What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-08-26 compared with 2020-08-31 · 274 added, 251 removed, 458 unchanged (53% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Acquisition of Maverick Boat Group, Inc.

and Related Financing

Impact of the COVID-19 Pandemic

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We are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats, including performance sport boats, sterndrive and outboard boats.

We are the market leader in the United States in the performance sport boat category through our Malibu and Axis Wake Research boat brands, the market leader in the United States in the 20’ - 40’ segment of the sterndrive boat category through our Cobalt brand and are among the market leaders in the fiberglass outboard fishing boat market with our Pursuit brand.

Our product portfolio of premium brands are used for a broad range of recreational boating activities including, among others, water sports, general recreational boating and fishing.

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With performance, quality, value and multi-purpose features, our product portfolio has us well positioned to broaden our addressable market and achieve our goal of increasing our market share in the expanding recreational boating industry.

We currently sell our boats under four brands—Malibu;

We currently sell our boats under eight brands as shown in the table below, and we report our results of operations under three reportable segments, Malibu, Cobalt and Saltwater Fishing.

We revised our segment reporting effective December 31, 2020 to account for our acquisition of Maverick Boat Group and to conform to changes in our internal management reporting based on our boat manufacturing operations.

Prior to December 31, 2020, we had three reportable segments, Malibu, Pursuit and Cobalt.

All segment information in the accompanying consolidated financial statements has been revised to conform to our current reporting segments for comparison purposes.

Additional segment information is contained in Note 19 - Segment Reporting, in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

% of Total Revenues

Fiscal Year Ended June 30,

Segment Brands 2021 2020 2019

Malibu Malibu 52.2% 54.3% 54.8%

Saltwater Fishing Pursuit 26.2% 18.9% 15.0%

Cobalt Cobalt 21.6% 26.8% 30.2%

Our Malibu segment participates in the manufacturing, distribution, marketing and sale throughout the world of Malibu and Axis performance sports boats.

Our flagship Malibu boats offer our latest innovations in performance, comfort and convenience, and are designed for consumers seeking a premium performance sport boat experience.

Retail prices of our Malibu boats typically range from $60,000 to $210,000.

We are the market leader in the United States in the performance sport boat category through our Malibu and Axis Wake Research boat brands.

Our Axis boats appeal to consumers who desire a more affordable performance sport boat product but still demand high performance, functional simplicity and the option to upgrade key features.

Retail prices of our Axis boats typically range from $65,000 to $115,000.

Retail prices of our Malibu and Axis boats typically range from $65,000 to $215,000.

Our Saltwater Fishing segment participates in the manufacturing, distribution, marketing and sale throughout the world of Pursuit boats and the Maverick Boat Group family of boats (Maverick, Cobia, Pathfinder and Hewes).

Our Pursuit boats expand our product offerings into the saltwater outboard fishing market and include center console, dual console and offshore models.

As noted below, we recently acquired Maverick Boat Group and added Maverick, Cobia, Pathfinder and Hewes to our brands.

Our Maverick Boat Group family of boats are highly complementary to Pursuit, expanding our saltwater outboard offerings with a strong focus in length segments under 30 feet.

We are among the market leaders in the fiberglass outboard fishing boat category with the brands in our Saltwater Fishing segment.

Retail prices for our Saltwater Fishing boats typically range from $45,000 to $1,200,000.

Our Cobalt segment participates in the manufacturing, distribution, marketing and sale throughout the world of Cobalt boats.

Our Cobalt boats consist of mid to large-sized luxury cruisers and bowriders that we believe offer the ultimate experience in comfort, performance and quality.

We are the market leader in the United States in the 20’ - 40’ segment of the sterndrive boat category through our Cobalt brand.

Retail prices for our Cobalt boats typically range from $65,000 to $500,000.

Our Pursuit boats expand our product offerings into the saltwater outboard fishing market and include center console, dual console and offshore models.

Retail prices for our Pursuit boats typically range from $80,000 to $800,000.

We sell our boats through a dealer network that we believe is the strongest in the recreational powerboat category.

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We devote significant time and resources to find, develop and improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage.

We achieved fiscal year 2020 net sales, net income and adjusted EBITDA of $653.2 million, $64.7 million and $110.9 million, respectively, which were a decrease from $684.0 million, $69.7 million and $125.9 million, respectively, for fiscal year 2019.

The decrease from 2019 to 2020 resulted primarily from the adverse impacts of the COVID-19 pandemic, including the impact of the temporary shutdown of our facilities.

We achieved fiscal year 2021 net sales, net income and adjusted EBITDA of $926.5 million, $114.3 million and $190.1 million, respectively, which were an increase from $653.2 million, $64.7 million and $110.9 million, respectively, for fiscal year 2020.

The increase from 2020 to 2021 resulted primarily from an increase in wholesale demand for our products, limited production caused by COVID related plant shutdowns during fiscal 2020, and the inclusion of the Maverick Boat Group since its acquisition on December 31, 2020.

For the definition of adjusted EBITDA and a reconciliation to net income, see “GAAP Reconciliation of Non-GAAP Financial Measures.”

We have three reportable segments, Malibu, Cobalt and Pursuit.

The Malibu segment participates in the manufacturing, distribution, marketing and sale of Malibu and Axis performance sports boats throughout the world.

The Cobalt and Pursuit

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

Malibu is our largest segment and represented 54.3%, 54.8% and 63.7% of our net sales for fiscal years 2020, 2019, and 2018 respectively.

We acquired Cobalt in July 2017 and it represented 26.8%, 30.2% and 36.3% of our net sales for fiscal years 2020, 2019 and 2018, respectively.

We acquired Pursuit in October 2018 and it represented 18.9% and 15.0% of our net sales for fiscal years 2020 and 2019, respectively.

We revised our segment reporting at the beginning of fiscal year 2020 to conform to changes in our internal management reporting based on our boat manufacturing operations.

Prior to this change in reporting segments, we had four reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit.

We now aggregate Malibu U.S.

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

All segment information in this Annual Report on Form 10-K prior to July 1, 2019 has been revised to conform to our current reporting segments for comparison purposes.

Additional segment information is contained in Note 20 - Segment Reporting, in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Acquisition of Maverick Boat Group, Inc.

and Related Financing

On December 31, 2020, we acquired all of the outstanding shares of Maverick Boat Group from its existing stockholders for a purchase price of $150.7 million.

The purchase price was subject to customary adjustments for the amounts of cash, indebtedness and working capital in the business at the closing date and subject to adjustment for certain capital expenditures made by Maverick Boat Group prior to closing at our request.

With two manufacturing facilities located in Fort Pierce, Florida, Maverick Boat Group designs and manufactures center console, dual console, flats and bay boats under four brand names -- Cobia, Pathfinder, Maverick, and Hewes.

We paid the purchase price with cash on hand and $90.0 million of borrowings under our credit facilities following an amendment to increase the amount available under the credit facilities as described below.

On December 30, 2020, our subsidiary, Malibu Boats, LLC, as the borrower, entered into the Third Incremental Facility Amendment and Third Amendment to its existing Second Amended and Restated Credit Agreement dated as of June 28, 2017 with Truist Bank, as the administrative agent, swingline lender and issuing bank.

The third amendment added a $25.0 million incremental term loan facility with a maturity date of July 1, 2024 and increased the borrowing capacity available under the revolving credit facility by $50.0 million from $120.0 million to $170.0 million.

The $25.0 million incremental term loan made pursuant to the third amendment is subject to quarterly amortization at a rate of 5.0% per year through December 31, 2022 and at a rate of 7.5% per year through June 30, 2024 and accrues interest at the same rate as other loans under the credit agreement.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States and the world, and it had a significant impact on our operations and financial results for fiscal year 2020.

On March 24, 2020, we elected to suspend operations at all of our facilities.

We resumed operations at our Loudon, Tennessee facility (Malibu and Axis boats) on April 20, 2020, our Neodesha, Kansas facility (Cobalt boats) on April 27, 2020 and our Fort Pierce, Florida facility (Pursuit boats) on May 4, 2020.

We also elected to draw the then remaining available funds of $98.8 million from our revolving credit facility in late March 2020 to ensure we maintained financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic.

We subsequently repaid $110.0 million on the revolving credit facility in June 2020.

Our financial results for fiscal year 2020 were impacted by the COVID-19 pandemic.

The temporary shutdown of our facilities in the second half of 2020 resulted in a decrease in production that we were not able to fully recover during fiscal year 2020.

We were not able to ship boats to our dealers during the suspension of our operations, which negatively impacted our net sales.

As a result, our net sales and unit volume decreased 39.1% and 43.9%, respectively, during the fourth quarter of fiscal year 2020 compared to the fourth quarter of fiscal year 2019.

For the year ended June 30, 2020, we recognized a decrease of $30.9 million, or 4.5%, in net sales and a decrease of 918 units, or 12.5%, in unit volume compared to fiscal year 2019.

While costs of sales also declined, we still recognized a decrease in gross profit of $16.6 million, or 10.0%, for fiscal year 2020 compared to fiscal year 2019, primarily related to the declines in sales volumes resulting from our suspension of operations.

Notwithstanding our lower net sales resulting from our decrease in production, our dealers continued to experience strong demand for our boats during the summer months.

While sales were negatively impacted by COVID-19 in late March and through April, retail sales improved materially from May through July 2020.

Consumers turned to boating as a form of outdoor, socially distanced recreation during the COVID-19 pandemic.

The increase in retail sales combined with our lower wholesale shipment levels during the fourth quarter of fiscal year 2020 resulted in lower inventory levels at our dealers as of June 30, 2020 compared to last year.

We expect these lower inventory levels, while having the potential to impact retail sales in the near-term, will provide us strong order flow for our model year 2021 product, unless consumer demand meaningfully decreases.

In addition to our operations, the COVID-19 pandemic also impacted and may continue to impact the operations of our dealers and suppliers.

The COVID-19 pandemic has impacted our operations and financial results since the third quarter of fiscal year 2020 and continues to have an impact on us.

We elected to suspend operations at all of our facilities from March 2020 until late April and early May 2020, depending on the facility.

As a result, we were not able to ship boats to our dealers during the period of shut-down, which negatively impacted our net sales for the second half of fiscal year 2020.

During the first half of fiscal 2021, we constrained our production levels in an attempt to allow our supply chain to more fully recover from the impacts of COVID-19 in preparation of higher wholesale manufacturing volumes that we planned for the second half of fiscal 2021.

While our net

sales for fiscal year 2021 were impacted by our lower production levels, retail sales improved during fiscal year 2021 as consumers turned to boating as a form of outdoor, socially distanced recreation during the COVID-19 pandemic.

The increase in retail sales during fiscal year 2021 combined with our lower wholesale shipment levels during the second half of fiscal year 2020 and constrained production in the first half of fiscal year 2021 resulted in lower inventory levels at our dealers as of June 30, 2021 compared to last year.

We expect these lower inventory levels, while having the potential to impact retail sales in the near-term, will provide us strong order flow for our model year 2022 product, unless broader economic activity meaningfully contracts and negatively impacts customer demand.

In addition to our operations, the COVID-19 pandemic has impacted and continues to impact the operations of our dealers and suppliers.

While some of our dealers and suppliers had to suspend their operations during the pandemic, many continued to operate and we are not aware of any of our dealers or suppliers that have closed permanently.

We believe we are well-positioned to withstand any further disruptions that may occur as result of the ongoing pandemic.

We have approximately $49.9 million of cash on hand as of August 27, 2020 and approximately $110.0 million available for borrowing under our revolving credit facility as of June 30, 2020.

Further, we have a flexible cost structure that allows us to more closely align our costs with wholesale shipments.

The ultimate impact of COVID-19 on our financial condition and results of operations, however, will depend on a number of factors, including factors that we may not be able to forecast at this time.

See the risk factor “The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, and those of our dealers and suppliers, thereby adversely affecting our business, financial condition and results of operations.” under Part I.

Our suppliers have been impacted by COVID-19 and continue to ramp production to meet increased demand for their products.

As mentioned, we have successfully managed our production levels to ensure that challenges related to parts procurement have minimal impact on our operations and we have not experienced any significant shortages related to COVID-19.

The future impact of COVID-19 on our financial condition and results of operations, however, will depend on a number of factors, including factors that we may not be able to forecast at this time.

In addition, a resurgence of COVID-19 in certain parts of the world, including the United States and parts of Europe, may lead to more restrictions being implemented again to reduce the spread of COVID-19.

These measures could result in further interruptions to our operations and potentially a decrease in consumer spending.

See the risk factor “Our operations and sales have been adversely impacted by the COVID-19 pandemic, and we must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of COVID-19 and the related widespread public health crisis..” under Part I.

of this Form 10- K.

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According to Statistical Surveys, Inc., domestic retail registration volumes of performance sport boats, fiberglass sterndrive and fiberglass outboards increased at a compound annual growth rate of approximately 5.8% between 2011 and 2020, for the 50 reporting states.

While domestic retail registration volumes for new recreational powerboats decreased in 2019, total retail sales dollars

increased in 2019, according to NMMA.

These increases have been led by growth in our core market, performance sport boats, having produced a double-digit compound annual growth rate between 2011 and 2019.

While the growth rate was negatively impacted by weak sales in March and April 2020 due to COVID-19, we believe domestic retail demand growth has otherwise continued in performance sport boats for calendar year 2020, in part because consumers have turned to boating as a form of outdoor, socially distanced recreation during the COVID-19 pandemic.

Fiberglass sterndrive and outboard boats, the target markets for our Cobalt and Pursuit branded products, have seen their combined market grow at a 4.5% compound annual growth rate between 2011 and 2019.

That growth has been driven by the outboard market where Pursuit is focused and Cobalt is a new entrant and where we plan to meaningfully expand our market share in the future.

While Cobalt’s primary market for sterndrive propulsion has been challenged, their performance continues to be helped by market share gains and they continue to see registration growth.

During 2019 the fiberglass outboard market was approximately flat year-over-year, but, in foot lengths 23 feet and greater, where Pursuit and Cobalt compete, the market continues to grow.

We expect the growing demand for our products to continue, albeit at a lower pace than the past eight years.

Regardless of retail market growth rates, the combination of continued strong retail market activity this summer and the temporary suspension of our operations from March through May 2020, has depleted inventory levels at our dealers below prior year levels and we expect to see meaningful wholesale demand to restock our dealer inventories through fiscal year 2021 and potentially beyond.

While we expect lower dealer inventory levels will support fiscal year 2021 financial performance, numerous other variables have the potential to impact our volumes, both positively and negatively.

For example, we believe the substantial decrease in the price of oil, broad strength of the U.S.

dollar and recently implemented tariffs has resulted in reduced demand for our boats in certain markets.

Within the recreational powerboat categories, the performance sport boats category, which we primarily serve with our Malibu and Axis brands, has produced a double-digit compound annual growth rate between 2011 and 2020.

Outboard boats and fiberglass sterndrive boats have seen their combined market grow at a 5.0% compound annual growth rate between 2011 and 2020.

This combined growth has been driven primarily by the outboard market.

We target the outboard market with our Pursuit, Cobia, Pathfinder, Maverick and Hewes brands, as well as our Cobalt brand, which is a new entrant to the outboard market, and we plan to meaningfully expand our share of the fiberglass outboard category in the future.

We cater to the sterndrive market through our Cobalt brand.

While the market for sterndrive propulsion, particularly in lower foot length products, has been challenged, Cobalt’s performance continues to be helped by the higher foot length product market it serves, which has grown and through gains in market share by Cobalt.

While retail growth in powerboats was negatively impacted by weak retail sales in March and April 2020 due to COVID-19, domestic retail demand growth for powerboats accelerated during calendar year 2020, in part because consumers turned to boating as a form of outdoor, socially distanced recreation during the COVID-19 pandemic.

Despite the impact of COVID-19 early in 2020, the increased demand during 2020 was broad based across recreational powerboat categories.

Year-over-year domestic retail growth rates for 2020 in the performance sport boat, fiberglass outboard and sterndrive segments were approximately 22%, 10% and 9%, respectively.

The first half of 2021 saw continued strong year-over-year retail growth, however, in May 2021 we saw lower growth and in certain markets year-over-year decreases in retail registrations driven by the lack of available inventory at our dealers and the high growth in those months during 2020.

We believe retail registration activity will decline during the third calendar quarter of 2021 versus the comparable period in 2020 given the limited available inventory and the strong sales activity and resulting destocking in 2020.

Notwithstanding the impact of limited inventory levels, we believe total 2021 retail registrations will remain strong given the current retail activity.

Of new boat orders, we believe over 90% will be retail sold in the first quarter of fiscal 2022, and we anticipate a robust pace to continue throughout the remainder of the year.

As noted, the combination of continued strong retail market activity through 2020 and into early 2021 and the temporary suspension of our operations from March and into May 2020 depleted inventory levels at our dealers below prior year levels.

Our planned ramp in manufacturing throughput during the third quarter of fiscal 2021 was well supported by our supply chain.

However, our second half performance was negatively impacted by operational challenges and supply chain constraints created by severe winter weather, further delaying our ability to add to depleted inventory levels.

As a result of these lower dealer inventory levels, we expect to see meaningful wholesale demand to restock our dealer inventories through fiscal year 2022 and beyond.

We expect lower dealer inventory levels will support our wholesale shipments and financial performance through fiscal year 2022.

We believe that strength is likely to continue into fiscal year 2023.

The duration of our dealer restocking demand may be extended by our suppliers' ability to increase production to match our desired wholesale production targets.

We are currently experiencing supply chain disruptions that we believe are driven by numerous factors, including labor shortages,

logistical disruptions and limited inputs and rising prices to our suppliers.

The length and duration of these challenges is unknown and they may meaningfully impact our ability to restock our dealers inventories in a timely manner.

Numerous other variables also have the potential to impact our volumes, both positively and negatively.

For example, we believe a substantial increase or decrease in the price of oil, strength or weakness of the U.S.

dollar and tariffs can result in greater or reduced demand for our boats in certain markets.

To date, growth in our domestic market has offset the significantly diminished demand from economies that are driven by the oil industry and international markets.

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Other challenges that could impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our product, the availability of credit to our dealers and retail consumers, fuel costs, a meaningful reduction in the value of global or domestic equity markets, the continued acceptance of our new products in the recreational boating market, our ability to compete in the competitive power boating industry, and the costs of labor and certain of our raw materials and key components.

Since 2008, we have increased our market share among manufacturers of performance sport boats due to new product development, improved distribution, new models, and innovative features.

As the market for our product has recovered our competitors have become more aggressive in their product introductions, increased their distribution and launched surf systems competitive with our patented Surf Gate system.

This competitive environment has continued throughout the past few years, but in 2019 and year-to-date 2020 strong performance from Malibu and Axis have expanded our strong lead over our nearest competitor in terms of market share in the performance sport boats category.

We believe our new product pipeline, strong dealer network and ability to manage our business through the COVID-19 pandemic leaves us well positioned to maintain and potentially expand our industry leading market position in performance sports boats.

In addition, we continue to be the market share leader in both the premium and value-oriented product sub-categories.

We also believe our track record of expanding our market share due to new product development, improved distribution, new models, and innovative features is directly transferable to our Cobalt and Pursuit acquisitions.

While Cobalt and Pursuit are market leaders in certain areas, we believe our experience positions us to execute a strategy to drive enhanced share by expanding both the Cobalt and Pursuit product offerings with different foot lengths, different boat types and different propulsion technologies.

Our new product development efforts at Cobalt and Pursuit will take time and our ability to influence near-term model introductions is limited, but we have already begun to execute on this strategy.

With respect to Cobalt, we have included Splash and Stow and a new electronic flip down Swim Step for model year 2021 boats.

Since 2008, we have increased our market share among manufacturers of performance sport boats with new product development, improved distribution, new models, and innovative features.

Our market remains highly competitive however and our competitors have become more aggressive in their product introductions, increased their distribution and launched surf systems competitive with our patented Surf Gate system.

Notwithstanding this increasingly competitive environment, we expanded our market share lead in 2019 in the performance sport boats category over our nearest competitors.

However, we believe decreased dealer inventory levels driven by strong retail growth in the second half of 2020 led to a reduction in our market share for 2020;

however, we continue to maintain the leading market share in the performance sport boat category.

In addition, we continue to be the market share leader in both the premium and value-oriented product sub- categories for performance sports boats, we continue to maintain the number one market share position in the United States for the 24’—29’ segment of the sterndrive boat category, and we have the number two market share position in the outboard fiberglass fishing market.

Our ability to continue to increase inventory levels at our dealers will be important to maintain and grow our market share across our brands.

We believe our new product pipeline, strong dealer network and ability to increase production will allow us to maintain and potentially expand our industry leading market position in performance sports boats.

We believe our track record of expanding our market share with our Malibu and Axis brands due to new product development, improved distribution, new models, and innovative features is directly transferable to our Cobalt, Pursuit and Maverick Boat Group acquisitions.

While Cobalt, Pursuit and the Maverick Boat Group brands are market leaders in certain areas, we believe our experience positions us to execute a strategy to drive enhanced share by expanding the Cobalt, Pursuit and Maverick Boat Group product offerings with different foot lengths, different boat types and different propulsion technologies.

Our new product development efforts at Cobalt, Pursuit and Maverick Boat Group will take time and our ability to influence near-term model introductions is limited, but we have already begun to execute on this strategy.

With respect to Cobalt, we introduced five new models of boats during the first half of fiscal year 2021 and we have included Splash and Stow and a new electronic flip down Swim Step for model year 2021 boats.

For the Pursuit brand, our focus has been on expanding the award-winning Dual Console, Sport and Offshore product offerings that continue to combine innovative features and dependable performance in refined designs that accommodate a broad array of activities on the water, including the Electric Sliding Entertainment Center on the new S 378.

We believe enhancing new product development combined with diligent management of the Cobalt and Pursuit dealer networks positions us to meaningfully improve our share of the sterndrive and outboard markets over time.

Our newest acquisition, Maverick Boat Group, is in the very early stages of integration into the business and meaningful product and innovation changes will be developed for coming years.

We believe enhancing new product development combined with diligent management of the Cobalt, Pursuit and Maverick Boat Group dealer networks will position us to meaningfully improve our share of the sterndrive and outboard markets over time.

Factors Affecting Our Results of Operations

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Our product sales are impacted by general economic conditions, which affect the demand for our products, the demand for optional features, the availability of credit for our dealers and retail consumers, and overall consumer confidence.

Consumer spending, especially purchases of discretionary items, tends to decline during recessionary periods and tends to increase during

expansionary periods.

Consumer spending, especially purchases of discretionary items, tends to decline during recessionary periods and tends to increase during expansionary periods.

The recreational powerboat industry has shown continued growth from 2010 through 2020 ba sed on retai l sales .

W hile there is uncertainty surrounding the COVID-19 pandemic we believe we are well positioned strategically in the recreational powerboat market with brands that are market leaders in their segments.

While there is still some uncertainty surrounding the COVID-19 pandemic we believe we are well positioned strategically in the recreational powerboat market with brands that are market leaders in their segments.

New Product Development and Innovation

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Developing and introducing new boat models and features that deliver improved performance and convenience are essential to leveraging the value of our brands.

By introducing new boat models, we are able to appeal to a new and broader range of consumers and focus on underserved or adjacent segments of the broader powerboat category.

By introducing new boat models,

we are able to appeal to a new and broader range of consumers and focus on underserved or adjacent segments of the broader powerboat category.

To keep product fresh and at the forefront of technological innovation in the boating industry, we aim to introduce a number of new boat models per year.

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Historically, we have been able to realize higher sales and margins when we sell larger boats compared to our smaller boats, our premium brands compared to our entry-level brands and our boats that are fully-equipped with optional features.

We will strive to continue to develop new features and models and maintain an attractive product mix that optimizes sales growth and margins.

We intend to continue to develop new features and models and maintain an attractive product mix that optimizes sales growth and margins.

Ability to Manage Manufacturing Costs, Sales Cycles and Inventory Levels

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During fiscal year 2020, we expanded our facilities in Kansas and Florida for our Cobalt and Pursuit operations, respectively.

We expect these expanded facilities will allow us to continue improving the manufacturing process at each of these locations.

We are currently working on expansion projects at Maverick Boat Group in Florida.

We expect this expanded facility will allow us to continue improving the manufacturing process and increase volume at this location.

We rely on our insights into the market gleaned from dealer inventory levels, industry reports about anticipated demand for our products in the upcoming sales cycle and our own estimates and assumptions in formulating our manufacturing plan for the following fiscal year.

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To improve and expand our network and compete effectively for dealers, we regularly monitor and assess the performance of our dealers and evaluate dealer locations and geographic coverage in order to identify potential market opportunities.

Our acquisitions of Cobalt and Pursuit has allowed us to expand into each of their strong dealer networks as well.

Our acquisitions of Cobalt, Pursuit and Maverick Boat Group has allowed us to expand into each of their strong dealer networks as well.

We intend to continue to add dealers in new territories in the United States as well as internationally, which we believe will result in increased unit sales.

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We facilitate floor plan financing programs for many of our dealers by entering into repurchase agreements with certain third-party lenders, which enable our dealers, under certain circumstances, to establish lines of credit with the third-party lenders to purchase inventory.

Under these floor plan financing programs, a dealer draws on the floor plan facility upon the purchase of

our boats and the lender pays the invoice price of the boats.

Under these floor plan financing programs, a dealer draws on the floor plan facility upon the purchase of our boats and the lender pays the invoice price of the boats.

We will continue to review and refine our dealer incentive offerings and monitor any exposures arising under these arrangements.

Vertical Integration

We have vertically integrated a number of key components of our manufacturing process, including the manufacturing of boat trailers, towers and tower accessories, machined and billet parts, and tooling.

We began producing our own engines for our Malibu and Axis models.

Our engines, branded as Malibu Monsoon engines, were in Malibu and Axis boats for model year 2020.

We believe our engine marinization initiative will reduce our reliance on our previous engine suppliers for our Malibu and Axis brands while reducing the risk that a change in cost or production from any engine supplier for such brands could adversely affect our busines s.

We began producing our own engines, branded as Malibu Monsoon engines, in our Malibu and Axis boats for model year 2019.

We believe our engine

marinization initiative will reduce our reliance on our previous engine suppliers for our Malibu and Axis brands while reducing the risk that a change in cost or production from any engine supplier for such brands could adversely affect our business.

Recently we began producing soft grip flooring for our Malibu, Axis and new Cobalt models.

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• Sales returns —consists primarily of contractual repurchases of boats either repossessed by the floor plan financing provider from the dealer or returned by the dealer under our warranty program;

• Rebates, free flooring and discounts —consists of incentives, rebates and free flooring, we provide to our dealers based on sales of eligible products.

For our Malibu and Axis models, if a domestic dealer meets its monthly or quarterly commitment volume, as well as other terms of the dealer performance program, the dealer is entitled to a specified rebate.

Cobalt dealers are entitled to volume-based discounts taken at the time of invoice.

For our Pursuit models, if a dealer meets its quarterly or annual retail volume goals, the dealer is entitled to a specific rebate applied to their wholesale volume purchased from Pursuit.

For Malibu and Cobalt models and select Pursuit models, our dealers that take delivery of current model year boats in the offseason, typically July through April in the U.S., are also entitled to have us pay the interest to floor the boat until the earlier of (1) the sale of the unit or (2) a date near the end of the current model year, which incentive we refer to as “free flooring.” From time to time, we may extend the flooring program to eligible models beyond the offseason period.

• Rebates and free flooring —consists of incentives, rebates and free flooring, we provide to our dealers based on sales of eligible products.

For our Malibu and Cobalt segments, if a domestic dealer meets its monthly or quarterly commitment volume, as well as other terms of the dealer performance program, the dealer is entitled to a specified rebate.

For our Saltwater Fishing segment, if a dealer meets its quarterly or annual retail volume goals, the dealer is entitled to a specific rebate applied to their wholesale volume purchased.

For Malibu, Cobalt and select Saltwater Fishing models, our dealers that take delivery of current model year boats in the offseason, typically July through April in the U.S., are also entitled to have us pay the interest to floor the boat until the earlier of (1) the sale of the unit or (2) a date near the end of the current model year, which incentive we refer to as “free flooring.” From time to time, we may extend the flooring program to eligible models beyond the offseason period.

For more information, see "Item 1.

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General and administrative expenses include, among other things, salaries, benefits and other personnel related expenses for employees engaged in product development, engineering, finance, information technology, human resources and executive management.

Other costs include outside legal and accounting fees, investor relations, risk management (insurance) and other administrative costs.

Other costs include outside legal and accounting fees, investor relations, risk management (insurance)

and other administrative costs.

General and administrative expenses also include product development expenses associated with our engines vertical integration initiative and acquisition or integration related expenses.

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The LLC is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions.

Maverick Boat Group is separately subject to U.S.

federal and state income tax with respect to its net taxable income.

Net Income Attributable to Non-controlling Interest

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Malibu 4,841 59.1 % 3,980 61.8 % 4,547 61.7 %

Cobalt 1,956 30.3 % 2,409 32.8 % 2,232 35.5 %

Saltwater Fishing 1

1,428 17.5 % 508 7.9 % 406 5.5 %

Cobalt 1,916 23.4 % 1,956 30.3 % 2,409 32.8 %

Total Units 8,185 6,444 7,362

Net sales per unit $ 113,197 $ 101,360 $ 92,912

(1) We acquired substantially all of the assets of Pursuit on October 15, 2018.

(1) We acquired all of the outstanding stock of Maverick Boat Group on December 31, 2020 and substantially all of the assets of Pursuit on October 15, 2018.

Comparison of the Fiscal Year Ended June 30, 2021 to the Fiscal Year Ended June 30, 2020

Net sales for fiscal year 2021 increased $273.4 million, or 41.9%, to $926.5 million, compared to fiscal year 2020.

Unit volume for fiscal year 2021 increased 1,741 units, or 27.0%, to 8,185 units compared to fiscal year 2020.

The increase in net sales was driven primarily by a favorable model mix in our Malibu and Cobalt segment and increased unit volume in our Malibu and Saltwater fishing segments.

The increase in unit volume for our Saltwater Fishing segment was due mostly to our acquisition of Maverick Boat Group on December 31, 2020.

Net sales attributable to our Malibu segment increased $128.8 million, or 36.3%, to $483.5 million for fiscal year 2021 compared to fiscal year 2020.

Unit volumes attributable to our Malibu segment increased 861 units for fiscal year 2021 compared to fiscal year 2020.

The increase in net sales and unit volumes was driven primarily by strong demand for our new, larger models and optional features.

Net sales from our Saltwater Fishing segment increased $119.3 million, or 96.5%, to $242.9 million for fiscal year 2021 compared to fiscal year 2020.

Unit volumes increased 920 units for fiscal year 2021 compared to fiscal year 2020.

The increase in net sales was driven primarily by the increased volumes at Pursuit and due to the acquisition of Maverick Boat Group on December 31, 2020.

Net sales from our Cobalt segment increased $25.3 million, or 14.5%, to $200.1 million for fiscal year 2021 compared to fiscal year 2020.

Unit volumes attributable to Cobalt decreased 40 units for fiscal year 2021 compared to fiscal year 2020.

The increase in net sales was driven by a favorable product mix of our Cobalt models impacting net sales per unit, offset by lower volume.

Our unit volumes for our Cobalt segment decreased during fiscal year 2021 because of lower production levels related to our investment in the Cobalt facilities to optimize efficiency and expand capacity, the introduction of six new Cobalt models during fiscal year 2021 and challenges around labor and supply as a result of the pandemic and severe winter weather.

Our overall net sales per unit increased 11.7% to $113,197 per unit for fiscal year 2021 compared to fiscal year 2020.

Net sales per unit for our Malibu segment increased 12.1% to $99,881 per unit for fiscal year 2021 compared to fiscal year 2020, primarily driven by higher sales of new, more expensive models and optional features.

Net sales per unit for our Saltwater Fishing segment decreased 30.1% to $170,108 per unit for fiscal year 2021 compared to fiscal year 2020, primarily driven by mix of models due to the acquisition of Maverick Boat Group on December 31, 2020.

Net sales per unit for our Cobalt segment increased 16.9% to $104,424 per unit for fiscal year 2021 compared to fiscal year 2020, driven by higher sales of larger, more expensive models and optional features.

Cost of Sales

Cost of sales for fiscal year 2021 increased $186.1 million, or 36.9%, to $690.0 million compared to fiscal year 2020.

The increase in cost of sales was driven by higher costs related to higher net sales in our Malibu and Saltwater Fishing segments.

In the Malibu segment, higher material and labor costs contributed $70.4 million to the increase in cost of sales and were driven by an increased mix of larger product that corresponded with higher net sales per unit.

Within our Saltwater Fishing segment, higher volumes, primarily related to the acquisition of Maverick Boat Group, drove $83.7 million of increase in cost of sales which was also modestly impacted by higher per unit costs.

In the Cobalt segment, higher material and labor costs contributed $14.7 million to the increase in cost of sales and were driven by an increased mix of larger product that corresponded with higher net sales per unit.

Gross profit for fiscal year 2021 increased $87.2 million, or 58.4%, compared to fiscal year 2020.

The increase in gross profit was driven primarily by higher sales revenue with a more favorable product mix and the contribution of Maverick Boat Group partially offset by the increased cost of sales for the reasons noted above.

Gross margin increased 270 basis points from 22.8% in fiscal 2020 to 25.5% in fiscal year 2021.

Operating Expenses

Selling and marketing expense for fiscal year 2021 decreased $0.4 million, or 2.1% to $17.5 million compared to fiscal year 2020.

The decrease was driven primarily by decreased travel and promotional events due mostly to restrictions imposed by COVID-19 offset by incremental selling and marketing expenses with the acquisition of Maverick Boat Group.

As a percentage of sales, selling and marketing expense decreased 90 basis points from 2.8% for fiscal year 2020 to 1.9% for fiscal year 2021.

General and administrative expense for fiscal year 2021 increased $22.0 million, or 55.1%, to $61.9 million compared to fiscal year 2020.

The increase in general and administrative expenses was driven primarily by acquisition and integration related costs, compensation, higher legal expenses related to intellectual property litigation and incremental general and administrative expenses due to the acquisition of Maverick Boat Group.

As a percentage of sales, general and administrative expenses increased 50 basis points to 6.6% for fiscal year 2021 compared to 6.1% for fiscal year 2020.

Amortization expense for fiscal year 2021 increased $1.1 million, or 18.3%, to $7.3 million compared to fiscal year 2020, due to additional amortization from intangible assets acquired as a result of the acquisition of Maverick Boat Group on December 31, 2020.

Other (Income) Expense, Net

Other expense, net for fiscal year 2021 decreased by $0.1 million, or 4.1% to $1.5 million as compared to fiscal year 2020.

In fiscal year 2021, we reduced our tax receivable agreement liability by $0.1 million that resulted in a corresponding amount being recognized as other income during the same period, compared to fiscal year 2020, when we reduced our tax receivable agreement liability by $1.7 million that resulted in a corresponding amount being recognized as other income during fiscal year 2020 .

Our interest expense decreased by $1.3 million during fiscal year 2021 compared to fiscal year 2020 due to lower interest rates on outstanding debt.

Provision for Income Taxes

Our provision for income taxes for fiscal year 2021 increased $14.9 million, or 78.1% to $34.0 million compared to fiscal year 2020.

This increase was primarily driven by higher pre-tax earnings and increased U.S.

For fiscal year 2021, our effective tax rate of 22.9% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S.

state taxes, and partially offset by the impact of non-controlling interests in the LLC.

For fiscal year 2020, our effective tax rate of 22.8% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S.

state taxes, and partially offset by the impact of non-controlling interests in the LLC.

Non-controlling interest

Non-controlling interest represents the ownership interests of the members of the LLC other than us and the amount recorded as non-controlling interest in our consolidated statements of operations and comprehensive income is computed by multiplying pre-tax income for the applicable fiscal year by the percentage ownership in the LLC not directly attributable to us.

For fiscal years 2021 and 2020, the weighted average non-controlling interest attributable to ownership interests in the LLC not directly attributable to us was 3.1% and 3.8%, respectively.

Comparison of the Fiscal Year Ended June 30, 2020 to the Fiscal Year Ended June 30, 2019

Net sales for fiscal year 2020 decreased $30.9 million, or 4.5%, to $653.2 million, compared to fiscal year 2019.

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Unit volumes attributable to our Malibu segment decreased 567 units for fiscal year 2020 compared to fiscal year 2019.

The decrease in net sales and unit volumes was driven by the temporary shutdown of our Loudon,

Tennessee facility in the second half of fiscal year 2020 as a result of the COVID-19 pandemic.

The decrease in net sales and unit volumes was driven by the temporary shutdown of our Loudon, Tennessee facility in the second half of fiscal year 2020 as a result of the COVID-19 pandemic.

This decrease in Malibu net sales was partially offset primarily by our product mix of new, larger Malibu and Axis models.

Net sales from our Saltwater Fishing segment increased $20.8 million, or 20.3%, to $123.6 million for fiscal year 2020 compared to fiscal year 2019.

Unit volumes attributable to Saltwater Fishing increased 102 units for fiscal year 2020 compared to fiscal year 2019.

The increase in Saltwater Fishing net sales resulted from a full year of sales from Pursuit in fiscal year 2020 compared to a partial nine months in fiscal year 2019 since our acquisition of Pursuit on October 15, 2018.

The increase in net sales and unit volumes were partially offset by the lower average selling price due to the mix of models sold and the temporary shutdown of our Fort Pierce, Florida facility in the second half of fiscal year 2020 as a result of the COVID-19 pandemic.

Net sales from our Cobalt segment decreased $31.8 million, or 15.4%, to $174.8 million for fiscal year 2020 compared to fiscal year 2019.

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The decrease was partially offset by year-over-year price increases on our Cobalt models.

Net sales from our Pursuit segment increased $20.8 million, or 20.3%, to $123.6 million for fiscal year 2020 compared to fiscal year 2019.

Unit volumes attributable to Pursuit increased 102 units for fiscal year 2020 compared to fiscal year 2019.

The increase in Pursuit net sales resulted from a full year of sales from Pursuit in fiscal year 2020 compared to a partial nine months in fiscal year 2019 since our acquisition of Pursuit on October 15, 2018.

Our overall net sales per unit increased 9.1% to $101,360 per unit for fiscal year 2020 compared to fiscal year 2019.

Net sales per unit for our Malibu segment increased 8.2% to $89,138 per unit for fiscal year 2020 compared to fiscal year 2019, primarily driven by higher sales for new, more expensive models and optional features.

Net sales per unit for our Saltwater Fishing segment decreased 3.9% to $243,358 per unit for fiscal year 2020 compared to fiscal year 2019, primarily driven by lower average selling price due to the mix of models sold.

Net sales per unit for our Cobalt segment increased 4.2% to $89,350 per unit for fiscal year 2020 compared to fiscal year 2019, driven by year-over-year price increases.

Net sales per unit for our Pursuit segment decreased 3.9% to $243,358 per unit for fiscal year 2020 compared to fiscal year 2019, primarily driven by lower average selling price due to the mix of models sold.

Cost of Sales

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For fiscal year 2020, our effective tax rate of 22.8% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S.

This increase in tax rate 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 fiscal year 2019, our effective tax rate of 24.1% differed from 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 and the impact of non-controlling interests in the LLC.

Non-controlling interest

For fiscal years 2020 and 2019, the weighted average non-controlling interest attributable to ownership interests in the LLC not directly attributable to us was 3.8% and 4.1%, respectively.

Comparison of the Fiscal Year Ended June 30, 2019 to the Fiscal Year Ended June 30, 2018

Net sales for fiscal year 2019 increased $187.0 million, or 37.6%, to $684.0 million, compared to fiscal year 2018.

Unit volume for fiscal year 2019 increased 1,070 units, or 17.0%, to 7,362 units compared to fiscal year 2018.

The increase in net sales and unit volumes was driven primarily by our acquisition of Pursuit in October 2018, as well as increased demand for our Malibu, Axis and Cobalt brands coupled with year-over-year price increases.

Net sales attributable to our Malibu segment increased $58.0 million, or 18.3%, to $374.6 million for fiscal year 2019 compared to fiscal year 2018.

Unit volumes attributable to our Malibu segment increased 487 units for fiscal year 2019 compared to fiscal year 2018.

The increase in net sales and unit volume for Malibu was driven primarily by strong demand for new models and optional features, which led to a higher net sales per unit for Malibu and Axis models.

Net sales was also impacted by year-over-year price increases on all of our Malibu and Axis models.

Net sales from our Cobalt segment increased $26.2 million, or 14.6%, to $206.6 million for fiscal year 2019 compared to fiscal year 2018.

Unit volumes attributable to Cobalt increased 177 units for fiscal year 2019 compared to fiscal year 2018.

The increase in Cobalt net sales and unit volume was driven primarily by strong demand for our R series models.

Net sales was also impacted by year-over-year price increases on all of our Cobalt models.

Net sales and unit volume contributed by Pursuit since its acquisition on October 15, 2018 were $102.8 million and 406 units, respectively, for fiscal year 2019.

Our overall net sales per unit increased 17.6% to $92,912 per unit for fiscal year 2019 compared to fiscal year 2018.

Net sales per unit for our Malibu segment increased 5.6% to $82,386 per unit for fiscal year 2019 compared to fiscal year 2018, driven by strong demand for new models and optional features and year-over-year price increases.

Net sales per unit for our Cobalt segment increased 6.2% to $85,761 per unit for fiscal year 2019 compared to fiscal year 2018, driven by a favorable mix of R series models which have a higher average selling price as well as year-over-year price increases.

Net sales per unit for Pursuit for fiscal year 2019 was $253,219.

Cost of Sales

Cost of sales for fiscal year 2019 increased $141.1 million, or 37.5%, to $517.7 million compared to fiscal year 2018.

The increase in cost of sales was driven primarily by incremental costs contributed by Pursuit since its acquisition in October 2018 and an increase in unit volumes at our Malibu, Axis and Cobalt businesses.

Gross profit for fiscal year 2019 increased $45.9 million, or 38.2%, compared to fiscal year 2018.

The increase in gross profit was due mainly to higher unit volumes in the businesses mentioned above.

Gross margin increased 10 basis points from 24.2% in fiscal 2018 to 24.3% in fiscal year 2019 due to our gross margins increasing for our comparable businesses primarily as a result of our operational efficiency initiatives offset by $0.9 million of additional expense related to the fair value step up of Pursuit inventory acquired and sold during fiscal year 2019.

Operating Expenses

Selling and marketing expense for fiscal year 2019 increased $4.2 million, or 30.8%, to $17.9 million compared to fiscal year 2018 due primarily to the incremental expenses from Pursuit since its acquisition.

As a percentage of sales, selling and marketing expense decreased 20 basis points from 2.8% for fiscal year 2018 to 2.6% for fiscal year 2019.

General and administrative expense for fiscal year 2019 increased $12.9 million, or 41.1%, to $44.3 million compared to fiscal year 2018.

The increase in general and administrative expenses was largely due to incremental general and administrative expenses attributable to Pursuit since its acquisition, integration related expenses for our acquisition of Pursuit, which we completed in October 2018 and higher legal expenses related mostly to intellectual property litigation.

As a percentage of sales, general and administrative expenses increased 20 basis points to 6.5% for fiscal year 2019 compared to 6.3% for fiscal year 2018.

Amortization expense for fiscal year 2019 increased $0.8 million, or 14.6%, compared to fiscal year 2018, due to additional amortization from intangible assets acquired as a result of the Pursuit acquisition.

Other (Income) Expense, Net

Other expense, net for fiscal year 2019 changed by $25.6 million to expense of $6.3 million as compared to income of $19.3 million in fiscal year 2018.

The change was primarily due to a $24.6 million reduction in our tax receivable agreement liability for fiscal year 2018, which resulted in us recognizing a corresponding amount as other income.

The reduction of our tax receivable agreement liability primarily resulted from a decrease in the estimated tax rate used in computing our future tax obligations as a result of the Tax Act, which, in turn, decreased the future tax benefit we expect to realize related to our increased tax basis from previous sales and exchanges of LLC Units by our pre-IPO owners.

For fiscal year 2019 we recognized higher interest expense on our loans because of an overall higher average principal balance compared to fiscal year 2018, as a result of our $50.0 million of borrowing under our revolving credit facility to finance a portion of the purchase price for Pursuit.

This higher interest expense was partially offset by other income we recognized from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and, in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.

Provision for Income Taxes

Our provision for income taxes for fiscal year 2019 decreased $36.3 million, to $22.1 million compared to fiscal year 2018.

For fiscal year 2018, we recorded a non-cash increase to income tax expense of $44.5 million for the remeasurement of deferred taxes on the enactment date of the Tax Act and deferred tax impact related to the reduction in the tax receivable agreement liability.

state taxes, and partially offset by the impact of non-controlling interests in the LLC.

For fiscal year 2019, our effective tax rate of 24.1% differed from 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 and the impact of non-controlling interests in the LLC.

For fiscal year 2018, our effective tax rate of 65.4% differed from the blended statutory federal income tax rate of approximately 28% primarily due to the impact of the Tax Act adopted in January 2018 and the impact of the additional jurisdictions in which we were taxed as a result of the Cobalt acquisition in July 2017.

Our effective tax rate was also impacted, to a lesser extent, by the non-controlling interests in the LLC, state income taxes attributable to the LLC, and the benefit of deductions under Section 199 of the Internal Revenue Code.

Our effective tax rate also reflects the impact of our share of the LLC's permanent items such as stock compensation expense attributable to profits interests.

Non-controlling interest

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Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that are used by management as well as by investors, commercial bankers, industry analysts and other users of our financial statements.

We define adjusted EBITDA as net income before interest expense, income taxes, depreciation, amortization and non-cash, non-recurring or non-operating expenses, including certain professional fees, acquisition and integration related expenses, non- cash compensation expense, expenses related to our engine development initiative, expenses related to interruption to our engine supply during the labor strike by UAW against General Motors and adjustments to our tax receivable agreement liability.

We define adjusted EBITDA as net income before interest expense, income taxes, depreciation, amortization and non-cash, non-recurring or non-operating expenses, including certain professional fees, acquisition and integration-related expenses, non-cash compensation expense, expenses related to interruption to our engine supply during the labor strike by United Auto Workers ("UAW") against General Motors, expenses attributable to our engine vertical integration initiative and adjustments to our tax receivable agreement liability.

We define adjusted EBITDA margin as adjusted EBITDA divided by net sales.

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Our computations of adjusted EBITDA and adjusted EBITDA margin may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net income as determined in accordance with GAAP to adjusted EBITDA and adjusted EBITDA margin for the periods indicated (dollars in thousands):

The following table sets forth a reconciliation of net income as determined in accordance with GAAP to adjusted EBITDA and presentation of net income margin and adjusted EBITDA margin for the periods indicated (dollars in thousands):

Fiscal Year Ended June 30,

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Net income $ 114,282 $ 64,656 $ 69,701

Income tax provision 1

19,076 22,096 58,418

Provision for income taxes 33,979 19,076 22,096

Interest expense 2,529 3,888 6,464

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Amortization 7,255 6,131 5,956

Professional fees and litigation settlements 2

Professional fees 1

5,817 1,013 739

Acquisition and integration related expenses 2

4 unchanged sentences

Engine development 5

— 3,186 4,871

Adjustment to tax receivable agreement liability 6

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Adjusted EBITDA $ 190,103 $ 110,947 $ 125,895

Net Sales $ 926,515 $ 653,163 $ 684,016

Net Income Margin 7

12.3 % 9.9 % 10.2 %

Adjusted EBITDA Margin 7

(1) Provision for income taxes for fiscal years 2020, 2019 and 2018 reflect the impact of the Tax Act adopted in December 2017, which among other items, lowered the U.S.

corporate income tax rate from 35% to 21%, effective January 1, 2018.

For fiscal year 2018, we recorded an increase to income tax expense of $44.5 million for the remeasurement of deferred taxes on the enactment date of the Tax Act and the deferred tax impact related to the reduction in the tax receivable agreement liability.

Refer to Note 13 of our consolidated financial statements included elsewhere in this Annual Report.

20.5 % 17.0 % 18.4 %

(1) For fiscal years 2021, 2020 and 2019, represents legal and advisory fees related to our litigation with Skier's Choice, Inc.

For fiscal year 2018, represents legal and advisory fees related to our litigation with MasterCraft.

For more information, refer to Note 17 of our consolidated financial statements included elsewhere in this Annual Report.

(2) For fiscal year ended June 30, 2021, represents legal and advisory fees incurred in connection with our acquisition of Maverick Boat Group on December 31, 2020.

Integration related expenses for fiscal year 2021 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of inventory acquired from Maverick Boat Group, which was sold during the third quarter of fiscal year 2021.

For fiscal year 2019, represents integration costs and legal, professional and advisory fees incurred in connection with our acquisition of Pursuit on October 15, 2018.

For fiscal year 2018, represents integration costs and legal, professional and advisory fees incurred in connection with our acquisition of Pursuit and our acquisition of Cobalt on July 6, 2017.

Integration related expenses for fiscal year 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of Pursuit inventory acquired, most of which was sold during the second quarter of fiscal year 2019.

Integration related expenses for fiscal year 2018 include post-acquisition adjustments to cost of goods sold of $1.5 million for the fair value step up of Cobalt inventory acquired, most of which was sold during the first quarter of fiscal year 2018.

(3) Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc.

