MasterCraft Boat Holdings, Inc. 10-Q

10-Q { UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: April 2, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37502 MASTERCRAFT BOAT HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 06-1571747 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 100 Cherokee Cove Drive , Vonore , TN 37885 (Address of Principal Executive Office) (Zip Code) ( 423 ) 884-2221 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock MCFT NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No As of May 5, 2023 , there were 17,495,267 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding. TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Statements of Operations 4 Unaudited Condensed Consolidated Balance Sheets 5 Unaudited Condensed Consolidated Statements of Stockholders’ Equity 6 Unaudited Condensed Consolidated Statements of Cash Flows 7 Notes to Unaudited Condensed Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Item 4. Controls and Procedures 26 PART II OTHER INFORMATION Item 1. Legal Proceedings 27 Item 1A. Risk Factors 27 Item 2. Unregistered Sales of Securities and Use of Proceeds 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Mine Safety Disclosures 27 Item 5. Other Information 27 Item 6. Exhibits, Financial Statement Schedules 28 SIGNATURES 29 2 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements can generally be identified by the use of statements that include words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar words or phrases. Forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on assumptions that we have made considering our industry experience and our perceptions of historical trends, current conditions, expected future developments and other important factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements, including but not limited to the following: changes in interest rates, the potential effects of supply chain disruptions and production inefficiencies, general economic conditions, demand for our products, inflation, changes in consumer preferences, competition within our industry, our reliance on our network of independent dealers, our ability to manage our manufacturing levels and our fixed cost base, the successful introduction of our new products, geopolitical conflicts, financial institution disruptions and the other important factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the Securities and Exchange Commission (“SEC”) on September 9, 2022 (our “2022 Annual Report”) and our Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2023, filed with the SEC on February 8, 2023 (our "Fiscal Second Quarter Quarterly Report"). Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could cause our business not to develop as we expect may emerge from time to time, and it is not possible for us to predict all of them. 3 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) Three Months Ended Nine Months Ended April 2, April 3, April 2, April 3, 2023 2022 2023 2022 NET SALES $ 166,776 $ 169,343 $ 495,480 $ 444,393 COST OF SALES 124,178 125,269 368,682 333,376 GROSS PROFIT 42,598 44,074 126,798 111,017 OPERATING EXPENSES: Selling and marketing 3,927 3,017 10,748 9,966 General and administrative 9,156 8,964 26,874 26,881 Amortization of other intangible assets 489 489 1,467 1,467 Goodwill impairment — — — 1,100 Total operating expenses 13,572 12,470 39,089 39,414 OPERATING INCOME 29,026 31,604 87,709 71,603 OTHER INCOME (EXPENSE): Interest expense ( 695 ) ( 341 ) ( 1,923 ) ( 1,080 ) Interest income 1,195 — 1,967 — INCOME BEFORE INCOME TAX EXPENSE 29,526 31,263 87,753 70,523 INCOME TAX EXPENSE 6,744 6,957 20,353 16,126 NET INCOME FROM CONTINUING OPERATIONS 22,782 24,306 67,400 54,397 LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX (Note 3) ( 272 ) ( 3,371 ) ( 21,139 ) ( 7,674 ) NET INCOME $ 22,510 $ 20,935 $ 46,261 $ 46,723 NET INCOME (LOSS) PER SHARE: Basic Continuing operations $ 1.30 $ 1.33 $ 3.80 $ 2.92 Discontinued operations ( 0.02 ) ( 0.19 ) ( 1.19 ) ( 0.41 ) Net income $ 1.28 $ 1.14 $ 2.61 $ 2.51 Diluted Continuing operations $ 1.28 $ 1.31 $ 3.78 $ 2.89 Discontinued operations ( 0.01 ) ( 0.18 ) ( 1.19 ) ( 0.40 ) Net income $ 1.27 $ 1.13 $ 2.59 $ 2.49 WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF: Basic earnings per share 17,559,920 18,295,949 17,725,208 18,622,878 Diluted earnings per share 17,748,910 18,487,346 17,851,655 18,796,867 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 4 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) April 2, June 30, 2023 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 27,453 $ 34,203 Held-to-maturity securities (Note 4) 73,914 — Accounts receivable, net of allowance of $ 155 and $ 214 , respectively 18,688 22,472 Inventories, net (Note 5) 55,268 58,595 Prepaid expenses and other current assets 10,673 7,232 Current assets associated with discontinued operations (Note 3) — 23,608 Total current assets 185,996 146,110 Property, plant and equipment, net (Note 6) 70,510 55,823 Goodwill (Note 7) 28,493 28,493 Other intangible assets, net (Note 7) 35,951 37,418 Deferred income taxes 14,331 21,525 Deferred debt issuance costs, net 330 406 Other long-term assets 2,663 1,290 Non-current assets associated with discontinued operations (Note 3) — 5,987 Total assets $ 338,274 $ 297,052 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 27,335 23,375 Income tax payable 5,582 4,600 Accrued expenses and other current liabilities (Note 8) 66,070 54,437 Current portion of long-term debt, net of unamortized debt issuance costs (Note 9) 4,004 2,873 Current liabilities associated with discontinued operations (Note 3) — 7,887 Total current liabilities 102,991 93,172 Long-term debt, net of unamortized debt issuance costs (Note 9) 50,391 53,676 Unrecognized tax positions 6,469 6,358 Other long-term liabilities 2,276 198 Total liabilities 162,127 153,404 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $ .01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 17,571,882 shares at April 2, 2023 and 18,061,437 shares at June 30, 2022 176 181 Additional paid-in capital 82,827 96,584 Retained earnings 93,144 46,883 Total stockholders' equity 176,147 143,648 Total liabilities and stockholders' equity $ 338,274 $ 297,052 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 5 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in thousands) Additional Common Stock Paid-in Retained Shares Amount Capital Earnings Total Balance at June 30, 2022 18,061,437 $ 181 $ 96,584 $ 46,883 $ 143,648 Share-based compensation activity 128,040 1 649 — 650 Repurchase and retirement of common stock ( 191,360 ) ( 2 ) ( 4,176 ) — ( 4,178 ) Net income — — — 4,068 4,068 Balance at October 2, 2022 17,998,117 180 93,057 50,951 144,188 Share-based compensation activity 2,466 — 745 — 745 Repurchase and retirement of common stock ( 224,284 ) ( 2 ) ( 4,792 ) — ( 4,794 ) Net income — — — 19,683 19,683 Balance at January 1, 2023 17,776,299 178 89,010 70,634 159,822 Share-based compensation activity 5,733 — 883 — 883 Repurchase and retirement of common stock ( 210,150 ) ( 2 ) ( 7,066 ) — ( 7,068 ) Net income — — — 22,510 22,510 Balance at April 2, 2023 17,571,882 $ 176 $ 82,827 $ 93,144 $ 176,147 Additional Retained Earnings Common Stock Paid-in (Accumulated Shares Amount Capital Deficit) Total Balance at June 30, 2021 18,956,719 $ 189 $ 118,930 $ ( 11,331 ) $ 107,788 Share-based compensation activity 62,865 1 705 — 706 Repurchase and retirement of common stock ( 58,379 ) ( 1 ) ( 1,486 ) — ( 1,487 ) Net income — — — 10,386 10,386 Balance at October 3, 2021 18,961,205 189 118,149 ( 945 ) 117,393 Share-based compensation activity 5,913 — 1,159 — 1,159 Repurchase and retirement of common stock ( 356,296 ) ( 3 ) ( 9,885 ) — ( 9,888 ) Net income — — — 15,402 15,402 Balance at January 2, 2022 18,610,822 186 109,423 14,457 124,066 Share-based compensation activity ( 6,086 ) — 766 — 766 Repurchase and retirement of common stock ( 395,948 ) ( 4 ) ( 10,075 ) — ( 10,079 ) Net income — — — 20,935 20,935 Balance at April 3, 2022 18,208,788 $ 182 $ 100,114 $ 35,392 $ 135,688 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 6 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Nine Months Ended April 2, April 3, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 46,261 $ 46,723 Loss from discontinued operations, net of tax 21,139 7,674 Net income from continuing operations 67,400 54,397 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 7,833 7,329 Share-based compensation 2,892 2,927 Unrecognized tax benefits 111 1,340 Deferred income taxes 7,194 ( 3 ) Amortization of debt issuance costs 172 178 Goodwill impairment — 1,100 Changes in certain operating assets and liabilities 21,610 ( 15,946 ) Other, net 153 541 Net cash provided by operating activities of continuing operations 107,365 51,863 Net cash used in operating activities of discontinued operations ( 2,403 ) ( 16,561 ) Net cash provided by operating activities 104,962 35,302 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 18,871 ) ( 8,021 ) Purchases of investments ( 83,509 ) — Maturities of investments 10,000 — Net cash used in investing activities of continuing operations ( 92,380 ) ( 8,021 ) Net cash used in investing activities of discontinued operations ( 501 ) ( 2,818 ) Net cash used in investing activities ( 92,881 ) ( 10,839 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on revolving credit facility — ( 38,000 ) Borrowings on revolving credit facility — 12,000 Principal payments on long-term debt ( 2,250 ) ( 2,250 ) Repurchase and retirement of common stock ( 15,972 ) ( 21,454 ) Other, net ( 609 ) ( 245 ) Net cash used in financing activities of continuing operations ( 18,831 ) ( 49,949 ) NET CHANGE IN CASH AND CASH EQUIVALENTS ( 6,750 ) ( 25,486 ) CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD 34,203 39,252 CASH AND CASH EQUIVALENTS — END OF PERIOD $ 27,453 $ 13,766 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for interest $ 1,773 $ 874 Cash payments for income taxes 6,209 13,139 NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital expenditures in accounts payable and accrued expenses 2,855 421 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 7 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The Company’s fiscal year begins July 1 and ends June 30, with the interim quarterly reporting periods consisting of 13 weeks. Therefore, the fiscal quarter end will not always coincide with the date of the end of a calendar month. The accompanying unaudited condensed consolidated financial statements include the accounts of MasterCraft Boat Holdings, Inc. ("Holdings") and its wholly owned subsidiaries. Holdings and its subsidiaries collectively are referred to herein as the "Company." The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the year ended June 30, 2022, and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of April 2, 2023, its results of operations for the three and nine months ended April 2, 2023 and April 3, 2022, its cash flows for the nine months ended April 2, 2023 and April 3, 2022, and its statements of stockholders’ equity for the three and nine months ended April 2, 2023 and April 3, 2022. All adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the SEC for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2022 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP for complete financial statements. However, management believes that the disclosures in these condensed consolidated financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our 2022 Annual Report. Due to the seasonality of the Company’s business, the interim results are not necessarily indicative of the results that may be expected for the remainder of the fiscal year. There were no significant changes in or changes to the application of the Company’s significant or critical accounting policies or estimation procedures for the three and nine months ended April 2, 2023, as compared with those described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2022 . Investments — The Company has, and may continue to invest excess cash balances in short-term debt securities, such as money market funds, government-sponsored securities, corporate bonds, and/or certificates of deposit. The Company accounts for its investments in debt securities in accordance with ASC 320, Investments — Debt and Equity Securities . We classify our investments in debt securities based on the facts and circumstances present at the time of purchase of the securities. We subsequently reassess the appropriateness of that classification at each reporting date. As of April 2, 2023, all of our investments in debt securities were classified as held-to-maturity and are due to mature within one year (see Note 4). Estimated fair value measurements related to our debt securities are Level 2 measurements. See Part IV. Item 15, Note 1 — Significant Accounting Policies, Fair Value Measurements in Notes to Consolidated Financial Statements in our 2022 Annual Report for further fair value measurement details. Discontinued Operations — On September 2, 2022, the Company sold substantially all of the assets and liabilities of its NauticStar segment. The disposal represented the Company's exit from the saltwater fishing and deck boat category, a strategic shift that has a significant effect on the Company's operations and financial results, and as such, qualifies for reporting as discontinued operations. The NauticStar segment results, for the periods presented, are reflected in our condensed consolidated statements of operations and condensed consolidated statements of cash flows as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations are classified as discontinued operations in our condensed consolidated balance sheet for the prior period presented (see Note 3). Unless otherwise indicated, the financial disclosures and related information provided herein relate to our continuing operations and we have recast prior period amounts to reflect discontinued operations. Reclassifications — Certain historical amounts have been reclassified in these condensed consolidated financial statements and the accompanying notes herewith to conform to the current presentation. 8 2. REVENUE RECOGNITION The following tables present the Company's revenue by major product category for each reportable segment: Three Months Ended April 2, 2023 MasterCraft Crest Aviara Total Major Product Categories: Boats and trailers $ 114,514 $ 35,936 $ 12,777 $ 163,227 Parts 2,798 285 — 3,083 Other revenue 318 148 — 466 Total $ 117,630 $ 36,369 $ 12,777 $ 166,776 Nine Months Ended April 2, 2023 MasterCraft Crest Aviara Total Major Product Categories: Boats and trailers $ 328,254 $ 115,444 $ 39,570 $ 483,268 Parts 9,693 671 — 10,364 Other revenue 1,368 480 — 1,848 Total $ 339,315 $ 116,595 $ 39,570 $ 495,480 Three Months Ended April 3, 2022 MasterCraft Crest Aviara Total Major Product Categories: Boats and trailers $ 116,964 $ 38,351 $ 10,428 $ 165,743 Parts 2,742 262 — 3,004 Other revenue 250 346 — 596 Total $ 119,956 $ 38,959 $ 10,428 $ 169,343 Nine Months Ended April 3, 2022 MasterCraft Crest Aviara Total Major Product Categories: Boats and trailers $ 309,356 $ 100,088 $ 24,192 $ 433,636 Parts 8,625 649 — 9,274 Other revenue 763 720 — 1,483 Total $ 318,744 $ 101,457 $ 24,192 $ 444,393 Contract Liabilities As of June 30, 2022, the Company had $ 1.4 million of contract liabilities associated with customer deposits. During the nine months ended April 2, 2023, all of this amount was recognized as revenue. As of April 2, 2023 , total contract liabilities associated with customer deposits and services were $ 2.8 million, were reported in Accrued expenses and other current liabilities and Other long-term liabilities on the condensed consolidated balance sheet, and $ 1.1 million of the amounts are expected to be recognized as revenue during the remainder of the year ending June 30, 2023 . 3. DISCONTINUED OPERATIONS On September 2, 2022, the Company sold its NauticStar business to certain affiliates of Iconic Marine Group, LLC ("Purchaser"). Pursuant to the terms of the purchase agreement, substantially all of the assets of NauticStar were sold, including, among other things, all of the issued and outstanding membership interests in its wholly-owned subsidiary NS Transport, LLC, all owned real property, equipment, inventory, intellectual property and accounts receivable, and the Purchaser assumed substantially all of the liabilities of NauticStar, including, among other things, product liability and warranty claims. In conjunction with the purchase agreement, the Company entered into a joint employer services agreement and a transition services agreement, which provide certain services to the Purchaser for various periods of time after the sale. Both agreements ended during the second quarter of fiscal 2023. These agreements did not a have a material impact on expenditures, earnings, nor cash flows during the three and nine months ended April 2, 2023. 