the conditions for a sale under ASC Topic 860 , Transfers and Servicing , the Company continues to report the transferred trade receivable in other current assets with an offsetting balance recorded as a secured obligation in accrued expenses in the Company's unaudited condensed consolidated balance sheet.

As of December 31, 2019 and June 30, 2019 , the Company had financing receivables of $ 569 and $ 768 , respectively, recorded in other current assets and accrued expenses related to these arrangements.

Under terms of these arrangements, the Company transfers the right to collect a trade receivable to the financing provider in exchange for cash but agrees to repurchase the receivable if the dealer defaults.

Since the transfer of the receivable to the financing provider does not meet the conditions for a sale under ASC Topic 860 ,

Transfers and Servicing , the Company continues to report the transferred trade receivable in other current assets with an offsetting balance recorded as a secured obligation in accrued expenses in the Company's unaudited condensed consolidated balance sheet.

As of March 31, 2020 and June 30, 2019, the Company had financing receivables of $ 412 and $ 768 , respectively, recorded in other current assets and accrued expenses related to these arrangements.

Contingencies

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Estimates of potential legal fees and other directly related costs associated with contingencies are not accrued but rather are expensed as incurred.

Except as disclosed below under "Legal Proceedings," management does not believe there are any pending claims (asserted or unasserted) at December 31, 2019 that may have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

Except as disclosed below under "Legal Proceedings," management does not believe there are any pending claims (asserted or unasserted) at March 31, 2020 that may have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

Legal Proceedings

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Skier’s Choice denied liability arising from the causes of action alleged in the Company's complaint and filed counterclaims alleging invalidity of the asserted patents.

On June 27, 2019, Skier’s Choice filed a motion to consolidate these two actions, and to continue deadlines in the earlier case for six months, which the Company opposed.

On June 27, 2019, Skier’s Choice filed a motion to consolidate these two actions, and to continue deadlines in the earlier case for nine months, which the Company opposed.

On August 22, 2019, the motion for consolidation was referred by Judge Thomas Varlan to Magistrate Judge Bruce Guyton, and the two cases were stayed pending resolution of that motion.

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The Cobalt and Pursuit segments participate in the manufacturing, distribution, marketing and sale of Cobalt and Pursuit boats, respectively, throughout the world.

The following tables present financial information for the Company’s reportable segments for the three and six months ended December 31, 2019 and 2018 , respectively, and the Company’s financial position at December 31, 2019 and June 30, 2019, respectively:

Three Months Ended December 31, 2019

Six Months Ended December 31, 2019

The following tables present financial information for the Company’s reportable segments for the three and nine months ended March 31, 2020 and 2019, respectively, and the Company’s financial position at March 31, 2020 and June 30, 2019, respectively:

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

Malibu Cobalt Pursuit Total Malibu Cobalt Pursuit Total

Net sales $ 102,604 $ 46,028 $ 33,678 $ 182,310 $ 285,811 $ 145,173 $ 103,518 $ 534,502

Income before provision for income taxes $ 21,669 $ 6,178 $ 3,006 $ 30,853 $ 48,331 $ 16,937 $ 9,750 $ 75,018

Three months ended December 31, 2018

Six Months Ended December 31, 2018

Three months ended March 31, 2019 Nine Months Ended March 31, 2019

Malibu Cobalt Pursuit Total Malibu Cobalt Pursuit Total

Net sales $ 107,419 $ 56,041 $ 36,458 $ 199,918 $ 272,662 $ 150,147 $ 66,385 $ 489,194

Income before provision for income taxes $ 19,754 $ 7,202 $ 2,568 $ 29,524 $ 39,684 $ 19,466 $ 5,089 $ 64,239

As of December 31, 2019

As of June 30, 2019

As of March 31, 2020 As of June 30, 2019

Malibu $ 311,541 $ 185,154

Cobalt 157,988 151,481

Pursuit 129,135 114,679

Total assets $ 598,664 $ 451,314

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements