MALIBU BOATS, INC. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview 35 Acquisition of Maverick Boat Group, Inc. and Related Financing 36 Impact of the COVID-19 Pandemic 36 Outlook 37 Factors Affecting Our Results of Operations 38 Components of Results of Operations 40 Results of Operations 41 GAAP Reconciliation of Non-GAAP Financial Measures 46 Liquidity and Capital Resources 50 Off-Balance Sheet Arrangements 53 Contractual Obligations and Commitments 54 Seasonality 54 Inflation 55 Critical Accounting Policies 55 New Accounting Pronouncements 56 Overview We are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats, including performance sport boats, sterndrive and outboard boats. Our product portfolio of premium brands are used for a broad range of recreational boating activities including, among others, water sports, general recreational boating and fishing. Our passion for consistent innovation, which has led to propriety technology such as Surf Gate, has allowed us to expand the market for our products by introducing consumers to new and exciting recreational activities. We design products that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key component of their active lifestyle and provide consumers with a better customer-inspired experience. With performance, quality, value and multi-purpose features, our product portfolio has us well positioned to broaden our addressable market and achieve our goal of increasing our market share in the expanding recreational boating industry. We currently sell our boats under eight brands 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% Axis Saltwater Fishing Pursuit 26.2% 18.9% 15.0% Maverick Cobia Pathfinder Hewes Cobalt Cobalt 21.6% 26.8% 30.2% 35 Table of Contents Our Malibu segment participates in the manufacturing, distribution, marketing and sale throughout the world of Malibu and Axis performance sports boats. Our flagship Malibu boats offer our latest innovations in performance, comfort and convenience, and are designed for consumers seeking a premium performance sport boat experience. We are the market leader in the United States in the performance sport boat category through our Malibu and Axis Wake Research boat brands. Our Axis boats appeal to consumers who desire a more affordable performance sport boat product but still demand high performance, functional simplicity and the option to upgrade key features. Retail prices of our Malibu and Axis boats typically range from $65,000 to $215,000. 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. We sell our boats through a dealer network that we believe is the strongest in the recreational powerboat category. As of July 1, 2021, our worldwide distribution channel consisted of over 400 dealer locations globally. Our dealer base is an important part of our consumers’ experience, our marketing efforts and our brands. We devote significant time and resources to find, develop and improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage. 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.” 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 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 36 Table of Contents 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. 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. Item 1A. of this Form 10- K. Outlook Industry-wide marine retail registrations continue to recover from the years following the global financial crisis. According to Statistical Surveys, Inc., domestic retail registration volumes of performance sport boats, fiberglass sterndrive and fiberglass outboards increased at a compound annual growth rate of approximately 5.8% between 2011 and 2020, for the 50 reporting states. Within the recreational powerboat categories, the performance sport boats category, which we primarily serve with our Malibu and Axis brands, has produced a double-digit compound annual growth rate between 2011 and 2020. Outboard boats and fiberglass sterndrive boats have seen their combined market grow at a 5.0% compound annual growth rate between 2011 and 2020. This combined growth has been driven primarily by the outboard market. We target the outboard market with our Pursuit, Cobia, Pathfinder, Maverick and Hewes brands, as well as our Cobalt brand, which is a new entrant to the outboard market, and we plan to meaningfully expand our share of the fiberglass outboard category in the future. We cater to the sterndrive market through our Cobalt brand. While the market for sterndrive propulsion, particularly in lower foot length 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, 37 Table of Contents 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. Consumer confidence, expanded or eroded, is a variable that can also impact demand for our products in both directions. Other challenges that could impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our product, the availability of credit to our dealers and retail consumers, fuel costs, a meaningful reduction in the value of global or domestic equity markets, the continued acceptance of our new products in the recreational boating market, our ability to compete in the competitive power boating industry, and the costs of labor and certain of our raw materials and key components. Since 2008, we have increased our market share among manufacturers of performance sport boats with new product development, improved distribution, new models, and innovative features. Our market remains highly competitive however and our competitors have become more aggressive in their product introductions, increased their distribution and launched surf systems competitive with our patented Surf Gate system. Notwithstanding this increasingly competitive environment, we expanded our market share lead in 2019 in the performance sport boats category over our nearest competitors. 