What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-12 compared with 2021-02-10 · 123 added, 99 removed, 185 unchanged (55% of the section changed)

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We resumed operations at reduced production levels at our manufacturing facilities by mid-May 2020.

Since that time, our facilities have increased production rates above their pre-COVID levels, and we plan further increases to meet strong retail demand.

MasterCraft, NauticStar and Crest each achieved a steady increase in production during the first and second quarters of fiscal 2021.

Since that time, our facilities have increased production rates above their pre-COVID-19 levels.

We achieved the highest wholesale unit volume in the history of the Company during the third quarter of fiscal 2021, and we are planning for further increases to production rates in order to meet the continuing strong retail demand.

MasterCraft, NauticStar and Crest have each achieved a steady increase in production during fiscal 2021.

Although all of our segments made progress, NauticStar’s performance lagged behind our other brands during the first and second quarters of fiscal 2021.

In August 2020, we announced that Scott Womack had been named President of NauticStar.

We believe NauticStar will greatly benefit from Mr.

Womack’s years of executive leadership, manufacturing experience and proven dedication to operational excellence.

We and our dealers have historically utilized public boat shows, which typically occur from January through early April across North America, to showcase our newest models and features.

The COVID-19 pandemic has caused the cancellation of most large 2021 boat

In response, we ha ve l aunch ed a n online platform aimed at engaging with consumers during this dynamic boat show season.

This digital platform, named the MasterCraft Experience Digital Boat Show, is designed to bridge the gap between consumers seeking a safe, flexible avenue to research the MasterCraft brand and its products , and our dealer s looking to connect with consumers as the summer selling season approaches.

We also launch ed similar online experience s for the Crest and Aviara brand s , and in the near future plan to launch a platform for our NauticStar brand .

NauticStar is benefiting from Mr.

Womack’s years of executive leadership, manufacturing experience and proven dedication to operational excellence, as evidenced by NauticStar’s returning to profitability for the third quarter of fiscal 2021, and we believe NauticStar’s operating performance will continue to improve.

Impact to Liquidity and Capital Resources

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Among other things, the changes effected by the Amendment provide temporary relief under our financial covenants.

See Note 7 in Notes to Consolidated Financial Statements for more information regarding these changes.

See Note 7 in Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding these changes, including the sunsetting of the temporary relief provisions.

The performance of the business and our cash management activities provided the flexibility to repay the entire Revolving Credit Facility as of October 4, 2020.

As of January 3, 2021, we were in compliance with our financial covenants under the Amendment to the Credit Facility.

Since that time, our strong operating performance has continued which has allowed our cash balance to build to $29.0 million as of April 4, 2021.

In addition, we were in compliance with all of our financial covenants as of April 4, 2021.

We believe strong marine retail demand, coupled with abnormally low retail inventory levels for all our brands have created a growth opportunity for fiscal 2021 and potentially into future years.

Our facilitites are now running at production rates above their pre-COVID levels and we continue to ramp up production further.

Our facilitites are now running at production rates above their pre-COVID-19 levels, with further increases to production rates planned.

We expect this ramp up phase to continue through fiscal 2021 in order to meet strong wholesale demand as our dealers seek to satisfy current retail order flow and replenish their stock inventory.

As we navigate the unprecedented confluence of demand and disruption precipitated by the COVID-19 pandemic, our production during this ramp up period will depend, in large part, on our suppliers’ capacity.

As we navigate the unprecedented confluence of demand and disruption precipitated by the COVID-19 pandemic, our production rates going forward will depend, in large part, on our suppliers’ capacity.

Demand for raw materials and components used in the production of our products has surged.

At the same time, severe and unprecedented events, including the February 2021 ice storm, which impacted much of the United States, have recently disrupted the global supply chain.

As a result, some of the materials and components that we use, including certain resins, fiberglass, and plywood, are in short supply.

Additionally, our ability to grow and retain a high-performing workforce will be critical to meeting our production objectives.

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The ultimate impact of the COVID-19 pandemic on our business is uncertain and will depend on a number of factors, including the duration, spread and severity, the remedial action and stimulus measures adopted by local, state and federal governments, the effects of the pandemic on our consumers, dealers, suppliers and workforce, and the extent to which normal economic and operating conditions can resume and be sustained within the general economy.

Our future results of operations, cash flows, and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain or workforce disruptions and uncertain demand, additional manufacturing suspensions, additional other intangible asset impairment charges, and the impact of any initiatives that we may undertake to address financial and operational challenges faced by us and our consumers, dealers, and suppliers.

Our future results of operations, cash flows, and liquidity could be adversely impacted by supply chain or workforce disruptions, uncertain demand, additional manufacturing suspensions, additional other intangible asset impairment charges, and the impact of any initiatives that we may undertake to address financial and operational challenges faced by us and our consumers, dealers, and suppliers.

Overview of Consolidated Results of Operations

Net sales were $118.7 million for the second quarter of 2021, which represented an increase of 19.1 percent as compared to the second quarter of 2020.

The increase was primarily due to higher sales volumes at each of our segments, a favorable mix of higher-priced and higher-contented models and lower dealer incentives.

Net sales were $222.4 million for the six months ended January 3, 2021, which represented an increase of 6.2 percent as compared to the six months ended December 29, 2020.

The increase was primarily the result of a favorable mix of higher-priced and higher-contented models and lower dealer incentives.

This favorability was partially offset by slightly lower sales volume, primarily during the fiscal first quarter.

G ross margin in creased by 340 basis points to 24.7 percent for the second quarter of 202 1 from 21.2 percent for the prior year period primarily due to favorable overhead absorption driven by higher sales volume , higher prices, lower dealer incentives and materials cost containment , partially offset by higher labor costs .

Gross margin increased by 270 basis points to 25.0 percent for the six months ended January 3, 2021 from 22.3 percent for the prior year period primarily due to lower dealer incentives and materials cost containment, and higher prices, partially offset by unfavorable overhead absorption and higher labor costs.

Net income was $12.5 million for the second quarter of 2021, compared to Net income of $6.9 million for the second quarter of 2020.

Diluted earnings per share was $0.66, compared to diluted earnings per share of $0.37 for the prior year period.

Net income was $22.1 million for the six months ended January 3, 2021, compared to Net income of $15.5 million for the prior year period.

Diluted earnings per share was $1.17, compared to diluted earnings per share of $0.83 for the prior year period.

Net sales were $147.9 million for the third quarter of 2021, which represented an increase of 44.2 percent as compared to the third quarter of 2020, which was impacted by, among other things, the COVID-19 pandemic.

The increase was primarily a result of achieving the highest single quarter wholesale unit volume in the history of the Company and lower dealer incentives, partially offset by the impact of model mix.

Net sales were $370.3 million for the nine months ended April 4, 2021, which represented an increase of 18.7 percent as compared to the COVID-19 impacted nine months ended March 29, 2020.

The increase was primarily the result of higher sales volumes and lower dealer incentives, partially offset by the impact of model mix.

Gross margin increased by 450 basis points to 25.2 percent for the third quarter of 2021 from 20.7 percent for the prior year period primarily attributable to lower dealer incentives, favorable overhead absorption driven by higher sales volume, and higher prices, partially offset by costs associated with the transition of Aviara to our Merritt Island facility and higher labor costs.

G ross margin in creased by 320 basis points to 25.0 percent for the nine months ended April 4 , 2021 from 21.8 percent for the prior year period primarily due to lower dealer incentives, and higher prices, partially offset by costs associated with the transition of Aviara to our Merritt Island facility and higher labor costs .

Net income was $17.6 million for the third quarter of 2021, compared to net loss of $36.7 million for the third quarter of 2020.

Diluted earnings per share was $0.93, compared to diluted loss per share of $(1.96) for the prior year period.

Net income was $39.6 million for the nine months ended April 4, 2021, compared to net loss of $21.2 million for the prior year period.

Diluted earnings per share was $2.09, compared to diluted loss per share of $(1.13) for the prior year period.

Merritt Island Facility and Aviara Transition

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boat manufacturing facility, (the “Merritt Island Facility”) for a purchase price of $14.2 million.

We are expanding our overall boat building capacity by moving all Aviara production to the Merritt Island Facility.

While we believe this additional capacity will help facilitate Aviara’s long-term growth, importantly, removing Aviara production from our Vonore, Tennessee facility allowed for an immediate increase in capacity and productivity for our MasterCraft brand.

Although the transition of Aviara’s production is still ongoing, we began producing Aviara in the Merritt Island Facility in December 2020.

We expanded our overall boat building capacity by moving all Aviara production to the Merritt Island Facility.

While this additional capacity will help facilitate Aviara’s long-term growth, importantly, removing Aviara production from our Vonore, Tennessee facility provided for an immediate increase in capacity and productivity for our MasterCraft brand.

We began producing Aviara in the Merritt Island Facility in December 2020 and shipments from the new facility commenced in the third quarter of fiscal 2021.

Results of Operations

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Amortization of other intangible assets

Goodwill and other intangible asset impairment

Total operating expenses

OPERATING INCOME

OPERATING INCOME (LOSS)

OTHER EXPENSE:

Interest expense

INCOME BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE (BENEFIT)

NET INCOME (LOSS)

Additional financial and other data:

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Consolidated net sales per unit

Three Months Ended January 3, 2021 Compared to the Three Months Ended December 29, 2019

Net Sales for the second quarter were $118.7 million , an increase of $19.0 million, or 19.1 percent, compared to $99.6 million for the prior-year period.

Three Months Ended April 4, 2021 Compared to the Three Months Ended March 29, 2020

Net Sales for the third quarter were $147.9 million , an increase of $45.3 million, or 44.2 percent, compared to $102.6 million for the prior-year period.

The increase was primarily due to:

a $15.0 million increase for the MasterCraft segment driven by a 9.5 percent increase in sales volume, a favorable mix of higher-priced and higher-contented models, and lower dealer incentives,

a $4.7 million increase for the Crest segment resulting from a 36.9 percent increase in sales volume, higher prices, options favorability, and lower dealer incentives, partially offset by model mix, and

a $ 0.6 million decrease for the NauticStar segment primarily due to model mix, partially offset by a 5.3 percent increase in sales volume .

a $28.9 million increase for the MasterCraft segment driven by a 32.0 percent increase in sales volume, lower dealer incentives, higher prices, and options favorablility, partially offset by the impact of model mix.

a $12.5 million increase for the Crest segment resulting from a 58.6 percent increase in sales volume, lower dealer incentives, higher prices and options favorability, and

a $3.9 million increase for the NauticStar segment primarily due to a 36.1 percent increase in sales volume , partially offset by the impact of model mix .

In addition, NauticStar’s sales volume during the quarter was constrained as a result of the February 2021 ice storm which impacted much of the United States and caused NauticStar to lose approximately one week of production.

Gross Profit and Gross Margin.

Gross profit increased $16.0 million, or 75.0 percent, to $37.2 million compared to $21.3 million for the prior-year period.

The increase was primarily a result of higher sales volumes, higher prices, and lower dealer incentives at MasterCraft and Crest and favorable model and options mix at MasterCraft.

These increases were partially offset by higher labor costs at MasterCraft, NauticStar, and Crest as well as higher variable compensation costs and Aviara transition costs at MasterCraft.

The increase was primarily a result of higher sales volumes, lower dealer incentives, and higher prices at each reportable segment and favorable options at MasterCraft and Crest.

The increase was partially offset by the impact of model mix, Aviara transition costs and higher labor costs at each reportable segment.

We expect to realize higher labor costs for the full fiscal year due to changes implemented in the first quarter of fiscal 2021 to our production employee compensation packages.

Gross margin increased due to favorable overhead absorption driven by higher sales volume, higher prices, lower dealer incentives and materials cost containment, partially offset by higher labor costs.