1 unchanged sentence

For more information, refer to Note 15 of our consolidated financial statements included elsewhere in this Annual Report.

(5) For fiscal year 2020, represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors.

(4) Represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors.

We purchase engines from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats.

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(5) Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives.

(7) For fiscal years 2020 and 2019, we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.

(6) For fiscal years 2021, 2020, and 2019, respectively, we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.

For fiscal year 2019, the rate decrease was mainly offset by an increase to other expense for tax receivable agreement liability derived by future tax benefits from Tennessee net operating losses at Malibu Boats, Inc.

For fiscal year 2018, we recognized other income as a result of a decrease in our estimated tax receivable agreement liability.

The reduction in our tax receivable agreement liability resulted primarily from the adoption of the Tax Act during the second quarter of fiscal year 2018, which decreased the estimated tax rate used in computing our future tax obligations and, in turn, decreased the future tax benefit we expect to realize related to increased tax basis from previous sales and exchanges of LLC Units by our pre-IPO owners.

Refer to Note 12 of our consolidated financial statements included elsewhere in this Annual Report.

(7) We calculate net income margin as net income divided by net sales and we define adjusted EBITDA margin as adjusted EBITDA divided by net sales.

Adjusted Fully Distributed Net Income

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$ 109,841 $ 61,562 $ 66,066

Income tax provision 1

Provision for income taxes 33,979 19,076 22,096

Professional fees 1

5,817 1,013 739

Professional fees and litigation settlements 2

Acquisition and integration related expenses 2

4 unchanged sentences

Engine development 5

— 3,186 4,871

UAW strike impact 6

24 unchanged sentences

Impact of adjustments:

Income tax provision 1

Provision for income taxes 1.64 0.92 1.06

Professional fees 1

0.28 0.05 0.04

Professional fees and litigation settlements 2

Acquisition and integration related expenses 2

1 unchanged sentence

Fair value adjustment for interest rate swap 3

— 0.02 (0.02)

Stock-based compensation expense 4

3 unchanged sentences

Adjustment to tax receivable agreement liability 7

(0.08) — (1.22)

Net income attributable to non-controlling interest 8

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Adjusted Fully Distributed Net Income per Share of Class A Common Stock $ 6.01 $ 3.29 $ 3.76

(1) Provision for income taxes for fiscal years 2020, 2019 and 2018 reflect the impact of the Tax Act adopted in December 2017, which among other items, lowered the U.S.

corporate income tax rate from 35% to 21%, effective January 1, 2018.

Refer to Note 13 of our consolidated financial statements included elsewhere in this Annual Report.

(1) For fiscal years 2021, 2020 and 2019, represents legal and advisory fees related to our litigation with Skier's Choice, Inc.

For fiscal year 2018, represents legal and advisory fees related to our litigation with MasterCraft.

For more information, refer to Note 17 of our consolidated financial statements included elsewhere in this Annual Report.

(2) For fiscal year 2021, represents legal and advisory fees incurred in connection with the acquisition of Maverick Boat Group and amortization of intangibles acquired in connection with the acquisition of Maverick Boat Group, Pursuit and Cobalt.

For fiscal year 2020, represents amortization of intangibles acquired in connection with the acquisition of Pursuit and Cobalt.

For fiscal year 2019, represents integration costs and legal, professional and advisory fees incurred in connection with our acquisition of Pursuit on October 15, 2018.

For fiscal year 2018, represents integration costs and legal, professional and advisory fees incurred in connection with our acquisition of Pursuit and our acquisition of Cobalt on July 6, 2017.

For fiscal year 2019, represents integration costs and legal, professional and advisory fees incurred in connection with our acquisition of Pursuit on October 15, 2018 and amortization of intangibles acquired in connection with the acquisition of Pursuit and Cobalt.

Integration related expenses for fiscal year 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of inventory acquired, most of which was sold during the second quarter of fiscal year 2019 and $1.3 million in depreciation and amortization associated with our fair value step up of property, plant and equipment and intangibles acquired in connection with the acquisition of Pursuit.

In addition, for fiscal year 2019 integration related expenses includes $3.0 million in amortization associated with intangibles acquired in connection with the acquisition of Cobalt.

Integration related expenses for fiscal year 2018 include post-acquisition adjustments to cost of goods sold of $1.5 million for the fair value step up of inventory acquired, most of which was sold during the first quarter of fiscal year 2018.

In addition, for fiscal year 2018 integration related expenses includes $2.9 million in depreciation and amortization associated with our fair value step up of property, plant and equipment and intangibles acquired in connection with the acquisition of Cobalt.

(3) Represents the change in the fair value of our interest rate swap entered into on July 1, 2015.

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(5) Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives.

(7) For fiscal year 2020, represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors.

(6) Represents costs incurred in connection with interruption to our engine supply during the UAW strike against General Motors.

We purchase engines from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats.

During the UAW strike, General Motors suspended delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.

(8) For fiscal years 2020 and 2019, we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.

For fiscal 2019, the rate decrease was mainly offset by an increase to other expense for tax receivable agreement liability derived by future tax benefits from Tennessee net operating losses at Malibu Boats, Inc.

For fiscal year 2018, we recognized other income as a result of a decrease in our estimated tax receivable agreement liability.

(7) For fiscal years 2021, 2020, and 2019, respectively, we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners.

Refer to Note 12 of our consolidated financial statements included elsewhere in this Annual Report.

(8) Reflects the elimination of the non-controlling interest in the LLC as if all LLC members had fully exchanged their LLC Units for shares of Class A Common Stock.

(10) Reflects income tax expense at an estimated normalized annual effective income tax rate of 23.5% of income before taxes for fiscal year 2020, 24.1% of income before taxes for fiscal year 2019 and 27.2% of income before income taxes for fiscal year 2018, in each case assuming the conversion of all LLC Units into shares of Class A Common Stock.

The estimated normalized annual effective income tax rate for fiscal year 2020 is based on the federal statutory rate plus a blended state rate adjusted for the research and development tax credit, the foreign derived intangible income deduction, and foreign income taxes attributable to our Australian subsidiary.

The estimated normalized annual effective income tax rate for fiscal year 2019 is based on the federal statutory rate plus a blended state rate adjusted for the research and development tax credit and foreign income taxes attributable to our Australian subsidiary.

The estimated normalized effective income tax rate for fiscal year 2018 is based on the federal statutory rate plus a blended state rate adjusted for deductions under Section 199 of the Internal Revenue Code, state taxes attributable to the LLC, and foreign income taxes attributable to our Australian subsidiary.

(11) The difference in weighted average shares outstanding for fiscal year 2018, relates to the difference in the weighting of shares outstanding of Class A Common Stock during this period for the calculation of basic net income per share for our financial statements and basic net income per share for adjusted fully distributed net income.

(9) Reflects income tax expense at an estimated normalized annual effective income tax rate of 23.6% of income before taxes for fiscal year 2021, 23.5% for fiscal year 2020, and 24.1% of income before taxes for fiscal year 2019, in each case assuming the conversion of all LLC Units into shares of Class A Common Stock.

The estimated normalized annual effective income tax rate for fiscal years 2021, 2020 and 2019 is based on the federal statutory rate plus a blended state rate adjusted for the research and development tax credit, the foreign derived intangible income deduction, and foreign income taxes attributable to our Australian subsidiary.

(10) Represents the weighted average shares outstanding of LLC Units held by non-controlling interests assuming they were exchanged into Class A Common Stock on a one-for-one basis.

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Our primary sources of funds are cash provided by operating activities and borrowings under our credit agreement.

Our primary use of funds has been for capital investments, repayments under our debt arrangements, acquisitions, cash distributions

to members of the LLC and cash payments under our tax receivable agreement.

Our primary use of funds has been for capital investments, repayments under our debt arrangements, acquisitions, cash distributions to members of the LLC and cash payments under our tax receivable agreement.

The following table summarizes the cash flows from operating, investing and financing activities (dollars in thousands):

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Net cash from operating activities was $131.3 million for fiscal year 2021, compared to $94.1 million for the same period in 2020, an increase of $37.2 million.

The increase in cash provided by operating activities primarily resulted from an increase of $56.4 million in net income (after consideration of non-cash items included in net income, primarily related to depreciation, amortization, deferred tax assets and non-cash compensation) and a net decrease in operating assets and liabilities of $19.2 million related to the timing of collections of accounts receivables, payments for accruals and payables, and purchases of inventory.

Investing Activities

Net cash used for investing activities was $181.1 million for fiscal year 2021 compared to $40.4 million for the same period in 2020, a increase of $140.7 million.

The increase in cash used for investing activities was primarily related to the acquisition of Maverick Boat Group on December 31, 2020, partially offset by a reduction in capital expenditures compared to the capital outlays for our expansion activities at our Pursuit and Cobalt plants in fiscal year 2020.

Financing Activities

Net cash provided by financing activities was $57.3 million for fiscal year 2021 compared to net cash used by financing activities of $47.3 million for fiscal year 2020, a change of $104.6 million.

During fiscal year, 2021, we received proceeds of $25.0 million from a new incremental term loan and $65.0 million from additional borrowings under our revolving credit facility to fund the acquisition of Maverick Boat Group.

During fiscal year 2021, we also repaid $28.8 million of borrowings under our revolving credit facility, we repaid $0.6 million on our term loan, paid $1.2 million on taxes for shares withheld upon the vesting of restricted stock awards, paid $0.6 million in deferred financing costs, paid $1.8 million in distributions to LLC unit holders and received $0.3 million in proceeds from the exercise of stock options.

During fiscal year 2020, we received $103.8 million in proceeds from our credit facility primarily to provide financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic.

During fiscal year 2020, we repaid $135 million of borrowings under our revolving credit facility, repurchased $13.8 million of our Class A Common Stock under our previously announced stock repurchase program, paid $0.8 million on taxes for shares withheld on restricted stock vestings, paid $1.8 million in distributions to LLC unit holders and we received $0.4 million in proceeds from the exercise of stock options.