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. Our newest acquisition, Maverick Boat Group, is in the very early stages of integration into the business and meaningful product and innovation changes will be developed for coming years. We believe enhancing new product development combined with diligent management of the Cobalt, Pursuit and Maverick Boat Group dealer networks will position us to meaningfully improve our share of the sterndrive and outboard markets over time. Factors Affecting Our Results of Operations We believe that our results of operations and our growth prospects are affected by a number of factors, which we discuss below. Economic Environment and Consumer Demand 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. The recreational powerboat industry has shown continued growth from 2010 through 2020 ba sed on retai l sales . 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 Our long-term revenue prospects are based in part on our ability to develop new products and technological enhancements that meet the demands of existing and new consumers. 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, 38 Table of Contents 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. We also believe we are able to capture additional value from the sale of each boat through the introduction of new features, which results in increased average selling prices and improved margins. We allocate most of our product development costs to new model and feature designs, usually with a specific consumer base and market in mind. We use industry data to analyze our markets and evaluate revenue potential from each major project we undertake. Our product development cycle, or the time from initial concept to volume production, can be up to two years. As a result, our development costs, which may be significant, may not be offset by corresponding new sales during the same periods. Once new designs and technologies become available to our consumers, we typically realize revenue from these products from one year up to 15 years. We may not, however, realize our revenue expectations from each innovation. We believe our close communication with our consumers, dealers and sponsored athletes regarding their future product desires enhances the efficiency of our product development expenditures. Product Mix Leveraging our robust product offering and features to enhance our sales growth and gross margins. Our product mix, as it relates to our brands, types of boats and features, not only makes our offerings attractive to consumers but also helps drive higher sales and margins. 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 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 Our results of operations are affected by our ability to manage our manufacturing costs effectively and to respond to changing sales cycles. Our product costs vary based on the costs of supplies and raw materials, as well as labor costs. We have implemented various initiatives to reduce our cost base and improve the efficiency of our manufacturing process. We are continuously monitoring and reviewing our manufacturing processes to identify improvements and create additional efficiencies. During fiscal year 2020, we expanded our facilities in Kansas and Florida for our Cobalt and Pursuit operations, respectively. 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. Throughout our consumer sales cycle, which reaches its peak from March through August of each year, we adjust our manufacturing activities in order to adapt to variability in demand. Dealer Network, Dealer Financing and Incentives We rely on our dealer network to distribute and sell our products. We believe we have developed the strongest distribution network in the performance sport boat category. 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, 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. Our dealers are exposed to seasonal variations in consumer demand for boats. We address anticipated demand for our products and manage our manufacturing in order to mitigate seasonal variations. We also use our dealer incentive programs to encourage dealers to order in the off-season by providing floor plan financing relief, which typically permits dealers to take delivery of current model year boats between July 1 and April 30 on an interest-free basis for a specified period. We also offer our dealers other incentives, including rebates, seasonal discounts, promotional co-op arrangements and other allowances. 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. 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 soft grip flooring. 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 39 Table of Contents 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. Vertical integration of key components of our boats gives us the ability to increase incremental margin per boat sold by reducing our cost base and improving the efficiency of our manufacturing process. Additionally, it allows us to have greater control over design, consumer customization options, construction quality, and our supply chain. 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. We continually review our manufacturing process to identify opportunities for additional vertical integration investments across our portfolio of premium brands. Components of Results of Operations Net Sales We generate revenue from the sale of boats to our dealers. The substantial majority of our net sales are derived from the sale of boats, including optional features included at the time of the initial wholesale purchase of the boat. Net sales consists of the following: • Gross sales from: • Boat and trailer sales —consists of sales of boats and trailers to our dealer network. Nearly all of our boat sales include optional feature upgrades purchased by the consumer, which increase the average selling price of our boats; and • Parts and other sales —consists of sales of replacement and aftermarket boat parts and accessories to our dealer network; and consists of royalty income earned from license agreements with various boat manufacturers, including Nautique, Chaparral, Mastercraft, and Tige related to the use of our intellectual property. • Net sales are net of: • Sales returns —consists primarily of contractual repurchases of boats either repossessed by the floor plan financing provider from the dealer or returned by the dealer under our warranty program; and • Rebates and free flooring —consists of incentives, rebates and free flooring, we provide to our dealers based on sales of eligible products. For our Malibu and Cobalt segments, if a domestic dealer meets its monthly or quarterly commitment volume, as well as other terms of the dealer performance program, the dealer is entitled to a specified rebate. For our Saltwater Fishing segment, if a dealer meets its quarterly or annual retail volume goals, the dealer is entitled to a specific rebate applied to their wholesale volume purchased. For Malibu, Cobalt and select Saltwater Fishing models, our dealers that take delivery of current model year boats in the offseason, typically July through April in the U.S., are also entitled to have us pay the interest to floor the boat until the earlier of (1) the sale of the unit or (2) a date near the end of the current model year, which incentive we refer to as “free flooring.” From time to time, we may extend the flooring program to eligible models beyond the offseason period. For more information, see "Item 1. Business - Dealer Management." Cost of Sales Our cost of sales includes all of the costs to manufacture our products, including raw materials, components, supplies, direct labor and factory overhead. For components and accessories manufactured by third-party vendors, such costs represent the amounts invoiced by the vendors. Shipping costs and depreciation expense related to manufacturing equipment and facilities are also included in cost of sales. Warranty costs associated with the repair or replacement of our boats under warranty are also included in cost of sales. Operating Expenses Our operating expenses include selling and marketing, and general and administrative costs. Each of these items includes personnel and related expenses, supplies, non-manufacturing overhead, third-party professional fees and various other operating expenses. Further, selling and marketing expenditures include the cost of advertising and various promotional sales incentive programs. General and administrative expenses include, among other things, salaries, benefits and other personnel related expenses for employees engaged in product development, engineering, finance, information technology, human resources and executive management. Other costs include outside legal and accounting fees, investor relations, risk management (insurance) 40 Table of Contents 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. Other (Income) Expense, Net Other (income) expense, net consists of interest expense and other income or expense, net. Interest expense consists of interest charged under our outstanding debt, interest on our interest rate swap arrangement and change in the fair value of our interest rate swap we entered into on July 1, 2015, which matured on March 31, 2020, and amortization of deferred financing costs on our credit facilities. Other income or expense includes ad justments to our tax receivable agreement liability. Income Taxes Malibu Boats, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of the LLC. The LLC is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions. Maverick Boat Group is separately subject to U.S. federal and state income tax with respect to its net taxable income. Net Income Attributable to Non-controlling Interest As of June 30, 2021 and 2020, we had a 97.2% and 96.6% controlling economic interest and 100% voting interest in the LLC. We consolidate the LLC's operating results for financial statement purposes. Net income attributable to non-controlling interest represents the portion of net income attributable to the LLC members. Results of Operations The table below sets forth our consolidated results of operations, expressed in thousands (except unit volume and net sales per unit) and as a percentage of net sales, for the periods presented. Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods. Certain totals for the table below will not sum to exactly 100% due to rounding. 41 Table of Contents Fiscal Year Ended June 30, 2021 2020 2019 $ % Revenue $ % Revenue $ % Revenue Net sales 926,515 100.0 % 653,163 100.0 % 684,016 100.0 % Cost of sales 690,030 74.5 % 503,893 77.2 % 517,746 75.7 % Gross profit 236,485 25.5 % 149,270 22.8 % 166,270 24.3 % Operating expenses: Selling and marketing 17,540 1.9 % 17,917 2.8 % 17,946 2.6 % General and administrative 61,915 6.6 % 39,912 6.1 % 44,256 6.5 % Amortization 7,255 0.8 % 6,131 0.9 % 5,956 0.9 % Operating income 149,775 16.2 % 85,310 13.0 % 98,112 14.3 % Other (income) expense: Other (1,015) (0.1) % (2,310) (0.4) % (149) — % Interest expense 2,529 0.3 % 3,888 0.6 % 6,464 0.9 % Other (income) expense, net 1,514 0.2 % 1,578 0.2 % 6,315 0.9 % Net income before provision for income taxes 148,261 16.0 % 83,732 12.8 % 91,797 13.4 % Income tax provision 33,979 3.7 % 19,076 2.9 % 22,096 3.2 % Net income 114,282 12.3 % 64,656 9.9 % 69,701 10.2 % Net income attributable to non-controlling interest 4,441 0.5 % 3,094 0.5 % 3,635 0.5 % Net income attributable to Malibu Boats, Inc. 109,841 11.8 % 61,562 9.4 % 66,066 9.7 % Fiscal Year Ended June 30, 2021 2020 2019 Unit Volumes % Total Unit Volumes % Total Unit Volumes % Total Volume by Segment Malibu 4,841 59.1 % 3,980 61.8 % 4,547 61.7 % 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 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 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. 42 Table of Contents 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 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. 43 Table of Contents 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. state taxes. 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 Net sales for fiscal year 2020 decreased $30.9 million, or 4.5%, to $653.2 million, compared to fiscal year 2019. Unit volume for fiscal year 2020 decreased 918 units, or 12.5%, to 6,444 units compared to fiscal year 2019. The decrease in net sales and unit volumes was driven primarily by the temporary shutdown of our facilities in the second half of fiscal year 2020 as a result of the COVID-19 pandemic. As a result of our suspension of operations, 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. In addition to the pandemic, but to a lesser effect, we also had planned lower production rates at Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year period. This decrease in net sales was partially offset by a higher average selling price due to model mix and an increase in sales at Pursuit from a full year of results in fiscal year 2020 compared with nine months in fiscal year 2019 since its acquisition date on October 15, 2018. Net sales attributable to our Malibu segment decreased $19.9 million, or 5.3%, to $354.8 million for fiscal year 2020 compared to fiscal year 2019. 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. 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. Unit volumes attributable to Cobalt decreased 453 units for fiscal year 2020 compared to fiscal year 2019. The decrease in net sales and unit volumes was driven primarily by the temporary shutdown of our Neodesha, Kansas facility in the second half of fiscal year 2020 as a result of the COVID-19 pandemic. In addition to the pandemic, but to a lesser effect, we also had planned lower production rates at Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year period. The decrease was partially offset by year-over-year price increases on our Cobalt models. 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. 44 Table of Contents Cost of Sales Cost of sales for fiscal year 2020 decreased $13.9 million, or 2.7%, to $503.9 million compared to fiscal year 2019. The decrease in cost of sales resulted primarily from lower unit volumes for Malibu, Axis and Cobalt. The decrease in costs of sales was partially offset by incremental costs contributed by Pursuit for the full year of fiscal year 2020 compared to only nine months for fiscal year 2019 since its acquisition in October 2018 and increased costs incurred to replace engines during the United Auto Workers’ strike against General Motors. Gross Profit Gross profit for fiscal year 2020 decreased $17.0 million, or 10.2%, compared to fiscal year 2019. The decrease in gross profit was due mainly to lower unit volumes in fiscal year 2020 as described above and increased costs incurred to replace engines during the United Auto Workers’ strike against General Motors. Gross margin decreased 150 basis points from 24.3% in fiscal 2019 to 22.8% in fiscal year 2020. Operating Expenses Selling and marketing expense for fiscal year 2020 remained flat at $17.9 million compared to fiscal year 2019. As a percentage of sales, selling and marketing expense increased 20 basis points from 2.6% for fiscal year 2019 to 2.8% for fiscal year 2020. General and administrative expense for fiscal year 2020 decreased $4.3 million, or 9.8%, to $39.9 million compared to fiscal year 2019. The decrease in general and administrative expenses was largely due to expenses related to the acquisition of Pursuit in fiscal year 2019 that were not incurred during fiscal year 2020, partially offset by incremental general and administrative expenses attributable to Pursuit during fiscal year 2020. As a percentage of sales, general and administrative expenses decreased 40 basis points to 6.1% for fiscal year 2020 compared to 6.5% for fiscal year 2019. Amortization expense for fiscal year 2020 increased $0.2 million, or 2.9%, compared to fiscal year 2019, due to additional amortization from intangible assets acquired as a result of the Pursuit acquisition for the full year in fiscal year 2020. Other (Income) Expense, Net Other expense, net for fiscal year 2020 decreased by $4.7 million, or 75.0% to $1.6 million as compared to fiscal year 2019. The decrease was primarily due to decreased interest expense of $2.6 million and a $1.7 million adjustment to our tax receivable agreement liability, which resulted in us recognizing a corresponding amount as other income during fiscal year 2020. Interest expense decreased due to a lower interest rate and lower average outstanding debt during fiscal year 2020 compared to fiscal year 2019. The adjustment to our tax receivable agreement liability was the 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 to our pre-IPO owners. Provision for Income Taxes Our provision for income taxes for fiscal year 2020 decreased $3.0 million, to $19.1 million compared to fiscal year 2019. This decrease was primarily driven by lower pre-tax earnings and reduced U.S. state taxes. 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. 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. state taxes. This increase was partially offset by the benefits of the foreign derived intangible income deduction, the research and development tax credit and the impact of non-controlling interests in the LLC. 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 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. 