Gross margin increased due to lower dealer incentives, favorable overhead absorption driven by higher sales volume, and higher prices, partially offset by Aviara transition costs and higher labor costs.

Operating Expenses.

Operating expenses increased $1.5 million, or 14.1 percent, compared to the prior-year period primarily driven by higher general and administrative expenses, resulting from higher incentive compensation costs and additional investment related to product development.

This increase was partially offset by lower selling and marketing costs, primarily due to the timing of anticipated expense, which has been delayed by the COVID-19 pandemic until later in the fiscal year.

Operating expenses decreased $53.8 million, or 78.6 percent, compared to the prior-year period primarily driven by the recognition of $56.4 million of goodwill and other intangible asset impairment charges in the prior-year and lower selling and marketing costs primarily due to the impacts of the COVID-19 pandemic.

This decrease was partially offset by higher general and administrative expenses resulting from higher incentive compensation costs and additional investment related to product development and information technology.

Interest Expense.

Interest expense decreased $0.4 million, or 29.7 percent primarily due to lower effective interest rates and lower average outstanding debt balances during the quarter compared to the prior-year period.

Income Tax Expense.

Our consolidated interim effective income tax rate decreased to 22.2 percent for the second quarter of 2021 from 24.4 percent for the prior-year period.

Six Months Ended

Interest expense decreased $0.3 million, or 30.5 percent due to lower effective interest rates and lower average outstanding debt balances during the quarter compared to the prior-year period.

Income Tax Expense (Benefit).

Our consolidated interim effective income tax rate decreased to 19.4 percent for the third quarter of 2021 from 23.9 percent for the prior-year period.

Nine Months Ended

(Dollars in thousands)

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Amortization of other intangible assets

Goodwill and other intangible asset impairment

Total operating expenses

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Consolidated net sales per unit

Six Months Ended January 3, 2021 Compared to the Six Months Ended December 29, 2019

Net Sales for the six months ended January 3, 2021 were $222.4 million, an increase of $13.0 million, or 6.2 percent, compared to $209.4 million for the prior-year period.

Nine Months Ended April 4, 2021 Compared to the Nine Months Ended March 29, 2020

Net Sales for the nine months ended April 4, 2021 were $370.3 million, an increase of $58.3 million, or 18.7 percent, compared to $312.0 million for the prior-year period.

The increase was primarily due to:

a $15.5 million increase for the MasterCraft segment, as the impact of slightly lower sales volume associated with our continued production ramp up was offset by a favorable mix of higher-priced and higher-contented models, lower dealer incentives, and higher parts sales volume,

a $3.8 million increase for the Crest segment primarily due to higher sales volume, lower dealer incentives, and higher prices, partially offset by model mix, and

a $6.3 million decrease for the NauticStar segment primarily due lower sales volume and model mix, partially offset by higher prices.

a $44.4 million increase for the MasterCraft segment driven by a 9.6 percent increase in sales volume, a favorable mix of higher-priced and higher-contented models, lower dealer incentives, and higher parts sales volume,

a $16.3 million increase for the Crest segment resulting from a 25.0 percent increase in sales volume, lower dealer incentives, higher prices, and options favorability, and

a $2.4 million decrease for the NauticStar segment primarily due to model mix and partially offset by higher volume and prices.

NauticStar’s sales volume during the nine months ended April 4 , 2021 was constrained as a result of the February 2021 ice storm which impacted much of the United States and caused NauticStar to lose approximately one week of production.

Gross Profit and Gross Margin.

Gross profit increased $24.8 million, or 36.5 percent, to $92.7 million compared to $67.9 million for the prior-year period.

The increase was primarily a result of lower dealer incentives, higher prices, and higher parts revenue at MasterCraft and Crest and favorable model and options mix at MasterCraft.

These increases were partially offset by lower sales volume at MasterCraft and NauticStar, higher labor costs for each reportable segment, and higher variable compensation costs and Aviara transition costs at MasterCraft.

The increase was primarily a result of lower dealer incentives, higher unit volume, higher prices, favorable options mix and higher parts sales volume.