Comparison of the Fiscal Year Ended June 30, 2020 to the Fiscal Year Ended June 30, 2019

Operating Activities

Net cash from operating activities was $94.1 million for fiscal year 2020, compared to $81.5 million for the same period in 2019, an increase of $12.6 million.

The increase in cash provided by operating activities primarily resulted from a net increase in operating assets and liabilities of $13.0 million related to the timing of collections of accounts receivables, payments for accruals and payables, and purchases of inventory and an increase of $4.6 million in non-cash items primarily related to depreciation, amortization, deferred tax assets and non-cash compensation offset by a $5.0 million decrease in net income.

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We also paid $1.8 million in distributions to LLC unit holders and $0.8 million on taxes for shares withheld on restricted stock vestings and we received $0.4 million in proceeds from the exercise of stock options during fiscal year 2020.

During fiscal year 2019, we received $55.0 million in proceeds from our credit facility primarily to fund the acquisition of Pursuit, which we subsequently repaid during the same fiscal year.

We also converted $35.0 million from term debt to our revolving credit facility in May 2019.

We also paid $1.8 million in distributions to LLC unit holders and $1.2 million on taxes for shares withheld on restricted stock vestings and we received $0.7 million proceeds from the exercise of stock options.

Comparison of the Fiscal Year Ended June 30, 2019 to the Fiscal Year Ended June 30, 2018

Operating Activities

Net cash from operating activities was $81.5 million for fiscal year 2019, compared to $58.5 million for the same period in 2018, an increase of $23.0 million.

The increase in cash provided by operating activities primarily resulted from an increase in net income of $38.7 million, partially offset by a lower amount of non-cash expenses included in net income and an increase in the net use of cash related to the timing of collections of accounts receivables, payments for accruals and payables, and purchases of inventory.

Investing Activities

Net cash used for investing activities was $118.0 million for fiscal year 2019 compared to $135.9 million for the same period in 2018, a decrease of $17.8 million.

The decrease in cash used for investing activities was primarily related to the lower purchase price paid for Pursuit in October 2018 compared to the purchase price paid for Cobalt in July 2017, partially offset by

an increase in capital expenditures consisting of normal purchases for manufacturing infrastructure and expansion activities, molds, and equipment.

Financing Activities

Net cash provided by financing activities was $2.4 million for fiscal year 2019 compared to net cash provided by financing activities of $106.2 million for fiscal year 2018, a decrease in cash of $103.8 million.

During the fiscal year ended June 30, 2019, we received $55.0 million in proceeds from our revolving credit facility of which $50.0 million was used to fund the acquisition of Pursuit.

During fiscal year 2019, we received $55.0 million in proceeds from our credit facility primarily to fund the acquisition of Pursuit, which we subsequently repaid.

We also converted $35.0 million from term debt to our revolving credit facility in May 2019.

We have repaid $50.0 million on our revolving credit facility during fiscal year 2019.

We paid $1.8 million in distributions to LLC unit holders and $1.2 million on taxes for shares withheld on restricted stock vestings and we received $0.7 million proceeds from the exercise of stock options for fiscal year 2019.

During fiscal year 2018, we received proceeds of $105.0 million from our credit facility to fund the acquisition of Cobalt and $55.3 million in proceeds from our equity offering, which we used to repay $50.0 million on our outstanding term debt.

In connection with the term debt and equity offering, we paid $1.1 million and $0.7 million in legal and advisory costs, respectively.

In addition, during the fiscal year 2018, we paid $1.6 million in distributions to LLC unit holders.

We also paid $1.8 million in distributions to LLC unit holders and $1.2

million on taxes for shares withheld on restricted stock vestings and we received $0.7 million proceeds from the exercise of stock options.

Loans and Commitments

We currently have a revolving credit facility with borrowing capacity of up to $120.0 million and a $75.0 million term loan outstanding.

As of June 30, 2020, we had $8.8 million outstanding under our revolving credit facility and $1.2 million in outstanding letters of credit.

On March 19, 2020, we elected to draw the then remaining available funds of $98.8 million from the revolving credit facility.

In June 2020, we repaid $110.0 million on the revolving credit facility.

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

The revolving credit facility and term loan are governed by a credit agreement (the “Credit Agreement”) with Malibu Boats, LLC (“Boats LLC”) as the borrower and Truist Financial Corp.

(previously known as SunTrust Bank), as the administrative agent, swingline lender and issuing bank.

We amended our existing credit agreement on December 30, 2020 in connection with our acquisition of Maverick Boat Group.

As a result of that amendment, we currently have a revolving credit facility with borrowing capacity of up to $170.0 million and a $99.4 million term loan outstanding.

As of June 30, 2021, we had $45.0 million outstanding under our revolving credit facility and $1.2 million in outstanding letters of credit, with $123.8 million available for borrowing.

Our revolving credit facility matures on July 1, 2024, the incremental term loan made on December 30, 2020 in a principal amount of $25.0 million, of which $24.4 million is outstanding as of June 30, 2021, (which we refer to as the incremental term loan) matures on July 1, 2024, and the remaining $75.0 million of term loans (which we refer to as the existing term loans, and together with the incremental term loan, the term loans) mature on July 1, 2022.

The revolving credit facility and term loans are governed by a credit agreement with Boats LLC as the borrower and Truist Bank, as the administrative agent, swingline lender and issuing bank.

The obligations of Boats LLC under the credit agreement are guaranteed by the LLC and, subject to 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.

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is not a party to the credit agreement.

Borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1% (the “Base Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from 1.25% to 2.25% with respect to LIBOR borrowings and 0.25% to 1.25% with respect to Base Rate borrowings.

All borrowings under the credit agreement bear interest at a rate equal to either, at our option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1% (the “Base Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from 1.25% to 2.25% with respect to LIBOR borrowings and 0.25% to 1.25% with respect to Base Rate borrowings.

The applicable margin will be based upon the consolidated leverage ratio of the LLC and its subsidiaries calculated on a consolidated basis.

As of June 30, 2020, the interest rate on the term loan and revolving credit facility wa s 1.66%.

As of June 30, 2021, the interest rate on the term loans and revolving credit facility wa s 1.35%.

We are 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.

On August 17, 2017 we made a voluntary principal payment on the term loan in the amount of $50.0 million with a portion of the net proceeds from our equity offering completed on August 14, 2017.

We exercised our option to apply the prepayment in forward order to principal installments on our term loan through December 31, 2021 and a portion of the principal installments due on March 31, 2022.

As a result, the term loan is subject to a quarterly installment of approximately $3.0 million on March 31, 2022 and the balance of the term loan is due on the scheduled maturity date of July 1, 2022.

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 June 30, 2020, the outstanding principal amount of the term loan and revolving credit facility was $83.8 million.

The credit agreement permits prepayment of the term loans without any penalties.

The existing term loans require an amortization payment of approximately $3.0 million on March 31, 2022 and the balance of the existing term loans are due on the scheduled maturity date of July 1, 2022.

The incremental term loan of $25.0 million is subject to quarterly amortization at a rate of 5.0% per year through December 31, 2022, 7.5% per year through June 30, 2024 and the balance of the incremental term loan is due on the scheduled maturity date of July 1, 2024.

The credit agreement also requires prepayments from the net cash proceeds received by Boats LLC or any guarantors from certain asset sales and recovery events, subject to certain reinvestment rights, and from excess cash flow, subject to the terms and conditions of the credit agreement.

The credit agreement contains certain customary representations and warranties, and notice requirements for the occurrence of specific events such as the occurrence of any event of default, or pending or threatened litigation.

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The credit agreement contains certain restrictive covenants, which, among other things, place limits on certain activities of the loan parties under the credit agreement, such as the incurrence of additional indebtedness and additional liens on property and limit the future payment of dividends or distributions.

For example, the Credit Agreement generally prohibits Malibu Boats Holdings, LLC, Boats LLC and the subsidiary guarantors from paying dividends or making distributions, including to us.

The credit facility permits, however, (i) distributions based on a member’s allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or employees of loan parties or payments pursuant to stock option and other benefit plans up to $2.0 million in any fiscal year, and (iv) share repurchase payments up to $35.0 million in any fiscal year subject to one-year carry forward and compliance with

other financial covenants.

For example, the credit agreement generally prohibits the LLC, Boats LLC and the subsidiary guarantors from paying dividends or making distributions, including to us.

The credit facility permits, however, (i) distributions based on a member’s allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or employees of loan parties or payments pursuant to stock option and other benefit plans up to $3.0 million in any fiscal year, and (iv) share repurchase payments up to $35.0 million in any fiscal year subject to one-year carry forward and compliance with other financial covenants.

In addition, the LLC may make dividends and distributions of up to $10.0 million in any fiscal year, subject to compliance with other financial covenants.

As of June 30, 2021, we believe we were in compliance in all material respects with the covenants contained in the credit agreement.

Potential Impact of LIBOR Transition

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Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate, or LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.

That announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.

Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021.

However, for U.S dollar LIBOR, the relevant date has been deferred to at least June 30, 2023 for certain tenors (including overnight and one, three, six and 12 months), at which time the LIBOR administrator has indicated that it intends to cease publication of U.S.

dollar LIBOR.

Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S.

dollar LIBOR should be entered into after December 31, 2021.

These actions indicate that the continuation of U.S.

LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023.

Moreover, it is possible that U.S.

LIBOR will be discontinued or modified prior to June 30, 2023.

All of our $144.4 million of debt outstanding under our credit agreement as of June 30, 2021 bears interest at a floating rate that uses LIBOR as the applicable reference rate to calculate the interest.

Our Credit Agreement provides that, if the administrative agent has determined that adequate means do not exist for ascertaining LIBOR or that LIBOR does not adequately and fairly reflect the cost to lenders for making, funding or maintaining their loans, then all of our outstanding loans under the Credit Agreement will be converted into loans that accrue interest at the alternative Base Rate described above under “Loans and Commitments” on the last day of such interest period that determination is made.

Further, the lenders under our Credit Agreement will no longer be obligated to make loans using LIBOR as the applicable reference rate.

Our credit agreement provides that, if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative or if either the administrative agent or lenders holding 50% of the aggregate principal amount of our revolving commitments and term loans elect, we and the administrative agent may amend our credit agreement to replace LIBOR with an alternative benchmark rate.