9 Further, the Company entered into the Second Amendment to the Credit Agreement as described further in Note 9 related to waivers of restrictions within the Credit Agreement, as amended, on the sale of assets. During the nine months ended April 2, 2023 , the Company recognized a $ 22.5 million loss on sale, subject to further changes based upon a customary working capital adjustment. Furthermore, assets and liabilities retained, primarily related to certain claims, are subject to change, with activity after the date of sale being recorded as discontinued operations. The following table summarizes the operating results of discontinued operations for the following periods: Three Months Ended Nine Months Ended April 3, April 2, April 3, 2022 2023 2022 NET SALES $ 17,392 $ 7,767 $ 45,817 COST OF SALES 19,433 9,732 49,481 GROSS LOSS ( 2,041 ) ( 1,965 ) ( 3,664 ) OPERATING EXPENSES: Selling, general and administrative 1,578 2,639 4,322 Amortization of other intangible assets 498 — 1,533 Total operating expenses 2,076 2,639 5,855 OPERATING LOSS ( 4,117 ) ( 4,604 ) ( 9,519 ) Loss on sale of discontinued operations — 22,487 — LOSS BEFORE INCOME TAX BENEFIT ( 4,117 ) ( 27,091 ) ( 9,519 ) INCOME TAX BENEFIT 746 5,952 1,845 LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX $ ( 3,371 ) $ ( 21,139 ) $ ( 7,674 ) The operating results, and components thereof, of discontinued operations for the three months ended April 2, 2023 were not significant. The following table summarizes the assets and liabilities associated with discontinued operations: June 30, 2022 CURRENT ASSETS: Accounts receivable, net of allowance $ 3,130 Inventories, net 20,044 Other current assets 434 Total current assets classified as discontinued operations $ 23,608 NON-CURRENT ASSETS: Property, plant and equipment, net $ 5,924 Other long-term assets 63 Total non-current assets classified as discontinued operations $ 5,987 CURRENT LIABILITIES: Accounts payable $ 4,675 Accrued expenses and other current liabilities 3,212 Total current liabilities classified as discontinued operations $ 7,887 10 4. INVESTMENTS During the three and nine months ended April 2, 2023, we invested a portion of our cash and cash equivalents in short-term investments, which primarily consist of investment grade corporate bonds. We have the ability and intention to hold these investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost and presented them in “Held-to-maturity securities” on our condensed consolidated balance sheet as of April 2, 2023. As of June 30, 2022, there were no outstanding held-to-maturity investments. The following is a summary of investments as of April 2, 2023: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Held-to-maturity securities: Fixed income securities: Corporate bonds $ 73,914 $ 22 $ ( 132 ) $ 73,804 Total held-to-maturity securities $ 73,914 $ 22 $ ( 132 ) $ 73,804 5. INVENTORIES Inventories consisted of the following: April 2, June 30, 2023 2022 Raw materials and supplies $ 37,617 $ 45,021 Work in process 11,478 7,634 Finished goods 8,306 7,710 Obsolescence reserve ( 2,133 ) ( 1,770 ) Total inventories $ 55,268 $ 58,595 6. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment, net consisted of the following: April 2, June 30, 2023 2022 Land and improvements $ 6,457 $ 6,367 Buildings and improvements 36,437 35,379 Machinery and equipment 41,438 39,457 Furniture and fixtures 3,863 3,394 Construction in progress 21,062 6,315 Total property, plant, and equipment 109,257 90,912 Less accumulated depreciation ( 38,747 ) ( 35,089 ) Property, plant, and equipment — net $ 70,510 $ 55,823 Property, plant, and equipment, net increased mainly due to capital spending focused on maintenance capital, which includes tooling, capacity expansion, and information technology. 11 7. GOODWILL AND OTHER INTANGIBLE ASSETS The carrying amounts of goodwill as of April 2, 2023 and June 30, 2022, along with accumulated goodwill reallocations and accumulated impairment losses attributable to each of the Company’s reportable segments, were as follows: MasterCraft Crest Aviara Total Goodwill $ 29,593 $ 36,238 $ — $ 65,831 Goodwill reallocation ( 1,100 ) — 1,100 — Accumulated impairment losses — ( 36,238 ) ( 1,100 ) ( 37,338 ) Goodwill, net 28,493 — — 28,493 Fiscal 2022 Goodwill Impairment During the first quarter of fiscal 2022, a $ 1.1 million impairment charge was recognized for our Aviara reporting unit. See Part IV. Item 15, Note 5 — Goodwill and Other Intangible Assets in Notes to Consolidated Financial Statements in our 2022 Annual Report for further details. No goodwill impairment charges were recognized during the three and nine months ended April 2, 2023. The following table presents the carrying amount of Other intangible assets, net: April 2, June 30, 2023 2022 Gross Amount Accumulated Amortization / Impairment Other intangible assets, net Gross Amount Accumulated Amortization / Impairment Other intangible assets, net Amortized intangible assets Dealer networks $ 19,500 $ ( 9,573 ) $ 9,927 $ 19,500 $ ( 8,143 ) $ 11,357 Software 245 ( 221 ) 24 245 ( 184 ) 61 19,745 ( 9,794 ) 9,951 19,745 ( 8,327 ) 11,418 Unamortized intangible assets Trade names 33,000 ( 7,000 ) 26,000 33,000 ( 7,000 ) 26,000 Total other intangible assets $ 52,745 $ ( 16,794 ) $ 35,951 $ 52,745 $ ( 15,327 ) $ 37,418 Amortization expense related to Other intangible assets, net for the three and nine months ended April 2, 2023 and April 3, 2022 , was $ 0.5 million and $ 1.5 million, respectively. Estimated amortization expense for the fiscal year ending June 30, 2023 is $ 2.0 million. 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: April 2, June 30, 2023 2022 Warranty $ 30,652 $ 25,824 Dealer incentives 20,914 15,508 Compensation and related accruals 5,151 4,908 Contract liabilities 1,465 1,447 Inventory repurchase contingent obligation 1,315 661 Self-insurance 1,179 1,171 Liabilities retained associated with discontinued operations 776 — Other 4,618 4,918 Total accrued expenses and other current liabilities $ 66,070 $ 54,437 12 Accrued warranty liability activity was as follows for the nine months ended: April 2, April 3, 2023 2022 Balance at the beginning of the period $ 25,824 $ 20,655 Provisions 10,766 8,453 Payments made ( 9,069 ) ( 6,192 ) Aggregate changes for preexisting warranties 3,131 1,266 Balance at the end of the period $ 30,652 $ 24,182 9. LONG-TERM DEBT Long-term debt is as follows: April 2, June 30, 2023 2022 Term loan $ 54,750 $ 57,000 Debt issuance costs on term loan ( 355 ) ( 451 ) Total debt 54,395 56,549 Less current portion of long-term debt 4,125 3,000 Less current portion of debt issuance costs on term loan ( 121 ) ( 127 ) Long-term debt, net of current portion $ 50,391 $ 53,676 On June 28, 2021, the Company entered into a credit agreement with a syndicate of certain financial institutions (the “Credit Agreement”). The Credit Agreement provides the Company with a $ 160.0 million senior secured credit facility, consisting of a $ 60.0 million term loan (the “Term Loan”) and a $ 100.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Agreement refinanced and replaced the previously existing credit agreement. The Credit Agreement is secured by a first priority security interest in substantially all of the Company’s assets. The Credit Agreement contains a number of covenants that, among other things, restrict the Company’s ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve; engage in businesses that are not in a related line of business; make loans, advances or guarantees; pay dividends or make other distributions; engage in transactions with affiliates; and make investments. The Company is also required to maintain a minimum fixed charge coverage ratio and a maximum net leverage ratio. On August 31, 2022, the Company entered into the Second Amendment to the Credit Agreement to obtain the necessary consents and waivers related to the sale of the NauticStar segment on September 2, 2022, as discussed in Note 3. The Credit Agreement, as amended, bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.25 % to 1.00 % or at an adjusted term benchmark rate plus an applicable margin ranging from 1.25 % to 2.00 %, in each case based on the Company’s net leverage ratio. The Company is also required to pay a commitment fee for any unused portion of the revolving credit facility ranging from 0.15 % to 0.30 % based on the Company’s net leverage ratio. Effective during the three and nine months ended April 2, 2023 , the applicable margin for loans accruing at the prime rate was 0.25 % and the applicable margin for loans accruing interest at the benchmark rate was 1.25 %. As of April 2, 2023 , the interest rate on the Company’s term loan was 6.16 %. 13 The Credit Agreement will mature and all remaining amounts outstanding thereunder will be due and payable on June 28, 2026. As of April 2, 2023, the Company was in compliance with its financial covenants under the Credit Agreement. Revolving Credit Facility As of April 2, 2023 , the Company had no amounts outstanding on its Revolving Credit Facility and had remaining availability of $ 100.0 million . 10. INCOME TAXES The Company’s consolidated interim effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The differences between the Company’s effective tax rates and the statutory federal tax rate of 21.0 % primarily relate to the inclusion of the state tax rate in the overall effective rate, the benefit of federal and state credits, and a permanent benefit associated with the foreign derived intangible income deduction, partially offset by a permanent add-back for Section 162(m) limitations. During the three months ended April 2, 2023 and April 3, 2022, the Company's effective tax rate was 22.8 % and 22.3 % , respectively. During the nine months ended April 2, 2023 and April 3, 2022, the Company's effective tax rate was 23.2 % and 22.9 % , respectively. 11. SHARE-BASED COMPENSATION The following table presents the components of share-based compensation expense by award type. Three Months Ended Nine Months Ended April 2, April 3, April 2, April 3, 2023 2022 2023 2022 Restricted stock awards $ 587 $ 441 $ 1,723 $ 1,399 Performance stock units 439 453 1,169 1,528 Share-based compensation expense $ 1,026 $ 894 $ 2,892 $ 2,927 Restricted Stock Awards During the nine months ended April 2, 2023 , the Company granted 97,525 restricted stock awards (“RSAs”) to the Company’s non-executive directors, officers and certain other key employees. Generally, the shares of restricted stock granted during the nine months ended April 2, 2023 , vest pro-rata over three years for officers and certain other key employees and over one year for non-executive directors. The Company determined the fair value of the shares awarded by using the close price of our common stock as of the date of grant. The weighted average grant date fair value of RSAs granted in the nine months ended April 2, 2023 , was $ 23.55 per share. The following table summarizes the status of nonvested RSAs as of April 2, 2023, and changes during the nine months then ended. Average Nonvested Grant-Date Restricted Fair Value Shares (per share) Nonvested at June 30, 2022 106,408 $ 21.65 Granted 97,525 23.55 Vested ( 34,418 ) 18.71 Forfeited ( 5,509 ) 21.96 Nonvested at April 2, 2023 164,006 23.39 As of April 2, 2023 , there was $ 2.2 million of total unrecognized compensation expense related to nonvested RSAs. The Company expects this expense to be recognized over a weighted average period of 1.7 years. 14 Performance Stock Units Performance stock units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of the Company’s stockholders, and to create long-term stockholder value. The awards will be earned based on the Company’s achievement of certain performance criteria over a three-year performance period. The performance period for the awards commences on July 1 of the fiscal year in which they were granted and continue for a three-year period, ending on June 30 of the applicable year. The probability of achieving the performance criteria is assessed quarterly. Following the determination of the Company’s achievement with respect to the performance criteria, the number of shares awarded is subject to further adjustment based on the application of a total shareholder return (“TSR”) modifier. The grant date fair value is determined based on both the probability assessment of the Company achieving the performance criteria and an estimate of the expected TSR modifier. The TSR modifier estimate is determined using a Monte Carlo Simulation model, which considers the likelihood of numerous possible outcomes of long-term market performance. Compensation expense related to nonvested PSUs is recognized ratably over the performance period. The following table summarizes the status of nonvested PSUs as of April 2, 2023, and changes during the nine months then ended. Average Nonvested Grant-Date Performance Fair Value Stock Units (per share) Nonvested at June 30, 2022 105,190 $ 25.30 Granted 76,567 26.08 Forfeited ( 1,996 ) 26.15 Nonvested at April 2, 2023 179,761 25.62 As of April 2, 2023 , there was $ 2.0 million of total unrecognized compensation expense related to nonvested PSUs. The Company expects this expense to be recognized over a weighted average period of 1.9 years. Nonqualified Stock Options In July 2015, the Company granted 137,786 nonqualified stock options ("NSOs") to certain employees. As of July 2019, all outstanding options were fully vested and exercisable. All outstanding options as of June 30, 2022, were exercised during the three months ended April 2, 2023. The following table summarizes the NSO activity for the nine months ended April 2, 2023. Weighted Average Exercise Shares Price Outstanding at June 30, 2022 15,146 $ 10.70 Granted — — Exercised ( 15,146 ) 10.70 Forfeited or expired — — Outstanding at April 2, 2023 — 15 12. EARNINGS PER SHARE AND COMMON STOCK The following table sets forth the computation of the Company’s net income per share: Three Months Ended Nine Months Ended April 2, April 3, April 2, April 3, 2023 2022 2023 2022 Net income from continuing operations $ 22,782 $ 24,306 $ 67,400 $ 54,397 Loss from discontinued operations, net of tax ( 272 ) ( 3,371 ) ( 21,139 ) ( 7,674 ) Net income $ 22,510 $ 20,935 $ 46,261 $ 46,723 Weighted average shares — basic 17,559,920 18,295,949 17,725,208 18,622,878 Dilutive effect of assumed exercises of stock options 4,816 9,044 7,028 12,093 Dilutive effect of assumed restricted share awards/units 184,174 182,353 119,419 161,896 Weighted average outstanding shares — diluted 17,748,910 18,487,346 17,851,655 18,796,867 Basic net income (loss) per share Continuing operations $ 1.30 $ 1.33 $ 3.80 $ 2.92 Discontinued operations ( 0.02 ) $ ( 0.19 ) ( 1.19 ) ( 0.41 ) Net income $ 1.28 $ 1.14 $ 2.61 $ 2.51 Diluted net income (loss) per share Continuing operations $ 1.28 $ 1.31 $ 3.78 $ 2.89 Discontinued operations ( 0.01 ) $ ( 0.18 ) ( 1.19 ) ( 0.40 ) Net income $ 1.27 $ 1.13 $ 2.59 $ 2.49 For the three and nine months ended April 2, 2023 and April 3, 2022, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive. Stock Repurchase Program On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $ 50.0 million of the Company’s common stock during the three-year period ending June 24, 2024. During the three months ended April 2, 2023 and April 3, 2022 , the Company repurchased 210,150 shares and 395,948 shares of common stock for $ 7.0 million and $ 10.1 million, respectively, in cash, including related fees and expenses. During the nine months ended April 2, 2023 and April 3, 2022 , the Company repurchased 625,794 shares and 810,623 shares of common stock for $ 16.0 million and $ 21.5 million, respectively, in cash, including related fees and expenses. As of April 2, 2023 , $ 8.6 million remained available under the program. 13. SEGMENT INFORMATION Reportable Segments Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the CODM in making decisions on how to allocate resources and assess performance. For the three and nine months ended April 2, 2023 , the Company’s CODM regularly assessed the operating performance of the Company’s boat brands under three operating and reportable segments: • The MasterCraft segment produces boats at its Vonore, Tennessee facility. These are premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating. • The Crest segment produces pontoon boats at its Owosso, Michigan facility. Crest’s boats are primarily used for general recreational boating. • The Aviara segment produces luxury day boats at its Merritt Island, Florida facility. Aviara boats are primarily used for general recreational boating. 16 Each segment distributes its products through its own independent dealer network. Each segment also has its own management structure which is responsible for the operations of the segment and is directly accountable to the CODM for the operating performance of the segment, which is regularly assessed by the CODM who allocates resources based on that performance. The Company files a consolidated income tax return and does not allocate income taxes and other corporate-level expenses, including interest, to operating segments. All material corporate costs are included in the MasterCraft segment. Selected financial information for the Company’s reportable segments was as follows: For the Three Months Ended April 2, 2023 MasterCraft Crest Aviara Consolidated Net sales $ 117,630 $ 36,369 $ 12,777 $ 166,776 Operating income (loss) 25,298 4,962 ( 1,234 ) 29,026 Depreciation and amortization 1,386 701 535 2,622 Purchases of property, plant and equipment 3,151 2,089 1,716 6,956 For the Nine Months Ended April 2, 2023 MasterCraft Crest Aviara Consolidated Net sales $ 339,315 $ 116,595 $ 39,570 $ 495,480 Operating income (loss) 72,269 17,576 ( 2,136 ) 87,709 Depreciation and amortization 4,132 2,104 1,597 7,833 Purchases of property, plant and equipment 8,434 6,292 4,145 18,871 For the Three Months Ended April 3, 2022 MasterCraft Crest Aviara Consolidated Net sales $ 119,956 $ 38,959 $ 10,428 $ 169,343 Operating income (loss) 28,051 5,568 ( 2,015 ) 31,604 Depreciation and amortization 1,248 657 602 2,507 Purchases of property, plant and equipment 1,434 1,146 496 3,076 For the Nine Months Ended April 3, 2022 MasterCraft Crest Aviara Consolidated Net sales $ 318,744 $ 101,457 $ 24,192 $ 444,393 Operating income (loss) 65,533 14,004 ( 7,934 ) 71,603 Depreciation and amortization 3,762 1,998 1,569 7,329 Goodwill impairment — — 1,100 1,100 Purchases of property, plant and equipment 4,966 2,190 865 8,021 The following table presents total assets for the Company’s reportable segments. April 2, 2023 June 30, 2022 Assets: MasterCraft $ 248,457 $ 178,386 Crest 52,075 53,956 Aviara 37,742 35,115 Discontinued operations — 29,595 Total assets $ 338,274 $ 297,052 17 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition, the statements in this discussion and analysis regarding our expectations concerning the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” above and in “Risk Factors” set forth in our 2022 Annual Report and our Fiscal Second Quarter Quarterly Report. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in the statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures do not include operating and statistical measures. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to users of the financial statements, including investors, because they permit users of the financial statements to view the Company’s performance using the same tools that management utilizes and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to business acquisitions. Overview We are a leading innovator, designer, manufacturer and marketer of recreational powerboats sold through our three brands, MasterCraft, Crest, and Aviara. Through our three brands, we have leading market share positions in two of the fastest growing segments of the powerboat industry, performance sports boats and pontoon boats, while entering the large growing luxury day boat segment. As a leader in recreational marine, we strive to deliver the best on-water experience through innovative, high-quality products with a relentless focus on the consumer. Discontinued Operations On September 2, 2022, the Company completed the sale of its NauticStar business. This business, which was previously reported as the Company's NauticStar segment until fiscal 2023, is being reported as discontinued operations for all periods presented. The Company's results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a continuing operations basis with prior year amounts recast to provide visibility and comparability. See Note 3 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on Discontinued Operations. Outlook During the COVID-19 pandemic, the marine industry benefited from changes in consumer preferences, which accelerated retail sales of our products during fiscal 2021 and fiscal 2022. Strong retail demand created historically low dealer inventory levels which, in turn, increased wholesale demand for our products. Despite lower retail demand from normalized seasonality, fiscal 2023 has continued to have strong wholesale performance while dealers replenish inventory levels. As retail trends evolve in the future, we expect wholesale demand to be more closely aligned with retail demand. With respect to retail demand, we are actively monitoring the impact of retail trends on our business, which may be impacted by macroeconomic conditions outside our control such as inflation, rising interest rates, financial institution disruptions, geopolitical conflicts and the corresponding economic uncertainty. The full extent of the impact on our business, operations, and financial results cannot be predicted. See Item 1A. "Risk Factors" set forth in our 2022 Annual Report and our Fiscal Second Quarter Quarterly Report. 18 Results of Continuing Operations Consolidated Results The table below presents our consolidated results of operations for the three and nine months ended: Three Months Ended 2023 vs. 2022 Nine Months Ended 2023 vs. 2022 April 2, April 3, % April 2, April 3, % 2023 2022 Change Change 2023 2022 Change Change Consolidated statements of operations : NET SALES $ 166,776 $ 169,343 $ (2,567 ) (1.5 %) $ 495,480 $ 444,393 $ 51,087 11.5 % COST OF SALES 124,178 125,269 (1,091 ) (0.9 %) 368,682 333,376 35,306 10.6 % GROSS PROFIT 42,598 44,074 (1,476 ) (3.3 %) 126,798 111,017 15,781 14.2 % OPERATING EXPENSES: Selling and marketing 3,927 3,017 910 30.2 % 10,748 9,966 782 7.8 % General and administrative 9,156 8,964 192 2.1 % 26,874 26,881 (7 ) (0.0 %) Amortization of other intangible assets 489 489 — 0.0 % 1,467 1,467 — 0.0 % Goodwill impairment — — — — — 1,100 (1,100 ) — Total operating expenses 13,572 12,470 1,102 8.8 % 39,089 39,414 (325 ) (0.8 %) OPERATING INCOME 29,026 31,604 (2,578 ) (8.2 %) 87,709 71,603 16,106 22.5 % OTHER INCOME (EXPENSE): Interest expense (695 ) (341 ) (354 ) 103.8 % (1,923 ) (1,080 ) (843 ) 78.1 % Interest income 1,195 — 1,195 — 1,967 — 1,967 — INCOME BEFORE INCOME TAX EXPENSE 29,526 31,263 (1,737 ) (5.6 %) 87,753 70,523 17,230 24.4 % INCOME TAX EXPENSE 6,744 6,957 (213 ) (3.1 %) 20,353 16,126 4,227 26.2 % NET INCOME FROM CONTINUING OPERATIONS $ 22,782 $ 24,306 $ (1,524 ) (6.3 %) $ 67,400 $ 54,397 $ 13,003 23.9 % Additional financial and other data: Unit sales volume: MasterCraft 900 900 — — 2,457 2,569 (112 ) (4.4 %) Crest 722 855 (133 ) (15.6 %) 2,344 2,261 83 3.7 % Aviara 34 29 5 17.2 % 100 71 29 40.8 % Consolidated unit sales volume 1,656 1,784 (128 ) (7.2 %) 4,901 4,901 — 0.0 % Net sales: MasterCraft $ 117,630 $ 119,956 $ (2,326 ) (1.9 %) $ 339,315 $ 318,744 $ 20,571 6.5 % Crest 36,369 38,959 (2,590 ) (6.6 %) 116,595 101,457 15,138 14.9 % Aviara 12,777 10,428 2,349 22.5 % 39,570 24,192 15,378 63.6 % Consolidated net sales $ 166,776 $ 169,343 $ (2,567 ) (1.5 %) $ 495,480 $ 444,393 $ 51,087 11.5 % Net sales per unit: MasterCraft $ 131 $ 133 $ (2 ) (1.5 %) $ 138 $ 124 $ 14 11.3 % Crest 50 46 4 8.7 % 50 45 5 11.1 % Aviara 376 360 16 4.4 % 396 341 55 16.1 % Consolidated net sales per unit 101 95 6 6.3 % 101 91 10 11.0 % Gross margin 25.5 % 26.0 % (50) bps 25.6 % 25.0 % 60 bps Net sales decreased 1.5 percent during the third quarter of fiscal 2023 when compared with the same prior-year period. The decrease was the result of changes in model mix, decreased sales volumes, increased dealer incentives, and decreased options sales, partially offset by higher prices. Dealer incentives include higher floor plan financing costs and other incentives as a result of increased dealer inventories and interest rates. Net sales increased 11.5 percent during the first nine months of fiscal 2023 when compared with the same prior-year period. Net sales benefited from higher prices and increased options sales, partially offset by changes in model mix and increased dealer incentives. 