These increases were partially offset by higher labor costs for each reportable segment, and higher incentive compensation costs and costs associated with the transition of Aviara to our Merritt Island facility.

We expect to realize higher labor costs for the full fiscal year due to changes implemented in the first quarter of fiscal 2021 to our production employee compensation packages.

Gross margin increased primarily due to lower dealer incentives and materials cost containment, and higher prices, partially offset by unfavorable overhead and higher labor costs.

Gross margin increased due to lower dealer incentives and higher prices, partially offset by Aviara transition costs and higher labor costs.

Operating Expenses.

Operating expenses increased $1.5 million, or 6.4 percent, compared to the prior-year period due to higher general and administrative expenses, primarily driven by higher incentive compensation costs and additional investment related to information technology and product development.

Operating expenses decreased $52.3 million, or 56.8 percent, compared to the prior-year period due to the same reasons described above for the quarterly period.

Interest Expense.

Interest expense decreased $0.7 million, or 26.8 percent primarily due to lower effective interest rates and lower average outstanding debt balances during the quarter compared to the prior-year period.

Income Tax Expense.

Our consolidated interim effective income tax rate decreased to 22.5 percent for the six months ended January 3, 2021 from 24.2 percent for the prior-year period.

Interest expense decreased $1.0 million, or 27.9 percent primarily due to the same reasons described above for the quarterly period.

Income Tax Expense (Benefit).

Our consolidated interim effective income tax rate decreased to 21.2 percent for the nine months ended April 4, 2021 from 23.7 percent for the prior-year period.

Non-GAAP Measures

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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 Aviara transition costs, Aviara (new brand) startup costs, and non-cash share-based compensation.

For the periods presented herein, these adjustments include goodwill and other intangible asset impairment, COVID-19 shutdown costs, Aviara transition costs, Aviara (new brand) startup costs, and non-cash share-based compensation.

We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of Net sales.

Adjusted Net Income and Adjusted Net Income Per Share

We define Adjusted Net Income and Adjusted Net Income per share as net income 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 adjusted for the impact to income tax expense related to non-GAAP adjustments.

For the periods presented herein, these adjustments include Aviara transition costs, Aviara (new brand) startup costs, and certain non-cash items including other intangible asset amortization and share-based compensation.

EBITDA, Adjusted EBITDA, Adjusted EBITDA m argin, 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.

We define Adjusted Net Income and Adjusted Net Income per share as net income (loss) 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 adjusted for the impact to income tax expense related to non-GAAP adjustments.

EBITDA, Adjusted EBITDA, Adjusted EBITDA m argin, 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 (loss) or operating income (loss) as determined under accounting principles generally accepted in the United States, or U.S.

The Non-GAAP Measures are not measures of performance in accordance with U.S.

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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.

The following table presents a reconciliation of net income as determined in accordance with U.S.

The following table presents a reconciliation of net income (loss) as determined in accordance with U.S.

GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated:

Three Months Ended

Six Months Ended

Income tax expense

Nine Months Ended

Net income (loss)

Income tax expense (benefit)

Interest expense

Depreciation and amortization

Goodwill and other intangible asset impairment (a)

COVID-19 shut-down costs (b)

Aviara start-up costs (c)

Share-based compensation

Aviara start-up costs (a)

Aviara transition costs (b)

Aviara transition costs (d)

Adjusted EBITDA

Adjusted EBITDA Margin

Represents non-cash charges recorded in the NauticStar and Crest segments for impairments of goodwill and trade name.

See Note 5 in Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding these impairment charges.

Represents costs associated with the COVID-19 pandemic.

Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees.

Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company.

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We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021.

The following table presents a reconciliation of net income as determined in accordance with U.S.

The following table presents a reconciliation of net income (loss) as determined in accordance with U.S.