This alternative benchmark rate may include a forward-looking term rate that is based on the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York.

In addition, our tax receivable agreement provides that, if for any reason the LLC is not able to make a tax distribution in an amount that is sufficient to make any required payment under the tax receivable agreement or we otherwise lack sufficient funds, interest would accrue on any unpaid amounts at LIBOR plus 500 basis points until they are paid.

Our tax receivable agreement, however, does not provide for an alternative reference rate to LIBOR and, while we do not currently anticipate failing to pay any amounts owed under our tax receivable agreement, it is unclear how we would determine interest on any such amounts should we fail to pay as required under our tax receivable agreement.

If the rate used to calculate interest on our outstanding floating rate debt under our Credit Agreement that currently uses LIBOR were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of the alternative Base Rate, we would expect to incur additional interest expense on such indebtedness as of June 30, 2020 of approximately $0.8 million on an annualized basis.

Our tax receivable agreement, however, does not provide for an alternative reference rate to LIBOR and, while we do not currently anticipate

failing to pay any amounts owed under our tax receivable agreement, it is unclear how we would determine interest on any such amounts should we fail to pay as required under our tax receivable agreement.

If the rate used to calculate interest on our outstanding floating rate debt under our credit agreement that currently uses LIBOR were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of the alternative benchmark rate, we would expect to incur additional interest expense on such indebtedness as of June 30, 2021 of approximately $1.4 million on an annualized basis.

While we do not expect the potential impact of any LIBOR transition to have a material effect on our financial results based on our currently outstanding debt, uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates or other reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR as the applicable reference rate.

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Further, the discontinuance or modification of LIBOR and uncertainty of an alternative reference rate may result in the increase in the cost of future indebtedness, which could have a material adverse effect on our financial condition, cash flow and results of operations.

We intend to closely monitor the financial markets and the use of fallback provisions and alternative reference rates in 2020 in anticipation of the discontinuance or modification of LIBOR by the end of 2021.

We intend to closely monitor the financial markets and the use of fallback provisions and alternative reference rates in anticipation of the discontinuance or modification of U.S.

LIBOR by June 30, 2023.

Future Liquidity Needs and Capital Expenditures

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Stock Repurchase Program

On June 18, 2019, our Board of Directors authorized a stock repurchase program to allow for the repurchase of up to $35.0 million of our Class A Common Stock and the LLC's LLC Units (the “Repurchase Program”) for the period from July 1, 2019 to July 1, 2020.

During the fiscal year ended June 30, 2020, we repurchased 483,679 shares of Class A Common Stock for $13.8 million in cash including related fees and expenses.

This repurchase program expired on July 1, 2020.

On August 27, 2020, our Board of Directors authorized a new stock repurchase program for the repurchase of up to $50.0 million of Class A Common Stock and the LLC Units for the period from September 2, 2020 to July 1, 2021.

No shares have been repurchased under the New Repurchase Program.

On August 27, 2020, our Board of Directors authorized a stock repurchase program for the repurchase of up to $50.0 million of Class A Common Stock and the LLC Units for the period from September 2, 2020 to July 1, 2021.

No shares were repurchased under the share repurchase program and it expired on July 1, 2021.

Capital Resources

Management expects our capital expenditures for fiscal year 2021 to be less than our capital expenditures for fiscal year 2020 primarily driven by facility expansion projects at Cobalt and Pursuit completed in fiscal year 2020.

Capital expenditures for fiscal year 2021 are expected to consist primarily of the completion of ongoing projects, new tooling, and expenditures to increase production capacity to accommodate future growth.

Management expects our capital expenditures for fiscal year 2022 to be more than our capital expenditures for fiscal year 2021 primarily driven by expansion projects at our Maverick Boat Group facility, investments in new models, capacity enhancements and vertical integration initiatives.

Off-Balance Sheet Arrangements

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The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through payment date by the dealer, generally not exceeding two and a half years.

Such agreements are customary in the industry and our exposure to loss under such agreements is limited by the resale value of the inventory which is required to be repurchased.

Such agreements

are customary in the industry and our exposure to loss under such agreements is limited by the resale value of the inventory which is required to be repurchased.

Refer to Note 17 to the audited consolidated financial statements included elsewhere in this Annual Report for further information on repurchase commitments.

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Total $ 353,768 $ 153,930 $ 89,920 $ 78,305 $ 31,613

(1) Principal payments on our outstanding bank debt per terms of our Credit Agreement, which is comprised of a $75.0 million term loan and $120.0 million revolving credit facility, of which $8.8 million was outstanding as of June 30, 2020.

(1) Principal payments on our outstanding bank debt per terms of our Credit Agreement, which is comprised of a $100.0 million term loan, of which $99.4 million is outstanding as of June 30, 2021 and $170.0 million revolving credit facility, of which $45.0 million was outstanding as of June 30, 2021.

Assumes no additional borrowings or repayments under our revolving credit facility prior to its maturity.

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

(2) Interest payments on our outstanding term loan and revolving credit facility under our credit agreement.

Our term loan and revolving credit facility bear interest at variable rates.

The balance of the existing term loans matures on July 1, 2022, the incremental term loan matures on July 1, 2024 and the revolving credit facility matures on July 1, 2024.

(2) Interest payments on our outstanding term loans and revolving credit facility under our credit agreement.

Our term loans and revolving credit facility bear interest at variable rates.

We have calculated future interest obligations based on the interest rate for our term loan and revolving credit facility as of June 30, 2021.

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We have agreed to repurchase products repossessed by the finance companies if a dealer defaults on its debt obligations to a finance company and the boat is returned to us, subject to certain limitations.

Our financial exposure under these agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the

amount received on the resale of the repossessed product.

Our financial exposure under these agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product.

For fiscal year 2021, we did not repurchase any boats under our repurchase agreements.

For fiscal year 2020, we repurchased two units from a lender of one of our former dealers and those units were subsequently resold in fiscal year 2020 above their cost and at a minimal margin loss.

For fiscal year 2019, we repurchased eight units from a lender of two of our former dealers and those units were subsequently resold in fiscal year 2020 above their cost and at minimal margin loss .

For fiscal year 2018, we did not repurchase any units under our repurchase agreements .

An adverse change in retail sales could require us to repurchase repossessed units upon an event of default by any of our dealers, subject to the annual limitation.

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Retail demand for boats is seasonal, with a significant majority of sales occurring during peak boating season, which coincides with our first and fourth fiscal quarters.

In order to minimize the impact of this seasonality on our business, we manage our manufacturing processes and structure dealer incentives to tie our annual volume rebates program to consistent ordering patterns, encouraging dealers to purchase our products throughout the year.

In this regard, we may offer free flooring incentives to dealers from the beginning of our model year through April 30 of each year.

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Accordingly, we believe these are the most critical to understand and evaluate fully our financial condition and results of operations.

Business Combinations

We account for business acquisitions under ASC 805, Business Combinations .

The total purchase consideration for an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities assumed at the acquisition date.

Costs that are directly attributable to the acquisition are expensed as incurred.

Identifiable assets (including intangible assets) and liabilities assumed in an acquisition are measured initially at their fair values at the acquisition date.

We recognize goodwill if the fair value of the total purchase consideration and any noncontrolling interests is in excess of the net fair value of the identifiable assets acquired and the liabilities assumed.

We include the results of operations of the acquired business in the consolidated financial statements beginning on the acquisition date.

We recognized goodwill of $19.8 million as a result of our acquisition of Cobalt in July 2017, goodwill of $19.5 million as a result of our acquisition of Pursuit in October 2018 and goodwill of $49.2 million as a result of our acquisition of Maverick Boat Group in December 2020.

We had goodwill outstanding of $101.0 million as of June 30, 2021.

When determining such fair values, we make significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain intangible assets include but are not limited to projected future cash flows, dealer attrition and discount rates.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates and changes could be significant.

Furthermore, our estimates might change as additional information becomes available.

Revenue Recognition

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From time to time, however, we may accept returns in limited circumstances and at our discretion under our warranty policy, which generally limits returns to instances of manufacturing defects.

We may be obligated, in the event of default by a dealer, to accept returns of unsold boats under our repurchase commitment to floor financing providers, who are able to obtain such boats through foreclosure.

We may be obligated, in the event of default by a dealer, to accept returns of unsold boats under our repurchase

commitment to floor financing providers, who are able to obtain such boats through foreclosure.

We accrue returns when a repurchase and return, due to the default of one of our dealers, is determined to be probable and the return is reasonably estimable.

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Pursuit brand boats have (1) a limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of two years (excluding hull and deck structural components).

Maverick, Pathfinder and Hewes brand boats have (1) a limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow to stern warranty of one year (excluding hull and deck structural components).

Cobia brand boats have (1) a limited warranty for a period of up to ten years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow to stern warranty of three years (excluding hull and deck structural components).

For each boat brand, there are certain materials, components or parts of the boat that are not covered by our warranty and certain components or parts that are separately warranted by the manufacturer or supplier (such as the engine).

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We assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.

Beginning in model year 2016, we increased the term of our limited warranty for Malibu brand boats from three years to five years and for Axis brand boats from two years to five years.

Beginning with model year 2016, we increased the term of our limited warranty for Malibu brand boats from three years to five years and for Axis brand boats from two years to five years.

Beginning in model year 2018, we increased the term of our bow-to-stern warranty for Cobalt brand boats from three years to five years.

As a result of these changes, all of our Malibu, Axis and Cobalt brand boats with historical claims experience that are no longer covered under warranty had warranty terms shorter than the current warranty term of five years.

Accordingly, we have little to no historical claims experience for warranty years four and five, and as such, these estimates give rise to a higher level of estimation uncertainty.

Accordingly, we have little historical claims experience for warranty years four and five, and as such, these estimates give rise to a higher level of estimation uncertainty.

Future warranty claims may differ from our estimate of the warranty liability, which could lead to changes in the Company’s warranty liability in future periods.

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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-K

Item 7. Management’s Discussion and Analysis