19 Gross margin decreased 50 basis points during the third quarter of fiscal 2023, when compared with the same prior-year period, due to higher costs from inflationary pressures, changes in mix, higher dealer incentives, and increased warranty costs, partially offset by higher prices and improved production efficiencies. Gross margin increased 60 basis points during the first nine months of fiscal 2023, when compared with the same prior-year period, due to higher prices and improved production efficiencies, partially offset by higher costs from inflationary pressures, changes in mix, increased dealer incentives and increased warranty costs. Operating expenses increased $1.1 million during the third quarter of fiscal 2023, when compared to the same prior-year period, primarily related to increased boat show related costs and investments in digital marketing. Operating expenses decreased $0.3 million during the first nine months of fiscal 2023, when compared to the same prior-year period, primarily due to an impairment charge of $1.1 million related to the allocated goodwill associated with the Aviara segment recorded in the first quarter of fiscal 2022, as discussed in Note 7 to the Unaudited Condensed Consolidated Financial Statements, partially offset by an increase in boat show related costs and investments in digital marketing. Interest expense increased $0.4 million and $0.8 million during the third quarter and first nine months of fiscal 2023, respectively, when compared to the same prior-year periods due to higher effective interest rates. Interest income of $1.2 million and $2.0 million during the third quarter and first nine months of fiscal 2023, respectively, is derived primarily from investments in a portfolio of fixed income securities as part of the Company's cash management strategy. Segment Results MasterCraft Segment The following table sets forth MasterCraft segment results for the three and nine months ended: Three Months Ended 2023 vs. 2022 Nine Months Ended 2023 vs. 2022 April 2, April 3, % April 2, April 3, % 2023 2022 Change Change 2023 2022 Change Change Net sales $ 117,630 $ 119,956 $ (2,326 ) (1.9 %) $ 339,315 $ 318,744 $ 20,571 6.5 % Operating income 25,298 28,051 (2,753 ) (9.8 %) 72,269 65,533 6,736 10.3 % Purchases of property, plant and equipment 3,151 1,434 1,717 119.7 % 8,434 4,966 3,468 69.8 % Unit sales volume 900 900 - 0.0 % 2,457 2,569 (112 ) (4.4 %) Net sales per unit $ 131 $ 133 $ (2 ) (1.5 %) $ 138 $ 124 $ 14 11.3 % Net sales decreased 1.9 percent during the third quarter of fiscal 2023, when compared with the same prior-year period, due to changes in model mix, decreased options sales, and increased dealer incentives, partially offset by higher prices. Net sales increased 6.5 percent during the first nine months of fiscal 2023, when compared with the same prior-year period, due to higher prices and increased options sales, partially offset by decreased sales volume and changes in model mix. Operating income decreased $2.8 million during the third quarter of fiscal 2023 when compared to the same prior-year period. The decrease was driven by changes in model mix, higher material and overhead costs from inflationary pressures, higher dealer incentives, decreased option sales, and increased warranty costs, partially offset by higher prices. Operating income increased $6.7 million during the first nine months of fiscal 2023, when compared with the same prior-year period, due to higher prices, partially offset by higher material and overhead costs from inflationary pressures, changes in model mix, higher dealer incentives, and increased warranty costs. Purchases of property, plant, and equipment increased 119.7 percent and 69.8 percent during the third quarter and first nine months of fiscal 2023, respectively, when compared to the same prior-year periods, due to capital spending focused on maintenance capital, which includes tooling, capacity expansion, and information technology. 20 Crest Segment The following table sets forth Crest segment results for the three and nine months ended: Three Months Ended 2023 vs. 2022 Nine Months Ended 2023 vs. 2022 April 2, April 3, % April 2, April 3, % 2023 2022 Change Change 2023 2022 Change Change Net sales $ 36,369 $ 38,959 $ (2,590 ) (6.6 %) $ 116,595 $ 101,457 $ 15,138 14.9 % Operating income 4,962 5,568 (606 ) (10.9 %) 17,576 14,004 3,572 25.5 % Purchases of property, plant and equipment 2,089 1,146 943 82.3 % 6,292 2,190 4,102 187.3 % Unit sales volume 722 855 (133 ) (15.6 %) 2,344 2,261 83 3.7 % Net sales per unit $ 50 $ 46 $ 4 8.7 % $ 50 $ 45 $ 5 11.1 % Net sales decreased 6.6 percent during the third quarter of fiscal 2023 when compared to the same prior-year period, as a result of decreased unit volume and increased dealer incentives, partially offset by higher prices and favorable model mix. Net sales increased 14.9 percent during the first nine months of fiscal 2023 when compared to the same prior-year period, as a result of higher prices and higher option sales, partially offset by increased dealer incentives. Operating income decreased 10.9 percent during the third quarter of fiscal 2023 when compared to the same prior-year period. The decrease was driven by decreased unit volume, higher material costs from inflationary prices, increased dealer incentives, and increased warranty costs, partially offset by higher prices. Operating income increased 25.5 percent for the first nine months of fiscal 2023 when compared to the same prior-year period. The increase is primarily the result of higher prices, partially offset by higher material costs from inflationary pressures, increased dealer incentives, and increased warranty costs. Purchases of property, plant, and equipment increased 82.3 percent and 187.3 percent during the third quarter and first nine months of fiscal 2023, respectively, when compared to the same prior-year periods due to capital spending focused on capacity expansion. Aviara Segment The following table sets forth Aviara segment results for the three and nine months ended: Three Months Ended 2023 vs. 2022 Nine Months Ended 2023 vs. 2022 April 2, April 3, % April 2, April 3, % 2023 2022 Change Change 2023 2022 Change Change Net sales $ 12,777 $ 10,428 $ 2,349 22.5 % $ 39,570 $ 24,192 $ 15,378 63.6 % Operating loss (1,234 ) (2,015 ) 781 38.8 % (2,136 ) (7,934 ) 5,798 73.1 % Goodwill impairment — — — — — 1,100 (1,100 ) — Purchases of property, plant and equipment 1,716 496 1,220 246.0 % 4,145 865 3,280 379.2 % Unit sales volume 34 29 5 17.2 % 100 71 29 40.8 % Net sales per unit $ 376 $ 360 $ 16 4.4 % $ 396 $ 341 $ 55 16.1 % Net sales increased $2.3 million and $15.4 million during the third quarter and first nine months of fiscal 2023, respectively, when compared to the same prior-year periods, due to increased sales volume and higher prices. Operating loss decreased 38.8 percent and 73.1 percent for the third quarter and first nine months of fiscal 2023, respectively, when compared to the same prior-year periods. The change was primarily a result of higher prices, improved production efficiencies, and increased sales volume, partially offset by higher material costs from inflationary pressures. Additionally, a goodwill impairment charge was recorded during the first quarter of fiscal 2022. Purchases of property, plant, and equipment increased 246.0 percent and 379.2 percent during the third quarter and first nine months of fiscal 2023, respectively, when compared to the same prior-year periods due to capital spending focused on capacity expansion. 21 Non-GAAP Measures EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin We define EBITDA as net income from continuing operations, before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations. For the periods presented herein, these adjustments include share-based compensation, business development consulting costs, and goodwill impairment. We define EBITDA margin and Adjusted EBITDA margin as EBIDTA and Adjusted EBITDA, respectively, each expressed as a percentage of Net sales. Adjusted Net Income and Adjusted Net Income Per Share We define Adjusted Net Income and Adjusted Net Income per share as net income from continuing operations, adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. For the periods presented herein, these adjustments include other intangible asset amortization, share-based compensation, business development consulting costs, and goodwill impairment. EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share, which we refer to collectively as the Non-GAAP Measures, are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, or U.S. GAAP. The Non-GAAP Measures are not measures of performance in accordance with U.S. GAAP and should not be considered as an alternative to net income, net income per share, or operating cash flows determined in accordance with U.S. GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow. We believe that the inclusion of the Non-GAAP Measures is appropriate to provide additional information to investors because securities analysts and investors use the Non-GAAP Measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted Net Income and Adjusted Net Income per share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with U.S. GAAP, provides a more complete understanding of factors and trends affecting our business than does U.S. GAAP measures alone. We believe Adjusted Net Income and Adjusted Net Income per share assists our board of directors, management, investors, and other users of the financial statements in comparing our net income on a consistent basis from period to period because it removes certain non-cash items and other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. The Non-GAAP Measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and the Non-GAAP measures do not reflect any cash requirements for such replacements; • The Non-GAAP measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; • The Non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs; • The Non-GAAP measures do not reflect our tax expense or any cash requirements to pay income taxes; • The Non-GAAP measures do not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and • The Non-GAAP measures do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our core and/or ongoing operations, but may nonetheless have a material impact on our results of operations. In addition, because not all companies use identical calculations, our presentation of the Non-GAAP Measures may not be comparable to similarly titled measures of other companies, including companies in our industry. 22 Beginning in the first quarter of fiscal 2023, due to the effects of discontinued operations, as discussed above, the Company's non-GAAP financial measures are presented on a continuing operations basis, for all periods presented. The following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and net income from continuing operations margin to EBITDA margin and Adjusted EBITDA Margin (each expressed as a percentage of net sales) for the periods indicated: Three Months Ended Nine Months Ended April 2, % of Net April 3, % of Net April 2, % of Net April 3, % of Net 2023 sales 2022 sales 2023 sales 2022 sales Net income from continuing operations $ 22,782 13.7% $ 24,306 14.4% $ 67,400 13.6% $ 54,397 12.2% Income tax expense 6,744 6,957 20,353 16,126 Interest expense 695 341 1,923 1,080 Interest income (1,195 ) — (1,967 ) — Depreciation and amortization 2,622 2,507 7,833 7,329 EBITDA 31,648 19.0% 34,111 20.1% 95,542 19.3% 78,932 17.8% Share-based compensation 1,026 894 2,892 2,927 Business development consulting costs (a) 312 — 312 — Goodwill impairment (b) — — — 1,100 Adjusted EBITDA $ 32,986 19.8% $ 35,005 20.7% $ 98,746 19.9% $ 82,959 18.7% (a) Represents non-recurring third-party costs associated with business development activities, primarily relating to consulting costs for evaluation and execution of internal growth and other strategic initiatives. (b) Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. The following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated: Three Months Ended Nine Months Ended April 2, April 3, April 2, April 3, 2023 2022 2023 2022 (Dollars in thousands, except per share data) Net income from continuing operations $ 22,782 $ 24,306 $ 67,400 $ 54,397 Income tax expense 6,744 6,957 20,353 16,126 Amortization of acquisition intangibles 462 462 1,386 1,386 Share-based compensation 1,026 894 2,892 2,927 Business development consulting costs (a) 312 — 312 — Goodwill impairment (b) — — — 1,100 Adjusted Net Income before income taxes 31,326 32,619 92,343 75,936 Adjusted income tax expense (c) 7,205 7,502 21,239 17,465 Adjusted Net Income $ 24,121 $ 25,117 $ 71,104 $ 58,471 Adjusted Operating Net Income per share: Basic $ 1.37 $ 1.37 $ 4.01 $ 3.14 Diluted $ 1.36 $ 1.36 $ 3.98 $ 3.11 Weighted average shares used for the computation of (d) : Basic Adjusted Net Income per share 17,559,920 18,295,949 17,725,208 18,622,878 Diluted Adjusted Net Income per share 17,748,910 18,487,346 17,851,655 18,796,867 (a) Represents non-recurring third-party costs associated with business development activities, primarily relating to consulting costs for evaluation and execution of internal growth and other strategic initiatives. (b) Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. (c) Reflects income tax expense at an income tax rate of 23.0% for each period presented. (d) Represents the Weighted Average Shares used for the computation of Basic and Diluted earnings per share as presented on the Consolidated Statements of Operations to calculate Adjusted Net Income per diluted share for all periods presented herein. 23 The following table presents the reconciliation of net income from continuing operations per diluted share to Adjusted Net Income per diluted share for the periods presented: Three Months Ended Nine Months Ended April 2, April 3, April 2, April 3, 2023 2022 2023 2022 Net income from continuing operations per diluted share $ 1.28 $ 1.31 $ 3.78 $ 2.89 Impact of adjustments: Income tax expense 0.38 0.38 1.14 0.87 Amortization of acquisition intangibles 0.03 0.02 0.08 0.07 Share-based compensation 0.06 0.05 0.16 0.16 Business development consulting costs (a) 0.02 — 0.02 — Goodwill impairment (b) — — — 0.06 Adjusted Net Income per diluted share before income taxes 1.77 1.76 5.18 4.05 Impact of adjusted income tax expense on net income per diluted share before income taxes (c) (0.41 ) (0.40 ) (1.20 ) (0.94 ) Adjusted Net Income per diluted share $ 1.36 $ 1.36 $ 3.98 $ 3.11 (a) Represents non-recurring third-party costs associated with business development activities, primarily relating to consulting costs for evaluation and execution of internal growth and other strategic initiatives. (b) Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. (c) Reflects income tax expense at an income tax rate of 23.0% for each period presented. Liquidity and Capital Resources Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, service our debt, fund our stock repurchase program, and fund potential business acquisitions. Our principal sources of liquidity are our cash balance, investments due to their short-term nature, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt. We believe our cash balance, investments, cash from operations, and our ability to borrow will be sufficient to provide for our liquidity and capital resource needs. Cash and cash equivalents totaled $27.5 million as of April 2, 2023, a decrease of $6.7 million from $34.2 million as of June 30, 2022. Held-to-maturity securities totaled $73.9 million as of April 2, 2023. As of June 30, 2022, there were no outstanding held-to-maturity securities. Total debt as of April 2, 2023 and June 30, 2022, was $54.4 million and $56.5 million, respectively. As of April 2, 2023, we had no amounts outstanding under the Revolving Credit Facility, leaving $100.0 million of available borrowing capacity. Refer to Note 9 — Long Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements for further details. On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. During the nine months ended April 2, 2023, the Company repurchased 625,794 shares of common stock for $16.0 million in cash, including related fees and expenses. The following table and discussion below relate to our cash flows from continuing operations for operating, investing, and financing activities: Nine Months Ended April 2, April 3, 2023 2022 (Dollars in thousands) Total cash provided by (used in): Operating activities $ 107,365 $ 51,863 Investing activities (92,380 ) (8,021 ) Financing activities (18,831 ) (49,949 ) Net change in cash from continuing operations $ (3,846 ) $ (6,107 ) 24 Nine Months Ended April 2, 2023 Cash Flows from Continuing Operations Net cash provided by operating activities for the nine months ended April 2, 2023 was $107.4 million, primarily due to net income and cash provided by favorable changes in working capital. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Favorable changes in working capital primarily consisted of an increase in accrued expenses and other current liabilities and accounts payable, and a decrease in accounts receivable and inventories. Partially offsetting favorable changes in working capital was an increase in prepaid expenses and other current assets. Accrued expenses and other current liabilities primarily increased due to increased warranty, floor plan interest, and retail rebate costs. Accounts payable increased mainly due to increased payables related to capital spending. Accounts receivable decreased primarily as a result of lower sales at the end of the period compared to the end of the prior-year period. Inventories decreased as we maintain rebalanced inventory levels after the prior summer selling season, partially offset by increased materials costs from inflation. Prepaid expenses and other current assets increased due to payment of annual general insurance premiums which have increased since the prior-year period. Net cash used in investing activities was $92.4 million, due to net investments in held-to-maturity securities of $73.5 million and $18.9 million of capital expenditures. Our capital spending was focused on maintenance capital, which includes tooling, expanding our capacity, and information technology. Net cash used in financing activities was $18.8 million, which included net payments of $2.3 million on long-term debt and $16.0 million of stock repurchases. Nine Months Ended April 3, 2022 Cash Flows from Continuing Operations Net cash provided by operating activities for the nine months ended April 3, 2022 totaled $51.9 million mainly due to net income, partially offset by working capital usage. Working capital usage primarily consisted of an increase in inventory, accounts receivable and prepaid expenses and other current assets. Partially offsetting the working capital usage was an increase in accrued expenses and other current liabilities and accounts payable. Inventory increased $19.7 million for the first nine months of fiscal 2022 due to an increase in raw materials to support higher production volumes and to increase safety stock to manage supply chain risk. Work in process increased due to supply chain disruptions. Accounts receivable increased due to increased sales at the end of the period compared to the end of the prior-year period. Prepaid expenses and other current assets increased due to higher general insurance premiums. Accrued expenses and other current liabilities increased due to an increase in warranty costs and dealer incentives. Accounts payable increased as a result of increased production levels. Net cash used in investing activities was $8.0 million, which consisted of capital expenditures. Our capital spending was focused on expanding our capacity and maintenance capital. Net cash used in financing activities was $49.9 million, which included net payments of $28.3 million on long-term debt and $21.5 million of stock repurchases. Off Balance Sheet Arrangements The Company did not have any off balance sheet financing arrangements as of April 2, 2023. Critical Accounting Policies As of April 2, 2023, there were no significant changes in or changes to the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, which was filed with the SEC on September 9, 2022. ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK. We maintain an investment portfolio comprised of fixed income securities, all designated as held-to-maturity securities. Fixed income securities do carry some degree of interest rate and credit risk. However, due to the securities' investment grade ratings, short-term nature, and our intention to hold the securities to maturity, we do not expect to recognize impairment losses on declines in fair value 25 below our cost basis. See Note 4 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on investments. ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) (of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of April 2, 2023. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended April 2, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 26 PART I I – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 1A. RISK FACTORS. During the three months ended April 2, 2023, there were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report and our Fiscal Second Quarter Quarterly Report. ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS. Stock Repurchase Program On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. During the first nine months of fiscal 2023, we repurchased approximately $16.0 million of our common stock, including approximately $7.0 million during the three months ended April 2, 2023. As of April 2, 2023, the remaining authorization under the program was approximately $8.6 million. During the three months ended April 2, 2023, the Company repurchased the following shares of common stock: Period Total Number of Shares Purchased Average Price Paid Per Share (a) Total Number of Shares Purchased as part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (dollars in thousands) January 2, 2023 - January 29, 2023 — $ — — $ 15,574 January 30, 2023 - February 26, 2023 59,865 33.66 59,865 13,558 February 27, 2023 - April 2, 2023 150,285 33.14 150,285 8,574 Total 210,150 $ 33.29 210,150 8,574 (a) Represents weighted average price paid per share excluding commissions paid. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. None. ITEM 5. OTHER INFORMATION. None. 27 ITEM 6. EXHIBIT S , FINANCIAL STATEMENT SCHEDULES. Incorporated by Reference Exhibit No. Description Form File No. Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of MCBC Holdings, Inc. 10-K 001-37502 3.1 9/18/15 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc. 10-Q 001-37502 3.2 11/9/18 3.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc . 8-K 001-37502 3.1 10/25/19 3.4 Fourth Amended and Restated By-laws of MasterCraft Boat Holdings, Inc. 8-K 001-37502 3.2 10/25/19 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer * 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer * 32.1 Section 1350 Certification of Chief Executive Officer ** 32.2 Section 1350 Certification of Chief Financial Officer ** 101.INS Inline XBRL Instance Document * 101.SCH Inline XBRL Taxonomy Extension Schema Document * 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document * 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document * 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document * 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document * 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * * Filed herewith. ** Furnished herewith. 28 SIGNAT URES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASTERCRAFT BOAT HOLDINGS, INC. (Registrant) Date: May 10, 2023 By: /s/ FREDERICK A. BRIGHTBILL Frederick A. Brightbill Chief Executive Officer (Principal Executive Officer) and Chairman of the Board Date: May 10, 2023 By: /s/ TIMOTHY M. OXLEY Timothy M. Oxley Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary 29