GAAP to Adjusted Net Income for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

(Dollars in thousands)

Income tax expense

Net income (loss)

Income tax expense (benefit)

Goodwill and other intangible asset impairment (a)

COVID-19 shut-down costs (b)

Amortization of acquisition intangibles

Aviara start-up costs (a)

Aviara transition costs (b)

Aviara start-up costs (c)

Share-based compensation

Aviara transition costs (d)

Adjusted Net Income before income taxes

Adjusted income tax expense (c)

Adjusted income tax expense (e)

Adjusted Net Income

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Diluted Adjusted Net Income per share

Represents non-cash charges recorded in the NauticStar and Crest segments for impairments of goodwill and trade name.

See Note 5 in Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding these impairment charges.

Represents costs associated with the COVID-19 pandemic.

Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees.

Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company.

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Reflects income tax expense at an income tax rate of 23.0% for each period presented.

The following table presents the reconciliation of net income per diluted share to Adjusted net income per diluted share for the periods presented:

The following table presents the reconciliation of net income (loss) per diluted share to Adjusted Net Income per diluted share for the periods presented:

Three Months Ended

Six Months Ended

Net income per diluted share

Nine Months Ended

Net income (loss) per diluted share

Impact of adjustments:

Income tax expense

Income tax expense (benefit)

Goodwill and other intangible asset impairment (a)

COVID-19 shut-down costs (b)

Amortization of acquisition intangibles

Aviara start-up costs (a)

Aviara transition costs (b)

Aviara start-up costs (c)

Share-based compensation

Aviara transition costs (d)

Adjusted Net Income per diluted share before income taxes

Impact of adjusted income tax expense on net income per diluted share before income taxes (c)

Impact of adjusted income tax expense on net income per diluted share before income taxes (e)

Adjusted Net Income per diluted share

Represents non-cash charges recorded in the NauticStar and Crest segments for impairments of goodwill and trade name.

See Note 5 in Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding these impairment charges.

Represents costs associated with the COVID-19 pandemic.

Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees.

Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company.

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The Company believes that, because its outstanding share-based compensation grants no longer result in a material amount of dilution of its earnings as was the case nearer to the date of our IPO, the adjustment methodology previously used no longer provides meaningful information to management or other users of its financial statements.

This change resulted in an increase of $0.01 in the six months ended December 29, 2019 in the amount of Adjusted Net Income per diluted share from what was previously reported.

This change resulted in an increase of $0.02 in the nine months ended March 29, 2020 in the amount of Adjusted Net Income per diluted share from what was previously reported.

Liquidity and Capital Resources

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Our principal sources of liquidity are our cash balance, cash generated from operating activities, our Revolving Credit Facility and the refinancing and/or new issuance of long-term debt.

As of January 3, 2021, we had a cash balance of $12.1 million in addition to $35.0 million of available borrowing capacity under the Revolving Credit Facility.

As of April 4, 2021, we had a cash balance of $29.0 million in addition to $35.0 million of available borrowing capacity under the Revolving Credit Facility.

During October 2020, the Company completed the purchase of the Merritt Island Facility for a purchase price of $14.2 million.

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We believe our cash balance, cash from operations, and availability under the Revolving Credit Facility will be sufficient to provide for our liquidity and capital resource needs.

However, we are continuing to monitor the COVID-19 p andemic and its impact on our business, dealers, consumers and industry as a whole .

The following table summarizes the cash flows from operating, investing, and financing activities:

However, we are continuing to monitor the COVID-19 pandemic and its impact on our business, dealers, consumers and industry as a whole.

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

Six Months Ended

Nine Months Ended

(Dollars in thousands)

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Net change in cash

Net cash provided by operating activities increased primarily due to higher operating income partially offset by additional working capital usage.

Working capital is defined as Accounts receivable, Income tax receivable, Inventories, and Prepaid expenses and other current assets net of Accounts payable, Income tax payable, and Accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets.