45 Table of Contents GAAP Reconciliation of Non-GAAP Financial Measures Adjusted EBITDA Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that are used by management as well as by investors, commercial bankers, industry analysts and other users of our financial statements. We define adjusted EBITDA as net income before interest expense, income taxes, depreciation, amortization and non-cash, non-recurring or non-operating expenses, including certain professional fees, acquisition and integration-related expenses, 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. Adjusted EBITDA and adjusted EBITDA margin are not measures of net income as determined by GAAP. Management believes adjusted EBITDA and adjusted EBITDA margin allow investors to evaluate the Company’s operating performance and compare our results of operations from period to period on a consistent basis by excluding items that management does not believe are indicative of our core operating performance. Management uses Adjusted EBITDA to assist in highlighting trends in our operating results without regard to our financing methods, capital structure and non-recurring or non-operating expenses. We exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, the methods by which assets were acquired and other factors. Adjusted EBITDA has limitations as an analytical tool and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets. Our presentation of adjusted EBITDA and adjusted EBITDA margin should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of adjusted EBITDA and adjusted EBITDA margin may not be comparable to other similarly titled measures of other companies. The following table sets forth a reconciliation of net income as determined in accordance with GAAP to adjusted EBITDA and presentation of net income margin and adjusted EBITDA margin for the periods indicated (dollars in thousands): Fiscal Year Ended June 30, 2021 2020 2019 Net income $ 114,282 $ 64,656 $ 69,701 Provision for income taxes 33,979 19,076 22,096 Interest expense 2,529 3,888 6,464 Depreciation 15,636 12,249 10,004 Amortization 7,255 6,131 5,956 Professional fees 1 5,817 1,013 739 Acquisition and integration related expenses 2 5,112 — 5,245 Stock-based compensation expense 3. 5,581 3,042 2,607 UAW strike impact 4 — 2,564 — Engine development 5 — — 3,186 Adjustment to tax receivable agreement liability 6 (88) (1,672) (103) 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 20.5 % 17.0 % 18.4 % 46 Table of Contents (1) For fiscal years 2021, 2020 and 2019, represents legal and advisory fees related to our litigation with Skier's Choice, Inc. 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. 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. (3) Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC. For more information, refer to Note 15 of our consolidated financial statements included elsewhere in this Annual Report. (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. 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. (5) Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives. (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. 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 We define Adjusted Fully Distributed Net Income as net income attributable to Malibu Boats, Inc. (i) excluding income tax expense, (ii) excluding the effect of non-recurring or non-cash items, (iii) assuming the exchange of all LLC units into shares of Class A Common Stock, which results in the elimination of non-controlling interest in the LLC, and (iv) reflecting an adjustment for income tax expense on fully distributed net income before income taxes at our estimated effective income tax rate. Adjusted Fully Distributed Net Income is a non-GAAP financial measure because it represents net income attributable to Malibu Boats, Inc., before non-recurring or non-cash items and the effects of non-controlling interests in the LLC. We use Adjusted Fully Distributed Net Income to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash or non-recurring items, and eliminates the variability of non-controlling interest as a result of member owner exchanges of LLC Units into shares of Class A Common Stock. In addition, because Adjusted Fully Distributed Net Income is susceptible to varying calculations, the Adjusted Fully Distributed Net Income measures, as presented in this Annual Report, may differ from and may, therefore, not be comparable to similarly titled measures used by other companies. The following table shows the reconciliation of the numerator and denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented (in thousands except share and per share data): 47 Table of Contents Fiscal Year Ended June 30, 2021 2020 2019 Reconciliation of numerator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock: Net income attributable to Malibu Boats, Inc. $ 109,841 $ 61,562 $ 66,066 Provision for income taxes 33,979 19,076 22,096 Professional fees 1 5,817 1,013 739 Acquisition and integration related expenses 2 10,558 4,262 9,506 Fair value adjustment for interest rate swap 3 — 68 350 Stock-based compensation expense 4 5,581 3,042 2,607 Engine development 5 — — 3,186 UAW strike impact 6 — 2,564 — Adjustment to tax receivable agreement liability 7 (88) (1,672) (103) Net income attributable to non-controlling interest 8 4,441 3,094 3,635 Fully distributed net income before income taxes 170,129 93,009 108,082 Income tax expense on fully distributed income before income taxes 9 40,150 21,857 26,048 Adjusted Fully Distributed Net Income $ 129,979 $ 71,152 $ 82,034 Fiscal Year Ended June 30, 2021 2020 2019 Reconciliation of denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock: Weighted average shares outstanding of Class A Common Stock used for basic net income per share: 20,752,652 20,662,750 20,832,445 Adjustments to weighted average shares of Class A Common Stock: Weighted-average LLC units held by non-controlling unit holders 10 665,217 806,943 880,144 Weighted-average unvested restricted stock awards issued to management 11 212,579 155,433 130,520 Adjusted weighted average shares of Class A Common Stock outstanding used in computing Adjusted Fully Distributed Net Income per Share of Class A Common Stock: 21,630,448 21,625,126 21,843,109 The following table shows the reconciliation of net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented: 48 Table of Contents Fiscal Year Ended June 30, 2021 2020 2019 Net income available to Class A Common Stock per share $ 5.29 $ 2.98 $ 3.17 Impact of adjustments: Provision for income taxes 1.64 0.92 1.06 Professional fees 1 0.28 0.05 0.04 Acquisition and integration related expenses 2 0.51 0.21 0.46 Fair value adjustment for interest rate swap 3 — — 0.02 Stock-based compensation expense 4 0.27 0.15 0.13 Engine development 5 — — 0.15 UAW strike impact 6 — 0.12 — Adjustment to tax receivable agreement liability 7 — (0.08) — Net income attributable to non-controlling interest 8 0.21 0.15 0.17 Fully distributed net income per share before income taxes 8.20 4.50 5.20 Impact of income tax expense on fully distributed income before income taxes 9 (1.93) (1.06) (1.25) Impact of increased share count 12 (0.26) (0.15) (0.19) Adjusted Fully Distributed Net Income per Share of Class A Common Stock $ 6.01 $ 3.29 $ 3.76 49 Table of Contents (1) For fiscal years 2021, 2020 and 2019, represents legal and advisory fees related to our litigation with Skier's Choice, Inc. 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. 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 2021. 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 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. (3) Represents the change in the fair value of our interest rate swap entered into on July 1, 2015. The swap matured on March 31, 2020. (4) Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC. For more information, refer to Note 15 of our consolidated financial statements included elsewhere in this Annual Report. (5) Represents costs incurred in connection with our vertical integration of engines including product development costs and supplier transition performance incentives. (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. (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. 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. 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. (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. (11) Represents the weighted average unvested restricted stock awards included in outstanding shares during the applicable period that were convertible into Class A Common Stock and granted to members of management. (12) Reflects impact of increased share counts assuming the exchange of all weighted average shares outstanding of LLC Units into shares of Class A Common Stock and the conversion of all weighted average unvested restricted stock awards included in outstanding shares granted to members of management. Liquidity and Capital Resources Our primary sources of funds are cash provided by operating activities and borrowings under our credit agreement. Our primary use of funds has been for capital investments, repayments under our debt arrangements, acquisitions, 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): Fiscal Year Ended June 30, 2021 2020 2019 Total cash provided by (used in): Operating activities $ 131,314 $ 94,141 $ 81,500 Investment activities (181,095) (40,394) (118,011) Financing activities 57,346 (47,323) 2,375 Impact of currency exchange rates on cash balances 127 (29) (95) Increase (decrease) in cash $ 7,692 $ 6,395 $ (34,231) 50 Table of Contents Comparison of the Fiscal Year Ended June 30, 2021 to the Fiscal Year Ended June 30, 2020 Operating Activities 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. Investing Activities Net cash used for investing activities was $40.4 million for fiscal year 2020 compared to $118.0 million for the same period in 2019, a decrease of $77.6 million. The decrease in cash used for investing activities was primarily related to the purchase price paid for Pursuit in October 2018, partially offset by an increase in capital expenditures in fiscal year 2020 consisting of normal purchases for manufacturing infrastructure, molds, and equipment and expansion activities at Cobalt and Pursuit. Financing Activities Net cash used by financing activities was $47.3 million for fiscal year 2020 compared to net cash provided by financing activities of $2.4 million for fiscal year 2019, a change of $49.7 million. During fiscal year 2020, we received $103.8 million in proceeds from our credit facility primarily to provide financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic. We repaid $135 million of revolving debt and we repurchased $13.8 million of our Class A Common Stock under our previously announced stock repurchase program. 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. 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 51 Table of Contents 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 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. Malibu Boats, Inc. is not a party to the credit agreement. 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, 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 loans without any penalties. The existing term loans require an amortization payment of approximately $3.0 million on March 31, 2022 and the balance of the existing term loans are due on the scheduled maturity date of July 1, 2022. The incremental term loan of $25.0 million is subject to quarterly amortization at a rate of 5.0% per year through December 31, 2022, 7.5% per year through June 30, 2024 and the balance of the incremental term loan is due on the scheduled maturity date of July 1, 2024. The credit agreement also requires prepayments from the net cash proceeds received by Boats LLC or any guarantors from certain asset sales and recovery events, subject to certain reinvestment rights, and from excess cash flow, subject to the terms and conditions of the credit agreement. The credit agreement contains certain customary representations and warranties, and notice requirements for the occurrence of specific events such as the occurrence of any event of default, or pending or threatened litigation. The credit agreement also requires compliance with certain customary financial covenants, including a minimum ratio of EBITDA to fixed charges and a maximum ratio of total debt to EBITDA. The credit agreement contains certain restrictive covenants, which, among other things, place limits on certain activities of the loan parties under the credit agreement, such as the incurrence of additional indebtedness and additional liens on property and limit the future payment of dividends or distributions. For example, the credit agreement generally prohibits the LLC, Boats LLC and the subsidiary guarantors from paying dividends or making distributions, including to us. The credit facility permits, however, (i) distributions based on a member’s allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or employees of loan parties or payments pursuant to stock option and other benefit plans up to $3.0 million in any fiscal year, and (iv) share repurchase payments up to $35.0 million in any fiscal year subject to one-year carry forward and compliance with other financial covenants. In addition, the LLC may make dividends and distributions of up to $10.0 million in any fiscal year, subject to compliance with other financial covenants. 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 The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate, or LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However, for U.S dollar LIBOR, the relevant date has been deferred to at least June 30, 2023 for certain tenors (including overnight and one, three, six and 12 months), at which time the LIBOR administrator has indicated that it intends to cease publication of U.S. dollar LIBOR. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023. 52 Table of Contents 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 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 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. In addition, any alternative reference rates to LIBOR may result in interest that does not correlate over time with the payments that would have been made on our indebtedness if LIBOR was available in its current form. Further, the discontinuance or modification of LIBOR and uncertainty of an alternative reference rate may result in the increase in the cost of future indebtedness, which could have a material adverse effect on our financial condition, cash flow and results of operations. We intend to closely monitor the financial markets and the use of fallback provisions and alternative reference rates in anticipation of the discontinuance or modification of U.S. LIBOR by June 30, 2023. Future Liquidity Needs and Capital Expenditures Management believes that our existing cash and cash flows from operations will be sufficient to fund our operations for the next 12 months. We estimate that approximately $3.8 million will be due under the tax receivable agreement within the next 12 months. In accordance with the tax receivable agreement, the next payment is anticipated to occur approximately 75 days after filing the federal tax return which is due on April 15, 2022. Our future capital requirements will depend on many factors, including the general economic environment in which we operate and our ability to generate cash flow from operations, which are more uncertain as a result of the COVID-19 pandemic and its impact on the general economy. Our liquidity needs during this uncertain time will depend on multiple factors, including our ability to continue operations and production of boats, the COVID-19 pandemic’s effects on our dealers, suppliers and retail customers, the availability of sufficient amounts of financing, and our operating performance. Stock Repurchase Program On 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 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 Repurchase Commitments In connection with our dealers’ wholesale floor plan financing of boats, we have entered into repurchase agreements with various lending institutions. The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through payment date by the dealer, generally not exceeding two and a half years. Such agreements 53 Table of Contents 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. Contractual Obligations and Commitments As of June 30, 2021, our contractual obligations were as follows: Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years (In thousands) Long-term debt 1 $ 144,375 $ 4,250 $ 74,969 $ 65,156 $ — Interest expense 2 3,793 1,961 1,832 — — Operating leases 3 15,943 2,503 5,113 4,568 3,759 Purchase obligations 4 141,443 141,443 — — — Payments pursuant to tax receivable agreement 5 48,214 3,773 8,006 8,581 27,854 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 $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 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. (3) Pursuant to the adoption of ASC Topic 842, Leases , as of July 1, 2019 our lease liability for all leases with terms greater than 12 months as represented on the balance sheet respective of maturity. (4) As part of the normal course of business, we enter into purchase orders from a variety of suppliers, primarily for raw materials, in order to manage our various operating needs. The orders are expected to be purchased throughout fiscal year 2022. (5) Reflects amounts owed under our tax receivables agreement that we entered into with our pre-IPO owners at the time of our IPO. Under the tax receivables agreement, we pay the pre-IPO owners (or any permitted assignees) 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize, or in some circumstances are deemed to realize, as a result of an expected increase in our share of tax basis in LLC’s tangible and intangible assets, including increases attributable to payments made under the tax receivable agreement. These obligations will not be paid if we do not realize cash tax savings. Our dealers have arrangements with certain finance companies to provide secured floor plan financing for the purchase of our products. These arrangements indirectly provide liquidity to us by financing dealer purchases of our products, thereby minimizing the use of our working capital in the form of accounts receivable. A majority of our sales are financed under similar arrangements, pursuant to which we receive payment within a few days of shipment of the product. 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. 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 . 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. Seasonality Our dealers experience seasonality in their business. Retail demand for boats is seasonal, with a significant majority of sales occurring during peak boating season, which coincides with our first and fourth fiscal quarters. In order to minimize the impact of this seasonality on our business, we manage our manufacturing processes and structure dealer incentives to tie our annual volume rebates program to consistent ordering patterns, encouraging dealers to purchase our products throughout the 54 Table of Contents year. In this regard, we may offer free flooring incentives to dealers from the beginning of our model year through April 30 of each year. Further, in the event that a dealer does not consistently order units throughout the year, such dealer’s rebate is materially reduced. We may offer off-season retail promotions to our dealers in seasonally slow months, during and ahead of boat shows, to encourage retail demand. Inflation The market prices of certain materials and components used in manufacturing our products, especially resins that are made with hydrocarbon feedstocks, copper, aluminum and stainless steel, can be volatile. Historically, however, inflation has not had a material effect on our results of operations. Significant increases in inflation, particularly those related to wages and increases in the cost of raw materials, could have an adverse impact on our business, financial condition and results of operations. New boat buyers often finance their purchases. Inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Should inflation and increased interest rates occur, prospective consumers may choose to forgo or delay their purchases or buy a less expensive boat in the event credit is not available to finance their boat purchases. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and cash flows, and related disclosure of contingent assets and liabilities. Our estimates include those related to business combinations, revenue recognition, income taxes, tax receivable agreement liability, and warranty claims. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. We believe that of our significant accounting policies, which are described in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report, the accounting policies listed below involve a greater degree of judgment and complexity. 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 Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied; this occurs when control of promised goods (boats, parts, or other) is transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We generally manufacture products based on specific orders from dealers and often ship completed products only after receiving credit approval from financial institutions. The amount of consideration we receive and revenue we recognize varies with changes in marketing incentives and rebates we offer to our dealers and their customers. Dealers generally have no rights to return unsold boats. 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 55 Table of Contents 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. Historically, product returns resulting from repurchases made under the floorplan financing program, have not been material and the returned boats have been subsequently resold above their cost. Refer to Note 9 and Note 17 related to our product warranty and repurchase commitment obligations, respectively. Revenue from boat part sales is recorded as the product is shipped from our location, which is free on board shipping point. Revenue associated with sales of materials, parts, boats or engine products sold under our exclusive manufacturing and distribution agreement with our Australian subsidiary are eliminated in consolidation. Revenue associated with sales to the independent representative responsible for international sales is recognized in accordance with free on board shipping point terms, the point at which the risks of ownership and loss pass to the representative. A fixed percentage discount is earned by the independent representative at the time of shipment to the representative as a reduction in the price of the boat and is recorded in our consolidated statement of operations as a reduction in sales. We earn royalties on boats shipped with our proprietary wake surfing technology under licensing agreements with various marine manufacturers. Royalty income is recognized when products are used or sold with our patented technology by these other boat manufacturers and industry suppliers. The usage of our technology satisfies the performance obligation in the contract. Product Warranties Our Malibu and Axis brand boats have a limited warranty for a period up to five years. Our Cobalt brand boats have (1) a structural warranty of up to ten years which covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount, and (2) a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery. Gelcoat is covered up to three years for Cobalt and one year for Malibu and Axis. 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). Engines that we manufacture for Malibu and Axis models have a limited warranty of up to five years or five-hundred hours. Our standard warranties require us or our dealers to repair or replace defective products during the warranty period at no cost to the consumer. We estimate warranty costs we expect to incur and record a liability for such costs at the time the product revenue is recognized. We utilize historical claims trends and analytical tools to develop the estimate of our warranty obligation on a per boat basis, by brand and warranty year. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. We assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. 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 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. A hypothetical change of a 10% increase or decrease to our estimate of the warranty liability as of June 30, 2021 would have affected net income for the fiscal year ended June 30, 2021 by approximately $3.5 million. New Accounting Pronouncements See "Part II, Item 8. Financial Statements and Supplementary Data—Note 1—Organization, Basis of Presentation, and Summary of Significant Accounting Policies—New Accounting Pronouncements.” 56 Table of Contents