MasterCraft Boat Holdings, Inc. 10-Q

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 2020 Annual Report on Form 10-K. 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. COVID-19 Pandemic Demand for the Company’s products has been strong and, as a result of our employee’s committed efforts, disruptions to the Company’s production have been minimal since resuming operations in May 2020. However, we continue to be subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business remains uncertain and difficult to predict, as the response to the COVID-19 pandemic is still evolving in many countries, including the United States and other markets where we and our suppliers operate. Impact to Operations To balance wholesale production with the anticipated impacts to retail demand caused by the economic impacts of the COVID-19 pandemic, we reduced production in February 2020 and, in late March 2020, temporarily suspended manufacturing operations at all of our facilities to protect the health of our employees and comply with governmental mandates. 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-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. 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. 18 Impact to Liquidity and Capital Resources During March 2020, we drew $35.0 million on our Revolving Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. Additionally, on May 7, 2020, we entered into Amendment No. 3 (the “Amendment”) to the Fourth Amended & Restated Credit and Guarantee Agreement (the “Credit Facility”) to strengthen our financial flexibility. Among other things, the changes effected by the Amendment provide temporary relief under our financial covenants. 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. 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. Outlook 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-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 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. Although the consumer responses to the COVID-19 pandemic have thus far resulted in strong demand for our products, significant uncertainty exists in the economy as a result of the unpredictable outlook for the COVID-19 pandemic. 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 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 $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. 19 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 On October 26, 2020, we completed the purchase of certain real property located in Merritt Island, Florida, including an approximately 140,000 sq. ft. boat manufacturing facility, (the “Merritt Island Facility”) for a purchase price of $14.2 million. 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. 20 Results of Operations The table below presents our consolidated results of operations for the three months ended: Three Months Ended April 4, March 29, 2021 vs. 2020 2021 2020 Change % Change (Dollars in thousands) Consolidated statements of operations : NET SALES $ 147,854 $ 102,562 $ 45,292 44.2 % COST OF SALES 110,627 81,288 29,339 36.1 % GROSS PROFIT 37,227 21,274 15,953 75.0 % OPERATING EXPENSES: Selling and marketing 3,693 4,933 (1,240 ) (25.1 %) General and administrative 9,984 6,094 3,890 63.8 % Amortization of other intangible assets 987 987 - 0.0 % Goodwill and other intangible asset impairment — 56,437 (56,437 ) Total operating expenses 14,664 68,451 (53,787 ) (78.6 %) OPERATING INCOME (LOSS) 22,563 (47,177 ) 69,740 (147.8 %) OTHER EXPENSE: Interest expense 755 1,086 (331 ) (30.5 %) INCOME (LOSS) BEFORE INCOME TAX EXPENSE 21,808 (48,263 ) 70,071 (145.2 %) INCOME TAX EXPENSE (BENEFIT) 4,240 (11,550 ) 15,790 (136.7 %) NET INCOME (LOSS) $ 17,568 $ (36,713 ) $ 54,281 (147.9 %) Additional financial and other data: Unit sales volume: MasterCraft 941 713 228 32.0 % NauticStar 426 313 113 36.1 % Crest 731 461 270 58.6 % Consolidated unit sales volume 2,098 1,487 611 41.1 % Net sales: MasterCraft $ 99,447 $ 70,531 $ 28,916 41.0 % NauticStar 18,045 14,156 3,889 27.5 % Crest 30,362 17,875 12,487 69.9 % Consolidated net sales $ 147,854 $ 102,562 $ 45,292 44.2 % Net sales per unit: MasterCraft $ 106 $ 99 $ 7 7.1 % NauticStar 42 45 (3 ) (6.7 %) Crest 42 39 3 7.7 % Consolidated net sales per unit 70 69 1 1.4 % Gross margin 25.2 % 20.7 % 450 bps Three Months Ended April 4, 2021 Compared to the Three Months Ended March 29, 2020 Net Sales. 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 $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 21 • 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, 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 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 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 $0.3 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. 22 Nine Months Ended April 4, March 29, 2021 vs. 2020 2021 2020 Change % Change (Dollars in thousands) Consolidated statements of operations : NET SALES $ 370,276 $ 311,979 $ 58,297 18.7 % COST OF SALES 277,546 244,030 33,516 13.7 % GROSS PROFIT 92,730 67,949 24,781 36.5 % OPERATING EXPENSES: Selling and marketing 9,589 13,340 (3,751 ) (28.1 %) General and administrative 27,268 19,356 7,912 40.9 % Amortization of other intangible assets 2,961 2,961 - 0.0 % Goodwill and other intangible asset impairment — 56,437 (56,437 ) Total operating expenses 39,818 92,094 (52,276 ) (56.8 %) OPERATING INCOME (LOSS) 52,912 (24,145 ) 77,057 (319.1 %) OTHER EXPENSE: Interest expense 2,644 3,667 (1,023 ) (27.9 %) INCOME (LOSS) BEFORE INCOME TAX EXPENSE 50,268 (27,812 ) 78,080 (280.7 %) INCOME TAX EXPENSE (BENEFIT) 10,632 (6,601 ) 17,233 (261.1 %) NET INCOME (LOSS) $ 39,636 $ (21,211 ) $ 60,847 (286.9 %) Additional financial and other data: Unit sales volume: MasterCraft 2,378 2,170 208 9.6 % NauticStar 1,067 1,046 21 2.0 % Crest 1,759 1,407 352 25.0 % Consolidated unit sales volume 5,204 4,623 581 12.6 % Net sales: MasterCraft $ 255,570 $ 211,201 $ 44,369 21.0 % NauticStar 45,336 47,727 (2,391 ) (5.0 %) Crest 69,370 53,051 16,319 30.8 % Consolidated net sales $ 370,276 $ 311,979 $ 58,297 18.7 % Net sales per unit: MasterCraft $ 107 $ 97 $ 10 10.3 % NauticStar 42 46 (4 ) (8.7 %) Crest 39 38 1 2.6 % Consolidated net sales per unit 71 67 4 6.0 % Gross margin 25.0 % 21.8 % 320 bps Nine Months Ended April 4, 2021 Compared to the Nine Months Ended March 29, 2020 Net Sales. 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 $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 23 • 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 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 due to lower dealer incentives and higher prices, partially offset by Aviara transition costs and higher labor costs. Operating Expenses. 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 $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 EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin We define EBITDA as earnings before interest expense, 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 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 (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. 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 certain non-cash items including other intangible asset amortization and share-based compensation. 24 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. 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 adjust s for the impact to income tax expense (benefit) related to non-GAAP adjustments . 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 Adjusted EBITDA does not reflect any cash requirements for such replacements; • Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect our tax expense or any cash requirements to pay income taxes; • Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and • Adjusted Net Income, Adjusted Net Income per share, and Adjusted EBITDA 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. 25 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 Nine Months Ended April 4, March 29, April 4, March 29, 2021 % of sales 2020 % of sales 2021 % of sales 2020 % of sales Net income (loss) $ 17,568 11.9% $ (36,713 ) -35.8% $ 39,636 10.7% $ (21,211 ) -6.8% Income tax expense (benefit) 4,240 (11,550 ) 10,632 (6,601 ) Interest expense 755 1,086 2,644 3,667 Depreciation and amortization 2,948 2,632 8,547 7,686 EBITDA 25,511 17.3% (44,545 ) -43.4% 61,459 16.6% (16,459 ) -5.3% Goodwill and other intangible asset impairment (a) - 56,437 - 56,437 COVID-19 shut-down costs (b) - 1,506 - 1,506 Aviara start-up costs (c) - 398 - 1,213 Share-based compensation 902 159 2,185 703 Aviara transition costs (d) 1,125 - 2,149 - Adjusted EBITDA $ 27,538 18.6% $ 13,955 13.6% $ 65,793 17.8% $ 43,400 13.9% (a) 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. (b) Represents costs associated with the COVID-19 pandemic. Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees. (c) Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, after the Aviara transition of production to the new Merritt Island Facility in Florida. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. (d) Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation). We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021. 26 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 Nine Months Ended April 4, March 29, April 4, March 29, 2021 2020 2021 2020 (Dollars in thousands) Net income (loss) $ 17,568 $ (36,713 ) $ 39,636 $ (21,211 ) Income tax expense (benefit) 4,240 (11,550 ) 10,632 (6,601 ) Goodwill and other intangible asset impairment (a) - 56,437 - 56,437 COVID-19 shut-down costs (b) - 1,506 - 1,506 Amortization of acquisition intangibles 960 960 2,882 2,882 Aviara start-up costs (c) - 398 - 1,213 Share-based compensation 902 159 2,185 703 Aviara transition costs (d) 1,125 - 2,149 - Adjusted Net Income before income taxes 24,795 11,197 57,484 34,929 Adjusted income tax expense (e) 5,703 2,575 13,221 8,034 Adjusted Net Income $ 19,092 $ 8,622 $ 44,263 $ 26,895 Adjusted Net Income per share: Basic $ 1.01 $ 0.46 $ 2.35 $ 1.44 Diluted $ 1.01 $ 0.46 $ 2.34 $ 1.44 Weighted average shares used for the computation of: Basic Adjusted Net Income per share 18,817,975 18,739,480 18,799,875 18,731,338 Diluted Adjusted Net Income per share 18,989,629 18,739,480 18,928,288 18,731,338 (a) 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. (b) Represents costs associated with the COVID-19 pandemic. Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees. (c) Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, after the Aviara transition of production to the new Merritt Island Facility in Florida. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. (d) Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation). We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021. (e) Reflects income tax expense at an income tax rate of 23.0% for each period presented. 27 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 Nine Months Ended April 4, March 29, April 4, March 29, 2021 2020 2021 2020 Net income (loss) per diluted share $ 0.93 $ (1.96 ) $ 2.09 $ (1.13 ) Impact of adjustments: Income tax expense (benefit) 0.22 $ (0.61 ) 0.57 (0.34 ) Goodwill and other intangible asset impairment (a) - $ 3.01 - 3.01 COVID-19 shut-down costs (b) - $ 0.08 - 0.08 Amortization of acquisition intangibles 0.05 $ 0.05 0.15 0.15 Aviara start-up costs (c) - $ 0.02 - 0.06 Share-based compensation 0.05 $ 0.01 0.12 0.04 Aviara transition costs (d) 0.06 $ - 0.11 - Adjusted Net Income per diluted share before income taxes $ 1.31 $ 0.60 $ 3.04 $ 1.87 Impact of adjusted income tax expense on net income per diluted share before income taxes (e) (0.30 ) $ (0.14 ) (0.70 ) (0.43 ) Adjusted Net Income per diluted share $ 1.01 $ 0.46 $ 2.34 $ 1.44 (a) 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. (b) Represents costs associated with the COVID-19 pandemic. Costs include lump sum severance payments and temporary continuation of healthcare benefits for laid off employees. (c) Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, after the Aviara transition of production to the new Merritt Island Facility in Florida. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. (d) Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation). We expect to incur such costs until Aviara production is fully transitioned, which we expect will be completed during fiscal 2021. (e) Reflects income tax expense at an income tax rate of 23.0% for each period presented. Change in Non-GAAP Financial Measure Prior to fiscal year-end 2020, the Company’s calculation of a diluted per share amount of Adjusted Net Income included an adjustment to fully dilute this non-GAAP measure for all outstanding share-based compensation grants. This additional dilution was incorporated by adjusting the GAAP measure, Weighted Average Shares Used for the Computation of Basic earnings per share, as presented on the Consolidated Statements of Operations, to include a dilutive effect for all outstanding RSAs, PSUs, and stock options. Beginning with the fiscal year-end 2020 presentation and for all subsequent periods, the Company will no longer include this additional dilution impact in its calculation of Adjusted Net Income per diluted share. The Company has instead utilized 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. 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 $0.02 in the nine months ended March 29, 2020 in the amount of Adjusted Net Income per diluted share from what was previously reported. 28 Liquidity and Capital Resources Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, and service our debt. 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 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. See Note 11 in Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding this transaction. 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 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: Nine Months Ended April 4, March 29, 2021 2020 Change (Dollars in thousands) Total cash provided by (used in): Operating activities $ 54,393 $ 23,900 $ 30,493 Investing activities (23,779 ) (13,576 ) (10,203 ) Financing activities (17,963 ) 24,841 (42,804 ) Net change in cash $ 12,651 $ 35,165 $ (22,514 ) Cash Flows 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; and • 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. 29 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 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 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. The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Pursuant to Section 107 of the JOBS Act, we have irrevocably chosen to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” Critical Accounting Policies 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 . ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK. Refer to our 2020 Annual Report for a complete discussion of the Company’s market risk. There have been no material changes in market risk from those disclosed therein.