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 2021 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. Overview Dealer inventory levels remain low compared to pre-pandemic levels, which has sustained the increased wholesale demand for our product. Year over year, we have increased production rates to address wholesale demand, yet supply chain and labor challenges have disrupted our efforts to replenish dealer inventory levels. Furthermore, these challenges, coupled with inflationary pressures, have increased costs and reduced our margins. To mitigate the impact of these challenges on our business, we have increased raw material safety stock, pursued alternative sourcing, altered business processes, and phased in additional mid-cycle price increases. However, the full extent of the impact on our business, operations, and financial results will depend on evolving factors that we cannot predict. See Part I. Item 1A. Risk Factors set forth in our 2021 Annual Report on Form 10-K. Macroeconomic Events We are actively monitoring the impact of changing macroeconomic conditions on our business, including geopolitical events, disrupted global supply chains, and inflation. The impact of these factors has affected many manufacturers across various industries including ours. Supply chain challenges continue to evolve, driven by increased demand, labor shortages, logistical constraints, and rising prices to our suppliers, creating inefficiencies and shipping delays. Rapidly increasing material and overhead costs are outpacing price increases as we try to mitigate the impact. Furthermore, the uncertainty associated with the COVID-19 pandemic remains, which we continue to actively monitor in terms of its potential impact on our results of operations. The extent to which our operations will be impacted by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. 19 Results of Operations Consolidated Results The table below presents our consolidated results of operations for the three and nine months ended: Three Months Ended 2022 vs. 2021 Nine Months Ended 2022 vs. 2021 April 3, April 4, % April 3, April 4, % 2022 2021 Change Change 2022 2021 Change Change Consolidated statements of operations : NET SALES $ 186,735 $ 147,854 $ 38,881 26.3 % $ 490,210 $ 370,276 $ 119,934 32.4 % COST OF SALES 144,702 110,627 34,075 30.8 % 382,857 277,546 105,311 37.9 % GROSS PROFIT 42,033 37,227 4,806 12.9 % 107,353 92,730 14,623 15.8 % OPERATING EXPENSES: Selling and marketing 3,611 3,693 (82 ) (2.2 %) 11,288 9,589 1,699 17.7 % General and administrative 9,948 9,984 (36 ) (0.4 %) 29,881 27,268 2,613 9.6 % Amortization of other intangible assets 987 987 — 0.0 % 3,000 2,961 39 1.3 % Goodwill impairment — — — — 1,100 — 1,100 — Total operating expenses 14,546 14,664 (118 ) (0.8 %) 45,269 39,818 5,451 13.7 % OPERATING INCOME 27,487 22,563 4,924 21.8 % 62,084 52,912 9,172 17.3 % OTHER EXPENSE: Interest expense 341 755 (414 ) (54.8 %) 1,080 2,644 (1,564 ) (59.2 %) INCOME BEFORE INCOME TAX EXPENSE 27,146 21,808 5,338 24.5 % 61,004 50,268 10,736 21.4 % INCOME TAX EXPENSE 6,211 4,240 1,971 46.5 % 14,281 10,632 3,649 34.3 % NET INCOME $ 20,935 $ 17,568 $ 3,367 19.2 % $ 46,723 $ 39,636 $ 7,087 17.9 % Additional financial and other data: Unit sales volume: MasterCraft 900 933 (33 ) (3.5 %) 2,569 2,346 223 9.5 % Crest 855 731 124 17.0 % 2,261 1,759 502 28.5 % NauticStar 348 426 (78 ) (18.3 %) 949 1,067 (118 ) (11.1 %) Aviara 29 8 21 262.5 % 71 32 39 121.9 % Consolidated unit sales volume 2,132 2,098 34 1.6 % 5,850 5,204 646 12.4 % Net sales: MasterCraft $ 119,956 $ 97,023 $ 22,933 23.6 % $ 318,744 $ 246,125 $ 72,619 29.5 % Crest 38,959 30,362 8,597 28.3 % 101,457 69,370 32,087 46.3 % NauticStar 17,392 18,045 (653 ) (3.6 %) 45,817 45,336 481 1.1 % Aviara 10,428 2,424 8,004 330.2 % 24,192 9,445 14,747 156.1 % Consolidated net sales $ 186,735 $ 147,854 $ 38,881 26.3 % $ 490,210 $ 370,276 $ 119,934 32.4 % Net sales per unit: MasterCraft $ 133 $ 104 $ 29 27.9 % $ 124 $ 105 $ 19 18.1 % Crest 46 42 4 9.5 % 45 39 6 15.4 % NauticStar 50 42 8 19.0 % 48 42 6 14.3 % Aviara 360 303 57 18.8 % 341 295 46 15.6 % Consolidated net sales per unit 88 70 18 25.7 % 84 71 13 18.3 % Gross margin 22.5 % 25.2 % (270) bps 21.9 % 25.0 % (310) bps 20 Net sales increased 26.3 percent and 32.4 percent during the third quarter and first nine months of fiscal 2022, respectively, when compared with the same prior year periods. Net sales benefited from increased sales volume as our dealers continue to restock their inventories. Higher prices, favorable model mix, and higher option sales were also favorable compared to the prior period. Refer to the MasterCraft, Crest, NauticStar, and Aviara segments for further details on the drivers of net sales changes. Gross margin percentage declined 270 basis points and 310 basis points during the third quarter and first nine months of fiscal 2022, respectively, compared to the same prior year periods. Lower margins were the result of supply chain disruptions and inflationary pressures that drove material and overhead costs higher and were most pronounced at the NauticStar segment. Though we implemented mitigating procedures and phased in mid-cycle price increases to offset these headwinds, supply chain disruptions and inflationary pressures continued to impact our margins. Operating expenses were flat during the third quarter and increased 13.7 percent during the first nine months of fiscal 2022 when compared to the same prior year periods. Despite our increased costs during the first nine months, selling, general, and administrative expenses as a percentage of sales have decreased when compared to the same prior-year period. Selling and marketing expense increased due to timing of prior-year expenses being impacted by the COVID-19 pandemic, resulting in lower costs for the first nine months of fiscal 2021. General and administrative expenses increased during the first nine months as a result of continued investments in information technology. Additionally, an impairment charge related to the allocated goodwill associated with the Aviara segment was recorded in the first quarter of fiscal 2022, as discussed in Note 4 to the Unaudited Condensed Consolidated Financial Statements. Interest expense decreased due to lower effective interest rates and lower average outstanding debt balances during the current year periods compared to the prior year periods. Segment Results As discussed in Note 1 to our Unaudited Condensed Consolidated Financial Statements and beginning with the first quarter of fiscal 2022, our CODM began to manage our business, allocate resources, and evaluate performance based on the reportable segments of MasterCraft, Crest, NauticStar, and Aviara. MasterCraft Segment The following table sets forth MasterCraft segment results for the three and nine months ended: Three Months Ended 2022 vs. 2021 Nine Months Ended 2022 vs. 2021 April 3, April 4, % April 3, April 4, % 2022 2021 Change Change 2022 2021 Change Change Net sales $ 119,956 $ 97,023 $ 22,933 23.6 % $ 318,744 $ 246,125 $ 72,619 29.5 % Operating income 28,051 20,813 7,238 34.8 % 65,533 51,840 13,693 26.4 % Purchases of property, plant and equipment 1,434 1,109 325 29.3 % 4,966 3,807 1,159 30.4 % Unit sales volume 900 933 (33 ) (3.5 %) 2,569 2,346 223 9.5 % Net sales per unit $ 133 $ 104 $ 29 27.9 % $ 124 $ 105 $ 19 18.1 % Net sales increased 23.6 percent and 29.5 percent during the third quarter and first nine months of fiscal 2022, respectively, when compared with the same prior year periods. The increase was primarily driven by favorable model mix, higher prices, and higher option sales. For the third quarter, the increase was partially offset by decreased sales volumes. Lower sales volume for the quarter was driven by supply chain disruptions and absenteeism due to COVID-19, which created inefficiencies and shipping delays. In contrast to the third quarter, the first nine months benefited from increased sales volumes. 21 Operating income increased $7.2 million and $13.7 million during the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods. The increase was driven by higher net sales, offset by inflationary pressures and production inefficiencies from supply chain disruptions and labor challenges. Additionally, for the first nine months of fiscal 2022, Selling and marketing expense increased due to timing of prior-year expenses being impacted by the COVID-19 pandemic, resulting in lower costs for the first nine months of fiscal 2021. Also, General and administrative expenses increased as a result of continued investments in product development and information technology. Crest Segment The following table sets forth Crest segment results for the three and nine months ended: Three Months Ended 2022 vs. 2021 Nine Months Ended 2022 vs. 2021 April 3, April 4, % April 3, April 4, % 2022 2021 Change Change 2022 2021 Change Change Net sales $ 38,959 $ 30,362 $ 8,597 28.3 % $ 101,457 $ 69,370 $ 32,087 46.3 % Operating income 5,568 4,150 1,418 34.2 % 14,004 8,462 5,542 65.5 % Purchases of property, plant and equipment 1,146 320 826 258.1 % 2,190 344 1,846 536.6 % Unit sales volume 855 731 124 17.0 % 2,261 1,759 502 28.5 % Net sales per unit $ 46 $ 42 $ 4 9.5 % $ 45 $ 39 $ 6 15.4 % Net sales increased $8.6 million and $32.1 million during the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods, as a result of higher sales volumes and higher prices. Operating income for the third quarter and first nine months of fiscal 2022 increased 34.2 percent and 65.5 percent, respectively, when compared to the same prior year periods. The increase is primarily the result of higher net sales, partially offset by higher costs from inflationary pressures. Purchases of property, plant, and equipment increased $0.8 million and $1.8 million for the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods due to investments in manufacturing capacity expansion and maintenance capital. NauticStar Segment The following table sets forth NauticStar segment results for the three and nine months ended: Three Months Ended 2022 vs. 2021 Nine Months Ended 2022 vs. 2021 April 3, April 4, % April 3, April 4, % 2022 2021 Change Change 2022 2021 Change Change Net sales $ 17,392 $ 18,045 $ (653 ) (3.6 %) $ 45,817 $ 45,336 $ 481 1.1 % Operating (loss) / income (4,117 ) 331 (4,448 ) (1343.8 %) (9,519 ) (1,614 ) (7,905 ) 489.8 % Purchases of property, plant and equipment 1,047 958 89 9.3 % 2,818 1,717 1,101 64.1 % Unit sales volume 348 426 (78 ) (18.3 %) 949 1,067 (118 ) (11.1 %) Net sales per unit $ 50 $ 42 $ 8 19.0 % $ 48 $ 42 $ 6 14.3 % Net sales decreased $0.7 million for the third quarter of fiscal 2022 when compared to the same prior-year period. The benefits of higher prices and favorable model mix did not overcome the decreased sales volume during the third quarter. Lower sales volume was driven by supply chain disruptions and production inefficiencies, which created shipping delays. Net sales increased $0.5 million for the first 22 nine months of fiscal 2022 , due to higher prices , favorable model mix, and higher option sales , partially offse t by decreased sales volumes. Operating loss was $4.1 million and $9.5 million for the third quarter and first nine months of fiscal 2022, respectively. Supply chain disruptions, labor challenges, and higher costs from inflationary pressures, offset benefits from higher sales prices. Additionally, for the third quarter of fiscal 2022, $0.2 million in expense was recognized for third-party consulting fees in an effort to improve operational efficiency and increase throughput at the NauticStar segment. Aviara Segment The following table sets forth Aviara segment results for the three and nine months ended: Three Months Ended 2022 vs. 2021 Nine Months Ended 2022 vs. 2021 April 3, April 4, % April 3, April 4, % 2022 2021 Change Change 2022 2021 Change Change Net sales $ 10,428 $ 2,424 $ 8,004 330.2 % $ 24,192 $ 9,445 $ 14,747 156.1 % Operating loss (2,015 ) (2,731 ) 716 (26.2 %) (7,934 ) (5,776 ) (2,158 ) 37.4 % Goodwill impairment — — — — 1,100 — 1,100 — Purchases of property, plant and equipment 496 2,489 (1,993 ) (80.1 %) 865 17,911 (17,046 ) (95.2 %) Unit sales volume 29 8 21 262.5 % 71 32 39 121.9 % Net sales per unit $ 360 $ 303 $ 57 18.8 % $ 341 $ 295 $ 46 15.6 % Net sales increased $8.0 million and $14.7 million during the third quarter and first nine months of fiscal 2022, respectively, when compared to the same prior year periods, due to an increase in sales volume, favorable model mix, and higher prices. During fiscal 2022, all Aviara boats were manufactured in our 140,000 square foot Merritt Island, Florida facility, which we purchased in October 2020. During the first six months of 2021, the production of Aviara boats at our MasterCraft facility in Vonore, Tennessee, was winding down and transitioning to the Merritt Island facility. As a result of this transition, overhead costs attributable to Aviara increased significantly which created a dilutive near-term impact on Aviara’s margins and profitability. Operating loss decreased $0.7 million for the third quarter of fiscal 2022 as a result of increased production, partially offset by inflationary pressures when compared to the third quarter of fiscal 2021. Operating loss increased $2.2 million for the first nine months of fiscal 2022, compared to the same prior-year period due to inflation, ramp up related inefficiencies at the Merritt Island facility, including higher overhead costs associated with the new facility, and a goodwill impairment charge recorded during the first quarter of fiscal 2022. See Note 4 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on the impairment charge. 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 operational improvement initiative costs, Aviara transition costs, and certain non-cash items including goodwill impairment and share-based compensation. We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of Net sales. 23 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 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 operational improvement initiative costs, Aviara transition costs, and certain non-cash items including goodwill impairment, other intangible asset amortization, and share-based compensation. EBITDA, Adjusted EBITDA, 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 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. 24 The following table presents a reconciliation of net income as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and net income margin (expressed as a percentage of net sales) to Adjusted EBITDA Margin (expressed as a percentage of net sales) for the periods indicated: Three Months Ended Nine Months Ended April 3, % of Net April 4, % of Net April 3, % of Net April 4, % of Net 2022 sales 2021 sales 2022 sales 2021 sales Net income $ 20,935 11.2% $ 17,568 11.9% $ 46,723 9.5% $ 39,636 10.7% Income tax expense 6,211 4,240 14,281 10,632 Interest expense 341 755 1,080 2,644 Depreciation and amortization 3,559 2,948 10,153 8,547 EBITDA 31,046 16.6% 25,511 17.3% 72,237 14.7% 61,459 16.6% Share-based compensation 772 902 2,876 2,185 Operational improvement initiative (a) 232 — 232 — Goodwill impairment (b) — — 1,100 — Aviara transition costs (c) — 1,125 — 2,149 Adjusted EBITDA $ 32,050 17.2% $ 27,538 18.6% $ 76,445 15.6% $ 65,793 17.8% (a) Represents third-party consulting fees associated with the operational improvement initiative at our NauticStar segment. (b) Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge. (c) 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). The following table presents a reconciliation of net income as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated: Three Months Ended Nine Months Ended April 3, April 4, April 3, April 4, 2022 2021 2022 2021 (Dollars in thousands, except per share data) Net income $ 20,935 $ 17,568 $ 46,723 $ 39,636 Income tax expense 6,211 4,240 14,281 10,632 Amortization of acquisition intangibles 960 960 2,920 2,882 Share-based compensation 772 902 2,876 2,185 Operational improvement initiative (a) 232 — 232 — Goodwill impairment (b) — — 1,100 — Aviara transition costs (c) — 1,125 — 2,149 Adjusted Net Income before income taxes 29,110 24,795 68,132 57,484 Adjusted income tax expense (d) 6,695 5,703 15,670 13,221 Adjusted Net Income $ 22,415 $ 19,092 $ 52,462 $ 44,263 Adjusted Net Income per share: Basic $ 1.23 $ 1.01 $ 2.82 $ 2.35 Diluted $ 1.21 $ 1.01 $ 2.79 $ 2.34 Weighted average shares used for the computation of (e) : Basic Adjusted Net Income per share 18,295,949 18,817,975 18,622,878 18,799,875 Diluted Adjusted Net Income per share 18,487,346 18,989,629 18,796,867 18,928,288 (a) Represents third-party consulting fees associated with the operational improvement initiative at our NauticStar segment. (b) Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge. (c) 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). (d) Reflects income tax expense at an income tax rate of 23.0% for each period presented. 25 (e) 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. The following table presents the reconciliation of net income per diluted share to Adjusted Net Income per diluted share for the periods presented: Three Months Ended Nine Months Ended April 3, April 4, April 3, April 4, 2022 2021 2022 2021 Net income per diluted share $ 1.13 $ 0.93 $ 2.49 $ 2.09 Impact of adjustments: Income tax expense 0.34 0.22 0.76 0.57 Amortization of acquisition intangibles 0.05 0.05 0.16 0.15 Share-based compensation 0.04 0.05 0.15 0.12 Operational improvement initiative (a) 0.01 — 0.01 — Goodwill impairment (b) — — 0.06 — Aviara transition costs (c) — 0.06 — 0.11 Adjusted Net Income per diluted share before income taxes $ 1.57 $ 1.31 $ 3.63 $ 3.04 Impact of adjusted income tax expense on net income per diluted share before income taxes (d) (0.36 ) (0.30 ) (0.84 ) (0.70 ) Adjusted Net Income per diluted share $ 1.21 $ 1.01 $ 2.79 $ 2.34 (a) Represents third-party consulting fees associated with the operational improvement initiative at our NauticStar segment. (b) Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge. (c) 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). (d) 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, and fund our stock repurchase program. Our principal sources of liquidity are our cash balance, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt. Cash and cash equivalents totaled $13.8 million as of April 3, 2022, a decrease of $25.5 million from $39.3 million as of June 30, 2021. Total debt as of April 3, 2022 and June 30, 2021 was $65.0 million and $93.1 million, respectively. Our working capital was impacted by the $28.9 million increase in inventory during the first nine months of fiscal 2022 mainly 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 has increased due to supply chain disruptions. As of April 3, 2022, we had $7.7 million outstanding under the Revolving Credit Facility, leaving $92.3 million of available borrowing capacity. Refer to Note 7 — 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 ending April 3, 2022, the Company repurchased 810,623 shares of common stock for $21.5 million in cash, including related fees and expenses. We are continuing to monitor the impact of supply chain disruptions, production inefficiencies, and inflationary pressures on our business. However, we believe our cash balance, cash from operations, and our ability to borrow will be sufficient to provide for our liquidity and capital resource needs, including authorized stock repurchases. 26 The following table summarizes our cash flows from operating, investing, and financing activities: Nine Months Ended April 3, April 4, 2022 2021 (Dollars in thousands) Total cash provided by (used in): Operating activities $ 35,302 $ 54,393 Investing activities (10,839 ) (23,779 ) Financing activities (49,949 ) (17,963 ) Net change in cash $ (25,486 ) $ 12,651 Nine Months Ended April 3, 2022 Cash Flow Net cash provided by operating activities for the nine months ended April 3, 2022 totaled $35.3 million versus $54.4 million compared to the same prior-year period. The decrease is primarily due to working capital usage, partially offset by higher net earnings during fiscal 2022. 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 accounts payable and accrued expenses and other current liabilities. As discussed above, inventory increased $28.9 million for first nine months of 2022. Accounts receivable increased as a result of timing of shipments. Prepaid expenses and other current assets increased due to higher general insurance premiums. Accounts payable increased as a result of increased production levels. Accrued expenses and other current liabilities increased due to an increase in warranty costs and dealer incentives. Net cash used for investing activities was $10.8 million, which included capital expenditures. Our capital spending was focused on expanding our capacity and maintenance capital. Net cash used for financing activities was $49.9 million, which included net payments of $28.3 million on long-term debt and stock repurchases totaling $21.5 million. Nine Months Ended April 4, 2021 Cash Flow Net cash provided by operating activities for the nine months ended April 4, 2021 totaled $54.4 million primarily due to net income net of non-cash expense items, an increase in accounts payable and accrued expenses and other current liabilities, and a decrease in income tax receivable, partially offset by an increase in inventory, accounts receivable, and prepaid expenses and other current assets. Accounts payable and inventory increased as a result of increased production. Accrued expenses and other current liabilities increased due to timing of variable compensation costs, increased warranty, dealer incentive, and transportation costs, and an increase in customer deposits. Income tax receivable decreased due to a receipt of a tax refund associated with fiscal 2020. Accounts receivable increased as a result of increased sales. Prepaid expenses and other current assets increased due to payment of annual insurance premiums during the third quarter of fiscal 2021. Net cash used for investing activities was $23.8 million, which consisted of capital expenditures, including the purchase of the Merritt Island, Florida manufacturing facility. Net cash used for financing activities was $18.0 million and related primarily to net payments of long-term debt. Contractual Obligations In October 2021, we entered into a new supplier agreement to purchase marine outboard engines during fiscal 2022. During the term of the agreement, we committed to purchasing a minimum annual gross dollar value of $27.0 million in engines. Except for the new purchase agreement and the net repayment of debt of $28.3 million during the nine months ended April 3, 2022, there were no material changes to our contractual obligations disclosed in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. 27 Off Balance Sheet Arrangements The Company did not have any off balance sheet financing arrangements as of April 3, 2022. Critical Accounting Policies Except as noted below, as of April 3, 2022 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, 2021, which was filed with the SEC on September 2, 2021. Other Intangible Assets During the three and nine months ended April 3, 2022 and April 4, 2021, the Company did not record impairment charges related to its Other intangible assets. Given current period operating losses combined with a history of operating losses and operational inefficiencies, the Company continues to monitor the NauticStar segment’s outlook for sales and operating performance relative to the forecasts of expected future cash flows used in the Company’s previous impairment tests in order to evaluate whether the carrying value of the segment’s intangible assets remain above fair value. Should economic conditions, such as supply chain disruptions, labor challenges, and inflationary pressures, deteriorate in future periods or remain depressed for a prolonged period of time, or operational inefficiencies grow, estimates of future cash flows may not be sufficient to support the carrying value of NauticStar’s intangible assets. See Note 4 in the Notes to Unaudited Condensed Consolidated Financial Statements for further details. ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK. Refer to our 2021 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.