Cash flows from working capital changes increased $2.0 million compared to the prior year quarter and included:

a $11.5 million increase attributable to Accounts payable driven by increasing production rates during the first half of fiscal 2021;

a $9.4 million increase related to Accrued expenses and other current liabilities largely from lower cash used for variable compensation and dealer incentives for the first half of fiscal 2021 compared to the first half of fiscal 2020;

a $10.5 million decrease attributable to Inventories mainly as a result of an increase in raw materials and work-in-process driven by increasing production during the first half of fiscal 2021;

a $9.5 million decrease related to Accounts receivable primarily due to an improved collection cycle at Crest during the first half of fiscal 2020 and a larger build in receivables during first half of fiscal 2021 as compared to the same period in fiscal 2020 driven by relative sales volumes improvement.

Net cash used in investing activities increased $7.4 million due to higher capital expenditures, primarily the purchase of the Merritt Island Facility.

Financing cash flow decreased primarily as the result of higher repayments of debt during the first half of fiscal 2021 as compared to the same period of the prior year.

The Company repaid net borrowings of $10.0 million on its Revolving Credit Facility and $4.7 million of scheduled principal repayments on its term loans during the first half of fiscal 2021, compared to $2.3 million of scheduled repayments and $6.0 million of voluntary prepayments on long-term debt during the first half of fiscal 2020.

Net cash provided by operating activities increased primarily due to higher operating income and more cash provided by working capital usage.

Working capital is defined as Accounts receivable, Income tax receivable, Inventories, and Prepaid expenses and other current assets net of Accounts payable, Income tax receivable, and Accrued expenses and other current liabilities as presented in the unaudited condensed consolidated balance sheets.

Cash flows from working capital changes increased $14.8 million compared to the prior year period and included:

a $16.0 million increase attributable to Accounts payable driven by increasing production rates during the nine months ended April 4, 2021;

a $11.3 million increase related to Accrued expenses and other current liabilities largely from lower cash used for variable compensation, higher customer deposits, and lower cash used for dealer incentives for the nine months ended April 4, 2021 compared to the nine months ended March, 29, 2020;

a $9.4 million increase related to Income tax receivable primarily as a result of the receipt of a tax refund associated with fiscal 2020;

a $13.3 million decrease attributable to Inventories mainly as a result of an increase in raw materials and work-in-process driven by increasing production during the nine months ended April 4, 2021;

a $6.6 million decrease related to Accounts receivable primarily due to an improved collection cycle at Crest during the nine months ended March 29, 2020 as compared to the prior period, which has been sustained during the nine months ended April 4, 2021.

Net cash used in investing activities increased $10.2 million due to higher capital expenditures, primarily related to the purchase of the Merritt Island Facility.

Financing cash flow decreased primarily as the result of lower net borrowing from our Revolving Credit Facility during the nine months ended April 4, 2021 compared to the nine months ended March, 29, 2020.

On March 20, 2020, the Company borrowed all available funds under its Revolving Credit Facility, $35.0 million, a precautionary measure in order to increase its cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the COVID-19 pandemic.

The Company repaid $25.0 million of this amount before the end of fiscal 2020.

In addition, t he Company repaid net borrowings of $10.0 million on its Revolving Credit Facility and $7.0 million of scheduled principal repayments on its term loans during the nine months ended April 4, 2021, compared to $10.6 million of scheduled repayments during the nine months ended March, 29, 2020.

Off Balance Sheet Arrangements

The Company did not have any off-balance sheet financing arrangements as of January 3, 2021.

The Company did not have any off balance sheet financing arrangements as of April 4, 2021.

Emerging Growth Company

We are currently an emerging growth company, as defined in the JOBS Act.

We will continue to be an emerging growth company until June 30, 2021, which is the last day of our fiscal year following the fifth anniversary of the date of completion of our initial public

We will continue to be an emerging growth company until June 30, 2021, which is the last day of our fiscal year following the fifth anniversary of the date of completion of our initial public offering.

As a result, beginning with our annual reporting requirements related to fiscal 2021, we may no longer take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding stockholder advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation.

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Critical Accounting Policies

As of January 3, 2021 there were no significant changes in or changes in 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, 2020, which was filed with the SEC on September 11, 2020 .

As of April 4, 2021 there were no significant changes in or changes in 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, 2020, which was filed with the SEC on September 11, 2020 .

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis